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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
[X] SECURITIES EXCHANGE ACT OF 1934 (FEE REQUIRED)
For the fiscal year ended April 30, 1996
Commission file number 0-18724
------------------------------
MARQUETTE ELECTRONICS, INC.
(Exact name of registrant as specified in its charter)
Wisconsin 39-1046671
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
8200 West Tower Avenue, Milwaukee, Wisconsin 53223
(Address of Principal Executive Offices) (Zip Code)
(414) 355-5000
(Registrant's Telephone Number, Including Area Code)
Securities registered pursuant to Section 12(b) of the Act:
None
Securities registered pursuant to Section 12(g) of the Act:
Class A Common Stock, $0.10 Par Value
(Title of Class)
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.
Approximate aggregate market value of the registrant's Class A Common Stock
held by non-affiliates (based on the closing sales price of such stock as
reported in the NASDAQ National Market System) on July 1, 1996 was
$152,860,053.*
As of July 1, 1996, the number of shares of Class A Common Stock, $0.10 par
value, outstanding was 16,064,928 and the number of shares of Class C Common
Stock, $0.01 par value, outstanding was 26,250,000.
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DOCUMENTS INCORPORATED BY REFERENCE
Document Form 10-K Part
-------- --------------
1. Annual Report to Shareholders for fiscal year ended
April 30, 1996 II
2. Proxy Statement for Annual Meeting of Shareholders
scheduled to be held on August 15, 1996 III
_______________
* Excludes, among other shares, 5,227,849 shares of Common stock held by
officers and directors at July 1, 1996. Exclusion of such shares should not
be construed to indicate that any such person possesses the power, direct
or indirect, to direct or cause the direction of the management or policies
of the registrant or that such person is controlled by or under common
control with the registrant.
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ITEM 1. BUSINESS
INTRODUCTION
Marquette Electronics, Inc. (including its subsidiaries, the "Company"
or "Marquette"(R)) is a leading manufacturer of medical electronic equipment,
systems and supplies and a leading developer of software for the diagnosis and
monitoring of patients requiring critical care, fetal and neonatal monitoring.
Marquette also develops and sells clinical information systems consisting of
hardware and software used by hospitals to electronically acquire, record,
store, analyze and distribute patient medical data. The Company is one of the
world market leaders in sales of computerized electrocardiographic, adult,
neonatal and fetal monitoring equipment, as well as physiologic/hemodynamic
monitoring systems utilized in cardiac catheterization laboratories ("Cath Lab")
and electrophysiology laboratories ("EP Lab"). The Company is also a major
distributor for a wide range of cineangiography films used to document and
archive images produced through diagnostic cardiac catheterization and related
procedures and also produces digital imaging systems for use with Cath Lab and
ECG equipment to digitally record images. The Company has four manufacturing
facilities in the U.S. and one in Germany as well as world-wide sales and
service operations.
Marquette pursues a strategy of using its market position and technological
capabilities to continue to enter other critical care areas including
defibrillators used in emergency cardiac care, instruments used to analyze
respiratory and anesthetic gases, cardiac catheterization monitoring equipment
and imaging products. In addition, as a result of Marquette's large installed
base of medical electronic equipment, much of which requires the use and
consumption of disposable items such as chart paper and patient electrodes, the
Company has established a substantial disposable supplies business.
The Company believes its products are widely recognized for quality and
technological innovation. In electrocardiography, Marquette introduced the first
commercially successful system for computerized acquisition and analysis of
electrocardiograms, and a proprietary computer program, developed using millions
of ECGs, which is the world's most widely used program for analysis of clinical
electrocardiographs ("ECG"). In addition, Marquette's patented continuous
patient monitoring system (TRAM(R)) eliminates the loss of information and staff
time associated with switching monitoring equipment connected to a patient being
moved within the hospital. Marquette has historically made a substantial
commitment to product research and development and has introduced major new
products in each of its product lines during the past three years. Product
engineering and research and development spending represented 9.0% of net sales
in fiscal 1996.
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Marquette was formed in 1965 by Michael J. Cudahy and Warren B. Cozzens.
Since its formation, the Company has grown by continuous investment in research
and development to create an ever-expanding proprietary line of medical products
and through carefully planned acquisitions which have broadened its product line
and the geographic scope of its operations. In 1982, the Company acquired from
General Electric Company its patient monitoring business. In 1994, the Company
purchased from American Home Products all of the outstanding shares of stock of
Corometrics Medical Systems, Inc. ("Corometrics") giving the Company a strong
position in the fetal and perinatal monitoring market and entree to the market
for clinical information systems. In January, 1996, the Company acquired all of
the stock of E For M Corporation ("E For M") which, with E For M's wholly-owned
German subsidiary, Hellige GmbH ("Hellige"), resulted in a significant
broadening of Marquette's lines of Cath Lab, defibrillator, ECG and monitoring
products and added EP Lab and digital imaging to its product lines and a
significant distributorship for specialized 35 millimeter cineangiography film .
The Company's principal markets are the critical care units, operating and
recovery rooms, step-down units and related areas of acute care hospitals,
particularly those institutions specializing in the diagnosis and treatment of
heart disease, together with labor and delivery units. Marquette also markets
its products to smaller hospitals, medical clinics, physician offices,
government hospitals, research institutions, and providers of emergency care.
Marquette believes that its current product lines address a United States
market totalling in excess of $1 billion annually and a non-United States market
of approximately equal size. The Company expects that the demand for
electrocardiographs will grow due to (i) the increasing incidence of
cardiovascular disease, (ii) the aging population, (iii) the growing emphasis on
early detection and management of cardiovascular disease, and (iv) the relative
ease and low cost of ECG testing relative to other methods of cardiac diagnosis.
The Company also expects that the demand for patient monitoring, gas analysis,
EP Lab and Cath Lab equipment will continue to grow due to (i) the need for more
comprehensive and useful information on a patient's physiological condition and
(ii) an increasing number of patients requiring cardiovascular surgical
procedures. Finally, the Company expects that the demand for emergency care
products will continue to grow due to (i) a growing recognition that early
defibrillation is the single most effective intervention for sudden cardiac
arrest and (ii) regulatory changes which greatly expand the number of emergency
care personnel permitted to use defibrillators.
The foregoing expectations are subject to unforeseeable, but conceptually
expected, changes that may be legislatively imposed to
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contain national health care costs and expand health care coverage and to the
growing pressure being placed upon medical care providers to contain or reduce
the cost of medical care.
During fiscal 1996, following the E For M acquisition, the Company was
restructured into eight separate semi-autonomous operating divisions known as:
Patient Monitoring, Cardiology, E For M Cath Lab, E For M Imaging Systems,
Corometrics Medical Systems, QMI Clinical Information Systems, Supplies and
Service. Each division is responsible for the design, development, production,
marketing and sale of a related group of products and/or services.
PRODUCT OVERVIEW
The medical electronic equipment industry is characterized by rapid
technological innovation, heavy reliance on computer products and increasing
digital communication capability. Marquette has designed products that replace
older analog technology with newer digital technology and which is capable of
improving the acquisition and processing of patient physiological information
available to the physician. In addition, Marquette's products take advantage of
the increased miniaturization of computer technology, allowing more processing
power to be included in a device without increasing its size. Miniaturization
has allowed Marquette to design products bringing processing power closer to the
patient and increasing the amount, quality and timeliness of patient
physiological information.
Marquette designs its products with the goals of minimizing product
obsolescence, maintaining compatibility with older products in the same product
line, integrating products from different product lines, providing for standard
computer software platforms and hardware, reducing products costs and prices and
permitting the customer to reduce its per patient costs. Given the rate of
change in electronics and computer technology, considerable development effort
must be expended to meet these goals. In an effort to minimize product
obsolescence and, thereby, customer costs, the Company designs hardware
components and modules to be removable and available for replacement with new
versions and includes processing technology in software which can generally be
upgraded more easily and inexpensively than hardware. No assurance can be given
that these goals will be met.
Marquette has developed and promotes an integrated system called
UNITY/tm/ which enables a wide range of Marquette's patient monitoring,
clinical information, diagnostic and Cath Lab products to be interconnected
and to interface with general and clinical information systems maintained by
its hospital customers. UNITY is designed to (i) communicate patient information
from bedside and telemetry monitors to central nurses' stations, (ii) allow
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attending medical personnel to view patient information in various areas of the
hospital, (iii) allow attending medical personnel to receive patient information
from remote locations via telephone lines and modems, and (iv) electronically
transfer patient information to care units, outpatient facilities or physician's
offices.
The following table displays certain information relating to the Company's
products (dollars in thousands):
<TABLE>
<CAPTION>
Year Ended April 30,
------------------------------------------------------------------------------------------------
1996 1995 1994
--------------------------- ---------------------------- ---------------------------
Percentage Percentage Percentage
of Net of Net of Net
Net Sales Sales Net Sales Sales Net Sales Sales
--------- ---------- --------- ---------- --------- ----------
<S> <C> <C> <C> <C> <C> <C>
Diagnostics $ 94,051 22.6% $ 94,749 27.7% 89,883 35.4%
Monitoring 121,696 29.2% 113,121 33.1% 107,928 42.6%
Perinatal 70,600 17.0% 66,857/1/ 19.5% -0- -0-
E For M Products 54,524/2/ 13.1% -0- -0- -0- -0-
Clinical 13,931 3.3% 10,283 3.0% 1,853 .7%
Information
Systems
Supplies 28,318 6.8% 27,022 7.9% 25,345 10.0%
Service 33,173 8.0% 30,144 8.8% 28,799 11.3%
-------- ----- -------- ----- -------- -----
Total $416,293 100.0% $342,176 100.0% $253,808 100.0%
======== ===== ======== ===== ======== =====
</TABLE>
- ----------------
/1/ 11 months ending April 30, 1995.
/2/ 4 months ending April 30, 1996.
For additional financial information by geographic area, see Note 13 to
Notes to Consolidated Financial Statements.
The products handled by each of the divisions are summarized below.
CARDIOLOGY DIVISION PRODUCTS
Headquartered in Milwaukee, Wisconsin, the Cardiology Division's products
are used non-invasively in or related to electrocardiology, which is the
diagnosis of heart disorders through the detection, recording and analysis of
electrical signals emitted by the heart. An electrocardiograph is a device which
detects these signals through lead wires that are connected from the device to
electrodes (strips of an electrically conductive material) that are, in turn,
applied to the patient's skin at a number of points on the patient's chest and
limbs. These signals
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are transmitted to the electrocardiograph where they can be recorded graphically
on paper or displayed on a video monitor and subsequently transmitted to a
control facility by telephone or stored on computer disk. The record of such
data is called an ECG.
Normal heartbeats make a specific pattern of electrical signals that are
displayed as wave forms on the ECG. Specific types of heart damage and disease
usually change the pattern of signals in ways recognizable to a cardiologist or
electrocardiographer. Such patterns can also be analyzed by a computer. Obser-
vation and analysis of ECGs are used to diagnose and prescribe treatment for
heart damage from such conditions as coronary artery disease (a condition in
which the arteries that supply the heart muscle have become dangerously
narrowed), arrhythmia (a disorder of the heart's rhythm characterized by an
irregular heart beat), cardiac ischemia (the reduced flow of oxygenated blood to
the heart muscle), pericarditis (inflammation of the heart due to virus or other
infection) and birth defects. An ECG is also used to help determine the location
and the amount of injury caused by a heart attack or myocardial infarction (the
damage to the heart muscle due to severe blockage of a coronary artery) or other
forms of cardiac disease. A series of ECGs collected over time and analyzed can
show whether and to what extent the heart is recovering and can be used to
predict the effects of certain drugs on the heart.
Diagnosis of cardiac disease based on ECGs has historically required a
cardiologist or electrocardiographer to interpret ECGs. In the early 1970's,
organizations including the National Institutes of Health, the Veterans
Administration and the Mayo Clinic began computer analysis of ECGs. This
analysis, however, could only be performed on large computers and thus was not
practical for general use. In 1976, Marquette further developed computer ECG
analysis so that computer analysis of ECGs could be performed not only in
research hospitals but also in primary care hospitals, which represented a major
breakthrough in electrocardiography. In 1980, to improve the accuracy, quality
and comprehensiveness of ECG analysis, Marquette developed software capable of
analyzing all twelve standard ECG leads simultaneously, establishing a standard
which is to this day widely accepted. This capability is found in equipment
using the Marquette 12SL/tm/ Computer Analysis Program, and is based on millions
of ECGs collected throughout the world and made available to cardiac research
physicians. The Company sponsors and conducts an annual seminar for thirty of
the world's leading cardiologists, who assemble to exchange and compare data and
the results of their research in computerized electrocardiography. This work
has, over many years, resulted in an improvement in the accuracy and reliability
of computerized ECG analysis. Marquette believes this improved accuracy and
reliability allows a broader range of physicians to use ECGs effectively. The
12SL/tm/ technology is included in many of Marquette's current products,
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including most diagnostic devices, many patient monitoring products and some
emergency care products, to provide a complete analysis of ECGs. The Company
believes this program is used to analyze more than 40% of all computerized ECGs
taken in the United States.
Industry sources indicate that there are approximately 75 million resting
ECGs and 6 million exercise test ECGs performed each year in the United States
and an equal number performed in the rest of the world. The Company expects the
number of these procedures to grow due to (i) the increasing incidence of
cardiovascular disease, (ii) the aging population, (iii) relative ease of
application, safety and low cost in comparison to other cardiac diagnostic
techniques and (iv) greater recognition of the benefits of early detection and
management of cardiovascular disease.
Based on independent market research, the 1995 worldwide market for
diagnostic equipment of the type sold by Marquette was estimated to be
approximately $855 million in sales. Marquette has historically manufactured
high-end electrocardiographs providing the greater precision and additional
features required by large hospitals. The Company recently introduced models to
appeal to a broader market of community hospitals, clinics, physicians' offices
and emergency care providers.
Cardiology products include:
(a) ELECTROCARDIOGRAPHS are designed to record an ECG of a patient who
is at rest, and are generally mounted on a wheeled cart for movement to the
patient's bedside or elsewhere as needed. The Company's electrocardiographs
permit as many as 14 lead wires to be attached to patients, maximizing the
amount of data that can be acquired. Data is acquired through a module that
contains a microprocessor for digital signal acquisition, which enhances
signal quality. Marquette's electrocardiographs perform immediate analysis
of ECGs, store ECGs for further analysis and can communicate ECGs
electronically to other Marquette electrocardiographs or other equipment
for storage and comparison.
The MAC(R) VU resting ECG analysis system is Marquette's most
sophisticated electrocardiograph and is designed primarily for hospitals.
In addition to its standard functions, the MAC VU system also has a CRT
screen and a proprietary optional feature for signal averaged ECG testing,
which is used to assist in diagnosing certain patients who are at high risk
of sudden death from a heart attack.
Marquette also manufactures other electrocardiographs, including the
recently introduced CardioSmart resting ECG system, a viable physician's
office product. The MAC(R) 6 and MAC(R) 8 systems offer a choice for
additional hospital custom-
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ers with high volume requirement. The MAC PC system rounds out the product
line by offering light weight and portability. All resting ECG products
come with the 12SL ECG analysis program.
(b) EXERCISE TESTING SYSTEMS are used to diagnose cardiac disease and
assess its severity by stressing the heart through physical exercise to
elevate its need for blood flow. While this elevated need exists, any
significant obstruction in the coronary arteries would limit the flow of
blood and result in cardiac dysfunction, which can be detected by a
physician using electrocardiography. Marquette's stress test
electrocardiographs are used to record an ECG of a patient undergoing
physical stress by walking or running on a treadmill or peddling a
stationary bicycle.
Marquette has six principal exercise testing products. The CASE(R) 16
exercise testing system, targeted at academic research and teaching
institutions, provides sophisticated analysis and review tools. It also
offers options for the 12SL program and the HI-RES/tm/ signal averaging
program. Introduced in 1996, the CardioSys exercise testing system is
designed on industry-standard platforms to meet burgeoning hospital needs
for networking and data integration. The MAX(R) -1 exercise testing system
is sold to higher volume, hospital exercise testing facilities.
On the market since February 1995, the MAX personal exercise testing
system broadens the product line to cover smaller hospitals, outpatient
clinics and physician offices. Equipping the MACVU system with an exercise
testing option makes it an ideal choice for dedicated cardiology practices.
The CENTRA multifunction cardiology workstation (detailed below) rounds out
what the Company believes to be the most extensive exercise testing product
line in the U.S. market.
(c) HOLTER RECORDING AND ANALYSIS EQUIPMENT is designed to provide ECG
information from an ambulatory patient who experiences intermittent
symptoms such as palpitations, angina or loss or consciousness, who wears a
small recording device over the course of an extended period (usually 24
hours), in or out of the hospital.
Marquette's newest generation of Holter recording equipment, the
SEER(R), replaced older technology based on tape recordings and is designed
for use in hospital and in physician offices. The SEER uses solid-state
digital technology to acquire data, resulting in higher signal quality, and
has computerized memory for easier playback and analysis. The SEER can also
perform immediate data analysis on hospitalized patients. The SEER is
designed to interface with other
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Marquette diagnostic products, such as the Laser Holter system which
provides computerized analysis and comparison of Holter ECG data and prints
reports on a self-contained, high-speed laser printer. These reports and
analyses can significantly reduce the time physicians must spend to analyze
24 to 48 hours of data.
Marquette recently introduced its new MARS/tm/ 8000 ambulatory ECG and
analysis system which provide many advances in Holter analysis and editing.
The MARS 8000 system is the result of a unique technological alliance
between Marquette and Sun Microsystems, a leader in graphic workstations.
This cooperative development effort combines Marquette's software expertise
with the powerful hardware of the Sun SPARC workstation. As a result,
advanced signal processing and graphic display performance gives the MARS
8000 system exceptional waveform resolution and quick data redraw
capabilities essential for the demanding clinical setting, and due to the
multi-tasking capabilities of the system, data can also be acquired from
the SOLAR series bedside monitoring and telemetry systems.
(d) CENTRAL DATA MANAGEMENT SYSTEMS are designed to accept data from
outlying electrocardiographs via telephone line, diskette or direct
connection, store hundreds of thousands of ECGs and quickly retrieve them
for comparison with ECGs currently being reviewed. Marquette's system,
known as MUSE(R) (Marquette Universal System for Electrocardiography),
introduced in 1976 and continuously enhanced, is designed for hospitals.
Besides storing, analyzing and retrieving ECGs taken at rest, MUSE provides
similar capability for Holter ECGs, exercise test ECGs, and other testing
procedures and integrates all of Marquette's diagnostic products together
through networking and computer processing. MUSE also can generate billing
and activity reports which can assist a hospital or other user in cost
control and decrease the possibility of tests remaining unbilled. Many MUSE
systems serve additional hospitals which employ workstations connected to a
central MUSE by telephone lines, permitting cardiologists at the central
hospital to assist in treating large numbers of patients in wide
geographical areas.
(e) CARDIAC DIAGNOSTIC WORKSTATIONS are a cardiac diagnostic tool
which Marquette introduced in November 1989. Marquette's CENTRA(R)
Workstation is a computerized diagnostic workstation that performs all of
Marquette's cardiac diagnostic tests, including ECGs taken at rest, during
exercise, from Holter devices and other Marquette diagnostic tests such as
signal averaged ECGs. The CENTRA Workstation provides, in a single compact
package, a complete range of diagnostic capabilities traditionally found
only in the heart stations of
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major medical centers using several pieces of equipment. The CENTRA
Workstation is designed to be attractive to a hospital or other medical
facility whose volume of tests or financial resources may not justify or
permit the investment in separate single purpose equipment.
(f) The MUSE-CV INFORMATION SYSTEM is an integrated system for
managing cardiology information and departmental processes. This system
provides a single-internally consistent database for all cardiological data
including ECG, stress testing, echocardiography, Holter, Cath Lab,
cardiological history and physical, nuclear cardiology, cardiovascular
surgery, etc. This system is based on the large installed base of Marquette
MUSE systems which analyze, store and process all ECGS for a vast majority
of the hospitals in the United States. Applying the same process management
used for ECGs the MUSE-CV Information System automates the process of
managing cardiology information from instrument interfaces which automate
data entry, to report generation and routing, to database backup and
archive. Further automation is provided by integration with other systems.
Specifically, the MUSE-CV Information System can interface with hospital
enterprise-wide networks, hospital information systems (for automated
billing and results reporting), and remote physician groups (via telephone
retrieval, fax, E-mail, paging, etc.) The system is based on open
architecture standards which are scaleable from a single PC (for a small
hospital) to a vast wide area network of file servers and workstations that
embrace the management of large, multi-hospital providers. The MUSE-CV
Information System also provides statistical reports for outcomes
assessment of clinical, financial and work flow data for a cardiology
department. The system is used to measure and continuously improve the
efficiency of a cardiology department.
(g) CARDIAC DEFIBRILLATORS are designed to restart the hearts of
victims of sudden cardiac arrest, a severe form of heart attack. Cardiac
arrest is among the leading causes of death in the United States. The
highest incidence of cardiac arrest occurs outside the hospital. The
Cardiology Division markets a number of defibrillator models for hospital
and pre-hospital use.
RESPONDER 2500 DEFIBRILLATOR AND CARDIAC CARE SYSTEM is designed for use in
the critical care areas of a hospital. It features data collection and
management software that enables the user to document a clinical code situation.
The 2500 stores and communicates patient ECG, event, heart rate, and other
significant data through a seamless data transfer with the hospital-wide network
systems, assuring convenient access and insuring against loss of important data.
The 2500 will be available for sale in
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Europe upon completion of CE marking. It will not be available in the United
States until 510K approval is obtained.
RESPONDER 1250 is a semi-automatic defibrillator used by paramedics in pre-
hospital settings. It uses a computer algorithm which analyzes the ECG to
determine whether a life-threatening rhythm is present and advises the user if
defibrillation is necessary.
RESPONDER 1500 is a manual defibrillator used by paramedics in pre-hospital
settings who do not require the assistance of a semi-automatic device. An
important innovation of the Responder 1500 is its ability to record and analyze
a 12-lead ECG in the field and transmit the data into the hospital emergency
department where it can assist the cardiologist in the early treatment for acute
myocardial infarction. The Responder 1500 was introduced in 1991.
CARDIOSERV. Introduced in July, 1996, the CardioServ defibrillator features
a lightweight, portable design suitable for pre-hospital and hospital use. It
combines defibrillator, monitoring, code summary, AC/DC and battery power in a
device that weights less than 18 pounds. In hospital applications, its light
weight makes it ideal for transport monitoring and with the flip display the
unit can be placed in various positions without impeding the view of the screen.
The multiple defibrillation capabilities allow the unit to be used in exercise
testing as a standard crash cart unit, in the operating room and it is ideal for
the emergency department.
In the pre-hospital setting, it has the first system of its kind "ambulance
mount" which allows the user to operate the device via vehicle power and charge
the battery. Its rugged, watertight design and handsfree defibrillation makes it
ideal for the paramedic on the street.
CARDIOSERV 360+. Weighing under 10 pounds, it is a small portable
defibrillator designed for use in exercise testing or other similar environments
where basic defibrillation is required. Also introduced in 1996, it provides the
functionality of the more advanced CardioServ, without a display. Its simple
operation makes it ideal for use in a private medical practice setting.
EMS WORKSTATION was developed as a computer based ECG Management System for
managing, analyzing and archiving patient recorded data via its pre-hospital
defibrillators. This is an important component of the patient record and,
accordingly, is tied into the MUSE System for future retrievals important for
the patient's continued care.
PATIENT MONITORING DIVISION PRODUCTS
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The Patient Monitoring Division's headquarters are located in Milwaukee,
Wisconsin.
Patient monitors continuously acquire, analyze, store, display on video
screens, and print patient physiological information such as ECGs, pulse rate,
blood pressure, temperature, gas measurements such as end-tidal CO\\2\\,
respiration rate and oxygen saturation in the blood. This information provides
attending medical personnel a means for continuous evaluation of the patient's
condition and determination of the medication or other treatment to be used to
promote the patient's recovery. Marquette's monitors are equipped with audio and
visual alarm systems that can be triggered by certain ranges of monitored data
in order to alert attending medical personnel.
Each of the Division's patient monitors is designed for adult applications
to meet the needs of specific areas of general clinical use, including areas
requiring a high level of sophistication such as intensive care units ("ICUs"),
coronary care units ("CCUs"), and operating rooms ("ORs"), as well as ambulatory
or step-down units, emergency rooms and admission and evaluation areas. Certain
monitors have been specifically designed for use in other specialized areas such
as surgical ICUs and neurosurgical ICUs. Because of Marquette's experience in
the field of electrocardiology, the Division has been able to develop
specialized monitoring systems for use where extremely complex and difficult
heart surgery is performed.
The E For M/Hellige acquisition added the important new technologies of EEG
and transcutaneous oximetry to the Division's product line offerings as well as
a new lower cost configured monitor, the Eagle(R) 1000.
The Company estimates that the annual sales of patient monitoring equipment
(including telemetry equipment) are approxi-mately $1.3 billion worldwide, 60%
of which is believed to occur in the United States. The Division believes its
current product line enables the Division to compete in approximately 70% of
that market.
PATIENT MONITORING PRODUCTS include:
(a) BEDSIDE MONITORS are used to continuously acquire critical
physiologic information from patients in most critical care areas and
operating rooms. This information is acquired through patient cables from
electrodes, catheters and other invasive and non-invasive sensors attached
to the patient. The information is processed and stored by a family of
Marquette Tram (Transport Remote Acquisition Module) and single parameter
modules. The Tram Module itself is a patient monitor that can be connected
to the patient upon admission
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and accompany the patient throughout the hospital displaying information on
either the portable Tram Transport Display or the Solar(R) 7000 and 8000
monitors. Upon arrival at the patient's bedside, the Tram Module is
inserted into the bedside monitoring system. Previously, the need to
disconnect the patient from the monitor in one area of the hospital and
then reconnect the patient into another monitor in another area resulted in
potentially dangerous loss of monitoring information during transport and
vital time as patient cables and monitors were reconnected. Marquette's
patented concept for the continuous patient monitoring is intended to make
patient transportation safer while saving valuable staff time.
The Tram Module expanded the use of the Division's monitoring products
into several new areas of the hospital, including trauma centers,
evaluation and the emergency room. In addition, the incorporation of the
Marquette 12SL/tm/ (resting 12 lead ECG program) into the Tram Module has
introduced to the market an entirely new concept, integrating what was
formerly the function of an electrocardiograph with that of a bedside
monitor. This, coupled with the Division's powerful Unity Network(R),
provides for a hospital-wide solution for the management of ECG's. This
concept has been successfully implemented in emergency room chest pain
centers, resulting in early differential diagnosis and appropriate
management and intervention in the chest pain patient population.
The newest addition to the Tram Module family is the arterial blood
gas module, introduced in May, 1996. This module permits near real time
analysis of arterial blood gas values, facilitating rapid diagnosis and
early intervention in the critically ill adult and neonate patient
population.
The Solar 7000 bedside display couples with the Tram-rac and Tram
Module to provide a complete bedside monitoring system. The Solar 7000
consists of a high resolution video display along with the necessary
communications technology to make it part of the Marquette Unity Network.
The Tram-rac is a housing, capable of holding up to four modules, including
the Tram Multi-parameter Module. The Solar 7000 display can be operated
using the Trim-Knob control located on the face of the unit or a convenient
hand held control. The Solar 7000, with its built-in Tram-net Communication
System, offers support for peripheral devices such as ventilators and gas
analysis devices manufactured by other companies. This interfacing of
equipment at the patient's bedside provides for a complete vital sign
patient record.
The Solar 8000 bedside was introduced in October, 1995. This new
product innovation allows separation of the main processing unit from the
display, enabling the customer
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to change an off-the-shelf medical grade display in a size appropriate
to the requirements of patient acuity and space constraints of the cure
area.
The Marquette Unity Network capabilities allow the bedside to be
connected to a central station, as well as numerous other bedsides on the
network for intercommunication and viewing of other patients. The Unity
Network can also be viewed remotely, facilitating telemedicine
applications.
In April, 1995, Marquette introduced the EAGLE(R) 4000 monitor, a
next-generation, lower cost addition to its bedside monitor product line.
The EAGLE monitor utilizes an electroluminescent flat screen display
available in both monochrome and color and acquires up to eight different
parameters. This highly-featured, compact, configured monitor has been
globally successful in lower acuity intensive care and operating rooms
facilitating Marquette's competitiveness in a larger segment of the patient
monitoring market.
The Eagle 3000 Monitor, a lower-featured, less expensive configured
monitor with full Unity Network compatibility was also introduced in 1995.
The SMU Monitoring System developed by Hellige also competes in
the modular monitoring market segment and is targeted specifically at
settings which require integrated EEG or transcutaneous oxygen/CO2
monitoring capabilities.
The Division introduced its Eagle 1000 Monitor in Europe in June,
1996. This is a very low cost mobile, compact monitor with a 2+ hour
battery life, allowing Marquette to effectively compete, for the first
time, in the portable monitoring market segment. The Eagle 1000 utilizes a
monochrome liquid crystalline display and is designed to accommodate
multiple options whenever ECG, SPO/2/, non-invasive blood pressure,
invasive pressure or a two-channel recorder are required.
The Hellige-developed Vicom-SMU universal monitors, featuring high-
resolution graphics, transparent information presentation, an extensive
range of vital signs modules, optional application software and easy
operation and the VICOM-SMT 810 and 820 central station are sold outside of
the U.S.
(b) TELEMETRY MONITORS are designed for patients who are not confined
to their beds. Usually, this includes post-operative patients and others
for whom the recovery process is well underway. Marquette's CD
Telemetry(R)-LAN System consists
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of a small, battery-powered radio frequency transmitter and a central
receiving station with antenna system. The Marquette system has been
complimented by the addition of a new Apex transmitter which is
significantly smaller and lighter and incorporates the unique Multi-Link
cable design, which utilizes the patient's existing ECG lead wires. The
patient's ECG signal is continuously transmitted to the central receiving
station for rhythm analysis, arrhythmia analysis and trending. Telemetry
provides a lower cost method of monitoring recovering patients than bedside
monitors and represents an increasing share of the market for monitoring
equipment.
(c) ANESTHETIC AND RESPIRATORY GAS MONITORS are used in tandem with
Marquette's other vital signs monitors and diagnostic products for
cardiopulmonary monitoring in anesthesia, post-operative recovery, critical
care and pulmonary function laboratories. Anesthesiology is the branch of
medicine that deals with the administration of oxygen and anesthetic gases
in order to induce unconsciousness, control metabolic processes, relieve
pain and reduce anxiety during surgery. Gas monitoring products are used to
verify the accuracy of anesthetic gas vaporizers and delivery systems
before, during and after surgery and measure pulmonary functions such as
oxygenation, ventilation and circulation. Gas monitors also detect
potentially life-threatening conditions such as hyperventilation (excessive
pulmonary gas exchange), hypoventilation (inadequate pulmonary gas
exchange), pulmonary air embolus (air bubbles in the pulmonary blood
stream), and equipment malfunction during surgery.
The Patient Monitoring Division employs two basic analysis
methodologies for multiple gas detection and analysis: mass spectrometry
and infra-red spectroscopy. With mass spectrometry, anesthetic and
respiratory gases are passed through an electromagnetic field in order to
detect, identify and measure gas concentrations by molecular weight. Mass
spectrometry provides the most comprehensive analysis of all the gases
administered/monitored during surgery. Infra-red spectroscopy is a
technique whereby anesthetic and respiratory gases are passed through an
infra-red detector and the gas molecules are identified and measured. This
technique, in some respects, duplicates the capabilities of the mass
spectrometer, but is limited with regard to the quantity and types of gases
which can be automatically identified and measured. Infra-red has proven to
be a very cost effective and practical technique for measuring carbon
dioxide in the artificially ventilated post-operative and critical care
patient. This information allows the caregiver to promptly assess if the
patient is properly ventilated or breathing.
The market for respiratory and anesthetic gas analysis monitors is
estimated to be $60 to $75 million worldwide. The
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relatively stable market is currently being positively influenced by emerging
standards such as that of the American Society of Anesthesiologists encouraging
the routine monitoring of respiratory and anesthetic agent concentrations during
anesthesia and guidelines by the Society of Critical Care Medicine recommending
end-tidal CO/2/ monitoring on all artificially ventilated patients, the
introduction of new inhalation anesthetic agents such as desflurane and
sevoflurane, and the replacement of older, non-integrated previous generations
of gas monitoring technologies.
The Division's gas monitoring product portfolio includes the RAMS(R) mass
spectrometer, recently developed and introduced by the Company, which offers a
dramatic reduction in size (10.5" x 10.5" x 17.75" and 65 lbs) and the
heightened analytical capacity of monitoring up to ten gases or compounds,
ranging from 0 to 250 amu. Unlike previous generations of mass spectrometers,
RAMS is easily software configured to change or add any new gas of interest.
This provides a high level of diagnostic and monitoring capabilities for today's
healthcare and research markets. RAMS is available fully integrated into the
Company's vital signs products.
The Division provides a range of fully integrated infra-red modules for
CO/2/ monitoring in adult, pediatric and neonate patients.
A new multi-gas, infra-red based module was recently introduced for routine
anesthesia monitoring. The SAM(TM) (Smart Anesthetic Multi-gas Module) has the
capability of monitoring 0/2/, C0/2/ and anesthetic agent concentrations. A
unique and proprietary approach provides instant warm-up and virtually
instantaneous identification of any of the five commonly used anesthetic agents.
This miniaturized module is integrated into the Company's vital signs monitoring
system.
In July, 1993, Marquette was awarded a contract by NASA to develop a mass
spectrometer-based metabolic exercise stress system for the MIR Space mission.
This new system, called GASMAP, will utilize the version of the RAMS mentioned
above. This product concluded with the launching of the MIR in May, 1996. In
June, 1996, Marquette was awarded an extension of the NASA GASMAP Contract for
further RAMS development.
E FOR M CATH LAB DIVISION PRODUCTS
The E For M Cath Lab Division, which designs and develops Cath Lab and EP
Lab equipment, now manufactures and sells both the Marquette and E For M Cath
Lab and EP Lab products. Its headquarters are located in Jupiter, Florida.
Cardiac catheterization refers to a cardiovascular procedure
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in which a long, thin tube referred to as a "catheter" is inserted into a
patient's blood vessel and then manipulated by a cardiologist along that blood
vessel to the heart. In hemodynamic or vascular studies, the catheter, with
attached physiological sensors, is used to measure temperature and blood
pressure in various parts of the heart and the surrounding circulatory system.
The sensor, in conjunction with a saline injection, can be used to determine the
volume of blood being pumped by the heart. Cardiac catheters are used in
conjunction with coronary balloon angioplasty and angiography procedures. In
coronary artery balloon angioplasty, a balloon is inserted into an artery by
means of a wire and then inflated to widen blocked arteries. In angiography, the
catheter is used to inject a radio-opaque dye into the bloodstream to illuminate
with x-rays a blockage of the coronary arteries, or the structures of the heart
tissue. During the catheterization procedure, the patient's ECG, pulse and blood
pressure are usually continuously monitored.
Electrophysiology studies are performed in the EP Lab to evaluate the
process of the conduction of electricity through the heart as the heart
contracts and to diagnose the mechanisms of abnormal heart rhythm. In this case,
the catheter tip contains a number of electrodes which are connected to wires
which pass out of the body through the tube and are connected to external
amplifiers and a chart recorder. The cardiologist manipulates the catheter so
that the electrodes at the tip are in close proximity to the electrical
conduction system within the heart. A stimulator may be used to deliver small
electric currents directly to the heart to better investigate the mechanism of
conduction. Recently, electrode catheters have been used to deliver larger
amounts of RF energy to destroy small areas of the heart muscle which are
causing abnormal rhythms.
In November, 1989, Marquette introduced a physiological system for cardiac
catheterization laboratories, the MAC LAB(R). When introduced, the MAC LAB was
configured only for hemodynamic studies as a monitoring and measuring system
that receives and stores the data from multi-lead ECGs and from catheter
sensors, including blood pressure, blood flow and temperature. The system
computes additional parameters from this data which are used by the physician to
assist in the determination of the patient's cardiac status, particularly the
condition of the heart valves and the heart muscle. The MAC LAB receives the
data, amplifies it, subjects it to computer analysis and displays it on
monitoring screens as well as generating a hard copy on a self-contained
proprietary chart writer. These monitoring screens have a very high resolution
for ease of interpretation and utilization by medical personnel. The MAC LAB
includes analytic monitoring screens, software and related data output and
storage devices. The Company does not sell x-ray equipment or catheters, which
are used in connection with the procedure.
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In late 1993, an electrophysiology option was developed for MAC LAB. With
the addition of an amplifier module and appropriate software, the same MAC LAB
used for hemodynamic studies can also be used for many electrophysiology
studies. The system records the electrical waveforms from up to eight catheter
electrodes, displays the information on the monitoring screens, and generates a
hard copy record. Electronic calipers permit measurement and tabulation of the
relative timing of the cardiac electrical signals. The Company does not sell
electrophysiology catheters or any device which delivers energy to the heart
through a catheter.
The MAC LAB is completely compatible with the Marquette TRAM patient
monitor, which can be easily inserted into the MAC LAB to maintain continuous
patient monitoring. Marquette believes this compatibility, plus MAC LAB's
ability to integrate real time and computer generated data, and its relatively
simple calibration feature, give it a strong competitive position, particularly
in view of its price relative to competitive products.
Marquette's acquisition of E For M in 1996 permitted the Company to add to
its Cath Lab and EP Lab products, the well-recognized Midas Series of Cath Lab
and EP Lab products developed by Hellige. Of those products, the Midas System
8000 is the only system that combines complete electrophysiology and
hemodynamics into one workstation, maximizing the users investments in time and
money. The system is specially configured to assist cardiologists and
electrophysiologists with fast, accurate collection and analysis of
physiological data. The Midas System 8000 is fast and easy to learn using the
TouchScreen controls for managing up to 24 channels of patient data.
The MUSE/Cardio Window workstation, a component of the Marquette MUSE Unity
Network, has been designed to meet the unique clinical and management demands of
the cardiac catheterization laboratory. The system can be upgraded and networked
to any of Marquette's family of cardiology management systems to support the
customers' database needs today and into the future. The MUSE/Cardio Window
workstation provides centralized storage, comprehensive statistical reports,
scheduled database query, individualized patient report generation, simple
windows graphical user interface, multilevel user security and custom system
interfaces.
The MAC-Lab, Midas System and MUSE/Cardio Window workstation are all part
of the Marquette Unity Network(R).
COROMETRICS MEDICAL SYSTEMS PRODUCTS
The Corometrics Medical Systems Division, headquartered in Wallingford,
Connecticut, develops, manufactures and sells a broad
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line of perinatal products used in hospitals, physicians' offices and other
clinical settings for care of mother and child. The range of products are for
monitoring of the mother, fetus and newborn, covering the continuing of early
pregnancy through labor and delivery, to recovery and post-partum, and infancy.
These products are normally sold under the "Corometrics" mark.
The Division's fetal monitoring equipment provides continuous electronic
monitoring of the fetal heart rate and uterine contractions and may be utilized
both prior to and during labor, thus providing a means of ongoing observation of
the fetal response to changes in the intrauterine environment in relation to the
effects of uterine contractions and other antepartum and intrapartum events.
The instrumentation for continuous monitoring of fetal heart rate and
uterine contractions may be placed externally or internally. With the external
or indirect method, an ultrasound transducer is positioned on the mother's
abdomen directly over the fetal heart for recording of the fetal heart rate and
a tocotransducer is placed at the fundus for measuring changes in abdominal wall
pressure. A spiral electrode can be attached to the presenting part of the fetus
to provide more precise date for the fetal heart rate, and an intrauterine
catheter can be inserted to measure actual intrauterine pressure. Both methods
permit the fetal monitor to process the incoming signals and produce a
continuous recording of the fetal heart rate and uterine activity. After the
maternal membranes are ruptured, internal or direct monitoring may be used.
While the internal method, which can be used only after maternal membranes are
ruptured, provides more precise data, both methods permit the fetal monitor to
process the incoming signals and produce a continuous recording of the fetal
heart rate and uterine activity.
The Company believes that its Model 118 Maternal/Fetal Monitor, which
created a unique combination of fetal monitoring with maternal vital signs, has
become the defacto standard for in-hospital obstetrical monitoring. A major
software upgrade to the Model 118 in early 1996 significantly enhanced the
product's capabilities, especially in recovery and post-partum care. The Company
also introduced new products and product enhancements for pre-natal and ante-
partum use. The Model 155 External Fetal Monitor is a compact, economical unit
especially for use in non-stress tests during ante-partum surveillance.
Electronic fetal movement detection was introduced as an option in both the
Model 155 and the advanced Model 150 External Twin Monitor.
The Division has a full line of neonatal monitors that provide continuous
monitoring of neonates and allow for admissions to record, analyze and react to
a neonate's changing condition. In addition to the Corometrics' 556 Monitor, the
Division sells the
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Marquette Solar and Eagle monitor lines under the Corometrics' name for the
neonatal ICU. The highly advanced modular Solar 7000N and 8000N Neonatal
Critical Care Monitors are capable of displaying multiple measurements such as
ECG, respiration, invasive pressures, temperatures, pulse oximetry and non-
invasive blood pressure. Through an arrangement with Optical Sensors
Incorporated, the Division also sells an on-line ABG module for the Solar
monitor line which measures pO2, pCO2 and pH and displays the values at the
bedside, thereby reducing the wait time for this vital physiological data.
The Division also sells a line of monitors designed primarily for the
monitoring of infants at risk for apnea in the home. Its Model 500 EXL is
designed to monitor the infant's heart rate and respiration rate and will alarm
when these rates violate predetermined alarm levels in the monitor, as ordered
by the physician. The new models 510 and 511 Monitors were recently cleared by
the FDA and are the only monitors now available which meet the FDA's proposed
Guidelines For Infant Apnea Monitors. These monitors convert to use in the home
and the Model 511 can also be used in the hospital. The Division also sells an
apnea monitor (Model 502) designed for hospital use. The Division's new Model
511 monitor was recently cleared by the FDA and incorporates all of the features
of the Model 502, plus the ability to monitor pulse oximetry.
The Models 500 EXL, 510 and 511 are compatible for the Event Link R. Data
Retrieval and Display Software Program. The Event Link System provides graphical
and tabular documentation of alarms and events. This information is used to
evaluate the patient prior to discharge from the hospital and can provide
continuity for home monitoring programs.
E FOR M IMAGING SYSTEMS DIVISION PRODUCTS
The E for M Imaging Systems Division's headquarter offices are located in
Torrance, California.
Applied medicine relies heavily on the ability to view the performance and
function of different parts of the human anatomy to assist in the detection,
diagnosis, treatment and prevention of diseases and injuries. Before every
cardiac bypass procedure and during most angioplasty procedures, a high
resolution x-ray motion picture of the patient's coronary vasculature is
recorded, typically on specialized cardiac catheterization film known as cine
film. Technologies such as x-ray and ultrasound now provide medical personnel
with a detailed view of human organs and the systems that support them. The
increased use of these imaging technologies creates a need for image management
systems that allow the capture, storage and utilization of these images.
Film distribution
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The Company, through its E For M Imaging Systems Division, is a leading
supplier of specialized 35mm cineangiography films and related imaging services
and products to Cath Labs. The Company does not manufacture any of the film
products that it sells, but purchases them from independent third parties, and
then markets them. These products are key components in the process of
detecting, diagnosing and treating cardiovascular disease in Cath Labs.
With four types of cine film and a range of processing equipment support,
the Company has the flexibility to meet the varied needs of most invasive
cardiologists. Largely because of its broad product line and technical support
offered to customers, the Division's film products have in the past enjoyed
attractive annual growth rates. However, hospitals appear to be slowly utilizing
digital imaging systems for diagnostic purposes which has softened the demand
for cine film and related products.
The Division's cine films are high grade films designed exclusively for
recording images during coronary angiography procedures. The Division's cine
film has a fine grain structure that provides superior detail and smooth, high
resolution images. The Division offers five types of cine film: Cine 35,
VariCath I, VariCath II, VariCath III and VariCath Blue. Cine 35, the Division's
newest cine film product, and VarCath I, VariCath II and VariCath III are clear-
base films. Clear-base cine film produces a crisp, sharp image. Blue-base cine
film produces a soft, balanced image. VariCath Blue is a blue-base film made to
the same standards as the other films. All films are packaged in a variety of
industry standard lengths and are also available in custom lengths.
The Division currently purchases Cine 35 from Sterling Diagnostics, Inc.
under an exclusive arrangement, VariCath Blue from Ilford Photo Corporation
("Ilford") and all of its VariCath I, VariCath II and VariCath III film from
Agfa, which also distributes a blue-base film in the United States. The Company
and Agfa are parties to a purchase agreement of indefinite duration, subject to
periodic adjustments with respect to price and certain termination provisions.
The Company also has a marketing agreement with Ilford to market VariCath
Blue in the United States. The Division believes that marketing VariCath Blue
will provide an opportunity to sell cine film to those hospitals that prefer
blue-base film.
The Division also offers a number of different processing chemistries for
its films. Each combination of film and chemistry produces images that vary
slightly in contrast and resolution. The Division's technical sales
representatives advise Cath Lab technologists in creating image variations by
adjusting the
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aperture of the cine camera and altering the film immersion time, processing
temperature and the rate of replenishment of the chemistries. By offering a
range of films, processing chemistries and technical support, the Division can
satisfy the image preferences of most cardiologists.
Digital Imaging Systems
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Digital imaging products capture analog images from x-ray, ultrasound and
other common medical imaging sources and convert them to digital images. These
products then manage these digitized images so that they can be enhanced,
quantified, reviewed in real-time, archived, transmitted over networks and/or
further converted into high-quality film images.
AccuVision(TM). AccuVision is a real-time, high-resolution acquisition,
storage and replay device designed for the Cath Lab. Unlike its predecessors and
competitors, the AccuVision unit has a RAID disk array capable of storing up to
10 gigabytes of digitized information (a capacity of approximately 40,000
standard resolution images). The unit captures and stores relatively short
segments of an invasive cardiac procedure that is also being recorded on film.
These digitized segments can be reviewed as loops on a high resolution monitor
while the procedure is in progress. The digitized images can also be enhanced
and manipulated for more detailed analysis. Cardiologists are relying
increasingly on these real-time digitized images for making emergency and
routine diagnostic decisions, while using cine film as the primary medium for
archiving the images and for making diagnostic decisions in complicated cases.
The AccuVision product was formally released at the American College of
Cardiology Conference in March, 1994.
AccuWorks(TM). The Division believes that Cath Labs of the near future
will be centered around a single system that combines digital image acquisition,
display, enhancement, analysis, archiving and report writing. All of these
features could be networked over fiber-optic cables around a workstation. The
Company has developed a workstation called "AccuVision RS" to perform these
functions. The Division intends to couple its imaging technology with the
physiological monitoring expertise contained in the Cath Lab Division products
to provide a comprehensive workstation to the market.
In addition to the digital imaging systems designed and manufactured by the
Division and sold to Cath Labs, the Division designs and manufactures imaging
systems for OEMs for incorporation into proprietary OEM imaging systems. These
products consist of:
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R & F Related Products. Radiology and fluoroscopy ("R & F") generally
describes an x-ray room that is dedicated to gastrointestinal and related
examination procedures. As in the Cath Lab, R & F procedures are diagnostic
examinations of dynamic processes. In conventional R & F, fluoroscopy is used
for patient positioning, then the examination is recorded by taking a series of
direct x-ray pictures at rates of 2 to 12 frames per second. In R & F, as in
cardiac imaging, there is a move towards replacing these direct film images with
digital images. This is called "digital photospot". Digital photospot systems
acquire and enhance the video images in various ways, allowing hard copy films
to be made from the processed video image. These products can be used to replace
the direct film camera in OEMs' x-ray systems. The Division developed the first
digital photospot device and continues to be an industry leader in developing
digital photospot systems for OEMs.
Video Enhancement Products. Many of the image acquisition and output
devices currently in use for medical applications are outdated, scanning only at
so-called low-line rates. Higher line scan rates produce incrementally less
flicker and better images. Newer devices are virtually all high-line scan rate.
As cardiologists begin to shift their reliance from film images to electronic
images for diagnostic purposes, the older systems must be replaced or upgraded.
The Division has developed a "Scan Converter" which can increase or decrease
scan rates on these devices, thereby increasing the quality of images. For
example, a image generated from a high-line device such as an AccuVision system,
can be reviewed on a high resolution monitor such as the H3. The same image can
then be "down-scanned" by the Scan Converter and sent to a low-line output
device.
Ultrasound Related Products. Ultrasound related products convert
ultrasound images into high-resolution film images. Currently, ultrasound images
are reviewed in a video format, and selected images may be printed out on
thermal paper. In order to generate a film image, the image must be digitized
and transferred to a laser camera, which will generate an x-ray type film image.
This can be done by a laser camera attached to each ultrasound unit by a network
or by some means of transporting the digitized image data from the ultrasound
unit to the laser camera. RDS (removable disk system), manufactured by the
Division for one OEM customer captures and digitizes the ultrasound image
directly from the ultrasound scanner. The operator can then remove the digitized
data stored on a removable hard disk. This hard disk can then be inserted into a
reader unit, which then automatically transfers image data to a laser camera for
film imaging and processing.
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QMI CLINICAL INFORMATION SYSTEMS DIVISION
The Division, located in Annapolis, Maryland, develops and markets clinical
information systems for the ICU, CCU, OR, Recovery Room, Med/Surge and the
labor-and delivery areas.
The Division is the clinical information hub of the Company and provides
the connectivity for Marquette's UNITY network. The QMI-QS(R) System integrates
data coming from multiple patient care areas and serves as the central
collecting system. The data is then charted, reviewed and presented in hospital
selected formats that provide the clinician with a more comprehensive overview
of their patient's status. Reports can then be generated that provide the data
in both clinical and administrative form to aid in improving the quality of care
in the most cost effective method.
The QMI Division provides systems designed for the whole hospital as well
as departmental systems for Labor and Delivery, NICU, General Floor, ICU/CCU, ER
and Perioperative. Interfaces exist for most ADT, lab, and pharmacy systems as
well as for all Marquette monitoring and diagnostic products. The
configurability of the QS makes use in most hospital departments possible. The
whole hospital applications have been expanded to include remote site access
that enables satellite hospitals, clinics and physicians to be linked to the
centrally-located system.
Systems can be customized to meet the most basic entry level requirements
to the most complex whole hospital solutions involving wide area networks.
SUPPLIES DIVISION
Marquette, through its Supplies Division which is headquartered in Jupiter,
Florida, manufactures, purchases and sells a broad spectrum of disposable
supplies used primarily in conjunction with the Company's diagnostic,
monitoring, perinatal and emergency care equipment. These supply items include
ECG and other recording paper, monitoring and diagnostic electrodes, patient
belts and straps, disposable and reusable blood pressure cuffs, disposable water
traps, temperature probes, pulse oximetry probes and holter/telemetry hookup
kits.
Marquette markets and distributes its supplies in the United States through
an in-house telemarketing group, a national direct sales force, two non-
exclusive distributors located in Missouri and Florida and a number of dealers.
The Company distributes its supplies outside of the United States through its
direct sales force in Europe, its Australian subsidiary and through independent
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dealers.
The Company manufactures, warehouses and ships supplies from the Company's
facilities located in Jupiter, Florida and Wallingford, Connecticut. The Jupiter
facility also operates a rotogravure printing press, a rotary offset printing
press and a production paper coater for the production of chart paper used in
the Company's electrocardiographs and other products. Other automatic machinery
in this facility is used to produce disposable electrodes and lead wires.
Heat sensitive recording paper has long suffered from the possibility that,
over time, the tracings made will fade and ultimately become unreadable. The
Company has obtained a source of supply for heat sensitive paper, called
Archivist(R), which Marquette has guaranteed to retain long term legibility when
the paper is used within certain general limitations. The Company also provides
a less expensive line of papers to enable it to more effectively compete in the
lower tier of the chart paper market while maintaining a margin percentage equal
or higher than that enjoyed on its higher grades of paper.
Marquette manufactures and sells a patented, disposable "tab electrode"
with self-contained skin gel, marketed under the name MACTRODE, which is used to
take resting ECGs. The MACTRODE(R) can be used with electrocardiographs
manufactured by the Company or others, and the Company believes that since 1988,
approximately 70% of the domestic electrode market has converted from the use of
traditional reusable electrodes to disposable tab electrodes.
Although third party suppliers compete with Marquette for supplies business
with respect to the Company's equipment in use throughout the world,
historically the sale of the Company's supplies has grown in proportion to the
growth in the quantity of the Company's equipment in use throughout the world.
SERVICE DIVISION
The Service Division is headquartered in Jupiter, Florida and is
responsible for equipment installation at customers' sites and for the
fulfillment of the Company's warranty and maintenance commitments. Most
equipment sold by the Company is fully warranted for all parts and labor for one
year. Under the terms of the Company's standard warranty, the customer is
assured of on-site service to remedy any problem with respect to the equipment's
operation. The Company offers a variety of post-warranty service agreements
permitting customers to contract for the level of equipment maintenance and
repair they require. All parts, labor, travel and mileage are covered under
fixed-price, full service and emergency maintenance agreements. Alternatively,
the customers can
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contact the Company as needed and receive service at rates competitive with
those offered by third party service centers.
In addition to warranty and post-warranty maintenance service, the Service
Division installs software up-grades, performs circuit board repairs on a 24-
hour return basis, and manufactures and markets replacement parts to the
Company's dealers and equipment users. The Division offers repair and
maintenance training classes throughout the year for biomedical engineers
employed by hospitals and other companies, which are taught by a full time staff
of Company-employed instructors. In addition, Marquette provides support for
customers' biomedical engineering technicians and the Company's field personnel
by providing telephone assistance on service problems.
Except for offices maintained in Jupiter, Florida, Wallingford,
Connecticut and Milwaukee, Wisconsin, the Company's domestic field engineers and
technicians work out of their homes and are located in all major United States
cities. At its Hellige operation in Germany, the Division operates a parts and
support center for European service. In some foreign countries, if direct
Company field engineers and technicians are not conveniently located, employees
of local dealers provide warranty and field maintenance service. The Division
maintains a 24-hour a day, seven day a week dispatch service integrated with a
computerized field service system, permitting each dispatcher to review all
pertinent customer data and history incident to a request for field service.
PRINCIPAL MARKETS/SALES
Traditionally, the Company's principal markets have been the critical care
units of larger acute care hospitals. During the past several years, however,
the Company has broadened its product lines to appeal to smaller hospitals and
also address intermediate care, stepdown units, out-patient surgery centers,
labor and delivery rooms, physician groups, doctor offices, emergency rooms and
pre-hospital emergency care.
Although the United States is the principal geographic market for the
Company's products, the Company has over the past ten years sought to develop
its international market standing. International sales were 26.8%, 26.5% and
34.4%, respectively, of total Company sales during fiscal years 1994, 1995 and
1996. The Company anticipates that the addition of the Hellige product line and
sales force will augment sales internationally, particularly in Europe.
Products are sold directly by the Company in the United States, Europe and
Australia. The remainder of the international market, primarily Japan, China,
Southeast Asia, India, and Canada, is served by distributorship arrangements
under which the local
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dealer buys products from the Company at a discount for resale within its
own territory.
Because most Company products are highly technical requiring extensive
training in their application and operation, the Company's sales organization is
organized along divisional product lines, including technical support groups
consisting primarily of nurses, biomedical engineers and clinicians. The Company
maintains a large investment in demonstration equipment so that sales personnel
can make on-site clinical demonstrations for equipment sales. The Company offers
technical seminars and training sessions on a worldwide basis, and furnishes
instruction manuals, maintenance manuals, operator guides, application
information and software in foreign languages, as required.
In recent years, many hospitals have joined buying groups or have been
acquired by large hospital chains permitting them to negotiate with suppliers of
hospital equipment to obtain more favorable pricing on large quantity purchases.
In addition, some large hospitals, chains and buying groups prefer to negotiate
with single limited number of vendors who can provide a broader range of
products used by the hospital or group. While the Company believes that the
existence of these groups will present a marketing opportunity for the Company,
there can be no assurance that the Company will be able to negotiate purchasing
arrangements with all of those groups or on terms that are favorable to the
Company.
To facilitate sales, the Company has an arrangement with a third party
leasing company which provides customer financing. Under this arrangement, the
Company is paid in full for its products, and the leasing company assumes credit
risks. The Company also directly provides lease financing and equipment rentals
for smaller transactions.
The Company has recently begun to lease its equipment to hospitals under a
Managed Use Program permitting the hospitals to make lease payments to the
Company based upon the intensity of use of the equipment by the hospital. Under
the Managed Use Program, the Company has the right to increase or reduce the
number of equipment units deployed at the hospital to correlate with the degree
of use of the units at the hospital. The Company believes that the program is
being well received by the market and will further facilitate distribution of
the Company's products by permitting the hospital to better correlate its
equipment to its needs.
Order Activity
As of April 30, 1996, the backlog of unfilled equipment and supplies orders
was $78,908,600, compared with $47,782,700 as of
27
<PAGE>
April 30, 1995. E For M, having been acquired by the Company in January, 1996,
$16,258,000 of the Company backlog at April 30, 1996 was attributable to E For M
product lines. The Company's order activity is not seasonal in nature. The
Company usually manufactures and ships equipment ordered within 30 to 60 days
following receipt of an order.
COMPETITION
The markets for the Company's products have historically been highly
competitive. The consolidation of healthcare providers in the U.S. and the
national effort to curtail increases in medical care costs have increased the
level of competition. Although the Company competes directly with other
providers of medical equipment, no one company or group of companies competes
with the Company across its full line of products. The Company's competitors
include Hewlett-Packard Corporation, Siemens Medical Systems, Space Labs
Medical, Inc. and Datex Company. The principal competitive factors are the
manufacturer's reputation for producing accurate, reliable and technically
advanced products, product features, product line breadth, price, expected
medical cost savings and effectiveness of sales and marketing efforts.
The Company believes that it has a reputation for technological leadership
and product reliability, which, with its working relationship with physicians at
teaching and research hospitals as well as the breadth of its product line, have
provided it with a strong competitive position. However, purchase decisions
which have traditionally been based on clinical needs are being more
significantly affected by cost considerations to which the Company is responding
by introducing lower end products to augment its traditional high-end lines.
Some of the Company's competitors are much larger and have greater financial
resources than Marquette and, in that respect, may have a competitive advantage.
In addition, the Company, like other technology companies, is subject to the
risk that a competitor may introduce into the marketplace a new product or
technology that would adversely impact the Company's ability to compete in its
existing markets.
The Company's competitive position is strongest with respect to its
cardiology product line and fetal and neonatal monitoring products, where the
Company has been selling its products for the longest period of time, has the
greatest name recognition and competes primarily on the basis of product
features and technological advances. The Company's competitive position is less
strong with respect to its monitoring product and Cath Lab lines where there are
several competitors having greater financial resources than the Company, and
competition is based on price as well as product features. The Company's
position is weakest with respect to the emergency care and gas analysis product
lines.
28
<PAGE>
RESEARCH AND DEVELOPMENT
Because of rapid technological change in the fields in which the Company
competes, the Company is constantly seeking ways to improve its product line
through innovative engineering and to create diagnostic and monitoring
technologies that address problems brought to its attention by contacts in the
medical community, particularly those which increase efficiency and reduce the
labor involved in medical care by nurses, physicians and emergency care
technicians.
The Company's product engineers work closely with the Company's sales force
and customers to modify and improve current products. Such engineering
interaction both within and outside the Company assists Marquette to design new
products to address customer needs or problems. These product engineers also
evaluate new technologies and components offered by suppliers to maintain price
and technological competitiveness. Each division of the Company has its own
engineering staff that specializes in that division's product and related
customer applications. In addition, these engineers assist with the integration
of components or technologies across several Company product lines to enhance
product competitiveness. Introduction of any product now under development will
require completion of development and engineering work, successful conclusion of
clinical trials, compliance with regulatory procedures and the transfer of the
product to production. There can be no assurance that the Company's product
development work will result in viable new products.
The Company maintains a 17,000 square foot Research and Development Center
approximately one mile from its corporate offices in Milwaukee, Wisconsin. This
center, which includes design and development laboratories, test and design
equipment, a complete standards laboratory and a technical library, is at the
disposal of Company scientists, engineers and technicians.
The Company expended $17,413,000, $22,501,000 and $23,756,000 on research
and development for the years ending April 30, 1994, 1995 and 1996,
respectively.
EMPLOYEES
At April 30, 1996, the Company had 2,269 U.S. employees and 763 employees
based abroad, or a total of 3,032 employees. None of the Company's employees is
covered by a collective bargaining agreement, except for 127 employees of
Corometrics who are represented by the IBT under a Collective Bargaining
Agreement expiring on November 30, 1997. Management considers employee
29
<PAGE>
relations to be excellent.
The Company believes that high levels of employee support and participation
significantly contribute to Marquette's business success. Therefore, the Company
has implemented various employee benefit programs and work-related policies.
Employees are permitted to personalize their work areas and determine their own
flexible work schedules. The Company also provides many of its employees with
day care facilities, exercise facilities, and a tuition reimbursement program,
and encourages them to play a role in the Company's growth. It also encourages
direct and individual ownership by employees of Company stock through its 401K-
Profit Sharing Plan and grants of stock options.
OBTAINING RAW MATERIALS AND OTHER SUPPLIES
To manage the acquisition of necessary supplies and raw materials, the
Company employs a technique referred to as the "just in time" program. Under
this program, the Company aims to purchase materials when and as they are
needed, shorten manufacturing cycle times and emphasize quality of purchased
components to minimize required inventory. This reduces inventory carrying cost
and allows the Company to use its capital elsewhere while minimizing the
possibility of an accumulation of obsolete inventories. Under this program the
Company has significantly reduced the number of approved vendors, often
purchasing exclusively from one supplier for any given part. While there is a
back-up supplier identified in most cases, this commitment to a primary supplier
permits preferred pricing and service. Suppliers are selected on their
capability to manufacture in a high quality and reliable fashion with very short
lead times. Four electronic parts distributors operate in-house stores on
Company premises which maintain significant inventories to meet production
schedule fluctuations.
PATENTS AND TRADEMARKS
The Company possesses rights under a number of domestic and foreign patents
and trademarks relating to its products and business. While the Company
considers its trademarks important in the operation of its business and, in
particular, the names "Marquette", "E For M", "Hellige" and "Corometrics", the
business of the Company is not dependent on any trademark or on any single
patent or group of patents. The Company believes that because of the rapid pace
of technological change in its industry, patent protection is of less
significance than factors such as the knowledge and experience of the Company's
personnel and their ability to develop, enhance and market new products.
The Company relies substantially on its unpatented, propri-
30
<PAGE>
etary know-how. No assurances can be given that others will not be able to
develop substantially equivalent proprietary know-how or otherwise obtain access
to the Company's know-how. In addition, others could obtain patents or other
proprietary rights with respect to technology which the Company may need to
license in order to carry on its business. No assurances can be given that such
licenses would be available on reasonable terms or at all.
As a condition of employment, most of the Company's new employees are
required to sign an agreement to maintain the confidentiality of Company secrets
and to assign to the Company their interest in any inventions conceived during
the course of their employment. The Company recognizes that such agreements are
sometimes difficult to enforce.
GOVERNMENT REGULATION
The medical devices manufactured and marketed by the Company, including
those of Corometrics, are subject to regulation by the federal Food and Drug
Administration ("FDA") and, in many instances, by foreign governments. Under the
Federal Food, Drug and Cosmetic Act, as amended (the "FDC Act"), manufacturers
of medical devices must comply with certain provisions of the FDC Act and
regulations promulgated by the FDA governing the testing, manufacturing,
packaging and marketing of medical devices. The FDA's powers include the
imposition of criminal and civil sanctions against companies, including seizures
of regulated products and criminal sanctions against individuals. To facilitate
compliance, the Company, from time to time, may institute voluntary compliance
actions such as product recalls when it believes it advisable to do so.
Under the FDC Act, medical devices are subject to different levels of
review, the most comprehensive of which requires that a device receive pre-
market approval by the FDA for commercial distribution in the United States. The
Company's products have not been subject to the comprehensive pre-market
approval requirements, but are generally subject to pre-market notification
requirements. If a new device is substantially equivalent to a device that did
not require pre-market approval, pre-market review is satisfied through a pre-
market notification submission (a "510(k) Submission"), under which the
applicant provides product information supporting its claim of substantial
equivalence. The FDC Act requires 90 days' prior notice, but the FDA can
continue to review a submission beyond the 90 day period.
As a manufacturer of medical devices, the Company is also subject to
certain other FDA regulations, such as general controls provisions which include
manufacturing process requirements, and the Company's manufacturing processes
and facilities are subject to
31
<PAGE>
biannual inspection by the FDA. The FDA has power to order a limited detention
of products and other remedies where it finds the devices to be in violation of
the FDC Act. Federal, state and foreign regulations regarding the manufacture
and sale of medical devices are subject to change. The Company cannot predict
what impact, if any, such changes might have on its business. The Company also
seeks, where appropriate, to comply with safety standards of Underwriters
Laboratories, the Canadian Standards Association, the European Economic
Community and other countries in which it markets products.
The Company's products are used by health care providers for diagnostic
testing services and other services for which the providers may seek
reimbursement under the federal Medicare and Medicaid programs or from other
governmental and private payers. Such reimbursement is subject to federal
regulations and policies and regulations of other payers. For example, the
Medicare program, which reimburses hospitals and physicians for services
provided to a significant percentage of hospital patients, places certain
limitations on the methods and levels of reimbursement of hospitals for
procedure costs and for capital expenditures made to purchase equipment such as
that sold by the Company. The Medicare program also limits the level of
reimbursement to physicians for diagnostic tests and recently has instituted
changes that may further limit the amount of such reimbursement. The state-
administered Medicaid programs and private payers, most notably managed care
organizations, also place limitations on the reimbursement of both facilities
and physicians for services provided in connection with diagnostic and clinical
procedures. Federal and state regulations regarding the amount and manner of
reimbursement are subject to change. The new federal administration has placed
national health reform as a priority item on its legislative agenda and there
are a number of bills presently being considered in both Houses of Congress. The
Company is unable to predict the impact, if any, that such change or legislation
might have on its business.
In addition to laws and regulations enforced by the FDA, Marquette is also
subject to regulation under the Occupational Safety and Health Act, the
Environmental Protection Act, the Resource Conservation and Recovery Act and
other present and potential future federal, state and local regulations.
PRODUCT LIABILITY AND INSURANCE
The Company is involved in various legal proceedings, including product
liability suits of a nature considered normal to its business. The Company's
products are relied upon by medical personnel in critical care hospitals and
elsewhere in their diagnosis and treatment of patients. As a result, the Company
is exposed to potential product liability claims. Patients with
32
<PAGE>
respect to whom the Company's equipment is being used will, on occasion, sustain
injury or death as a result of their condition or medical treatment. If
litigation is initiated because of that occurrence, the Company, along with
physicians and nurses, hospitals and other medical suppliers may be sued, and
whether or not the Company is ultimately determined to be liable, it may incur
significant legal expenses. In addition, such litigation could damage the
Company's reputation and therefore impair its ability to market its products,
and impair its ability to obtain product liability insurance or cause the
premiums for such insurance to increase. The Company carries product liability
insurance coverage under several policies currently with an aggregate loss
coverage of $30,000,000, which the Company believes is sufficient. However, in
the future the Company may be unable to obtain adequate product liability
coverage under terms that it finds acceptable, if at all.
EXECUTIVE OFFICERS OF THE REGISTRANT
Set forth below is information regarding executive officers who are not
also directors.
<TABLE>
<CAPTION>
NAME AGE POSITION WITH THE COMPANY
<S> <C> <C>
Mary M. Kabacinski 47 Vice President, Chief
Financial Officer and
Assistant Secretary
Gerald G. Woodard 49 Vice President-Sales
and Marketing
Karl F. Braun 63 Vice President-EMEA
Steven G. Books 45 Division President-Cardiology
Gerald J. Lentz 49 Division President-Service
Mark Stega, M.D. 42 Division President-QMI
Clinical Information Systems
Frederick A. Robertson, M.D. 40 Division President-
Patient Monitoring
P. Michael Breedlove 52 Division President-E for M
Imaging Systems
James R. Mertens 43 Division President-E for M
Cath Lab
</TABLE>
33
<PAGE>
<TABLE>
<S> <C> <C>
Louis P. Scafuri 44 Division President-
Corometrics Medical Systems
</TABLE>
Mary M. Kabacinski joined the Company in March 1989 and has served as the
Treasurer since July 1989 and Vice President since July 1991. Prior to her
employment with the Company, Mrs. Kabacinski was a tax manager since 1983 at
Arthur Andersen LLP.
Gerald G. Woodard joined QMI in 1986 and served as its Vice President until
January 1, 1992, when he became Director of Operations. He continued to serve as
such until October, 1995 when he became Vice President, Sales and Marketing for
the Company.
Karl F. Braun became employed by Hellige GmbH (since January, 1996 an
indirect wholly-owned subsidiary of the Company) in 1955. In 1977, Mr. Braun
became Vice President-Marketing and Sales of Hellige; in September, 1989, he
became Vice President-Cardiology; in June, 1993, he became Director of Marketing
and Development and in May, 1994 became Managing Director of Hellige GmbH and
continues to serve as such. In May, 1996, he was elected as Vice President-EMEA
of the Company.
Steven G. Books joined the Company in 1982. Mr. Books served as a manager
in the Manufacturing and Engineering Departments of the Company between 1982 and
June 30, 1994 when he was elected as Vice President in charge of the Company's
Cardiology Division, where he served until elected to his current office in May,
1996.
Gerald J. Lentz joined the Company on September 22, 1969 and served as its
National Service Manager until June, 1994, when he became a Product Manager for
the Company, serving as such until May, 1996, when he was elected to his current
office.
Mark Stega, M.D. is a co-founder of QMI and served as its President for 16
years. On January 1, 1992, Dr. Stega's title was changed to Vice President and
General Manager of QMI, where he has served, as such, until elected to his
current office in May, 1996.
Frederick A. Robertson, M.D. was employed by the Company in January, 1993
and has served as a Vice President of the Company since June 2, 1994,
supervising the monitoring product line of the Company until elected to his
present office in May, 1996. During the ten years preceding his employment by
the Company, Dr. Robertson was a practicing anesthesiologist and a shareholder,
Director and officer of Anesthesia Service Medical Group, based in San Diego,
California.
P. Michael Breedlove served as Vice President of Field Operations for E for
M Corporation from October, 1995 until May,
34
<PAGE>
1996 when he was elected to his current office. Prior to becoming employed by E
For M Corporation, Mr. Breedlove worked for Cerner Company, a provider of
Clinical Information Systems, as Vice President-Sales and Marketing from 1984 to
1991, Managing Director of Cerner Corporation Prop Ltd. from 1991 until 1993 and
Vice President, Western Operations from 1993 until October, 1995.
James R. Mertens worked as a Software Engineer for the Company for the two
years ending November, 1983, when he became Software Manager for Mortara
Instruments Company. In June, 1994, Mr. Mertens became Vice President-Software
Technology of E For M Corporation, where he served as such until his election to
his current office in May, 1996.
Louis P. Scafuri joined the Company in July, 1989, serving as a Regional
Manager until November, 1989 and a District Manager until July, 1991 when he was
promoted to the position of Director of National Sales. He served as Director of
National Sales until August of 1992 when he left the Company to become Vice
President-Sales and Marketing and Acting Executive Vice President at Aspect
Medical Systems, Inc., a medical device manufacturer. In September, 1995, Mr.
Scafuri was hired by and elected to the presidency of Corometrics Medical
Systems, Inc. (a wholly-owned subsidiary of the Company), a position that he
presently occupies. In May, 1996, Mr. Scafuri was elected as Division President-
Corometrics Medical Systems.
ITEM 2. PROPERTIES
The following table sets forth certain information as of April 30, 1996,
relating to the Company's principal real estate facilities:
<TABLE>
<CAPTION>
Location
(Owned or Approximate
Leased) Square Feet Principal Uses
- --------- ----------- --------------
<S> <C> <C>
Freiburg, Germany
(owned) 180,000 Engineering, research and development,
marketing and manufacturing of
cardiology and adult monitoring
products
Freiburg, Germany 35,100 Research and development,
(leased until marketing and sale and
January 31, 1997) purchasing for Hellige
manufactured products
</TABLE>
35
<PAGE>
<TABLE>
<S> <C> <C>
Jupiter, 180,000 Manufacturing, engineering and
Florida (owned) marketing of supplies and car
diac catheterization products
and service center
Milwaukee, 295,000 Corporate offices, engineering,
Wisconsin research and development, and
(owned) marketing and manufacturing of
cardiology and adult monitoring
products
Overland Park, Kansas 7,200 Cath Lab engineering and film
(leased until distribution
February 28, 1997)
Lenexa, Kansas 14,533 Film distribution
(leased until
January, 1997)
Paris, France 8,000 Marketing and sales,
(leased until general administration
February, 1999)
Torrance, California 65,500 Engineering, research and
(leased until December, development and marketing
2004) and manufacturing of
imaging systems
Wallingford, CT 180,000 Engineering, research and
(owned) development and marketing and
manufacturing of fetal and neonatal
monitoring and diagnostic products
</TABLE>
The Company believes that its manufacturing facilities are sufficient for
its current needs. Because approximately 75% of its manufacturing capacity is
presently being utilized, the Company believes that such facilities are
sufficient for the next three years based on the Company's expected rate of
growth.
ITEM 3. LEGAL PROCEEDINGS
The Company is not a party to any material legal proceeding other than
ordinary routine litigation incident to its business.
36
<PAGE>
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED SECURITY
HOLDER MATTERS
The section labeled "General Information" appearing on page 36 of
the Company's 1996 Annual Report to Shareholders is incorporated herein by
reference.
The Registrant has two classes of stock, Class A Common Stock, $0.10
par value, and Class C Common Stock, $0.01 par value. There is no
established public trading market for the Class C Common Stock, all of
which is owned by the Michael J. Cudahy Revocable Trust.
ITEM 6. SELECTED FINANCIAL DATA
The section labeled "Five Year Summary of Selected Financial
Data" appearing on page 1 of the Company's 1996 Annual Report to
Shareholders is incorporated herein by reference.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The section labeled "Management's Discussion and Analysis of
Financial Condition and Results of Operations" appearing on pages 29
through 34 of the Company's 1996 Annual Report to Shareholders is
incorporated herein by reference.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The Report of Independent Public Accountants appearing on page
28 and the Consolidated Financial Statements and Notes to Consolidated
Financial Statements appearing on pages 12 through 27 of the Company's 1996
Annual Report to Shareholders are incorporated herein by reference.
37
<PAGE>
ITEM 9. CHANGES IN, AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
(a) The section labeled "Nominees" appearing on page 3 of the
Company's Proxy Statement dated July 22, 1996 is incorporated herein by
reference.
(b) Information concerning the Company's executive officers who are
not directors is set forth in Part I of this Form 10-K.
ITEM 11. EXECUTIVE COMPENSATION
The sections labeled "Executive Officer Compensation" and "Report of
the Human Resources Committee" appearing on pages 11 through 15 of the
Company's Proxy Statement dated July 22, 1996 is incorporated herein by
reference to the extent necessary to be responsive to the requirements of
this Item.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The section labeled "Stock Ownership of Management and Others"
appearing on pages 10 and 11 of the Company's Proxy Statement dated July
22, 1996 is incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The subsection labeled "Certain Transactions" appearing on page 17 of
the Company's Proxy Statement dated July 22, 1996 is incorporated herein by
reference.
38
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
<TABLE>
<CAPTION>
(a) 1. INDEX TO FINANCIAL STATEMENTS
The following Financial Statements
are included in the Company's
1996 Annual Report to Shareholders Page in 1996
and are incorporated herein by Annual Report
reference pursuant to Item 8: to Shareholders
---------------
<S> <C>
Consolidated Balance Sheets at
April 30, 1996 and 1995 12-13
Consolidated Statements of Income
for the years ended April 30, 1996, 1995
and 1994 14
Consolidated Statements of Shareholders'
Equity for the years ended April 30,
1996, 1995 and 1994 16
Consolidated Statements of Cash Flows
for the years ended April 30, 1996,
1995 and 1994 14-15
Notes to Consolidated Financial
Statements 17-27
Report of Independent Public Accountants 28
Selected Quarterly Data (Unaudited) 27
</TABLE>
2. INDEX TO FINANCIAL STATEMENT SCHEDULES
The following schedule is filed as part of this Report on Form 10-K
and is covered by the "Report of Independent Public Accountants on
Supplementary Schedule" included herein.
Schedule
Number Description
-------- -----------
II Valuation and Qualifying Accounts
All other financial statement schedules not listed have been omitted
since the required information is included in the consolidated statements
or the notes thereto, or is not applicable or required under the rules of
Regulation S-X.
39
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
ON SUPPLEMENTARY SCHEDULE
We have audited in accordance with generally accepted auditing
standards, the financial statements included in Marquette Electronics,
Inc.'s annual report to shareholders incorporated by reference in this Form
10-K, and have issued our report thereon dated June 13, 1996. Our audit was
made for the purpose of forming an opinion on those statements taken as a
whole. The following schedule is presented for purposes of complying with
the Securities and Exchange Commission's rules and is not part of the basic
financial statements. This schedule has been subjected to the auditing
procedures applied in the audit of the basic financial statements and, in
our opinion, fairly states in all material respects the financial data
required to be set forth therein in relation to the basic financial
statements taken as a whole.
ARTHUR ANDERSEN LLP
/s/ Arthur Andersen LLP
Milwaukee, Wisconsin
June 13, 1996
40
<PAGE>
MARQUETTE ELECTRONICS, INC. AND SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS
(Dollars in thousands)
<TABLE>
<CAPTION>
Balance Additions Additions Write-Offs Balance
Beginning Charged Due to Net of End
of Year to Income Acquisitions Recoveries of Year
--------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Year ended
April 30,
1994 $ 413 $ 120 $ - $ 75 $ 458
Year ended
April 30,
1995 $ 458 $ 196 $ 347 $ (65) $ 1,066
Year ended
April 30,
1996 $ 1,066 $ 817 $ 5,427 $ 880 $ 6,430
</TABLE>
41
<PAGE>
3. Exhibits
Sequential
Exhibit Page
No. Number*
2.1 Stock Purchase Agreement by and between the Company,
AHP Subsidiary Holding Corporation and American Home
Products Corporation dated April 7, 1994 (filed as
Exhibit 2 to Form 8-K dated May 31, 1994 and
incorporated herein by reference). All schedules to
the Agreement have been omitted, the Company hereby
agreeing to furnish supplementary a copy of any
omitted schedule to the Commission upon request.
2.2 Closing Date Agreement between Marquette Electronics,
Inc., AHP Subsidiary Holding Corporation and American
Home Products Corporation dated May 23, 1994 (filed
as Exhibit 2 to Form 8-K dated May 31, 1994 and
incorporated herein by reference)
2.3 Offer to Purchase for Cash dated November 10, 1995
made Marquette Subcorp (filed as Exhibit (a)(1) to
Schedule 14D-1 on November 13, 1995 and incorporated
herein by reference)
2.4 Agreement and Plan of Merger dated as of November 5,
1995 between Registrant, Marquette Subcorp and E For
M Corporation (filed as Exhibit (a)(10) to Schedule
14D-1 filed on November 13, 1995 and incorporated
herein by reference)
3.1 Form of Restated Articles of Incorporation (filed as
Exhibit 1.1to Form S-1 Registration Statement No. 33-
35642, filed June 29, 1990 and incorporated herein by
reference)
3.2 (a) Amended and Restated By-Laws of the Registrant
adopted as of January 8, 1996
(b) Amendment No. 1 to Amended and Restated By-Laws
of the Registrant adopted May 21, 1996
10.1 Post-Death Option Agreement, by and between Marquette
Electronics, Inc. and Michael J. Cudahy, dated April
6, 1992 (filed as Exhibit 10.67 to Form 10-K for the
fiscal year ended April 30, 1992 and incorporated
herein by reference)
42
<PAGE>
Sequential
Exhibit Page
No. Number*
10.2 Post-Death Option Agreement, by and between Marquette
Electronics, Inc. and Warren B. Cozzens, dated April
6, 1992 (filed as Exhibit 10.68 to Form 10-K for the
fiscal year ended April 30, 1992 and incorporated
herein by reference)
10.3 Amended and Restated Stock Option Plan for Employees
of Marquette Electronics, Inc. (filed as Exhibit
10.70 to Form 10-K for the fiscal year ended April
30, 1992 and incorporated herein by reference)
10.4 Amendment No. 1 to Amended and Restated Stock Option
Plan for Employees of Marquette Electronics, Inc.
adopted September 10, 1993 (filed as Exhibit 10.15
to Form 10-K for the fiscal year ended April 30, 1994
and incorporated herein by reference)
10.5 Amendment No. 2 to Amended and Restated Stock Option
Plan for Employees of Marquette Electronics, Inc.
adopted June 2, 1994 (filed as Exhibit 10.16 to Form
10-K for the fiscal year ended April 30, 1994 and
incorporated herein by reference)
10.6 Amendment No. 3 to Amended and Restated Stock Option
Plan for Employees of Marquette Electronics, Inc.
adopted May 21, 1996
10.7 Letter Agreement between the Company and Warren B.
Cozzens dated July 11, 1994 (filed as Exhibit 10.21
to Form 10-K for the fiscal year ended April 30,
1994 and incorporated herein by reference)
10.8 Marquette Electronics, Inc. Profit Sharing and 401
(K) Plan and Trust (as restated and amend-
-------------
* This information appears only in the manually signed,
original, sequentially numbered copy of this report.
43
<PAGE>
Sequential
Exhibit Page
No. Number*
ed) dated April 10, 1994 (filed as Exhibit 10.22 to Form
10-K for the fiscal year ended April 30, 1994 and
incorporated herein by reference)
10.9 Amendment No. 1 to Marquette Electronics, Inc. Profit-
Sharing and 401(k) Plan and Trust (as restated and
amended) adopted on August 1, 1994.
10.10 Amendment No. 2 to Marquette Electronics, Inc. Profit-
Sharing and 401(k) Plan and Trust (as amended and
restated) adopted on February 9, 1996.
10.11 Marquette Electronics, Inc. Directors (non-employee)
Stock Option Plan adopted August 19, 1993 (filed as
Exhibit 10.23 to Form 10-K for the fiscal year ended
April 30, 1994 and incorporated herein by reference)
10.12 Loan Agreement dated May 31, 1994 between Marquette
Electronics, Inc., M&I Marshall & Ilsley Bank and
NBD Bank, N.A. (filed as Exhibit 10.19 to Form 10-K
for the fiscal year ended April 30, 1995 and
incorporated herein by reference)
10.13 Marquette Electronics, Inc. Management Deferred
Compensation Plan, as adopted on February 9, 1996
10.14 Employment Agreement dated September 20, 1995 between
E For M Corporation, a wholly-owned subsidiary of
the Registrant, and P. Michael Breedlove
10.15 Employment Agreement dated May 14, 1996 between
Registrant and Peter P. Tong
-------------
* This information appears only in the manually signed,
original, sequentially numbered copy of this report.
44
<PAGE>
Sequential
Exhibit Page
No. Number*
10.16 Stock Purchase Agreement, dated July 1, 1996, between
the Registrant, E For M Corporation and Polar Vision,
Inc.
10.17 Loan Agreement between Registrant and M & I Marshall
and Ilsley Bank, Wachovia Bank of Georgia N.A. and
NBD Bank, N.A. dated December 12, 1995
10.18 Commercial Lease Agreement dated July 28, 1994 between
Kansas Industrial No. 1 and Vari-X, Inc. (an indirect
wholly-owned subsidiary of Registrant) (filed by E For
M Corporation, a wholly-owned subsidiary of Registrant,
as an exhibit to its Form 10-Q for the quarterly
period ending June 30, 1994 and incorporated herein by
reference)
10.19 Commercial and Industrial Lease Agreement dated
March 29, 1995 between Bond Street Building Co. and
E For M Corporation (a wholly-owned subsidiary of
Registrant)
10.20 Standard Industrial/Commercial Single Tenant-Tenant
Lease-Net dated May 24, 1994 between Albor Properties
One LP and Enhanced Imaging Technologies, Inc. (now
known as E For M Corporation)
13 1996 Annual Report to Shareholders
21.1 List of subsidiaries
23.1 Consent of Arthur Andersen LLP
27.1 Financial Data Schedule
------------
* This information appears only in the manually signed,
original, sequentially numbered copy of this report.
45
<PAGE>
(b) REPORTS ON FORM 8-K
The Registrant filed Form 8-K/A on February 22, 1996, for purposes of
amending Form 8-K filed by the Registrant on December 23, 1995. Form
8-K/A contained financial statements and exhibits reported under Item
7, consisting of audited financial statements of E For M Corporation
for the years ending December 31, 1992, 1993 and 1994, unaudited
interim financial statements of E For M Corporation as of and for the
nine months ended September 30, 1994 and 1995 and pro forma financial
information consisting of unaudited pro forma combined balance sheets
of the Registrant and E For M Corporation as of October 31, 1995, pro
forma combined condensed statements of income (unaudited) of
Registrant and E For M Corporation for the years ended April 30, 1995
and March 31, 1995 and pro forma combined condensed statements of
income (unaudited) of the Registrant and E For M Corporation for the
six months ended October 31, 1995 and September 30, 1995.
46
<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.
Date: July 24, 1996
MARQUETTE ELECTRONICS, INC.
By: /s/ Timothy C. Mickelson
---------------------------------
Timothy C. Mickelson, President
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- --------- ----- ----
<S> <C> <C>
Principal Executive Officer:
/s/ Michael J. Cudahy Chief Executive
- ------------------------------ Officer, Director July 24, 1996
Michael J. Cudahy
Principal Financial Officer:
/s/ Mary M. Kabacinski Vice President, Chief
- ------------------------------ Financial Officer,
Mary M. Kabacinski Assistant Secretary July 24, 1996
A Majority of Directors:
/s/ Timothy C. Mickelson President,
- ------------------------------ Director July 24, 1996
Timothy C. Mickelson
/s/ Michael J. Cudahy Chief Executive
- ------------------------------ Officer, Director July 24, 1996
Michael J. Cudahy
/s/ Frederick G. Luber Director July 24, 1996
- ------------------------------
Frederick G. Luber
/s/ Melvin S. Newman Director July 24, 1996
- ------------------------------
Melvin S. Newman
</TABLE>
47
<PAGE>
Exhibit 3.2(a)
--------------
AMENDED AND RESTATED
BY-LAWS
OF MARQUETTE ELECTRONICS, INC.
(as of January 8, 1996)
ARTICLE I
---------
OFFICES
-------
The principal office of the corporation in the State of Wisconsin shall
be located in the City of Milwaukee, County of Milwaukee. The corporation may
have such other offices, either within or without the State of Wisconsin, as the
Board of Directors may designate or as the business of the corporation may
require from time to time.
The registered office of the corporation required by the Wisconsin
Business Corporation Law to be maintained in the State of Wisconsin may be, but
need not be, identical with the principal office in the State of Wisconsin, and
the address of the registered office may be changed from time to time by the
Board of Directors.
ARTICLE II
----------
SHAREHOLDERS
------------
Section 1 -- Annual Meeting.
------- --------------
The annual meeting of the shareholders for the election of directors
and for the transaction of such other business as may properly be brought before
the meeting shall be held at such time as is specified in the notice of the
meeting on either the first Friday in July of each year or on such other date as
may be fixed by the Board of Directors of the corporation prior to the giving of
the notice of the meeting. The Board of Directors acting by resolution may
postpone or reschedule any annual meeting of shareholders.
Nominations of persons for election to the Board of Directors of the
corporation and the proposal of business to be considered by the shareholders
may be made at an annual meeting of shareholders (a) pursuant to the
corporation's notice of meeting, (b) by or at the direction of the Board of
Directors or (c) by any shareholder of the corporation who was a shareholder of
record at the time of giving of notice provided for in this By-Law, who is
entitled to vote at the meeting and who complied with the notice procedures set
forth in this By-Law.
For nominations or other business to be properly brought before an
annual meeting by a shareholder pursuant to clause (c) of the foregoing
paragraph of this By-Law, the shareholder must have
<PAGE>
given timely notice thereof in writing to the Secretary of the corporation. To
be timely, a shareholder's notice shall be delivered to the Secretary at the
principal executive offices of the corporation not less than 75 days nor more
than 100 days prior to the first anniversary of the preceding year's annual
meeting; provided, however, that in the event that the date of the annual
meeting is advanced by more than 30 days or delayed by more than 60 days from
such anniversary date, notice by the shareholder to be timely must be so
delivered not earlier than the 100th day prior to such annual meeting and not
later than the close of business on the later of the 75th day prior to such
annual meeting or the 10th day following the day on which public announcement of
the date of such meeting is first made. Such shareholder's notice shall set
forth (a) as to each person whom the shareholder proposes to nominate for
election or reelection as a director all information relating to such person
that is required to be disclosed in solicitations of proxies for election of
directors, or is otherwise required, in each case pursuant to Regulation 14A
under the Securities Exchange Act of 1934, as amended (the "Exchange Act")
(including such person's written consent to being named in the proxy statement
as a nominee and to serving as a director if elected); (b) as to any other
business that the shareholder proposes to bring before the meeting, a brief
description of the business desired to be brought before the meeting, the
reasons for conducting such business at the meeting and any material interest in
such business of such shareholder and the beneficial owner, if any, on whose
behalf the proposal is made; (c) as to the shareholder giving the notice and the
beneficial owner, if any, on whose behalf the nomination or proposal is made (i)
the name and address of such shareholder, as they appear on the corporation's
books, and of such beneficial owner and (ii) the class and number of shares of
the corporation which are owned beneficially and of record by such shareholder
and such beneficial owner.
Notwithstanding anything in the second sentence of the preceding
paragraph to the contrary, in the event that the number of directors to be
elected to the Board of Directors of the corporation is increased and there is
no public announcement naming all of the nominees for Director or specifying the
size of the increased Board of Directors made by the corporation at least 85
days prior to the first anniversary of the preceding year's annual meeting, a
shareholder's notice required by this By-Law shall also be considered timely,
but only with respect to nominees for any new positions created by such
increase, if it shall be delivered to the Secretary at the principal executive
offices of the corporation not later than the close of business on the 10th day
following the day on which such public announcement is first made by the
corporation.
Only such persons who are nominated in accordance with the procedures
set forth in these By-Laws shall be eligible to serve as directors and only such
business shall be conducted at an annual meeting of shareholders as shall have
been brought before
2
<PAGE>
the meeting in accordance with the procedures set forth in this By-Law. The
chairman of the meeting shall have the power and duty to determine whether a
nomination or any business proposed to be brought before the meeting was made in
accordance with the procedures set forth in this By-Law and, if any proposed
nomination or business is not in compliance with this By-Law, to declare that
such defective proposal shall be disregarded.
For purposes of this By-Law, "public announcement" shall mean
disclosure in a press release reported by the Dow Jones News Service, Associated
Press or comparable national news service or in a document publicly filed by the
corporation with the Securities and Exchange Commission pursuant to Sections 13,
14 or 15(d) of the Exchange Act.
Notwithstanding the foregoing provisions of this By-Law, a shareholder
shall also comply with all applicable requirements of the Exchange Act and the
rules and regulations thereunder with respect to the matters set forth in this
By-Law. Nothing in this By-Law shall be deemed to affect any rights of
shareholders to request inclusion of proposals in the corporation's proxy
statement pursuant to Rule 14a-8 under the Exchange Act.
Section 2 -- Special Meetings.
--------- ----------------
Special meetings of the shareholders for any purpose or purposes shall
be called to be held at any time upon the request of the President, a majority
of the members of the Board of Directors or of the Executive Committee then in
office or upon the written request of the holders of not less than ten (10%)
percent of all outstanding shares of the corporation. Business transacted at all
special meetings shall be confined to the specific purpose or purposes of the
persons authorized to request such special meeting as set forth in this Section
2 and only such purpose or purposes will be set forth in the notice of the
meeting. The Board of Directors acting by resolution may postpone or reschedule
any previously scheduled special meeting of shareholders.
Nominations of persons for election to the Board of Directors may be
made at a special meeting of shareholders at which directors are to be elected
(a) pursuant to the corporation's notice of meeting, (b) by or at the direction
of the Board of Directors or (c) by any shareholder of the corporation who is a
shareholder of record at the time of giving of notice provided for in this By-
Law who shall be entitled to vote at the meeting and who complies with the
notice procedures set forth in this By-Law. Nominations by shareholders of
persons for election to the Board of Directors may be made at such a special
meeting of shareholders if the shareholder's notice required by the third
paragraph of Section 1 of Article I of these By-Laws shall be delivered to the
Secretary at the principal executive offices of the corporation not earlier than
the 100th day prior to such special meeting and not later than
3
<PAGE>
the close of business on the later of the 75th day prior to such special meeting
or the 10th day following the day on which such public announcement is first
made of the date of the special meeting and of the nominees proposed by the
Board of Directors to be elected at such meeting.
Only such persons who are nominated in accordance with the procedures
set forth in these By-Laws shall be eligible to serve as directors and only such
business shall be conducted at a special meeting of shareholders as shall have
been brought before the meeting in accordance with the procedures set forth in
this By-Law. The chairman of the meeting shall have the power and duty to
determine whether a nomination or any business proposed to be brought before the
meeting was made in accordance with the procedures set forth in this By-Law and,
if any proposed nomination or business is not in compliance with this By-Law, to
declare that such defective proposal shall be disregarded.
Notwithstanding the foregoing provisions of this By-Law, a shareholder
shall also comply with all applicable requirements of the Exchange Act and the
rules and regulations thereunder with respect to the matters set forth in this
By-Law. Nothing in this By-Law shall be deemed to affect any rights of
shareholders to request inclusion of proposals in the corporation's proxy
statement pursuant to Rule 14a-8 under the Exchange Act.
Section 3 -- Place of Meeting.
--------- ----------------
All meetings of the shareholders shall be held at such place within or
without the state of Wisconsin as shall be fixed by the Board of Directors from
time to time.
Section 4 -- Notice of Meeting.
--------- -----------------
Written notice stating the place, day and hour of the meeting and, the
purpose or purposes for which the meeting is called, shall be delivered not less
than ten nor more than ninety days before the date of the meeting, either
personally or by mail, by or at the direction of the President, or the
Secretary, or the officer or persons calling the meeting, to each shareholder of
record entitled to vote at such meeting. If mailed, such notice shall be deemed
to be delivered when deposited in the United States mail, addressed to the
shareholder at his address as it appears on the stock record books of the
corporation, with postage thereon prepaid.
Section 5 -- Closing of Transfer Books or Fixing of Record Date.
--------- ----------------------------------------------------
The Board of Directors may fix a future date as the record date for one
or more voting groups in order to determine the shareholders entitled to notice
of a shareholders meeting, to
4
<PAGE>
demand a special meeting, or to vote or to take any other action. The record
date may not be more than seventy days nor less than fifteen days before the
meeting or action requiring a determination of shareholders. Except as otherwise
provided by these By-Laws, a determination of shareholders entitled to notice of
or to vote at a shareholders meeting is effective for any adjournment of the
meeting unless the Board of Directors fixes a new record date, which it shall do
if the meeting is adjourned to a date more than one hundred twenty days after
the date fixed for the original meeting. The Board of Directors may from time to
time fix in advance a date, not more than seventy days prior to the date for the
payment of any dividend, or the date for the allotment of any rights, or the
date when any change or conversion or exchange of shares shall become effective,
as a record for the determination of the shareholders entitled to receive
payment of any such dividend, or to any such allotment of rights, or to exercise
the rights in respect of any such change, conversion, or exchange of shares, and
only such shareholders as shall be shareholders of record on the date so fixed
shall be entitled to receive payment of such dividend, or to receive such
allotment of rights, or to exercise such rights, notwithstanding any transfer of
any shares on the books of the corporation after any such record date so fixed.
Section 6 -- Shareholders' List For Meeting.
--------- ------------------------------
After fixing a record date for a meeting, the corporation shall prepare
a list of the names of all its shareholders who are entitled to notice of a
shareholders meeting. The list shall be arranged by class or series of shares
and show the address of and number of shares held by each shareholder.
The corporation shall make the shareholders' list available for
inspection by shareholders, beginning two business days after notice of the
meeting is given for which the list was prepared and continuing to the date of
the meeting, at the corporation's principal office or at a place identified in
the meeting notice in the city where the meeting will be held. A shareholder or
his or her agent or attorney may, on written demand, inspect the list, and
during regular business hours and at his or her expense, during the period that
it is available for inspection under this section copy such list, provided,
however, that the shareholder's demand to copy such list is made in good faith
and for a proper purpose, that the shareholder describes with reasonable
particularity his or her purpose and that the shareholders' list that he or she
desires to copy is directly connected with his or her purpose.
The corporation will make the shareholders' list available at the
meeting, and any shareholder or his or her agent or attorney may inspect the
list at any time during the meeting or any adjournment.
5
<PAGE>
Section 7 -- Quorum.
--------- ------
A majority of the outstanding shares of the corporation entitled to
vote at the meeting, represented in person or by proxy, shall constitute a
quorum at a meeting of shareholders. Though less than a quorum of the
outstanding shares are represented at a meeting, a majority of the shares so
represented may adjourn the meeting from time to time without further notice. At
such adjourned meeting at which a quorum shall be present or represented, any
business may be transacted which might have been transacted at the meeting as
originally notified.
Section 8 -- Proxies.
--------- -------
At all meetings of shareholders, a shareholder entitled to vote may
vote by proxy appointed in writing by the shareholder or by his duly authorized
attorney in fact. Such proxy shall be filed with the Secretary of the
corporation before or at the time of the meeting. No proxy shall be valid after
eleven months from the date of its execution, unless otherwise provided in the
proxy. Each proxy shall be revocable unless expressly provided therein to be
irrevocable and unless otherwise made irrevocable by law.
Section 9 -- Voting of Shares.
--------- ----------------
Each outstanding share shall be entitled to one vote on each matter
submitted to a vote at the meeting of shareholders, except to the extent that
the voting rights of the shares of any class are limited or denied by the
Articles of Incorporation or by a resolution of the Board of Directors
designating a series of preferred stock. At each election for Directors, every
shareholder entitled to vote at such election shall have the right to vote, in
person or by proxy, the number of shares owned by him for as many persons as
there are Directors to be elected and for whose election he has a right to vote,
but without the right to cumulate votes. Except with respect to the election of
Directors, and unless required by statute or determined by the chairman of the
meeting to be advisable, the vote on any question need not be by ballot. If a
quorum is present at any meeting of shareholders, the vote of the holders of a
majority of the shares cast by the holders of shares entitled to vote on the
matter shall be sufficient for the transaction of any business, except that
directors shall be elected by a plurality of shares cast by the holders of
shares entitled to vote in the election.
Section 10 -- Inspectors of Election.
---------- ----------------------
Prior to each meeting of shareholders, the Board of Directors shall
appoint not more than three Inspectors, who shall not be directors or officers
of the corporation or candidates for the office of director. Such Inspectors
shall count and report to the meeting the votes cast on all matters submitted to
a vote at
6
<PAGE>
such meeting. In the case of failure of the Board of Directors to make such
appointments, or in the case of failure of any Inspector so appointed to act,
the chairman of the meeting shall make such appointments or fill such vacancies.
Each Inspector shall be entitled to a reasonable compensation from the
corporation for his services. The Inspectors appointed to act at any meeting of
the shareholders, before entering upon the discharge of their duties, shall be
sworn faithfully to execute the duties of Inspectors at such meeting with strict
impartiality and according to the best of their ability, and the oath so taken
shall be subscribed by them.
Section 11 -- Voting Company's Shares.
---------- -----------------------
Shares of the corporation belonging to it shall not be voted directly
or indirectly at any meeting and shall not be counted in determining the total
number of outstanding shares at any given time, but shares held by this
corporation in a fiduciary capacity may be voted and shall be counted in
determining the total number of outstanding shares at any given time.
Section 12 -- Shares in Other Corporation's Name.
---------- ----------------------------------
Shares standing in the name of another corporation may be voted either
in person or by proxy, by the president of such corporation or any other officer
appointed by such president. A proxy executed by any principal officer of such
other corporation or assistant thereto shall be conclusive evidence of the
signer's authority to act, in the absence of express notice to this corporation,
given in writing to the secretary of this corporation, of the designation of
some other person by the board of directors or the by-laws of such other
corporation.
Section 13 -- Order of Business.
---------- -----------------
The order of business of each meeting of the shareholders of the
corporation shall be determined by the chairman of the meeting. The chairman of
the meeting shall have the right and authority to proscribe such rules,
regulations and procedures and do all acts and things as are necessary or
desirable for the conduct of the meeting, including without limitation, the
establishment of procedures for the dismissal of business not properly
presented, the maintenance of order and safety, limitations on the time allotted
to questions or comments on the affairs of the corporation, restrictions on
entry to such meetings after the time prescribed for commencement thereof and
opening and closing of the voting polls.
7
<PAGE>
ARTICLE III
-----------
BOARD OF DIRECTORS
------------------
Section 1 -- General Powers.
--------- --------------
The business and affairs of the corporation shall be managed by and
under the direction of its Board of Directors, which may exercise all such
powers of the corporation and do all such lawful acts and things as are not by
statute or by the Articles of Incorporation or by these By-Laws directed or
required to be exercised and done by the shareholders.
Section 2 -- Number, Tenure and Qualifications.
--------- ---------------------------------
The number of directors of the corporation shall be seven (7). Each
director shall hold office until the next annual meeting of shareholders and
until his successor shall have been elected and qualified. Directors need not be
residents of the State of Wisconsin or shareholders of the corporation.
Section 3 -- Regular Meetings.
--------- ----------------
Regular meetings of the Board of Directors shall be held without
further notice than this By-Law immediately after and at the same place, as the
annual meeting of shareholders, and each adjourned session thereof and on the
4th Tuesday in November, February and May of each year, at the principal offices
of the corporation at the hour of 9:00 a.m. The Chairman of the Board of the
corporation may, upon not less than five (5) days written notice to all members
of the Board of Directors, provide for a variance in the time, date or location
of any such meeting.
Section 4 -- Special Meetings.
--------- ----------------
Special meetings of the Board of Directors may be called by or at the
request of the Chairman of the Board, President or any two directors. The person
or persons authorized to call special meetings of the Board of Directors may fix
any place, either within or without the State of Wisconsin, as the place for
holding any special meeting of the Board of Directors called by them.
Section 5 -- Notice.
--------- ------
Notice of any special meeting shall be given at least 48 hours
previously thereto by written notice delivered personally or mailed to each
director at his business address, or by telegram. If mailed, such notice shall
be deemed to be delivered when deposited in the United States mail so addressed,
with postage thereon prepaid. If notice be given by telegram, such notice shall
be deemed to be delivered when the telegram is delivered to the telegraph
company. Whenever any notice whatever is required to be
8
<PAGE>
given to any director of the corporation under the provisions of these by-laws
or under the provisions of the articles of incorporation or under the provisions
of any statute, a waiver thereof in writing, signed at any time, whether before
or after the time of meeting, by the director entitled to such notice, shall be
deemed equivalent to the giving of such notice. The attendance of a director at
a meeting shall constitute a waiver of notice of such meeting, except where a
director attends a meeting and objects thereat to the transaction of any
business because the meeting is not lawfully called or convened. Neither the
business to be transacted at, nor the purpose of, any regular or special meeting
of the Board of Directors need be specified in the notice or waiver of notice of
such meeting.
Section 6 -- Quorum.
--------- ------
A majority of the number of directors fixed by Section 2 of this
Article III shall constitute a quorum for the transaction of business at any
meeting of the Board of Directors, but though less than such quorum is present
at a meeting, a majority of the directors present may adjourn the meeting from
time to time without further notice.
Section 7 -- Resignation and Removal.
--------- -----------------------
Any director may resign at any time upon giving written notice to the
corporation. Any director may be removed from office by the affirmative vote of
a majority of the shares outstanding entitled to vote for the election of such
director taken at a special meeting of shareholders called for that purpose.
Section 8 -- Vacancies.
--------- ---------
The Board of Directors may fill any vacancy (occurring by resignation,
removal or otherwise) in the board happening after any regular annual election
or any vacancy created by an increase in the authorized number of directors
until the next succeeding election, by the affirmative vote of a majority of the
directors then in office, although less than a quorum.
Section 9 -- Compensation.
--------- ------------
The Board of Directors, by affirmative vote of a majority of the
directors then in office, and irrespective of any personal interest of any of
its members may establish reasonable compensation of all directors for services
to the corporation as directors, officers or otherwise, or may delegate such
authority to an appropriate committee.
9
<PAGE>
Section 10 -- Presumption of Assent.
---------- ---------------------
A director of the corporation who is present at a meeting of the Board
of Directors or a committee thereof at which action on any corporate matter is
taken shall be presumed to have assented to the action taken unless his dissent
shall be entered in the minutes of the meeting or unless he shall file his
written dissent to such action with the person acting as the secretary of the
meeting before the adjournment thereof or shall forward such dissent by
registered mail to the Secretary of the corporation immediately after the
adjournment of the meeting. Such right to dissent shall not apply to a director
who voted in favor of such action.
Section 11 -- Committees.
---------- ----------
The Board of Directors by resolution adopted by the affirmative vote
of a majority of the number of directors fixed by Section 2 of this Article III
may designate an Executive Committee, an Audit Committee, a Human Resources
Committee, a Nominating and Proxy Committee, and one or more other committees,
each committee to consist of two or more directors elected by the Board of
Directors. The Board of Directors may elect one or more of its members as
alternate members of any such committee who may take the place of any absent
member or members at any meeting of such committee, upon request by the
President or upon request by the chairman of such meeting. Each such committee
shall fix its own rules governing the conduct of its activities and shall make
such reports to the Board of Directors of its activities as the Board of
Directors may request.
Any Executive Committee which to the extent provided in said
resolution, as initially adopted, and as thereafter supplemented or amended by
further resolution adopted by a like vote, shall have and may exercise, when the
Board of Directors is not in session, the powers of the Board of Directors in
the management of the business and affairs of the corporation, except as
otherwise limited by law.
Any Human Resources Committee designated by the Board of Directors
shall consist of not less than two (2) directors who shall be neither officers
nor employees of the corporation or its subsidiaries or any person having a
relationship which, in the opinion of the Board of Directors, would interfere
with the exercise of independent judgment in carrying out the responsibilities
of a director. The Human Resources Committee shall have the responsibility for
(a) authorizing the grant of stock options under any employee stock option plan;
(b) making recommendations to the Board of Directors with respect to the
salaries and bonuses to be paid to officers of the Company and the terms and
conditions of their employment; and (c) reviewing the overall compensation plans
and policies of the corporation, fringe benefit programs and other
10
<PAGE>
conditions of employment and recommending to the Board of Directors changes or
modifications thereof.
Any Audit Committee designated by the Board of Directors shall consist
of not less than two (2) directors who shall be neither officers nor employees
of the corporation or its subsidiaries or any person having a relationship
which, in the opinion of the Board of Directors, would interfere with the
exercise of independent judgment in carrying out the responsibilities of a
director. The Audit Committee shall have responsibility to (a) review the
proposal by the corporation's independent public accountants for the audit of
the corporation for the current year; (b) recommend to the Board of Directors,
for appointment by the Board, the firm of independent public accountants to
audit the books, records and accounts of the corporation; (c) review all
recommendations made by the corporation's independent public accountants with
respect to accounting principles, accounting methods used and adequacy of
systems of internal control to be followed by the corporation and advise the
Board of Directors with respect thereto; (d) examine and make recommendations to
the Board of Directors with respect to the scope of the audit conducted by the
corporation's independent public accountants; (e) review and discuss with the
independent public accountants the scope of the audits performed by the
corporation's internal audit staff; and (f) assist the Board of Directors in
fulfilling its fiduciary responsibilities for financial reporting and internal
accounting controls.
Any Nominating and Proxy Committee designated by the Board of
Directors shall consist of the President and such number of other directors, not
less than two, as from time to time shall be prescribed by the Board of
Directors, who shall hold office until their respective successors are elected.
The Nominating and Proxy Committee shall have the duty and responsibility of
recommending to the Board of Directors, prior to the annual shareholders'
meeting each year, the nominees for election to the Board of Directors for whom
the corporation should solicit proxies and recommending, prior to the annual
directors' meeting each year, nominees for election as President for the ensuing
year.
ARTICLE IV
----------
OFFICERS
--------
Section 1 -- Number.
------- ------
The principal officers of the corporation shall be a Chairman of the
Board, a President, a Co-President, Vice-Presidents, a Secretary, and a
Treasurer, each of whom shall be elected by the Board of Directors. Such other
officers and assistant officers as may be deemed necessary may be elected or
appointed by
11
<PAGE>
the Board of Directors. Any two or more offices may be held by the same person,
except the offices of President and Secretary and the offices of President and
Vice-President.
Section 2 -- Election and Term of Office.
------- ---------------------------
The officers of the corporation to be elected by the Board of
Directors shall be elected annually by the Board of Directors at the first
meeting of the Board of Directors held after each annual meeting of the
shareholders. If the election of officers shall not be held at such meeting,
such election shall be held as soon thereafter as conveniently may be. Each
officer shall hold office until his successor shall have been duly elected and
shall have qualified or until his death or until he shall resign or shall have
been removed in the manner hereinafter provided.
Section 3 -- Removal.
------- -------
Any officer or agent elected or appointed by the Board of Directors
may be removed by the Board of Directors whenever in its judgment the best
interests of the corporation will be served thereby, but such removal shall be
without prejudice to the contract rights, if any, of the person so removed.
Election or appointment shall not of itself create contract rights.
Section 4 -- Vacancies.
------- ---------
A vacancy in any principal office because of death, resignation,
removal, disqualification or otherwise, shall be filled by the Board of
Directors for the unexpired portion of the term.
Section 5 -- Chairman of the Board.
------- ---------------------
The Chairman of the Board shall be the chief executive officer of the
corporation and shall have general direction over the affairs of the
corporation, subject to the control and direction of the Board of Directors. The
Chairman shall, when present, preside as chairman at all meetings of the
shareholders and the Board of Directors. The Chairman may call meetings of the
shareholders and of the Board of Directors and of the committees whenever he
deems it necessary.
Section 6 -- President.
------- ---------
The President shall be the chief operating officer of the corporation
and, subject to the control of the Chairman of the Board and Board of Directors
of the corporation, shall in general supervise and control all of the business
and affairs of the corporation. He shall, when the Chairman of the Board is
unavailable, preside, as Chairman, at all meetings of the shareholders and of
the Board of Directors. He may sign, with the Secretary or any
12
<PAGE>
other proper officer of the corporation thereunto authorized by the Board of
Directors, certificates for shares of the corporation, any deeds, mortgages,
bonds, contracts, or other instruments which the Board of Directors has
authorized to be executed, except in cases where the signing and execution
thereof shall be expressly delegated by the Board of Directors or by these by-
laws to some other officer or agent of the corporation, or shall be required by
law to be otherwise signed or executed; and in general shall perform all duties
incident to the office of President and such other duties as may be prescribed
by the Chairman of the Board or Board of Directors from time to time.
Section 7 -- Co-President.
------- ------------
In the absence of the President, or in the event of his death,
inability or refusal to act, the Co-President shall perform the duties of the
President, and when so acting, shall have all of the powers of and be subject to
all of the restrictions upon the President. He shall also perform such duties as
may be delegated to him by the President or Chairman of the Board or as may be
prescribed by the Board of Directors, from time to time.
Section 8 -- The Vice-Presidents.
------- -------------------
In the absence of the President and the Co-President or in the event
of their death, inability or refusal to act, the Vice-President (or in the event
there be more than one Vice-President, the Vice-Presidents in the order
designated at the time of their election, or in the absence of any designation,
then in the order of their election) shall perform the duties of the President,
and when so acting, shall have all the powers of and be subject to all the
restrictions upon the President. Any Vice-President may sign, with the Secretary
or an Assistant Secretary certificates for shares of the corporation; and shall
perform such other duties as from time to time may be assigned to him by the
President or by the Board of Directors.
Section 9 -- The Secretary.
------- --------------
The Secretary shall: (a) keep the minutes of the shareholders' and of
the Board of Directors' meetings in one or more books provided for that purpose;
(b) see that all notices are duly given in accordance with the provisions of
these by-laws or as required by law; (c) be custodian of the corporate records
and of the seal of the corporation and see that the seal of the corporation is
affixed to all documents the execution of which on behalf of the corporation
under its seal is duly authorized; (d) keep a register of the post office
address of each shareholder which shall be furnished to the Secretary by such
shareholder; (e) sign with the President, or a Vice-President, certificates for
shares of the corporation, the issuance of which shall have been authorized by
resolution of the Board of Directors; (f) have general charge of
13
<PAGE>
the stock transfer books of the corporation; and (g) in general perform all
duties incident to the office of Secretary and such other duties as from time to
time may be assigned to him by the President or by the Board of Directors.
Section 10 -- The Treasurer.
---------- -------------
If required by the Board of Directors, the Treasurer shall give a bond
for the faithful discharge of his duties in such sum and with such surety or
sureties as the Board of Directors shall determine. He shall: (a) have charge
and custody of and be responsible for all funds and securities of the
corporation; receive and give receipts for moneys due and payable to the
corporation from any source whatsoever, and deposit all such moneys in the name
of the corporation in such banks, trust companies or other depositaries as shall
be selected in accordance with the provisions of Article V of these By-Laws; and
(b) in general perform all of the duties incident to the office of Treasurer and
such other duties as from time to time may be assigned to him by the President
or by the Board of Directors.
Section 11 -- Assistant Secretaries and Assistant Treasurers.
---------- ----------------------------------------------
The Assistant Secretaries, when authorized by the Board of Directors,
may sign with the President or a Vice-President certificates for shares of the
corporation the issuance of which shall have been authorized by a resolution of
the Board of Directors. The Assistant Treasurers shall respectively, if required
by the Board of Directors, give bonds for the faithful discharge of their duties
in such sums and with such sureties as the Board of Directors shall determine.
The Assistant Secretaries and Assistant Treasurers, in general, shall perform
such duties as shall be assigned to them by the Secretary or the Treasurer,
respectively, or by the President or the Board of Directors.
SECTION 12 -- Salaries.
---------- --------
The salaries of the officers shall be fixed from time to time by the
Board of Directors and no officer shall be prevented from receiving such salary
by reason of the fact that he is also a director of the corporation.
ARTICLE V
---------
CONTRACTS, LOANS, CHECKS, AND DEPOSITS
--------------------------------------
Section 1 -- Contracts.
------- ---------
The Board of Directors may authorize any officer or officers, agent or
agents, to enter into any contract or execute and deliver any instrument in the
name of and on behalf of the
14
<PAGE>
corporation, and such authorization may be general or confined to specific
instances.
Section 2 -- Loans.
------- -----
No loans shall be contracted on behalf of the corporation and no
evidences of indebtedness shall be issued in its name unless authorized by or
under the authority of a resolution of the Board of Directors. Such
authorization may be general or confined to specific instances.
Section 3 -- Checks, Drafts, etc.
------- -------------------
All checks, drafts or other orders for the payment of money, notes or
other evidences of indebtedness issued in the name of the corporation, shall be
signed by such officer or officers, agent or agents of the corporation and in
such manner as shall from time to time be determined by or under the authority
of resolution of the Board of Directors.
Section 4 -- Deposits.
------- --------
All funds of the corporation not otherwise employed shall be deposited
from time to time to the credit of the corporation in such banks, trust
companies or other depositaries as may be selected by or under the authority of
the Board of Directors.
ARTICLE VI
----------
CERTIFICATES FOR SHARES AND THEIR TRANSFER
------------------------------------------
Section 1 -- Certificates for Shares.
------- -----------------------
The corporation shall deliver certificates representing all shares to
which shareholders are entitled. Such certificates shall be numbered and shall
be entered on the books of the corporation as they are issued and shall be
signed by the President or Vice President and the Secretary or an Assistant
Secretary of the corporation, and may be sealed with the seal of the corporation
or a facsimile thereof. The signatures of the President or Vice President,
Secretary or Assistant Secretary may be facsimiles, if the certificate is
countersigned by a transfer agent or registered by a registrar, either of which
is other than the corporation itself or an employee of the corporation. In case
any officer who has signed or whose facsimile signature has been placed upon
such certificate shall have ceased to be such officer before such certificate is
issued, it may be issued by the corporation with the same effect as if he were
such officer at the date of its issuance. There shall be set forth upon the face
or back of the certificate a statement that the corporation will furnish to any
stockholder upon request and without charge, a summary of the designations,
15
<PAGE>
preferences, limitations and relative rights applicable to each class and, if
the corporation is authorized to issue any series, the variations in rights,
preferences and limitations between the shares of each such series so far as the
same have been fixed and determined and the authority of the Board of Directors
to fix and determine the relative rights and preferences of subsequent series.
Each certificate representing shares shall state upon the face thereof that the
corporation is organized under the laws of the State of Wisconsin, the name of
the person to whom issued, the number and class and the designation of the
series, if any, which such certificate represents and the par value of each
share represented by such certificate or a statement that the shares are without
par value. No certificate shall be issued for any share until the consideration
therefor has been fully paid.
Section 2 -- Transfer Agent.
--------- --------------
The corporation may maintain one or more transfer offices or agencies,
each under control of a Transfer Agent, where the shares of the corporation may
be transferable. The corporation may maintain one or more registry offices or
agencies, each under the control of a Registrar, where the shares may be
registered. The board of directors may make such additional rules and
regulations as it may deem expedient concerning the issue, transfer, and
registration of certificates for shares of the corporation.
Section 3 -- Transfer of Shares.
--------- ------------------
Transfer of shares of the corporation shall be made only on the stock
transfer books of the corporation by the holder of record thereof or by his
legal representative, who shall furnish proper evidence of authority to
transfer, or by his attorney thereunto authorized by power of attorney duly
executed and filed with the Secretary of the corporation or with any authorized
Transfer Agent, and on surrender for cancellation of the certificate for such
shares. The person in whose name shares stand on the books of the corporation
shall be deemed by the corporation to be the owner thereof for all purposes.
Section 4 -- Lost, Stolen or Destroyed Certificates.
--------- -------------------------------------
The Board of Directors may direct a new certificate or certificates to
be issued in place of any certificate or certificates theretofore issued by the
corporation alleged to have been lost, stolen or destroyed upon the making of an
affidavit of that fact by the person claiming the certificate to be lost, stolen
or destroyed. When authorizing such issue of a new certificate or certificates,
the Board of Directors, in its discretion and as a condition precedent to the
issuance thereof, may require the owner of such lost, stolen or destroyed
certificate or certificates, or his legal representative, to advertise the same
in such manner as
16
<PAGE>
it shall require and/or to give the corporation a bond in such sum as it may
direct as indemnity against any claim that may be made against the corporation
with respect to the certificate alleged to have been lost, stolen or destroyed.
Section 5 -- Stock Requlations.
--------- -----------------
The Board of Directors shall have the power and authority to make all
such further rules and regulations not inconsistent with the statutes of the
State of Wisconsin as they may deem expedient concerning the issue, transfer and
registration of certificates representing shares of the corporation.
ARTICLE VII
-----------
FISCAL YEAR
-----------
The fiscal year of the corporation shall begin on the first day of May
and end on the thirtieth day of April in each year.
ARTICLE VIII
------------
DIVIDENDS
---------
The Board of Directors may from time to time declare, and the
corporation may pay, dividends on its outstanding shares in the manner and upon
the terms and conditions provided by law and its articles of incorporation.
ARTICLE IX
----------
SEAL
----
The Board of Directors shall provide a corporate seal which shall be
circular in form and shall have inscribed thereon the name of the corporation
and the words "Corporate Seal, Wisconsin."
ARTICLE X
---------
INDEMNIFICATION
---------------
The corporation shall indemnify each officer and director of the
corporation to the full extent provided by applicable law and, in addition, in
accordance with any other rights such persons may have under a resolution of the
shareholders of the corporation, a resolution of its Board of Directors or under
the corporation's Articles of Incorporation, as amended
17
<PAGE>
and restated from time to time, or pursuant to any insurance policy, an
agreement or otherwise. Any person entitled to indemnification or to the
reimbursement or advancement of expenses hereunder may elect, to the extent
permitted by law, to have the right of indemnification (or reimbursement or
advancement of expenses) interpreted on the basis of the applicable law in
effect at the time of the occurrence of the event or events giving rise to the
action, suit or proceeding or on the basis of the applicable law in effect as of
the date these Amended and Restated By-Laws are adopted. The foregoing rights to
indemnification shall be in addition to any other rights such person may have
under a resolution of the shareholders of the corporation, a resolution of its
directors, the Articles of Incorporation of the corporation, as amended and
restated from time to time, common law, any insurance policy, any written
agreement or otherwise.
ARTICLE XI
----------
AMENDMENTS
----------
Section 1 -- Board of Directors.
--------- ------------------
The Board of Directors may from time to time, by vote of a majority of
its members, adopt, amend or repeal any and all of the By-Laws of this
corporation except such By-Laws as may have been adopted by the subscribers or
Shareholders of the corporation.
Section 2 -- Shareholders.
--------- ------------
The Shareholders may from time to time, by vote of a majority, adopt, amend or
repeal any and all of the By-Laws of the corporation.
18
<PAGE>
Exhibit 3.2(b)
--------------
Amendment No. 1 to Amended and Restated By-Laws of Marquette Electronics, Inc.
1. Section 1 of Article IV be and is hereby amended to read
as follows:
"Section 1 - Number. The principal officers of the Corporation
shall be a Chairman of the Board, a President and Chief Operating Officer,
Vice Presidents, Divisional Presidents, a Secretary and a Treasurer, each
of whom shall be elected by the Board of Directors. Such other officers and
assistant officers as may be deemed necessary may be elected or appointed
by the Board of Directors. Any two or more offices may be held by the same
person except the offices of President and Secretary and the offices of
President and Vice President."
2. Section 7 of Article IV be and is hereby deleted in its entirety.
3. Section 8 of Article IV be and is hereby amended by substituting for the
phrase "in the absence of the President and the Co-President or in the event of
their death", the phrase "in the absence of the President or in the event of his
death".
4. Section 8 is hereby renumbered to appear as Section 7 and a new Section
8 is hereby added, to read as follows:
"Section 8 - The Division Presidents.
------------------------
One or more division presidents, each of whose division shall be identified
as part of his title, may be elected to manage and operate a business
division of the Corporation recognized by the Board of Directors and shall
report to the President and Chairman of the Board."
5. This Amendment shall be known as Amendment No. 1 to the Amended and
Restated By-Laws of Marquette Electronics, Inc.
6. In all other respects, the Amended and Restated By-Laws of Marquette
electronics, Inc. as adopted on January 8, 1996, shall remain in full force and
effect.
4
<PAGE>
Exhibit 10.6
------------
Amendment No. 3 to Amended and Restated Stock Option Plan for Employees of
Marquette Electronics, Inc.
WHEREAS, on March 20, 1992, this Corporation, by resolution of
its Board of Directors, adopted the Amended and Restated Stock Option Plan
for Employees of Marquette Electronics, Inc., which Plan was approved by the
shareholders of this Corporation by resolution adopted at the annual meeting
of shareholders held on August 20, 1992; and
WHEREAS, on September 10, 1993, said Plan was amended by Amendment No.
1 thereto adopted by the Board of Directors, which Amendment was approved
by the shareholders of this Corporation by resolution adopted at the annual
meeting of shareholders held on August 25, 1994; and
WHEREAS, on June 2, 1994, said Plan was further amended by Amendment
No. 2 thereto adopted by the Board of Directors, which amendment was
approved by the shareholders of this Corporation by resolution adopted at
the annual meeting of shareholders held on August 25, 1994; and
WHEREAS, the Board of Directors wishes to further amend
the Plan to increase the number of shares reserved under the Plan
for grant of options from 2,500,000 to 3,500,000;
NOW, THEREFORE, BE IT RESOLVED that the Amended and Restated Stock
Option Plan for Employees of Marquette Electronics, Inc., as amended
by Amendment Nos. 1 and 2, be and is hereby further amended in the
following respects:
1. Section 2.1 of the Plan be and is hereby amended to
read as follows:
"Section 2.1 Shares Subject to Plan. The shares of stock
subject to Options shall be shares of the Corporation's Common
Stock. The aggregate number of such shares which may be issued
upon exercise of Options shall not exceed 3,500,000. For
purposes of the foregoing limitation, any reduction in shares
issuable to an Optionee in full or part payment of the Option
Price in accordance with the provisions of Section 5.3(b) or
(c) shall nevertheless be deemed to have been issued."
2. This Amendment shall be known as Amendment No. 3 to the Amended and
Restated Stock Option Plan for Employees of Marquette Electronics, Inc., is
adopted subject to approval by a majority vote of the holders of common
stock of the Corporation at a meeting of shareholders duly convened within
one year from the date hereof and, upon due approval by the shareholders of
this Corporation, shall be retroactively effective as of this 21st day of
May, 1996.
3. Any options granted hereunder prior to shareholder
approval covering shares in excess of the number of shares reserved
for issuance hereunder prior to the adoption of this Amendment
5
<PAGE>
shall, by their terms, be subject to approval of this Amendment by the
shareholders within one year from the date hereof.
4. In all other respects, the Amended and Restated Stock Option Plan
for Employees of Marquette Electronics, Inc., as amended to date, shall remain
in full force and effect.
6
<PAGE>
Exhibit 10.9
------------
First Amendment to Marquette Electronics, Inc.
- ----------------------------------------------
Profit Sharing and 401(k) Plan and Trust
- ----------------------------------------
(as Restated and Amended)
- -------------------------
WHEREAS, effective April 30, 1993, the Corporation, by
resolution of its Board of Directors, adopted the Marquette
Electronics, Inc. Profit Sharing and 401(k) Plan and Trust (as Restated
and Amended) ("the Plan"); and
WHEREAS, pursuant to Section 2.6 of the Plan, employees of
any wholly owned subsidiary of the Corporation are deemed Employees under the
Plan, provided that said subsidiary agrees to become a Participating Employer
pursuant to Article XVII of the Plan; and
WHEREAS, Section 13.1 of the Plan allows the Corporation to
amend the Plan from time to time; and
WHEREAS, on May 31, 1994, the Corporation acquired all of the
issued and outstanding stock of Corometrics Medical Systems, Inc., a Delaware
corporation ("Corometrics"); and
WHEREAS, prior to such acquisition, certain employees of
Corometrics participated in the American Home Products Corporation Savings Plan
(the "AHPC Savings Plan"), a pension plan qualified under Section 401(a) of the
Internal Revenue Code; and
WHEREAS, the AHPC Savings Plan held accounts for certain
employees of Corometrics which were funded by the following:
(a) Funds arising from qualified voluntary employee contributions made
prior to January 1, 1987 ("QVEC Contributions"); and
(b) Stock in American Home Products Corporation, a Delaware corporation
("AHPC Stock"); and
<PAGE>
WHEREAS, prior to such acquisition, certain employees of
Corometrics had borrowed money from the AHPC Savings Plan, which loan
obligations were payable more than five years from the date the loans
were made (the "Extended Obligation Loans"); and
WHEREAS, effective June 1, 1994, Corometrics became a
Participating Employer under Article XVII of the Plan; and
WHEREAS, in connection with the Corporation's acquisition
of the stock of Corometrics and the participation by certain employees of
Corometrics in the Plan, the AHPC Savings Plan has tendered to the Plan trustee,
among other items, the following assets of the AHPC Savings Plan:
(a) Accounts of Corometrics employees which are funded by QVEC
Contributions;
(b) Accounts of Corometrics employees which are funded by AHPC
Stock; and
(c) The Extended Obligation Loans.
All of which assets the Plan Trustee wishes to accept on behalf of
Corometrics Employees who have now become participants in the Plan;
NOW, THEREFORE, BE IT RESOLVED, that effective as of August 1, 1994,
the Plan is amended as follows:
A. Section 6.4(c) of the Plan be and is hereby replaced by the following:
"(c) All Matching Accounts, 401(k) Accounts, Rollover Accounts, QVEC
Accounts, AHPC Accounts, and Transfer Accounts are 100% vested. Such
Accounts are described in Sec. 7.1."
B. Section 7.1 of the Plan be and is hereby amended by adding the following
paragraphs:
"(h) A QVEC Account shall be established for each Participant who has
contributed before January 1, 1987, qualified voluntary employee
contributions, within the meaning of Code Section 219(e)(2) as it existed
prior to the Tax Reform Act of 1986, to a separate account established by
the American Home Products Corporation Savings Plan ("AHPC Savings Plan")
for such contributions for said Participant, which account has been
transferred to and become an asset of the Plan. The QVEC Account shall
consist of such separate account plus any earnings thereon. No additional
contributions shall be made to the QVEC Account by the Employer or the
Participant.
2
<PAGE>
"(i) An AHPC Account shall be established for each Participant
on whose behalf stock in American Home Products Corporation, a
Delaware corporation ("AHPC") was held on May 31, 1994 in a separate
account established by the AHPC Plan and which has been transferred
to and acquired by the Plan in connection with the Employer's
purchase of the stock of Corometrics Medical Systems, Inc., a
Delaware corporation ("Corometrics"). The AHPC Account shall consist
only of the AHPC stock held in such separate account on May 31, 1994,
plus any distributions on such stock which are in the form of
additional shares of AHPC stock. The AHPC Account for a Participant
shall not be commingled with other accounts of the Participant, with
accounts of other Participants, or with other assets of the Trust. No
additional contributions shall be made to the AHPC Account by the
Employer or the Participant."
C. Section 7.3 of the Plan be and is hereby replaced by the
following:
"Sec. 7.3 Investment of Accounts. Each Participant (or each
Beneficiary following the death of the Participant) shall direct the
investment of his Accounts, excluding any Forfeiture Account and the
AHPC stock in any AHPC Account, into any of the Funds selected by the
Employer and made available to the Plan. Accounts other than the
Forfeiture Account and the AHPC Account are referred to in this
section as 'directed' Accounts. The Employer and Trustee may agree to
add additional investment options or delete existing investment
options at any time. The Forfeiture Accounts and the AHPC stock in
AHPC Accounts shall be invested as provided herein."
D. Section 7.3 of the Plan be and is hereby amended by adding the
following paragraph:
"(d) Except as otherwise specified herein, the procedure
established by Sec. 7.3(a) for the investment of directed accounts
shall apply to AHPC Accounts. If all or a part of the AHPC stock in
an AHPC Account is sold or redeemed, or if cash dividends or other
forms of cash payments are received on account of the AHPC stock, the
proceeds shall be placed in a separate Regular Account for the
individual. Thereafter, each such separate Account so created shall
be treated in all respects as the corresponding type of Account under
this Plan, except that no contributions or Forfeitures under this
Plan shall ever be added to such a separate Account and in the event
of the individual's Termination of Service entitling him to a benefit
under Sec. 9.2 his vested percentage in each such separate Account
shall be 100%. The voting rights for the AHPC stock in an AHPC
3
<PAGE>
Account shall be exercised by the Trustee. A Participant may not
purchase new or additional stock in AHPC for an AHPC Account after
May 31, 1994."
E. Section 7.6 of the Plan be and is hereby amended by replacing the
first sentence with the following two sentences:
"Sec. 7.6. Transfers from Other Plans. With the consent of the
Employer, which shall be granted in its sole discretion and only if
it determines that the transfer of funds is consistent with the
provisions of the Internal Revenue Code, the Plan may accept a direct
transfer from another plan of funds credited to a Qualified
Individual under such other plan (provided such plan is a qualified
plan under Code Section 401). Further, the Plan shall accept stock in
AHPC which was credited to the Account of an employee of Corometrics
on or prior to May 31, 1994 under the AHPC Savings Plan."
F. Section 7.6 of the Plan be and is hereby amended by adding the
following at the end of the last sentence:
"; however, if the individual is already a Participant under Section
2.6 and Article XVII of the Plan, then he shall immediately be
entitled to the same treatment as other Participants."
G. Section 9.5(d) of the Plan be and is hereby replaced by the
following:
"(d) Each loan shall be amortized by payment of principal and
interest in equal quarterly or more frequent installments. The
Employer may require that loans must be repaid by payroll deductions
to the extent possible. Except for loans which were outstanding to a
Corometrics employee under the AHPC Savings Plan on or before May 31,
1994, and which have been transferred to and acquired by the Plan in
connection with the Employer's purchase of the stock of Corometrics,
all loans shall provide for repayment of principal and interest not
more than five years from the date the loan is made. In addition,
beginning with the calendar year in which the Participant reaches age
70 1/2, the Employer may require any additional loan repayments which
it determines are necessary to provide funds for distributions
required to be made pursuant to Section 10.1."
4
<PAGE>
Exhibit 10.10
-------------
Second Amendment to Marquette Electronics, Inc. Profit Sharinq and 401(K)Plan
and Trust (as Amended and Restated)
WHEREAS, a plan known as the Marquette Electronics, Inc. Profit
Sharing and 401(K) Plan and Trust (the "Plan") was established effective as
of May 1, 1987, amended and restated as of April 30, 1993 and then
subsequently amended by Amendment No. 1 dated August 1, 1994;
The Board of Directors of the Corporation wishes to further amend the Plan,
effective as of May 1, 1996;
NOW, THEREFORE, BE IT RESOLVED THAT the Plan is hereby amended effective
May 1, 1996 as follows:
A. The introductory language of Section 4.2 of Article IV and subsection
(a) of said Section 4.2 of the Plan are hereby deleted in their entirety and the
following are substituted in their place and stead:
"SEC. 4.2 ELIGIBILITY FOR PARTICIPATION. Subject to the provisions of
Section 6.1 hereof, eligibility to participate in this Plan shall be
determined as follows:
(a) An individual will become a Participant in the Plan on the
earliest Entry Date on which all of the following requirements
are met:
(1) He is a Qualified Individual with at least 1,000 Hours of
Service for the Employer and/or any Included Subsidiary
thereof (and/or other Participating Employer) during the
twelve month period starting on his Service Commencement
Date or on the first date of any Plan Year commencing after
that date;
(2) He is credited with such service prior to the applicable
Entry Date; and
(3) He has continuously worked for the Employer and/or a
Included Subsidiary thereof (and/or other Participating
Employer) for a period of not less than one year."
<PAGE>
B. The following new subsection is hereby added to Section
6.1 of Article VI of the Plan, to immediately follow subsection (f)
thereof:
"(g) Notwithstanding the foregoing provisions of this Section 6.1,
any Qualified Individual, regardless of whether he has satisfied the eligibility
requirements set forth in Section 4.2 of Article IV, may elect to have the
Employer make 401(k) Contributions on his behalf in accordance with the
foregoing provisions of this Section 6.1 and shall be treated, solely for
purposes of this Section and Section 6.2 hereof, as a Participant; provided,
however, no Qualified Individual shall be entitled to share in Employer
contributions pursuant to the provisions of Article V thereof unless such person
has satisfied the eligibility requirements set forth in said Section 4.2. Each
Qualified Individual shall be eligible to commence such 401(K) contributions
effective on any Entry Date following the commencement of the individual's
employment with the Employer and/or any Included Subsidiary thereof (and/or
other Participating Employer) provided such individual has, since the
commencement of his employment, worked an average of twenty (20) or more hours
per week in such employment."
C. Section 6.2(a) of Article VI of the Plan is hereby deleted in its
entirety and the following is substituted in its place and stead:
"(a) In respect of each Plan Year, the Employer will make 'Matching
Contributions for each Active Participant in the amount of the Applicable
Percentage' (as hereinafter defined) of such Participant's 401-K contribution to
the extent that such 401-K contribution does not exceed twelve percent (12%) (or
such other higher limit established by the Employer pursuant to Section 6.1(a)
hereof) of such Participant's Certified Earnings for the Plan Year subject to
the maximum limit on Matching Contributions set forth in (b) below (provided,
however, that the Employer may, on a prospective basis only, direct the Trustee
to use a definition of earnings other than Certified Earnings for purposes of
this Section 6.2, provided that such definition would be allowed under the
2
<PAGE>
Code and IRS regulations). For purposes of this subsection, the term
'Applicable Percentage' shall mean:
For the Plan Year Ending Applicable Percentage
------------------------ ---------------------
April 30, 1997 30%
April 30, 1998 35%
April 30, 1999 40%
April 30, 2000 45%
April 30, 2001 and each Plan
Year thereafter 50%
D. In all other respects, the provisions of the Plan shall remain
the same.
3
<PAGE>
Exhibit 10.13
--------------
MARQUETTE ELECTRONICS, INC.
MANAGEEM DEFERRED COMPENSATION PLAN
I. NAME AND PURPOSE
The name of this plan is the Marquette Electronics, Inc. Management Deferred
Compensation Plan (the "Plan"). Its purpose is to provide certain employees
employed by Marquette Electronics, Inc. (the "Company") with the annual
opportunity to defer all or part of the base salary and/or bonus otherwise
payable to them as employees by the Company during a designated year of
employment.
II. EFFECTIVE DATE
The Plan shall be effective as of October 15, 1995.
III. PARTICIPANTS
Employees eligible to participate in this deferred compensation plan shall be
selected by the Board of Directors of Marquette Electronics, Inc. from key
management employees of the Company.
IV. ELECTION OF DEFERRAL(A) Each participant shall be entitled to make an annual
irrevocable election (in the form of Exhibit A hereto), as specified in Section
VII, to defer receipt of a portion of the base salary and/or bonus otherwise
payable by the Company to the employee for the designated year of employment
commencing January 1 of such year.
(B) Each such election shall include an irrevocable election as to the period
of deferral, which deferral period may not end earlier than January 1 of the
year following the designated year of employment or later than January 1 of the
year that is 10 years subsequent to the designated year of employment and which
deferral period shall end on the last day of a month.
(C) Each participant shall be entitled to make a subsequent irrevocable election
(in the form of Exhibit B hereto) to extend the deferral period defined in (B)
above. Such subsequent election must be made at least 2 full years prior to the
end of the originally scheduled deferral period.
V. DEFERRED COMPENSATION ACCOUNTS
A separate account shall be established and maintained for each Participant,
which account shall reflect the bonus deferred pursuant hereto, and specified in
the applicable election form, by such Participant, and all earnings credited
thereto from time to time. Each Participant's account balance shall be credited
(debited) quarterly with earnings (losses) as of the end of each calendar
quarter, with the first such credit being made as of March 31 of such employment
year. In the event a Participant's account balance is distributed other than at
the end of any calendar quarter, he shall be credited (debited) with earnings
(losses) thereon from the end of the immediately preceding calendar quarter to
the date of distribution. No earnings (losses) shall be credited (debited) to a
Participant's account after the distribution of such Participant's account
balance.
VI. METHOD OF DISTRIBUTION OF DEFERRED COMPENSATION
(A) No distribution of a Participant's base salary and/or bonus deferred
pursuant hereto, or of any interest credited thereon, may be made except
as provided in this Section VI.
(B) Subject to the provision of Section VIII, base salary and/or bonus deferred
pursuant hereto, plus any interest credited thereon, shall be payable only in
the manner specified in the applicable election form at the time selected by the
Participant in accordance with Section IV above.
-1-
<PAGE>
(C) A Participant may request a distribution due to an unforeseeable emergency
by submitting a written request to the Company accompained by evidence to
demonstrate that the circumstances being experienced qualify as an unforeseeable
emergency. The Company shall have the authority to require such evidence as it
deems necessary to determine if a distribution is warranted. If an application
for a hardship distribution due to an unforeseeable emergency is approved, the
distribution is limited to an amount sufficient to meet emergency. The allowed
distribution shall be payable in a method determined by the Company as soon as
possible after approval of such distribution.
(D) A Participant who has commenced receiving installment payments under the
Plan may request acceleration of such payments in the event of an unforeseeable
emergency. The Company may permit accelerated payments to the extent such
accelerated payment does not exceed the amount necessary to meet the emergency.
VII. MANNER OF ELECTING DEFERRAL
A Participant may elect to defer the base salary and/or bonus otherwise payable
to him for the designated year of employment by giving written notice to
Marquette Electronics, Inc. which notice must be received by Marquette
Electronics, Inc. prior to December 15 of the year previous to the designated
year of employment and be in the form of Exhibit A hereto (and otherwise in
accordance with the Plan) and set forth the Participant's irrevocable election
as to:
(A) The percentage of the Participant's base salary and/or bonus for such period
to be deferred (which percentage must be between 0% and 100% of the
Participant's base salary and/or bonus); and
(B) The period of deferral (which may not end earlier than January 1 of the year
following the year of employment or later than January 1 of the year which is 10
years subsequent to the designated year of employment and which must end on the
last day of a month).
VIII. DISTRIBUTION UPON DEATH
If any Participant dies before receiving all amounts credited to his account,
the unpaid amounts in the Participant's account shall be paid to the
Participant's surviving spouse or, if the Participant has no surviving spouse,
to the Participant's estate, with that payment to be made at the time selected
by the Participant in accordance with Section IV (B) above. However, if not so
selected by the Participant, the Company may allow a Participant's surviving
spouse to request a lump sum distribution of the Participant's account balance
within 60 days of the time of death. Notwithstanding the foregoing, if a
Participant's spouse fails to survive the Participant by at least ten days, that
spouse shall be deemed to have predeceased the Participant for purposes hereof.
IX. BENEFIT PLANS
The amount of each Participant's base salary and/or bonus which he elects to
defer under the Plan shall not be deemed to be compensation for the purpose of
calculating the amount of a Participant's benefits or contributions under a
pension plan or retirement plan (qualified under Section 401(a) of the Internal
Revenue Code), the amount of life insurance payable under any life insurance
plan established or maintained by the Company, or the amount of any disability
benefit payments payable under any disability plan established or maintained by
the Company, except to the extent specifically provided in any such plan.
-2-
<PAGE>
X. PARTICIPANT'S RIGHTS
Establishment of the Plan shall not be construed as giving any Participant
the right to be retained in the Company's service or employ or the right to
receive any benefits not specifically provided by the Plan. A Participant shall
not have any interest in the base salary and/or bonus deferred or interest
credited to his account until such account is distributed in accordance with the
Plan. All base salary and/or bonus deferred or otherwise held for the account
of a Participant under the Plan shall remain the sole property of the Company,
subject to the claims of its general creditors and available for its use for
whatever purposes are desired. With respect to amounts deferred or otherwise
held for the account of a Participant, the Participant is merely a general
creditor of the Company, and the obligation of the Company hereunder is purely
contractual and shall not be funded or secured in any way.
XI. NON-ALIENABILITY AND NON TRANSFERABILITY
The rights of a Participant to the payment of deferred compensation as provided
in the Plan shall not be assigned, transferred, pledged or encumbered or be
subject in any manner to alienation or anticipation. No Participant may borrow
against his account. No account shall be subject in any manner to anticipation,
sale, transfer, assignment, pledge, encumbrance, charge, garnishment, execution
or levy of any kind, whether voluntary or involuntary, including but not limited
to any liability which is for alimony or other payments for the support of a
spouse or former spouse, or for any relative of any Participant.
XII. ADMINISTRATION
The Administrator of this Plan shall be the Company except as otherwise
determined by the Company. The Company shall have authority to adopt rules and
regulations for carrying out the Plan and to interpret, construe and implement
the provisions hereof. Any decision or interpretation of any provision of the
Plan adopted by the Company shall be final and conclusive.
XIII. INVESTMENTS
A participant may request that his deferred base salary and/or bonus be
allocated among the available investment options established by the
Administrator. The initial allocation request shall be made at the time of
enrollment. Once made, an investment allocation request shall remain in effect
until changed by the Participant. A Participant may change his investment
allocation by submitting a written request to the Administrator on such form as
may be required by the Administrator. Such changes shall become effective as
soon as administratively feasible after the Administrator receives such written
request. Although the Administrator intends to invest according to the
Participant's requests, it reserves the right to invest deferrals without regard
to such requests.
XIV. AMENDMENT AND TERMINATION
The Plan may, at any time or from time to time, be amended, modified or
terminated by the Company. However, no amendment, modification or termination
of the Plan shall, without the consent of a Participant, adversely affect such
Participant's rights with respect to amounts then accrued in his account.
XV. GENERAL PROVISIONS
(A) Controlling Law. Except to the extent superseded by federal law, the laws
of the State of Wisconsin shall be controlling in all matters relating to the
Plan, including construction and performance hereof.
(B) Captions. The captions of Sections and paragraphs of this Plan are for
convenience of reference only and shall not control or affect the meaning or
construction of any of its provisions.
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<PAGE>
(C) Facility of Payment. Any amounts payable hereunder to any person who is
under legal disability or who, in the judgment of the Company, is unable to
properly manage his financial affairs may be paid to the legal representative of
such person or may be applied for the benefit of such person in any manner which
the Company may select, and any such payment shall be deemed to be payment for
such person's account and shall be a complete discharge of all liability of the
Company with respect to the amount so paid.
(D) Withholding Payroll Taxes. To the extent required by the laws in effect at
the time compensation or deferred compensation payments are made, the Company
shall withhold from such compensation, or from deferred compensation payments
made hereunder, any taxes required to be withheld for federal, state or local
government purposes.
(E) Administrative Expenses. All expense of administering the Plan shall be
borne by the Company and no part thereof shall be charged against any
Participant's account or any amounts distributable hereunder.
(F) Any provision of this Plan prohibited by the law of any jurisdiction shall,
as to such jurisdiction, be ineffective to the extent of such prohibition
without invalidating the remaining provisions hereof.
(G) Except as otherwise expressly provided herein no officer, employee, or agent
of the Company, shall have any liability to any person, firm, or corporation
based on or arising out of the Plan except in the case of gross negligence or
fraud.
XVI. UNFUNDED STATUS OF THE PLAN
Any and all payments made to the Participant pursuant to the Plan shall be made
only from the general assets of the Company. A rabbi trust may be established
by the Company to assist in the meeting of its liabilities under the Plan. Any
assets held by the rabbi trust consisting of any amounts of compensation
deferred under the Plan, any property and rights purchased with such amounts and
any income attributable to such amounts of property or rights shall remain
(until made available to the Participant or Beneficiary) solely the property and
rights of the Company and shall be subject to the claims of the Company's
general creditors.
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<PAGE>
Exhibit A
NOTICE OF ELECTION
TO: The Secretary of Marquette Electronics, Inc.
In accordance with the provisions of the Marquette Electronics, Inc. Management
Deferred Compensation Plan, I hereby elect to defer the portion of the base
salary and/or bonus specified below that would otherwise be payable to me for
services as an employee of Marquette Electronics, Inc. for the period beginning
January 1, 1996 and ending December 31, 1996, with such deferral to be for the
period specified below.
Deferral Election for Base Salary and/or Bonus:
(1) Percent of Base Salary Deferred________% (Percentage must be between 0% and
100%)
The percentage shown for base salary to be deferred will apply to each
payment of such base salary otherwise payable to me for the period
beginning January 1, 1996 and ending December 31, 1996.
(2) Percent of Bonus Deferred_______% (Percentage must be between 0% and 100%)
(3) Deferred until_____________ 19____ (Date may be no earlier than January 1,
1997 and no later than January 1, 2006 and must be on the last day of a
month.)
(4) Deferred compensation should be paid out in the following manner:
Lump sum payment
-----
Equal annual installments over 3 years
-----
Equal annual installments over 5 years
-----
Equal annual installments over 10 years
-----
(5) Preference for investment of deferred compensation (all percentages must
be a multiple of 5%):
Vanguard Money Market Prime Fund
-----
PIMCo Total Return Fund
-----
Vanguard Index 500 Fund
-----
IAI Emerging Growth Fund
-----
T. Rowe Price International Stock Fund
-----
"Conservative" Equity Allocation
-----
"Aggressive" Equity Allocation
-----
100% Total (must equal 100%)
=====
This election is irrevocable and is subject to the terms of the Plan.
-------------------------------------------- --------
Participant's Signature Date
Received on the _____ day of 1995, on behalf of Marquette Electronics, Inc.
By:
--------------------------------------------
<PAGE>
[Logo for E for M Corporation]
Corporate Offices Exhibit 10.14
-------------
625 Alaska Avenue
Torrance, CA 90503
PH. 310.320.8425
FAX 310.618.9031
September 20, 1995
Mr. Michael Breedlove
805 West 61st Street
Kansas City, MO 64113
Re: Employment Terms
----------------
Dear Mike:
I am pleased to offer you the position of Vice President, U.S. Field
Operations for E for M Corporation ("E for M") on the following terms.
You will perform the duties customarily associated with this position with
respect to the Company's domestic operations, and will report directly to me.
Your office will be at our facility located at 9221 Quivira Road, Overland
Park, KS 66215. You will be expected to travel extensively in the United
States as required by your duties. The Company reserves the right, of course,
to change your work location from time to time as it deems necessary.
Your annual base salary will be $160,000 per annum. You will be eligible to
participate in E for M's 1994 Executive Incentive Plan (which is based on a
variety of performance factors of the Kansas based Operations). We have agreed
to guarantee your incentive award for the first twelve month period at $90,000
per annum. In addition, as an officer of E for M, you will be eligible for
participation in the Company's 1991 Stock Option Plan. All decisions regarding
the granting of options under that Plan are made by the Compensation Committee
of the Board of Directors. Within thirty (30) days of the date of this letter,
I will recommend to the Committee that an initial grant be made to you of
incentive stock options to purchase forty thousand (40,000) shares of E for M
common stock, subject to the normal provisions governing vesting and other
terms, that are customary for incentive stock options granted under that Plan
(the price will be the closing price of the stock on September 2, 1995).
1
<PAGE>
Your base salary will be paid semi-monthly, subject to standard payroll
deductions and withholdings. You will be eligible for vacation and sick leave
according to standard E for M policy. You will also receive all other benefits
E for M provides team members at a comparable level (e.g. health or dental
insurance coverage). You will be eligible to participate in the Company's
Employee Stock Purchase Plan and its 401(k) Plan.
The term of the employment contract will be for a period of two (2) years
commencing on your date of hire. This two year employment contract protects you
should termination occur for reasons other than fraud or habitual neglect of
duties. At the conclusion of the two year period, you will become an at will
employee.
You may terminate your employment with the Company at any time and for any
reason whatsoever simply by notifying the Company. Likewise, the Company may
terminate your employment at any time and for any reason whatsoever, with or
without cause or advance notice. This at-will employment relationship cannot be
changed except by a writing signed by the President of the Company.
By accepting this offer, you represent and warrant that your employment
with E for M will not violate any agreements, obligations or understandings that
you may have with any third party or prior employer. You agree not to make any
unauthorized disclosure to E for M or use on behalf of E for M any confidential
information belonging to any of your former employers (except in accordance with
agreements between E For M and any such former employer). You also warrant that
you do not possess any property containing a third party's confidential and
proprietary information. Of course, during your employment with E for M, you may
make use of information generally known and used by persons with training and
experience comparable to your own, and information which is common knowledge in
the industry or is otherwise legally available in the public domain.
As an E for M team member, you will be expected to abide by all E for M
policies and procedures, and sign and comply with E for M's Proprietary
Information and Inventions Agreement which prohibits unauthorized use or
disclosure of E for M's proprietary information.
During the Employment Period, you must devote your business time,
attention, knowledge and skill solely and exclusively to the business and
interest of E for M to the exclusion of other business activities. The foregoing
shall not restrict you from pursuing passive personal investment activities
without E for M's consent if such activities do not violate the terms of
subparagraphs (i) and (ii) below. Except as consented to by the Board of
Directors, and as otherwise set forth herein, you must expressly agree that
during the Employment Period and for a period of one (1) year after the
cessation of the employment relationship and any subsequent period pursuant to
which payments are made hereunder you will not directly or indirectly, without
the prior written consent of E for M Corporation; (i) own, manage, operate,
join, control, finance or participate in the
2
<PAGE>
ownership, management, operation, control or financing of, or be connected as an
officer, director, employee, partner, principal, agent, representative,
consultant, licensor, licensee or otherwise with, any business or enterprise
engaged in any business which is competitive with the business of E for M, or
(ii) engage in any other manner in any business which is competitive with the
business of E for M.
Notwithstanding the above, you shall not be deemed to be engaged directly
or indirectly in any business in contravention of subparagraphs (i) or (ii)
above, if you participate in any such business solely as a passive investor in
up to 5% of the equity securities of a company or partnership, the securities of
which are publicly traded.
If you resign or your employment is terminated for cause, all compensation
and benefits will cease immediately, and you will receive no severance benefits.
For purposes of this letter agreement, "cause" shall mean misconduct, including,
(1) conviction of any felony or any crime involving moral turpitude or
dishonesty; (ii) participation in a fraud or act of dishonesty against E For M;
(iii) willful breach of E for M's policies; (iv) intentional damage to E for M's
property; (v) breach of your Proprietary Information and Inventions Agreement;
or (vi) conduct by you which in the good faith and reasonable determination of
the Board demonstrates gross unfitness to serve. Physical or mental disability
shall not constitute cause.
To ensure rapid and economical resolution of any disputes which may arise
under this letter agreement, you agree that any and all disputes or
controversies, whether of lay or fact of any nature whatsoever (including, but
not limited to, all state and federal statutory and discrimination claims, with
the sole exception of those disputes which may arise from your Proprietary
Information and Inventions Agreement) arising from or regarding the
interpretation, performance, enforcement or breach of this letter agreement
shall be resolved by final and binding arbitration under the Judicial
Arbitration and Mediation Services Rules of Practice and Procedure.
This letter agreement constitutes the complete, final and exclusive
embodiment of the entire agreement between you and E For M with respect to the
terms and conditions of your employment, and it supersedes any other agreements
or promises made to you by anyone, whether oral or written. This letter
agreement shall be construed and interpreted in accordance with the laws of the
State of California.
If you choose to accept our offer under the terms described, please
indicate your acceptance by signing below and returning it to me. If you accept
our offer, we would like you to start at the earliest possible date, but in any
event not later than October 9, 1995.
We look forward to your joining the Company and to a successful and
enjoyable work relationship.
3
<PAGE>
Very truly yours,
E for M Corporation
/s/ Peter P. Tong
--------------------------
Peter P. Tong
President and Chief Executive Officer
Accepted by:
/s/ Michael Breedlove
- ---------------------
Michael Breedlove
20 Sept. 95
- ---------------------
Date
4
<PAGE>
Exhibit 10.15
-------------
8200 West Tower Avenue
Milwaukee, WI 53223 U.S.A.
414.355.5000
Fax 414.355.3790
- -----------------------
MARQUETTE
MEMORANDUM OF UNDERSTANDING
This memorandum will serve as a review of our discussions which followed the
business planning meetings the last week in April. Your goal is to scale back on
your day to day business commitment and to complete your relocation to the state
of Washington. To accomplish these goals and also work towards increasing
stockholder value, we have agreed on the following points:
. We will eliminate the Co-President title and function which you hold.
. You will function as a senior advisor to the CEO and COO of Marquette. Your
advisory role will not include any day-to-day operating duties,
particularly with respect to E for M's California operation.
. You agree to work 20 hours a week on Marquette business from your residence
in the state of Washington.
. Your salary will be reduced by 50% to $135,000.
. You will plan on meeting with Mike Cudahy and me on a monthly basis in
Milwaukee (and at each of the other Marquette business locations at least
once per year) to review the progress of the projects that you are working
on and to review our efforts on joint projects.
. You will continue to serve, with Marquette's knowledge, on the boards of
companies that are not in direct competition with Marquette in the areas of
monitoring and cardiology.
. You agree to serve on the Marquette board for five years with no director's
compensation due to you if your advisory work is terminated either
voluntarily or involuntarily.
Initially, your work will focus on: (1) finding a new manager for the
Asia/Pacific; (2) helping to develop the dealership network in the U.S.; (3)
working with QMI to approach HIS companies such as Cerner and HDS to acquire new
CIS business; (4) working on any business development projects that would fit
well with Marquette's core products. This will include acquisitions and
alliances.
I believe that the above reflects our discussions and will be an arrangement
that meets both our needs. Working together to meet our financial goals this
year will be a team effort, and I know all of the divisions managers will
support you when you need this help.
/s/ Timothy C. Mickelson, Ph.D. /s/ Peter P. Tong
__________________________________ _____________________________________
Timothy C. Mickelson, Ph.D. Peter P. Tong
Date: 5/13/96 Date: 4/14/96
<PAGE>
Exhibit 10.16
-------------
STOCK PURCHASE AGREEMENT
AMONG
E FOR M CORPORATION,
MARQUETTE ELECTRONICS, INC.
AND
POLAR VISION, INC.
July l, 1996
<PAGE>
STOCK PURCHASE AGREEMENT
This Stock Purchase Agreement ("Agreement") is hereby entered into as of
July 1, 1996, by and among Polar Vision, Inc., a California corporation
("Buyer"), and E for M Corporation, a Delaware corporation ("E for M" or the
"Seller"), and Marquette Electronics, Inc., a Wisconsin corporation
("Marquette"). The Buyer and the Seller are referred to collectively herein as
the "Parties."
The Seller owns all of the outstanding capital stock of Optical Devices
Incorporated, a California corporation ("ODI") consisting of 500,000 issued and
outstanding shares of common stock. Marquette is the parent company of Seller
and is a party to this Agreement for the sole purpose of supporting each of the
obligations of Seller herein. In that regard, each financial obligation of
Seller hereunder shall be a joint and several obligation of Seller and
Marquette.
This Agreement contemplates a transaction in which the Buyer will purchase
from the Seller, and the Seller will sell to the Buyer, all of the outstanding
capital stock of ODI in return for cash in the manner contemplated hereby.
NOW, THEREFORE, in consideration of the foregoing premises and the mutual
promises and agreements herein made, and in consideration of the
representations, warranties, and covenants herein contained, the Parties agree
as follows.
1. Definitions. In addition to the definitions set forth in the text of
this Agreement, the following terms shall have the meanings assigned to them
below:
"Affiliate" has the meaning set forth in Rule 12b-2 of the regulations
promulgated under the Securities Exchange Act of 1934, as amended.
"Code" means the Internal Revenue Code of 1986, as amended.
"Common Stock" means the Common Stock, no par value, of ODI.
"Confidential Information" means any information concerning the business
and affairs of ODI that is not already generally available to the public.
"Disclosure Schedules" has the meaning set forth in Section 4 below.
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<PAGE>
"Environmental, Health, and Safety Laws" means the Comprehensive
Environmental Response, Compensation and Liability Act of 1980, the Resource
Conservation and Recovery Act of 1976, and the Occupational Safety and Health
Act of 1970, each as amended, together with all other laws (including rules,
regulations, codes, plans, injunctions, judgments, orders, decrees, rulings, and
charges thereunder) of federal, state, local, and foreign governments (and all
agencies thereof) concerning pollution or protection of the environment, public
health and safety, or employee health and safety, including laws relating to
emissions, discharges, releases, or threatened releases of pollutants,
contaminants, or chemical, industrial, hazardous, or toxic materials or wastes
into ambient air, surface water, ground water, or lands or otherwise relating to
the manufacture, processing, distribution, use, treatment, storage, disposal,
transport, or handling of pollutants, contaminants, or chemical, industrial,
hazardous, or toxic materials or wastes.
"Extremely Hazardous Substance" has the meaning set forth in Section 302
of the Emergency Planning and Community Right-to-Know Act of 1986, as amended.
"Intellectual Property" means (a) all inventions (whether patentable or
unpatentable and whether or not reduced to practice), all improvements thereto,
and all patents, patent applications, and patent disclosures, together with all
reissuances, continuations, continuations-in-part, revisions, extensions, and
reexaminations thereof, (b) all trademarks, service marks, trade dress, logos,
trade names, and corporate names, together with all translations, adaptations,
derivations, and combinations thereof and including all goodwill associated
therewith, and all applications, registrations, and renewals in connection
therewith, (c) all copyrightable works, all copyrights, and all applications,
registrations, and renewals in connection therewith, (d) all mask works and all
applications, registrations, and renewals in connection therewith, (e) all trade
secrets and confidential business information (including ideas, research and
development, know-how, formulas, compositions, manufacturing and production
processes and techniques, technical data, designs, drawings, specifications,
customer and supplier lists, pricing and cost information, and business and
marketing plans and proposals), (f) all computer software (including data and
related documentation), (g) all other proprietary rights, and (h) all copies and
tangible embodiments thereof (in whatever form or medium), in any case belonging
to ODI or used in its business, including those items of Intellectual Property
identified on Schedule 4(k).
-2-
<PAGE>
"Knowledge" of a party, unless otherwise indicated, means actual knowledge
of each executive officer of such party after reasonable investigation.
"Liability" means any liability (whether known or unknown, whether
asserted or unasserted, whether absolute or contingent, whether accrued or
unaccrued, whether liquidated or unliquidated, and whether due or to become
due), including any liability for Taxes.
"ODI Share" means any share of the Common Stock of ODI.
"Ordinary Course of Business" means the ordinary course of business
consistent with past custom and practice (including with respect to quantity and
frequency).
"Person" means an individual, a partnership, a corporation, an
association, a joint stock company, a trust, a joint venture, an unincorporated
organization, or a governmental entity (or any department, agency, or political
subdivision thereof).
"Shares" means the 500,000 ODI Shares issued and outstanding on the Closing
Date.
"Security Interest" means any mortgage, pledge, lien, encumbrance, charge,
or other security interest.
"Taxes" means any federal, state, local, or foreign income, gross
receipts, license, payroll, employment, excise, severance, stamp, occupation,
premium, windfall profits, environmental (including taxes under Code Section
59A), customs duties, capital stock, franchise, profits, withholding, social
security (or similar), unemployment, disability, real property, personal
property, sales, use, transfer, registration, value added, alternative or add-on
minimum, estimated, or other tax of any kind whatsoever, including any interest,
penalty, or addition thereto, whether disputed or not.
"Tax Return" means any return, declaration, report, claim for refund, or
information return or statement relating to Taxes, including any schedule or
attachment thereto, and including any amendment thereof.
2. Purchase and Sale of ODI Shares.
2.1 Basic Transaction. Subject to the terms and conditions of this
Agreement, on the date hereof, Buyer agrees to purchase from the Seller, and the
Seller agrees to sell to the Buyer, all of the issued and outstanding ODI
-3-
<PAGE>
Shares for the consideration specified below in this Section 2.
2.2 Purchase Price. The Buyer agrees to pay to the Seller, at the Closing,
an amount equal to the Net Tangible Book Value of ODI (as defined herein), less
$____________ (the "Purchase Price"). The entire Purchase Price shall be paid at
the Closing by delivery of cash (payable by wire transfer or delivery of other
immediately available funds). "Net Tangible Book Value" for purposes of this
Agreement is:
(i) Gross trade billed accounts receivable of ODI as of the Closing
Date consisting of the Accounts Receivable reflected on the aging report
attached hereto as Schedule 2.2(i) (the "Receivable Schedule"), less
provision for uncollectible accounts as of the Closing Date reflected as a
reserve on the Closing Balance Sheet; plus
(ii) The value of all inventory of ODI valued at current cost as of
the Closing Date as reflected by the Closing Balance Sheet (particularly
all finished goods held for resale to customers of ODI) (which shall
reflect an inventory resulting from a physical count undertaken on June 30,
1996) less a reserve for obsolescence reflected on the Closing Balance
Sheet; plus
(iii) All prepaid expenses set forth in the schedule of prepaid
expenses attached hereto as Schedule 2.2(iii); plus
(iv) The depreciated net book value reflected on the Closing Balance
Sheet of the fixed assets of ODI and set forth on the schedule of fixed
assets attached hereto as Schedule 2.2(iv); minus
(v) The billed trade accounts payable identified on the aging payable
listing attached hereto as Schedule 2.2(v) (the "Payable Schedule"); and
minus
(vi) The accrued liabilities that are set forth as Schedule 2.2(vi)
(the "Liability Schedule").
The "Closing Balance Sheet" is the balance sheet reflecting all of the assets
and liabilities of ODI as of the date hereof, after giving effect to
intercompany transactions, discharges of liabilities and transfers of assets
necessary to reflect the financial condition of ODI as an unaffiliated entity on
the date hereof in the manner reflected by such
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<PAGE>
Closing Balance Sheet. Seller hereby certifies the Closing Balance Sheet
attached hereto as Schedule 2.2 is accurate and complete in all respects, and
that all such transfers, discharges and variations have been lawfully and
properly undertaken and will not result in any liability or obligation being
imposed on ODI or Buyer that are not reflected therein.
2.3 Post-Closing Purchase Price Adjustments. The Parties acknowledge and
agree that it is contemplated that ODI, as of the closing, will be obligated
only for those liabilities and payables that are reflected on the Payable
Schedule and Liability Schedule and Seller has agreed to pay any other
liabilities or obligations incurred by ODI prior to the Closing ("Additional
Liabilities"). In this regard, on or before the date thirty days following the
Closing Date, the Buyer shall submit to the Seller a listing of all payables and
other liabilities of ODI incurred prior to the Closing that are not reflected on
the Payable Schedule or Liability Schedule and request payment therefore. Seller
shall thereupon have ten days to either pay to Buyer the amount of such
Additional Liabilities (which will operate as a reduction of the Purchase Price)
or to challenge the payment. Seller agrees that Seller shall not challenge the
obligation to fund any such Additional Liability except for good cause.
To the extent that any Additional Liability is the result of the actual
receipt after the Closing by ODI of any product or service used in the Ordinary
Course of Business or included in the Disclosure Schedules that inures a direct
dollar for dollar benefit to ODI that is not reflected in the computation of Net
Tangible Book Value, the Seller shall not be obligated to fund such payment.
From time to time following the Closing Date and up to June 30, 1997, Buyer
may submit for payment other Additional Liabilities and Seller shall immediately
pay the full amount of such Additional Liabilities to Buyer to enable Buyer to
discharge such Additional Liability. The obligation of Seller to make such
payment upon demand is subject to Seller's right to challenge the payment to the
extent that any product or service is received by ODI following the Closing Date
and is not reflected on the Closing Balance Sheet in consideration for the
invoice or other evidence of the obligation associated with the particular
Additional Liability.
This Section 2.3 is intended to effect post-closing adjustments to the
Purchase Price and nothing in this Section 2.3 shall be deemed to limit the
representations, warranties and agreements herein, including the provisions of
the
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Agreement respecting indemnification set forth in Section 7 hereof.
2.4 The Closing. The execution and delivery of all documents, and the
other actions necessary to effect the sale and transfer of all of the issued and
outstanding ODI shares and all other transactions contemplated by this Agreement
(the "Closing") shall be deemed to have taken place at 12:01 a.m. Los Angeles,
California time on July 1, 1996.
2.5 Deliveries at the Closing. At the Closing, (i) the Seller will deliver
to the Buyer the following: (a) stock certificates representing all of the ODI
shares, endorsed in blank or accompanied by duly executed stock powers, (b)
resignations of each director and officer of ODI effective as of the Closing,
(c) the schedules contemplated by this Agreement (ii) the Buyer will deliver to
the Seller the Purchase Price, in the manner contemplated by Section 2.2; and
(iii) the Parties will execute and deliver the Sublease (as defined herein).
3. Representations and Warranties.
3.1 Representations and Warranties of the Seller. The Seller represents
and warrants to the Buyer that the statements contained in this Section 3.1 are
correct and complete as of the date of this Agreement:
(a) Organization. The Seller is duly organized, validly existing and in
good standing under the laws of the State of Delaware, its jurisdiction of
its incorporation.
(b) Authorization of Transaction. The Seller has full, complete and
unencumbered power and authority to execute and deliver this Agreement and
to perform its obligations hereunder. This Agreement constitutes the valid
and legally binding obligation of the Seller, enforceable in accordance
with its terms, except as the enforceability hereof may be limited by
applicable bankruptcy, insolvency, reorganization, moratorium or similar
laws affecting the enforceability of creditors' right generally, and
subject to general equitable principles. The Seller need not give any
notice to, make any filing with, or obtain any authorization, consent, or
approval of any government or governmental agency in order to consummate
the transactions contemplated by this Agreement.
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(c) Noncontravention. Neither the execution and the delivery of this
Agreement, nor the consummation of the transactions contemplated hereby,
will (i) violate any constitution, statute, regulation or rule, or to
Seller's Knowledge, violate any injunction, judgment, order, decree,
ruling, charge, or other restriction, in each case of any government,
governmental agency, or court to which the Seller is subject, or any
provision of its charter or bylaws, or (ii) conflict with, result in a
breach of, constitute a default under, result in the acceleration of,
create in any party the right to accelerate, terminate, modify, or cancel,
or require any notice under any agreement, contract, lease, license,
instrument, or other arrangement to which the Seller is a party or by which
it is bound or to which any of its assets is subject, in each case, where
such conflict, breach, default or acceleration would have a material
adverse effect on the Seller and its affiliates, taken as a whole.
(d) ODI Shares. The Seller holds of record and owns beneficially all
of the Shares, and will deliver such ODI shares to Buyer free and clear of
any restrictions on transfer (other than any restrictions under the
Securities Act and state securities laws), Taxes, Security Interests,
options, warrants, purchase rights, contracts, commitments, equities,
claims, and demands. The Seller is not a party to any option, warrant,
purchase right, or other contract or commitment that could require the
Seller to sell, transfer, or otherwise dispose of any capital stock of ODI
(other than this Agreement). The Seller is not a party to any voting trust,
proxy, or other agreement or understanding with respect to voting or
transfer of any capital stock of ODI.
3.2 Representations and Warranties of the Buyer. The Buyer represents and
warrants to the Seller that the statements contained in this Section 3.2 are
correct and complete as of the date of this Agreement.
(a) Orqanization. The Buyer is duly organized, validly existing, and
in good standing under the laws of the State of California, its
jurisdiction of incorporation.
(b) Authorization of Transaction. The Buyer has full, complete and
unencumbered power and authority to execute and deliver this Agreement and
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to perform its obligations hereunder. This Agreement constitutes the valid
and legally binding obligation of the Buyer, enforceable in accordance with
its terms, except as the enforceability hereof may be limited by applicable
bankruptcy, insolvency, reorganization, moratorium or similar laws
affecting the enforceability of creditors' right generally, and subject to
general equitable principles. The Buyer need not give any notice to, make
any filing with, or obtain any authorization, consent, or approval of any
government or governmental agency in order to consummate the transactions
contemplated by this Agreement.
(c) Noncontravention. Neither the execution and the delivery of this
Agreement, nor the consummation of the transactions contemplated hereby,
will (i) violate any constitution, statute, regulation or rule, or to
Buyer's knowledge, violate any injunction, judgment, order, decree, ruling,
charge, or other restriction, in each case of any government, governmental
agency, or court to which the Buyer is subject, or any provision of its
charter or bylaws, or (ii) conflict with, result in a breach of, constitute
a default under, result in the acceleration of, create in any party the
right to accelerate, terminate, modify, or cancel, or require any notice
under any agreement, contract, lease, license, instrument, or other
arrangement to which the Buyer is a party or by which it is bound or to
which any of its assets is subject, in each case, where such conflict,
breach, default or acceleration would have a material adverse effect on the
Buyer and its Affiliates, taken as a whole.
4. Representations and Warranties Concerninq ODI. The Seller and
Marquette represent and warrant to the Buyer that the statements contained in
this Section 4 are correct and complete as of the date of this Agreement, except
as set forth in the disclosure schedules delivered by the Seller to the Buyer on
the date hereof, initialed by the Parties and attached hereto as Schedule 4
(collectively, the "Disclosure Schedules"). Information set forth in any
Disclosure Schedule attached hereto shall be deemed to have been disclosed for
purposes of all Disclosure Schedules, and it shall not be necessary to repeat
disclosures on multiple Disclosure Schedules.
(a) Orqanization, Qualification, and Corporate Power. ODI is a corporation
duly organized, validly existing and in good standing under the laws of the
State of California. To Seller's Knowledge, ODI is duly authorized to
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conduct business and is in good standing under the laws of each jurisdiction
where such qualification is required. ODI has full corporate power and authority
and to Seller's Knowledge all licenses, permits, and authorizations necessary to
carry on the businesses in which it is engaged and to own and use the properties
owned and used by it. Schedule 4(A) lists the directors and officers of ODI. The
Seller has delivered to the Buyer correct and complete copies of the charter and
bylaws of ODI (as amended to date). To Seller's Knowledge, the minute books
(containing the records of meetings of the stockholders, the board of directors,
and any committees of the board of directors), the stock certificate books, and
the stock record books of ODI delivered to Buyer are correct and complete. ODI
is not in default under or in violation of any provision of its charter or
bylaws.
(b) Capitalization. The entire authorized capital stock of ODI consists of
10,000,000 Common and 10,000,000 Preferred shares, of which only the 500,000 ODI
Shares to be transferred hereunder are issued and outstanding. No Shares of ODI
capital stock are held in treasury.
To Seller's Knowledge, all of the issued and outstanding ODI Shares have
been duly authorized, are validly issued, fully paid, and nonassessable. All of
the issued and outstanding ODI Shares are held of record and beneficially solely
by Seller. To Seller's Knowledge, there are no outstanding or authorized
options, warrants, purchase rights, subscription rights, conversion rights,
exchange rights, or other contracts or commitments that could require ODI to
issue, sell, or otherwise cause to become outstanding any of its capital stock.
To Seller's Knowledge, there are no outstanding or authorized stock
appreciation, phantom stock, profit participation, or similar rights with
respect to ODI. There are no voting trusts, proxies, or other agreements or
understandings with respect to the voting of the capital stock of ODI.
(c) Noncontravention. To Seller's Knowledge, neither the execution and the
delivery of this Agreement, nor the consummation of the transactions
contemplated hereby, will conflict with, result in a breach of, constitute a
default under, result in the acceleration of, create in any party the right to
accelerate, terminate, modify, or cancel, or require any notice under any
agreement, contract, lease, license, instrument, or other arrangement to which
ODI is a party or by which it is bound or to which any of its assets is subject
(or result in the imposition of any Security Interest upon any of its assets).
To Seller's Knowledge, ODI is not required to give any notice to, make any
filing with, or obtain any authorization, consent, or approval of any
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government or governmental agency in order for the Parties to consummate the
transactions contemplated by this Agreement.
(d) Undisclosed Liabilities. ODI does not have any liability (and to
Seller's Knowledge there is no basis for a belief that any present or future
action, suit, proceeding, hearing, investigation, charge, complaint, claim, or
demand against any of them giving rise to any liability), except for liabilities
set forth on the Closing Balance Sheet.
(e) Title to Assets. ODI has good and marketable title to, or a valid
leasehold interest in, the properties and assets shown on Schedule 2.2 (iv) or
on the Closing Balance Sheet, free and clear of all Security Interests, except
Security Interests securing the performance of statutory obligations, surety
bonds, performance bonds or other obligations of a like nature incurred in the
Ordinary Course of Business, and except for Security Interests for taxes,
assessments or governmental charges or claims that are not yet delinquent.
(f) Events Subsequent to April 30, 1996. To Seller's Knowledge, since
April 30, 1996, there has not been any material adverse change in the business,
financial condition, operations, results of operations, or future prospects of
ODI nor is Seller aware of any action or series of events that would expose ODI
to any material contingent liability or result in the loss of any material
business or material property.
(g) Guaranties. To Seller's Knowledge, ODI is not a guarantor nor is ODI
otherwise liable for any Liability or obligation (including indebtedness) of any
other Person.
(h) Legal Compliance. Since December 15, 1995, ODI and its Affiliates have
complied with all applicable laws and regulations of federal, state, local, and
foreign governments (and all agencies thereof), and, to Seller's Knowledge, no
action, suit, proceeding, hearing, investigation, charge, complaint, claim,
demand, or notice has been filed or commenced against any of them alleging any
failure so to comply.
(i) Reserved by Agreement.
(j) Real Property. ODI does not own any real estate or other real property
in fee nor is ODI obligated for any lease of real property.
(k) Intellectual Property. To Seller's Knowledge, ODI owns, free and clear
of all liens and encumbrances or other limitations on the use thereof, all
patents, trademarks
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and other intellectual property rights currently used by ODI in its business
described in Schedule 4(k). To Seller's Knowledge, there are no claims that ODI
has interfered with, infringed upon, misappropriated, or otherwise come into
conflict with any intellectual property rights of third parties.
(l) Environment, Health, and Safety.
(i) ODI and its Affiliates have complied with all Environmental,
Health, and Safety Laws, and no action, suit, proceeding, hearing,
investigation, charge, complaint, claim, demand, or notice has been filed
or commenced against any of them alleging any failure so to comply.
(ii) To Seller's Knowledge, ODI does not have any liability for damage
to any site, location, or body of water (surface or subsurface), for any
illness of or personal injury to any employee or other individual, or for
any reason under any Environmental, Health, and Safety Law.
(iii) To Seller's Knowledge, all properties and equipment used in the
business of ODI have been free of asbestos, PCB's, methylene chloride,
trichloroethylene, trans-dichloroethylene, dioxins, dibenzofurans, and Extremely
Hazardous Substances or hazardous substances.
(m) Accounts Receivable. All accounts receivable of ODI are reflected on
the Closing Balance Sheet arose out of ordinary business transactions and are
reflected properly on its books and records.
(n) Reserved by Agreement.
(o) Litigation. To Seller's Knowledge, ODI (i) is not subject to any
outstanding injunction, judgment, order, decree, ruling, or charge and (ii) is
not a party and is not threatened to be made a party to any action, suit,
proceeding, hearing, or investigation of, in, or before any court or quasi-
judicial or administrative agency of any federal, state, local, or foreign
jurisdiction or before any arbitrator.
(p) Employee Benefits. Schedule 4(p) lists each Employee Benefit Plan that
Seller or ODI maintains for ODI employees or to which Seller or ODI contributes
for ODI employees. After the Closing, ODI shall have no liability or
obligation of any kind associated with any of such plans.
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5. Post-Closing Covenants. The Parties agree as follows with respect to
certain matters following the Closing.
5.1 General. In case at any time after the Closing any further reasonable
action is necessary to carry out the purposes of this Agreement, each of the
Parties will take such further reasonable action (including the execution and
delivery of such further instruments and documents) as any other Party may
reasonably request, all at the sole cost and expense of the requesting Party
(unless the requesting Party is entitled to indemnification therefor hereunder).
The Seller acknowledges and agrees that, from and after the Closing, the Buyer
will be entitled to possession of all documents, books, records (including Tax
Returns and records), agreements, and financial data of any sort relating to
ODI; provided, however, that Seller shall have reasonable access to such
documents, books, records, agreements and financial data during normal business
hours and as otherwise may be agreed between the Parties.
5.2 Confidentiality. Subject to any requirements imposed upon Seller or
any of its Affiliates under federal or state securities laws and regulations,
Seller will maintain the terms of this Agreement in strict confidence, and will
treat and hold as confidential all of the Confidential Information. Seller shall
deliver promptly to the Buyer all tangible embodiments (and all copies) of the
Confidential Information which are in its possession; provided, however, that
Seller may retain copies of tax, financial and other records as Seller deems
necessary or advisable. In the event that Seller is requested or required (by
oral question or request for information or documents in any legal proceeding,
interrogatory, subpoena, civil investigative demand, or similar process) to
disclose any Confidential Information, Seller will use reasonable efforts to
maintain confidentiality and will notify the Buyer promptly of the request or
requirement so that the Buyer may seek an appropriate protective order.
5.3 Covenant Not to Compete. For a period of five years from and after the
Closing Date, Seller will not engage directly or indirectly in any business that
ODI conducts as of the Closing Date from any location in the United States and
in any geographic area in which ODI conducts that business as of the Closing
Date. If the final judgment of a court of competent jurisdiction declares that
any term or provision of this Section 5.3 is invalid or unenforceable, the
Parties agree that the court making the determination of invalidity or
unenforceability shall have the power to reduce the scope, duration, or area of
the term or provision, to delete specific words or phrases, or to replace any
invalid
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or unenforceable term or provision with a term or provision that is valid and
enforceable and that comes closest to expressing the intention of the invalid or
unenforceable term or provision, and this Agreement shall be enforceable as so
modified after the expiration of the time within which the judgment may be
appealed. In the event of any breach or threatened breach of the foregoing
provisions of this Section 5.3, in addition to all the relief that may accorded
to Buyer, Buyer may seek and apply for a temporary restraining order or
injunction precluding Seller's continued breach of the provisions of this
Agreement and this Covenant Not to Compete. Seller acknowledges that upon the
breach or threatened breach of this Covenant Not to Compete, an adequate remedy
at law may not be available to the Buyer in order to protect Buyer's interest in
the property of ODI and to its business, franchises and property rights.
5.4 Solicitation of Employees. Buyer and Seller each agree that they shall
not, without the permission of the other party, solicit any person who is an
employee of Seller or ODI or their Affiliates on the date hereof for employment
at any time following the Closing and continuing for a period of twelve months
following the Closing. A list of ODI's employees is attached hereto as Schedule
5.4.
To the extent that any person who is an employee of Buyer or Seller or
their Affiliates on the date hereof seeks employment with the other Party or an
Affiliate of such Party, without any solicitation by the applicable Buyer,
Seller or Affiliate, the Party or Affiliate with whom such employment is sought
shall not employ such person without the written consent of the other Party,
which consent shall not be unreasonably withheld. The Parties acknowledge that
the foregoing covenant is for their mutual benefit and that monetary damages may
not be adequate to protect each applicable party from a breach by the other of
the provisions of this Section 5.4.
6. Sublease. Seller, as Sublessor, and Buyer, as Sublessee, agree to
execute and deliver, or have executed and delivered, the Sublease and Shared
Facilities Agreement attached hereto as Exhibit A (the "Sublease"), and such
execution and delivery shall be deemed to have occurred simultaneously with the
Closing of the other transactions contemplated by this Agreement.
7. Indemnification
7.1 By Seller. Subject to the terms and conditions of this Article 7,
Seller hereby agrees to indemnify, defend and hold harmless Buyer, and its
directors, officers, employees and controlled and controlling persons
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(hereinafter in this Article 7 only, "Buyer's Affiliates"), from and against all
Claims (as defined below) asserted against, resulting to, imposed upon, or
incurred by Buyer, Buyer's Affiliates or the business and assets transferred to
Buyer pursuant to this Agreement, directly or indirectly, by reason of, arising
out of or resulting from (a) the inaccuracy or breach of any material
representation or warranty of Seller contained in this Agreement; or (b) the
breach of any material covenant of Seller contained in this Agreement. As used
in this Article 7, the term "Claim" shall include (i) all losses, damages
(including, without limitation, consequential damages), judgments, awards,
penalties and settlements; (ii) all demands, claims, suits, actions, causes of
action, proceedings and assessments, whether or not ultimately determined to be
valid; and (iii) all costs and reasonable expenses (including, without
limitation, interest (including prejudgment interest in any litigated or
arbitrated matter), court costs and fees and expenses of attorneys and expert in
any litigated or arbitrated matter), court costs and fees and expenses of
attorneys and expert witnesses) of investigating, defending or asserting any of
the foregoing or of enforcing this Agreement.
7.2 By Buyer. Subject to the terms and conditions of this Article 7, Buyer
hereby agrees to indemnify, defend and hold harmless Seller, its directors,
officers, employees and controlling persons, from and against all Claims
asserted against, resulting to, imposed upon or incurred by any such person,
directly or indirectly, by reason of or resulting from (a) the inaccuracy or
breach of any material representation or warranty of Buyer contained in this
Agreement; or (b) the breach of any material covenant of Buyer contained in this
Agreement.
7.3 Indemnification of Third-Party Claims. The following provisions shall
apply to any Claim subject to indemnification which is (i) a suit, action or
arbitration proceeding filed or instituted by any third party, or (ii) any other
form of proceeding or assessment instituted by any governmental entity:
(a) Notice and Defense. The party or parties to be indemnified
(whether one or more, the "Indemnified Party") will give the party from
whom indemnification is sought (the "Indemnifying Party") prompt written
notice of any such Claim, and the Indemnifying Party will have ten (10)
days to decide it is shall undertake the defense thereof by representatives
chosen by it. The assumption of defense shall constitute an admission by
the Indemnifying Party of its indemnification
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obligation hereunder with respect to such Claim, and its undertaking to pay
directly all costs, expenses, damages, judgments, awards, penalties and
assessments incurred in connection therewith. Failure to give such notice
shall not affect the Indemnifying Party's duty or obligations under this
Article 7, except to the extent the Indemnifying Party is prejudiced
thereby. So long as the Indemnifying Party is defending any such Claim
actively and in good faith, the Indemnified Party shall not settle such
Claim (it being understood that the Indemnified Party shall not be entitled
to separate counsel except at its own expense, and shall not otherwise
incur any cost or expense, unless the Indemnifying Party does not assume
responsibility for defense and settlement as provided above or does not
actually and in good faith defend such Claim or unless the named parties to
such Claim include both Seller, on the one hand, and Buyer, on the other
hand, and counsel retained by the Indemnifying Party shall determine that
representation of the Indemnified Party and the Indemnifying Party by the
same counsel would be inappropriate under applicable standards of
professional conduct). The Indemnified Party shall make available to the
Indemnifying Party or its representatives all records and other materials
required by them and in the possession or under the control of the
Indemnified Party, for the use of the Indemnifying Party and its
representatives in defending any such Claim, and shall in other respects
give reasonable cooperation in such defense.
(b) Failure to Defend. If the Indemnifying Party does not undertake
to defend any such Claim within ten (10) days of receiving notice of such
Claim, or fails to defend such Claim actively and in good faith, the
Indemnified Party will (upon further notice) have the right to undertake
the defense, compromise or settlement of such Claim or consent to the entry
of a judgment with respect to such Claim, on behalf of and for the account
and risk of the Indemnifying Party (but only if the Claim is one for which
the Indemnified party is entitled to indemnification under Section 7.1 or
7.2 above), and the Indemnifying Party shall thereafter have no right to
challenge the Party's defense, compromise, settlement or consent to
judgment.
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(c) Indemnified Party's Riqhts. Anything in this Article 7 to the
contrary notwithstanding, (i) if there is a reasonable probability that a
Claim may materially and adversely affect the Indemnified Party other than
as a result of money damages or other money payments, the Indemnified Party
shall have the right to defend, compromise or settle such Claim, and (ii)
the Indemnifying Party shall not, without the written consent of the
Indemnified Party, settle or compromise any Claim or consent to the entry
of any judgment which does not include as an unconditional term thereof the
giving by the claimant or the plaintiff to the Indemnified Party of a
release from all Liability in respect of such Claim.
7.4 Payment. The Indemnifying Party shall promptly pay upon demand any
amount due the Indemnified Party under this Article 7. No Indemnified Party may
set off any amount owed to an Indemnifying Party for any amount that may be the
subject of an indemnification claim hereunder. Upon judgment, determination,
settlement or compromise of any third party Claim for which the Indemnified
Party is entitled to receive indemnification from the Indemnifying Party under
this Article 7, the Indemnifying Party shall pay promptly on behalf of the
Indemnified Party, and/or to the Indemnified Party in reimbursement of any
amount theretofore required to be paid by it, the amount so determined by
judgment, determination, settlement or compromise and all other Claims of the
Indemnified Party with respect thereto, unless in the case of a judgment an
appeal is made from the judgment. If the Indemnifying Party desires to appeal
from an adverse judgment, then the Indemnifying Party shall post and pay the
cost of the security or bond to stay execution of the judgment pending appeal.
Upon the payment in full by the Indemnifying Party of such amounts, the
Indemnifying Party shall succeed to the rights of such Indemnified Party, to the
extent not waived in settlement, against the third party who made such third
party Claim.
7.6 Limitations on Indemnification.
(a) Time Limitation. No claim or action shall be brought under this
Article 7 for breach of a representation or warranty after June 30, 1997,
and all representations and warranties made by the Parties in this
Agreement shall expire on such date.
(b) Amount Limitation. An indemnified Party shall not be entitled to
indemnification under this Article 7 for breach of a representation or
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warranty unless and only to the extent that the aggregate of the
Indemnifying Party's indemnification obligations to such Indemnified Party
pursuant to this Article 7 (but for this Section 7.6(b)) exceeds $20,000.
In no event shall the amount of Seller's aggregate liability for breach of
representations and warranties contained in this Agreement (whether such
liability is asserted under this Article 7 or otherwise) exceed the amount
of the Purchase Price, as adjusted pursuant to Section 2.3.
(c) Insurance Offset. The obligation of any Indemnifying Party to
indemnify for any Claim under this Article 7 shall be reduced by any
amounts actually and irrevocably recovered by the Indemnified Party with
respect to such Claim or the underlying facts under insurance policies, (i)
net of any increase that will occur, or is reasonably likely to occur, in
insurance premiums payable by the Indemnified Party, whether by
retrospective premium adjustments or any other premium increase under the
policy or policies under which the claim is made or any other policy, where
the increase results directly from filing the insurance claim or (ii) less,
dollar for dollar, the amount by which the insurance claim when filed or at
any time during the applicable policy period, either singly or in the
aggregate with all other claims made under the applicable policy or
policies, exceeds the policy coverage limit; provided, however, that this
subsection shall apply only if this provision does not constitute an
improper waiver of the insurer's rights to subrogation against the
Indemnifying Party. Nothing contained in this subsection 7.5 (c) shall be
deemed to create an obligation of any party hereto to maintain any form or
level of insurance after the Closing, to name any other party as an
additional insured or to obtain approval for any waiver of rights of
subrogation. An Indemnified Party shall make a claim for insurance with
respect to any Claim for which the Indemnified Party has insurance
coverage.
(d) Tax Offset. The amount of any payment or reimbursement of Claims
by an Indemnifying Party shall be net of any tax benefit realized or to be
realized (and capable of being estimated on a reasonable basis) by the
Indemnified Party by reason of the facts and circumstances giving rise to
the Indemnifying Party's liability.
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8. Tax Matters. The following provisions are intended to govern certain
tax matters following the Closing Date and control over any contrary provision
herein:
8.1 General Assumption and Disclaimer of Buyer's Liability. The Seller
acknowledges and agrees that the Closing Balance Sheet will not reflect any
liability for Taxes owing. Seller shall pay when due all Taxes for ODI, whether
then assessed or otherwise, for all periods prior to the Closing Date. Seller
shall, in addition to the other indemnity herein provided and all other remedies
available to Buyer or ODI, indemnify and hold harmless both Buyer and ODI for
the full amount of any Taxes imposed on or assessed against ODI for any period
prior to the Closing Date and, to the extent a demand or assessment is made on
Buyer or ODI for any such Taxes by any person or authority, Seller shall post a
bond or make other provision to assure timely payment of such Taxes.
8.2 Preparation and Payment of Taxes. Seller shall prepare or cause to be
prepared and file or cause to be filed any Tax Returns of ODI for all Tax
periods which end before the Closing Date. Buyer shall prepare or cause to be
prepared and filed or cause to be filed any Tax Returns of ODI for all Tax
periods which begin before and end after the Closing Date. For purposes of this
Section, in the case of any Taxes that are imposed on a periodic basis and are
payable for a Taxable period that includes (but does not end on) the Closing
Date, the portion of such Tax which relates to the portion of such Tax period
ending on the Closing Date shall (x) in the case of any Taxes other than Taxes
based upon or related to income or receipts, be deemed to be the amount of such
Tax for the entire taxable period multiplied by a fraction the numerator of
which is the number of days in the Tax period ending on the Closing Date and the
denominator of which is the number of days in the entire taxable period, and (y)
in the case of any Tax based upon or related to income or receipts be deemed
equal to the amount which would be payable if the relevant taxable period ended
on the Closing Date. Within thirty days after the filing of any Tax Return for
or on behalf of ODI and the payment by ODI of Taxes with respect to a Tax period
commencing before the Closing Date and ending after the Closing Date, Seller
shall pay or cause the payment to ODI of the portion of such Tax which relates
to the portion of such Tax period ending on the Closing Date, determined as
provided for in the immediately preceding sentence.
8.3 Tax Sharinq Aqreements. All tax sharing agreements or similar
agreements with respect to or involving ODI shall be terminated as of the
Closing Date and, on and
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after the Closing Date, ODI shall not be bound thereby or have any liability
thereunder.
8.4 Certain Taxes. All transfer, documentary, sales, use, stamp,
registration and other such Taxes and fees (including any penalties and
interest) incurred in connection with this Agreement and these transactions
shall be paid by Seller when due, and Seller will, at its own expense, file all
necessary Tax Returns and other documentation with respect to all such transfer,
documentary, sales, use, stamp, registration and other Taxes and fees, and, if
required by applicable law, Buyer will, and will cause its affiliates to, join
in the execution of any such Tax Returns and other documentation.
8.5 Survival of Covenants. Notwithstanding any provision to the contrary
contained herein (including, but not limited to, any provision contained in
Article 7), the agreements and covenants of the Parties contained in this
Article 8 shall survive with respect to each Tax until the obligation underlying
such Tax is paid by Seller or barred by the applicable period limitation under
federal, state or local laws relating thereto.
8.6 Refunds and Credits. Seller shall be entitled to receive all refunds
of income Taxes and other Taxes for all taxable periods (including any portion
of a taxable period) up to and including the Closing Date which were not
included as assets on the Closing Balance Sheet; provided, that ODI will be
entitled to receive any such refunds resulting from a carryback of losses and/or
credits from a taxable period subsequent to the Closing Date. If Seller, on one
hand, ODI or the Buyer, on the other hand, receives any refunds plus any
interest thereon properly belonging to the other party pursuant to the preceding
sentence, they will pay such amounts to such other party as promptly as
practical but in no event later than thirty (30) days after receipt thereof.
9. Miscellaneous.
9.1 Entire Aqreement. This Agreement (including the documents referred to
herein) constitutes the entire agreement among the Parties and supersedes any
prior understandings, agreements, or representations by or among the Parties,
written or oral, to the extent they related in any way to the subject matter
hereof.
9.2 Succession and Assignment. This Agreement shall be binding upon and
inure to the benefit of the Parties named herein and their respective successors
and permitted assigns.
-19-
<PAGE>
9.3 Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall be deemed an original but all of which
together will constitute one and the same instrument.
9.4 Headings, Gender, Context. The section headings contained in this
Agreement are inserted for convenience only and shall not affect in any way the
meaning or interpretation of this Agreement. In this Agreement, the feminine
shall include the masculine whenever the reference requires. References to the
singular shall include the plural and vice-versa as the context requires.
9.5 Notices. All notices, requests, demands, claims, and other
communications hereunder will be in writing. Any notice, request, demand, claim,
or other communication hereunder shall be deemed duly given if personally
delivered or if (and then two business days after) it is sent by registered or
certified mail, return receipt requested, postage prepaid, and addressed to the
intended recipient as set forth below:
<TABLE>
<CAPTION>
<S> <C>
If to Marquette or Copy to:
Seller:
c/o Marquette Richard L. Teigen, Esq.
Electronics, Inc. Foley & Lardner
8200 West Tower Avenue 777 E. Wisconsin Ave.
Milwaukee, WI 55223 Milwaukee, WI 53202
Attn: Mary M. Kabacinski
If to the Buyer: Copy to:
Polar Vision, Inc. Jeffrey D. Warren, Esq.
625 Alaska Avenue Keesal, Young & Logan
Torrance, CA 90503 400 Oceangate
Attn: George Afremow Long Beach, CA 90802
</TABLE>
Any Party may send any notice, request, demand, claim, or other communication
hereunder to the intended recipient at the address set forth above using any
other ordinary means, but no such notice shall be deemed to have been duly given
unless and until it actually is received by the intended recipient and proof of
delivery is documented by execution by the recipient. Any Party may change the
address to which notices, requests, demands, claims, and other communications
hereunder are to be delivered by giving the other Parties notice in the manner
herein set forth.
-20-
<PAGE>
9.6 Governinq Law. This Agreement shall be governed by and construed in
accordance with the domestic laws of the State of California and jurisdiction
and venue in any action hereunder shall be in a court of competent subject
matter jurisdiction in Los Angeles County, California.
9.7 Amendments and Waivers. No amendment of any provision of this
Agreement shall be valid unless the same shall be in writing and signed by the
Buyer and the Seller. No waiver by any Party of any default, misrepresentation,
or breach of warranty or covenant hereunder, whether intentional or not, shall
be deemed to extend to any prior or subsequent default, misrepresentation, or
breach of warranty or covenant hereunder or affect in any way any rights arising
by virtue of any prior or subsequent such occurrence.
9.8 Severability. Any term or provision of this Agreement that is invalid
or unenforceable in any situation in any jurisdiction shall not affect the
validity or enforceability of the remaining terms and provisions hereof or the
validity or enforceability of the offending term or provision in any other
situation or in any other jurisdiction.
9.9 Expenses. Each of the Parties will bear his or its own costs and
expenses (including legal fees and expenses) incurred in connection with this
Agreement and the transactions contemplated hereby. The Seller agrees that ODI
has not borne nor will bear any of the Seller's costs and expenses (including
any of their legal fees and expenses) in connection with this Agreement or any
of the transactions contemplated hereby.
9.10 Incorporation of Exhibits, Annexes, and Schedules. The Exhibits,
Annexes, and Schedules identified in this Agreement are incorporated herein by
reference and made a part hereof.
9.11 Specific Performance. Each of the Parties acknowledges and agrees that
the other Parties would be damaged irreparably in the event any of the
provisions of this Agreement are not performed in accordance with their specific
terms or otherwise are breached. Accordingly, each of the Parties agrees that
the other Parties shall be entitled to an injunction or injunctions to prevent
breaches of the provisions of this Agreement and to enforce specifically this
Agreement and the terms and provisions hereof in any action instituted in any
court of the United States or any state thereof having jurisdiction over the
Parties and the matter, in addition to any other remedy to which they may be
entitled, at law or in equity.
-21-
<PAGE>
9.12 Marquette's Obligations. Marquette is a signatory to this Agreement
for the sole purpose of supporting the obligations owing to the Buyer by Seller.
In pursuing claims under this Agreement, Buyer may name Marquette directly and
need not exercise any recourse or pursue any claim against the Seller in order
to pursue claims against Marquette to enforce the obligations of the Seller
hereunder, including by example the provisions of Article 7 and Article 8
hereof.
IN WITNESS WHEREOF, the Parties hereto have executed this Agreement on the
date hereof.
SELLER:
E for M Corporation
By: /s/ Mary M. Kabacinsh
----------------------------
Title: Vice President
-------------------------
MARQUETTE:
Marquette Electronics, Inc.
By: /s/ Mary M. Kabacinsh
----------------------------
Title: Vice President, CEO
-------------------------
BUYER: Polar Vision, Inc.
By: /s/
----------------------------
Title: President
-------------------------
-22-
<PAGE>
Exhibit 10.17
-------------
LOANS BY
--------
M&I MARSHALL & ILSLEY BANK,
---------------------------
NBD BANK, N.A.
--------------
AND
---
WACHOVIA BANK OF GEORGIA, N.A.
------------------------------
TO
--
MARQUETTE ELECTRONICS, INC.
---------------------------
December 12, 1995
<PAGE>
LOANS BY
--------
M&I MARSHALL & ILSLEY BANK,
---------------------------
NBD BANK, N.A.
--------------
AND
---
WACHOVIA BANK OF GEORGIA, N.A.
------------------------------
TO
--
MARQUETTE ELECTRONICS, INC.
---------------------------
December l2, l995
Closing Documents
-----------------
<TABLE>
<CAPTION>
<S> <C>
Document Tab No.
- -------- -------
Loan Agreement l
Schedules and Exhibits to Loan Agreement: 2
Exhibit A-l - Term Note (M&I Marshall & Ilsley Bank)
Exhibit A-2 - Term Note (NBD Bank)
Exhibit A-3 - Term Note (Wachovia Bank of Georgia,
N.A.)
Exhibit B - Officer's Certificate
Exhibit C - Borrower's Counsel Opinion
Schedule 3 - Liens
Schedule 4 - Subsidiaries
Term Note payable to M&I Marshall & Ilsley Bank in the 3
principal amount of $30,000,000
Term Note payable to NBD Bank in the principal 4
amount of $30,000,000
Term Note payable to Wachovia Bank of Georgia, N.A. 5
in the principal amount of $30,000,000
Second Amended and Restated Promissory Note Payable 6
to M&I Marshall & Ilsley Bank in the principal
amount of $20,000,000
Certified Borrowing Resolutions 7
Certificate as to Incumbency 8
Certificate as to Articles of Incorporation and By-laws 9
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
Certificate of Status from Secretary of State of 10
Wisconsin
Borrower's Counsel Opinion ll
Amendment to Loan Agreement dated May 31,1994 among 12
M&I Marshall & Ilsley Bank, NBD Bank and Marquette
Electronics, Inc.
</TABLE>
2
<PAGE>
_______________________________________________________________________________
LOAN AGREEMENT
By and Among
MARQUETTE ELECTRONICS, INC.
and
M&I MARSHALL & ILSLEY BANK,
NBD BANK
and
WACHOVIA BANK OF GEORGIA, N.A.
Dated as of
December 12, 1995
_______________________________________________________________________________
Godfrey & Kahn, S.C.
780 N. Water Street
Milwaukee, WI 53202
(414) 273-3500
<PAGE>
LOAN AGREEMENT
--------------
THIS AGREEMENT is made as of the 12th day of December 1995, by and among
MARQUETTE ELECTRONICS, INC., a Wisconsin corporation ("Borrower"), and M&I
MARSHALL & ILSLEY BANK, a Wisconsin banking corporation ("M&I"), NBD BANK, a
Michigan banking corporation (formerly known as NBD Bank, N.A.) ("NBD") and
WACHOVIA BANK OF GEORGIA, N.A., a national banking association ("Wachovia")
(collectively, the "Banks" and individually, a "Bank"). Unless otherwise
indicated herein, capitalized terms shall have the meanings set forth in Section
9 hereof.
WITNESSETH:
WHEREAS, Borrower is seeking to acquire all of the outstanding capital
stock of E for M Corporation, a Delaware corporation ("E for M"), pursuant to
the terms of a certain Agreement and Plan of Merger dated as of November 5, 1995
by and among Borrower, E for M and Marquette Sub Corp., a Delaware corporation
and wholly-owned subsidiary of Borrower ("Sub Corp") (the "Acquisition"); and
WHEREAS, Borrower has requested that the Banks make the Term Loans (as
defined below) in the aggregate principal amount of $90,000,000, the proceeds of
which will be used to fund all or a portion of the purchase price for the
Acquisition; and
WHEREAS, the Banks are willing to make the Term Loans to Borrower but only
on the terms and conditions hereinafter set forth and in reliance on the
representations and warranties of Borrower herein contained.
NOW, THEREFORE, in consideration of the premises and mutual agreements
contained herein and other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged the parties hereto agree as
follows:
1. Term Loans. M&I agrees to make a Term Loan to the Borrower in the amount
of $30,000,000 (the "M&I Term Loan"), NBD agrees to make a Term Loan to the
Borrower in the amount of $30,000,000 (the "NBD Term Loan") and Wachovia agrees
to make a Term Loan to the Borrower in the amount of $30,000,000 (the "Wachovia
Term Loan"), all on the terms and conditions hereinafter set forth in this
Agreement. The M&I Term Loan, the NBD Term Loan and the Wachovia Term Loan are
hereinafter collectively referred to as the Term Loans." Each of the Banks
agrees that their respective Term Loans may be made in two installments upon
request of the Borrower. The Banks shall not be required to make
<PAGE>
any of the Term Loans (or any portion thereof) on any day which is not a
Business Day. The proceeds of the Term Loans shall be used by the Borrower for
the purchase of stock of E for M and the payment of the costs and expenses of
the Acquisition. Borrower may, at its option, without premium or penalty, prepay
the Term Loans in whole or in part, provided that any such prepayments shall be
made by Borrower on a prorata basis among the Term Loans, provided, however,
that no prepayments of the M&I Term Loan, the NBD Term Loan or the Wachovia Term
Loan may be made on any day other than the last day of any Interest Period in
effect for the M&I Term Loan, the NBD Term Loan or the Wachovia Term Loan, as
the case may be, during the term hereof. Each payment of principal, including
any such prepayments, shall be applied to the installments payable under the
Term Notes (as defined below) in their order of maturity.
(a) Interest. Interest shall accrue on the unpaid principal amount of
the Term Loans from time to time outstanding during each Interest Period at
a rate per annum equal to the LIBOR Rate determined for such Interest
Period plus one percent (1.0%). Interest shall be payable in arrears on the
last day of each Interest Period during the term hereof and at maturity.
Interest shall be computed on the basis of a 360 day year for the actual
number of days elapsed. M&I is authorized to debit Borrower's account at
M&I (Account No. 203491) by the amount of any interest payment which is due
to M&I. NBD and Wachovia shall each provide Borrower with a statement of
the amount of any interest payment which is due to NBD and to Wachovia,
respectively. If all or a portion of the principal amount of any Term Loan
made hereunder shall not be paid when due (whether at the stated maturity,
by acceleration or otherwise), any overdue principal amount thereof shall
bear interest at a rate per annum equal to the M&I Rate plus two percent
(2.0%) (the Default Rate"). Any change in the Default Rate resulting from a
change in the M&I Rate shall become effective as of the opening of business
on the date on which such change in the M&I Rate shall become effective.
(b) Term Notes. Term Loans made by M&I, NBD and Wachovia, respectively,
shall be evidenced by three promissory notes of Borrower (the "Term Notes")
substantially in the form of Exhibits A-1, A-2 and A-3 attached hereto,
payable to the order of M&I, NBD and Wachovia, respectively, and each
representing in the aggregate the obligation of Borrower to pay to M&I,
NBD and Wachovia, respectively, the aggregate unpaid principal amount of
the Term Loan made by such Bank, with interest thereon as provided in
subsection l(a). Each Term Note (i) shall be
2
<PAGE>
dated as of the date of this Agreement, (ii) shall be stated to mature on
October 31, 2000, and (iii) shall be payable in eight (8) equal
installments of principal in the amount of $3,750,000 each on the last day
of April and October of each year commencing April 30, 1997.
(c) Selection of Interest Period. Borrower shall select Interest
Periods with respect to each Term Note. Each notice pursuant to which
Borrower selects an Interest Period must be received by M&I, NBD or
Wachovia, as the case may be, prior to 11:00 a.m. Milwaukee time (i) on the
Effective Date with respect to the initial Interest Period or, (ii) with
respect to subsequent Interest Periods, three (3) Business Days prior to
the last day of the next preceding Interest Period. Each such notice shall
be by telephone, telecopy or cable, confirmed immediately in writing,
specifying therein the requested Interest Period and shall be irrevocable
and binding on Borrower. In the event Borrower fails to provide notice of
its selection of an Interest Period, the Interest Period which Borrower
failed to select shall automatically be one month. Following receipt of
Borrower's notice of its selection of an Interest Period, each Bank shall
notify Borrower as soon as practicable of its determination of the LIBOR
Rate for such Interest Period.
2. Representations and Warranties. In order to induce the Banks to enter
into this Agreement and to make the loans herein provided for, and in
recognition of the fact that the Banks are acting in reliance thereupon,
Borrower hereby covenants, represents and warrants as follows:
(a) Corporate Existence; Corporate Power. Borrower and the Significant
Subsidiaries are each corporations duly organized, validly existing, and in
good standing under the laws of their respective states of incorporation
and are duly authorized under all applicable provisions of law to carry on
their businesses as presently conducted. Borrower and the Significant
Subsidiaries are each duly qualified as foreign corporations and are in
good standing under the laws of each jurisdiction where their ownership,
lease or operation of their respective properties or the conduct of their
respective businesses requires such qualification and the failure to so
qualify either individually or in the aggregate would have a material
adverse effect on Borrower's or any Significant Subsidiary's financial
condition or the conduct of their respective businesses. Borrower
has the corporate power and authority to enter into,
3
<PAGE>
deliver, issue and perform all of its obligations under this Agreement and
the Term Notes and to borrow hereunder.
(b) No Legal Bar; Enforceable Obligations. The execution, delivery and
performance of this Agreement, the Term Notes, and any other agreement,
certificate or instrument delivered by Borrower to Banks in connection with
this Agreement, prospective borrowings hereunder and use of the proceeds
thereof by Borrower (i) have been duly authorized by all necessary
corporate action, (ii) are not in violation of or in contravention of any
provisions of the Articles of Incorporation and By-Laws of Borrower, (iii)
will not violate any indenture, contract or agreement to which Borrower is
a party or to which it is subject or any statute, rule or regulation
binding upon Borrower, (iv) will not require any consent or approval of
Borrower's stockholders and (v) will not result in, or require, the
creation or imposition of any Lien on any of Borrower's properties or
revenues pursuant to any requirement of law or contractual obligation of
Borrower except as provided in this Agreement. This Agreement, the Term
Notes and any other agreement, certificate or instrument delivered by
Borrower to Banks in connection with this Agreement when duly executed and
delivered on behalf of the Borrower will constitute legal, valid and
binding obligations of Borrower enforceable against Borrower in accordance
with their terms.
(c) Litigation. Neither Borrower nor either of the Significant
Subsidiaries is a party to any litigation or administrative proceedings,
nor so far as it is known by Borrower is any litigation or administrative
proceeding threatened against it or either of the Significant Subsidiaries
which litigation or administrative proceedings, existing or threatened,
would, if adversely determined, cause any material adverse change in
Borrower's financial condition or in the conduct of the Borrower's or
either of the Significant Subsidiaries' businesses.
(d) Financial Condition. All copies of financial statements,
documents, contracts, agreements and assignments which Borrower has
furnished to Banks are true and correct in all material respects. There has
been no material change in the property or business operations of Borrower
or either of the Significant Subsidiaries since the date of the last
financial statements delivered to Banks, except pursuant to the conduct of
their ordinary business, and except as shall have been disclosed in writing
by Borrower to Banks prior to the date of the execution of this Agreement.
4
<PAGE>
(e) Taxes. Borrower and each of the Significant Subsidiaries have paid
all federal, state and local taxes which are required to be paid by them
(except for taxes being contested in good faith by appropriate proceedings
and as to which reserves have been established by Borrower or either of the
Significant Subsidiaries, as the case may be, in accordance with GAAP
consistently applied, which reserves are set forth in Borrower's or the
Significant Subsidiaries, financial statements).
(f) Securities Laws; Investment Company Act; Board Regulations.
Borrower and each of the Significant Subsidiaries have filed and will file
when due all statements, if any, which it may be required to file under the
provisions of any state or federal securities laws or regulations. Neither
Borrower nor either of the Significant Subsidiaries is an "investment
company" or a company "controlled" by an "investment company," within the
meaning of the Investment Company Act of 1940, as amended, nor is Borrower
or either of the Significant Subsidiaries engaged, principally or as one of
its important activities, in the business of extending credit for the
purpose of "purchasing" or "carrying" any "margin stock" within the
respective meanings of each of the quoted terms under Regulation U of the
Board of Governors of the Federal Reserve System as now and from time to
time in effect.
(g) Ownership of Property. Borrower and each of the Significant
Subsidiaries own all of their assets that appear on their respective
balance sheets free and clear of any Liens, except as previously disclosed
in writing by Borrower or the Significant Subsidiaries to the Banks prior
to the date hereof and except for financing leases referred to in
Borrower's or the Significant Subsidiaries' financial statements.
(h) Compliance with Laws. Borrower and each of the Significant
Subsidiaries are in compliance in all material respects with all of the
requirements of applicable federal, state and local statutes, regulations
and ordinances relating to the business operations and the assets of the
Borrower and of the Significant Subsidiaries ("requirements of law"), the
violation of which could reasonably be expected to materially affect the
Borrower on a Consolidated basis.
(i) Environmental Matters. Borrower's and the Significant Subsidiaries'
operations (a) are in compliance in all material respects with all of the
requirements of
5
<PAGE>
applicable federal, state and local environmental, health and safety
statutes and regulations ("environmental laws"), and (b) are not the
subject of any federal or state investigation evaluating whether any
remedial action is needed to respond to a release of any toxic or hazardous
waste or substance into the environment which could reasonably be expected
to materially affect the Borrower on a consolidated basis. Borrower has not
received any notice or claim to the effect that Borrower is or may be
liable to any Person (including, without limitation, any individual or
government, whether national, federal, state, county, city or municipal) as
a result of the release of any toxic or hazardous waste or substance into
the environment which could reasonably be expected to materially affect the
Borrower. Borrower and each of the Significant Subsidiaries have all
permits, licenses and approvals required under all applicable environmental
laws and have paid all fees relating thereto and are in compliance with all
terms and conditions thereof.
(j) ERISA. All Plans maintained by Borrower and the Significant
Subsidiaries are in compliance in all material respects with the applicable
provisions of ERISA. Neither Borrower nor either of the Significant
Subsidiaries has incurred any "accumulated funding deficiency" within the
meaning of Section 302 of ERISA in connection with any Plan. There has been
no "reportable event" within the meaning of Section 4034(b) of ERISA for
any Plan the occurrence of which would have a material adverse effect on
Borrower or the Significant Subsidiaries, nor has Borrower or either of the
Significant Subsidiaries incurred any material liability to the Pension
Benefit Guaranty Corporation.
3. Affirmative Covenants of Borrower. Borrower covenants and agrees
that so long as any Term Note remains outstanding and unpaid or any amount is
owed to any one or more of the Banks, Borrower shall:
(a) Financial Statements. Deliver to each Bank:
(i) as soon as practicable and in any event within 30 days after
the end of each fiscal quarter, consolidated statements of earnings and
a statement of cash flows of the Borrower for the period from the
beginning of the current fiscal year to the end of such fiscal quarter,
and a consolidated balance sheet of Borrower as at the end of such
fiscal quarter, all in reasonable detail and certified by an authorized
financial officer of Borrower, subject to changes resulting from year-
end adjustments;
6
<PAGE>
(ii) as soon as practicable and in any event within 90 days after
the end of each fiscal year, a statement of earnings, reconciliation of
retained earnings, a statement of cash flows and a balance sheet of
Borrower as at the end of such year, each prepared on a consolidated
and consolidating basis, setting forth in each case in comparative form
corresponding figures from the preceding annual audit, all in
reasonable detail and accompanied by an opinion of independent public
accountants of recognized standing selected by Borrower which opinion
shall be without qualification as to the compliance of such statements
and the balance sheet with GAAP;
(iii) promptly upon transmission thereof, copies of all such
financial statements, proxy statements, notices and reports as it
shall send to its stockholders and copies of all registration
statements (without exhibits) and all reports which it files with the
Securities and Exchange Commission (or any governmental body or agency
succeeding to the functions of the Securities and Exchange Commission);
(iv) promptly upon receipt thereof, a copy of all other reports
submitted to Borrower or either of the Significant Subsidiaries by
independent accountants in connection with any annual, interim or
special audit made by them of the books of Borrower or either of the
Significant Subsidiaries;
(v) Each Bank may at any time, and without notice to or consent of
Borrower, deliver to any financial institution which is a
participant in or assignee of any portion of the loans which are the
subject of this Agreement in accordance with subsection 9(a), below,
copies of all financial statements, reports, or any other documents
delivered to the Banks hereunder; and
(vi) with reasonable promptness, such other financial data as the
Banks may reasonably request.
Together with the delivery of the financial statements required by
clauses (i) and (ii), above, Borrower will deliver to each of the Banks
a completed Officer's Certificate substantially in the form attached
hereto as Exhibit B, and together with the delivery of the financial
statements required by clause (ii), above, Borrower will deliver to
each of the Banks a certifi-
7
<PAGE>
care of the Borrower's independent public accountants (A) stating
that, in making the audit necessary to issue its opinions with respect
to such financial statements, they have obtained no knowledge of any
Event of Default or Default, or, if any such Event of Default or
Default exists, specifying the nature and period of existence thereof
and (B) stating that Borrower has, during the applicable period,
observed or performed the covenants set forth in subsections 4(a),
4(b) and 4(c), below, and showing in detail the calculations
supporting such statement. Borrower also covenants that forthwith upon
the President or Chief Financial Officer of Borrower obtaining
knowledge of an Event of Default or Default, it will deliver to the
Banks an Officer's Certificate specifying the nature thereof, the
period of existence thereof, and what action Borrower proposes to take
with respect thereto. Any management letters or other material non-
public financial information provided to the Banks by Borrower
pursuant to this Agreement shall be used only by the Banks, their
respective employees, agents and representatives, and their
respective accountants and auditors in connection with the
administration of this Agreement and the indebtedness hereunder, and
otherwise shall be held in confidence; provided, however, that nothing
herein contained shall be deemed to prohibit any disclosure to
regulatory or governmental authorities required by applicable law,
regulation or order.
(b) Books and Records; Inspection of Property. Keep, and cause
each Significant Subsidiary to keep, proper books of record and account;
permit any person designated by the Banks to visit and inspect any of the
properties of Borrower or either of the Significant Subsidiaries, to
examine the corporate books and financial records of Borrower or either of
the Significant Subsidiaries and make copies thereof or extracts therefrom
and to discuss the affairs, finances and accounts of Borrower or the
Significant Subsidiaries with the principal officers of Borrower or the
Significant Subsidiaries, all at such reasonable times and as often as the
Banks may reasonably request.
(c) Maintenance of Property Insurance. Keep, and cause the
Significant Subsidiaries to keep, its properties, whether owned or leased,
in good condition, repair and working order, other than property no longer
deemed by Borrower or either of the Significant Subsidiaries necessary for
the conduct of their respective businesses; maintain and cause the
Significant Subsidiaries to maintain, purchased insur-
8
<PAGE>
ance or self-insurance reserves in such amounts and against such
liabilities and hazards as customarily are maintained by other companies
operating similar businesses and together with each delivery of financial
statements under clause (ii) of subsection 3(a) it will, upon the Banks'
request, deliver an Officer's Certificate specifying the details of such
insurance in effect.
(d) Taxes. Pay and discharge and cause the Significant
Subsidiaries to pay and discharge all lawful taxes, assessments and
governmental charges upon them or against their respective properties
prior to the date on which penalties are attached thereto, unless and to
the extent only that such taxes are contested in good faith and by
appropriate proceedings and Borrower has established appropriate reserves
for the payment of such taxes in accordance with GAAP.
(e) Compliance with Laws. Timely comply in all material respects
with all requirements of law, maintain its corporate existence and
preserve and keep in full force and effect its rights and franchises
necessary to continue its business.
(f) Compliance with Environmental Laws. Timely comply in all
material respects with all of the requirements of applicable environmental
laws and maintain and comply with the terms and conditions of all permits,
licenses and approvals required under applicable environmental laws;
promptly following Borrower learning of the following, deliver written
notice to each of the Banks of any pending or threatened litigation or
administrative proceeding alleging any violation of environmental laws.
4. Neqative Covenants. Borrower covenants and agrees that so long
as any Term Note remains outstanding and unpaid or any amount is owed to any one
or more of the Banks, Borrower shall not, directly or indirectly:
(a) Tangible Net Worth. Permit Tangible Net Worth at any time to
be less than $72,000,000 plus, on a cumulative basis from and after the
last day of each fiscal year commencing April 30, 1996, fifty percent (50%)
of Net Earnings during the prior fiscal year, provided, however, that for
any fiscal year in which Net Earnings for the prior fiscal year is a
negative amount, the minimum Tangible Net Worth shall be equal to the
minimum Tangible Net Worth for such prior fiscal year.
9
<PAGE>
(b) Total Liabilities to Tangible Net Worth. Permit the ratio of Total
Liabilities to Tangible Net Worth at any time during each of the fiscal
years set forth below to exceed the ratios set forth opposite each such
fiscal year:
<TABLE>
<CAPTION>
<S> <C>
Maximum Total Liabilities
Fiscal Year to Tanqible Net Worth
----------- -------------------------
Fiscal year ending April 30, 1996 4.00 to 1
Fiscal year ending April 30, 1997 3.75 to 1
Fiscal year ending April 30, 1998 3.50 to 1
Fiscal year ending April 30, 1999 3.25 to 1
Fiscal year ending April 30, 2000 3.00 to 1
Fiscal year ending April 30, 2001 2.75 to 1
</TABLE>
(c) Interest Charge Coverage. Permit the Interest Charge Coverage
Ratio for any twelve (12) month period ending as of the end of any fiscal
quarter ending on and after July 31, 1996 to be less than 3.0 to 1.0.
(d) Liens. Create, assume or suffer to exist or permit the
Significant Subsidiaries to create or suffer to exist, any Lien upon any of
their respective properties or assets, whether now owned or hereafter acquired,
except:
(i) Liens for taxes not yet due or which are being actively
contested in good faith by appropriate proceedings;
(ii) Other Liens incidental to the conduct of its or either of
the Significant Subsidiaries' respective businesses or the ownership of its
or either of the Significant Subsidiaries' respective property and assets
which were not incurred in connection with the borrowing of money or the
obtaining of advances or credit, and which do not in the aggregate
materially detract from the value of its property or assets or materially
impair the use thereof in the operation of its or either of the
Significant Subsidiaries' respective businesses;
(iii) Liens presently existing that are described in Schedule
1 hereto;
(iv) Liens in connection with Capital Lease Obligations to
the extent permitted pursuant to subsection 4(e)(iii), below;
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(v) Liens on life insurance policies owned by Borrower or either of
the Significant Subsidiaries securing policy loans obtained from the
insurers under such policies, provided that (A) the aggregate amount
borrowed on each policy shall not exceed the loan value thereof, and (B)
neither Borrower nor the Significant Subsidiaries shall incur any liability
to repay any such loan;
(vi) Other Liens placed upon property being acquired by Borrower or
either of the Significant Subsidiaries to secure a portion of the purchase
price thereof other than Liens securing Funded Debt permitted by clause
(iii) of subsection 4(e); and
(vii) Other Liens; provided the aggregate principal amount of
indebtedness secured by such Liens and incurred by Borrower and the
Significant Subsidiaries shall not exceed $3,000,000 in the aggregate at any
time outstanding.
(e) Funded Debt. Create, incur, assume or suffer to exist or permit the
Significant Subsidiaries to create, incur, assume or suffer to exist, any Funded
Debt, except:
(i) Funded Debt represented by the Term Notes;
(ii) Funded Debt of Borrower represented by the M&I Revolver Note and
the Existing Term Notes;
(iii) Capital Lease Obligations pursuant to which the Borrower and the
Significant Subsidiaries are not obligated to pay more than $1,000,000 in
the aggregate during any fiscal year during the term hereof; and
(iv) other Funded Debt of Borrower and the Significant Subsidiaries
not exceeding an aggregate principal amount of $3,000,000 at any time
outstanding.
(f) Loans, Advances, Investments and Contingent Liabilities. Make or permit
to remain outstanding any loan or advance to, or guarantee, endorse or otherwise
be or become contingently liable, directly or indirectly, in connection with the
obligations, stock or dividends of, or, other than in connection with the
Acquisition or investments in stock or securities owned by Borrower as of the
date hereof, purchase or acquire any stock, obligations or securities
11
<PAGE>
of, or any other interest in, or make any capital contribution to, any Person,
except that Borrower may:
(i) acquire and own stock or other equity securities of its
subsidiaries in the amounts set forth on Schedule 2 hereto;
(ii) acquire and own stock, obligations or securities received
in settlement of debts (created in the ordinary course of business) owing
to Borrower;
(iii) own, purchase or acquire (A) commercial paper having the
highest rating of either Standard & Poor's Corporation or Moody's Investors
Services, Inc. (or unrated commercial paper issued by corporate obligors
which support the issuance of such commercial paper through the
availability of a line of credit provided by a United States commercial
bank having capital resources in excess of $50,000,000) and due within one
year from the date of purchase, (B) certificates of deposit due within one
year from the date of purchase and issued by M&I, NBD or Wachovia, (C) bank
repurchase agreements offered by M&I, NBD or Wachovia, (D) obligations
tions of the United States Government or any agency thereof, and
obligations guaranteed by the United States Government and (E) shares in
a money market mutual fund or a tax exempt mutual fund offered through
M&I's Investment Department;
(iv) endorse negotiable instruments for collection in the
ordinary course of business;
(v) make or permit to remain outstanding travel and other like
advances to officers and employees in the ordinary course of business;
(vi) guarantee, endorse or otherwise be or become contingently
liable, directly or indirectly, in connection with the obligations of any
other person if (A) Borrower shall be and remain at all times in compliance
with subsections 4(a), 4(b) and 4(c) and (B) the aggregate amount of such
guarantees, endorsements or contingent liabilities does not exceed
$10,000,000 at any time outstanding; and
(vii) make or permit to remain outstanding loans and advances
to the Significant Subsidiaries provided such loans and advances are made
in the ordinary course of Borrower's business.
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<PAGE>
(g) Merger and Sale of Assets. Except in connection with the
Acquisition, merge or consolidate with any other corporation or sell, lease
or transfer or otherwise dispose of all or a substantial part of its
assets, or assets which shall have contributed more than ten percent (10%)
of Net Earnings for any of the three fiscal years then most recently ended,
to any Person.
(h) Restrictions on Transactions With Stockholders and
Affiliates. Directly or indirectly, purchase, acquire or lease any property
(other than shares of stock of Borrower) from, or sell, dispose of or lease
any property (other than shares of stock of Borrower) to, or otherwise deal
with (A) any Substantial Stockholder, (B) any corporation in which a
Substantial Stockholder owns 5% or more of the outstanding voting stock, or
(C) any Affiliate, except:
(i) on terms not less favorable to the Borrower than would
be usual and customary in similar transactions with non-affiliated
persons;
(ii) that a Substantial Stockholder may be a director,
officer or employee of Borrower and may be paid usual and customary
compensation in connection therewith; and
(iii) that so long as Marquette Capital Corporation
("MCC") is a corporation described in part B, above, Borrower may
lease vehicles from MCC on such terms mutually acceptable to MCC and
Borrower.
(i) Chanqe in Control. Permit any Person or group of Persons
acting in concert (other than Affiliates, including without limitation,
employee benefit plans, of the Borrower), in one or in a series of
transactions, to hereafter acquire more than twenty-five percent (25%) of
the Borrower's outstanding voting securities.
(j) ERISA. (i) Terminate or permit any Significant Subsidiary to
terminate any Plan, (ii) engage or permit any Significant Subsidiary to
engage in any "prohibited transaction" (as defined in ERISA) or (iii)
incur or suffer to exist any material "accumulated funding deficiency" (as
defined in ERISA), if any of the foregoing creates a material risk
that the Borrower or a Significant Subsidiary will incur any material
liability to the Pension Benefit Guaranty Corporation.
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<PAGE>
5. Events of Default. An "Event of Default" shall be deemed to have
occurred if:
(a) Any representation or warranty made by Borrower in this
Agreement, or in any certificate of Borrower furnished to Banks hereunder,
shall prove to have been incorrect in any material respect as of the time
when made.
(b) If Borrower shall fail to pay any interest or principal on
any of the Term Loans when due hereunder or fail to pay when due any
principal or interest on any of its other indebtedness to any one or more
of the Banks, including, without limitation, the M&I Revolver Note, or
either or both of the Existing Term Notes, whether at maturity or by
acceleration or otherwise, and such failure shall continue uncured for a
period of five (5) days after the applicable due date.
(c) Borrower shall default in the performance or observance of
any covenant or agreement contained in this Agreement or in any other
agreement between Borrower and any of the Banks; provided, however, that a
breach in the performance or observance of an affirmative covenant or
agreement contained in Section 3 of this Agreement shall only constitute a
default if the breach remains uncured for a period of thirty (30) days
after written notice thereof from Banks to Borrower.
(d) Borrower or any Significant Subsidiary shall:
(i) Apply for or consent to the appointment of a receiver,
trustee or liquidator of Borrower or of all or a substantial part of
the assets of borrower;
(ii) Be unable to, or admit in writing its inability to, pay
its debts as they mature;
(iii) Make a general assignment for the benefit of
creditors;
(iv) Be adjudicated bankrupt or insolvent;
(v) File a voluntary petition in bankruptcy or a petition
or an answer seeking reorganization or an arrangement with creditors
or to take advantage of any insolvency law, or an answer admitting the
material allegations of a petition filed against Borrower in any
bankruptcy, reorganization or insolvency proceeding; or
14
<PAGE>
(vi) Take any corporate action for the purpose of
effecting any of the foregoing.
(e) A petition for an order, judgment or decree shall be filed,
without the application, approval or consent of Borrower or a Significant
Subsidiary, with any court of competent jurisdiction, seeking
reorganization of Borrower or such Significant Subsidiary, or the
appointment of a receiver, trustee or liquidator of Borrower or such
Significant Subsidiary or of all or a substantial part of the assets of
Borrower or such Significant Subsidiary, and such petition shall remain
undismissed for any period of sixty (60) days.
(f) Borrower or either of the Significant Subsidiaries shall
default in the payment of principal or interest on any obligation for
borrowed money in a principal amount greater than or equal to $1,000,000
beyond any period of grace provided with respect thereto or in the
performance of any other agreement, term or condition contained therein or
in any agreement or security interest relating to any such obligation, if
the effect of such default is to cause or permit the holder or holders of
such obligation (or a trustee or agent on behalf of such holder or holders)
to cause such obligation to become due prior to its stated maturity.
(g) A final judgment which, together with other outstanding
final judgments against it or either of the Significant Subsidiaries,
exceeds an aggregate of $1,000,000 shall be entered against Borrower or
either of the Significant Subsidiaries and remains outstanding and
unsatisfied or unstayed after sixty (60) days from the date of entry
thereof, unless an appeal has been taken and perfected within the time
provided by law and suitable bond has been provided or other agreement made
to stay execution of such judgment.
6. Rights Upon Default. If any of the Events of Default specified in
subsection 5(d) or 5(e) shall occur, the Term Notes and any other amounts owing
under this Agreement, the M&I Revolver Note, the Existing Loan Agreement and the
Existing Term Notes shall immediately become due and payable. If any other Event
of Default shall occur, any Bank may (i) by notice of default to Borrower,
declare such Bank's obligations hereunder terminated forthwith, whereupon such
obligations shall terminate, and/or (ii) by notice of default to Borrower and to
the other Banks, declare such Bank's Term Loan and all amounts owing to such
Bank hereunder and under such Bank's Term Note, and to the extent such Bank has
any interest therein, under the M&I Revolver
15
<PAGE>
Note and the Existing Term Notes, to be due and payable forthwith, whereupon the
same shall become immediately due and payable. Except as expressly provided
above in this Section, presentment, demand, protest and further notice of any
kind are hereby expressly waived. Notwithstanding the foregoing, the Banks'
obligations to maintain the confidentiality of any nonpublic financial
information of Borrower provided to the Banks pursuant to subsection 3(a) of
this Agreement shall survive the termination of its other obligations hereunder.
In the event of any occurrence of any Event of Default, Borrower shall
pay all costs and expenses which may be incurred by the Banks with respect
thereto and with respect to the collection of any amounts due the Banks pursuant
hereto or the enforcement of any provisions hereof, including reasonable
attorneys' fees and expenses of litigation, and all such sums shall be and
become part of the indebtedness pursuant to this Agreement. In addition to and
not in lieu of any other right or remedy they may have at any time, the Banks at
any time and from time to time at their election, may (but they shall not be
required to) do or perform or comply with or cause to be done or performed or
complied with anything which Borrower may be required to do or comply with under
this Agreement if Borrower shall fail to do so; Borrower shall reimburse the
Banks upon demand for any reasonable cost or expense the Banks may pay or incur
in such respect, together with interest thereon at a per annum rate equal to the
Default Rate from the date of such demand until paid in full. The failure of the
Banks at any time or from time to time to exercise any right or remedy, whether
arising from or by virtue of any Event of Default or otherwise, shall not
constitute a waiver of any such right or remedy and shall not impair the right
of Banks to exercise such right or remedy or any other right or remedy
thereafter or to insist upon strict performance. No waiver of any right or
remedy by the Banks shall be valid or effective unless made in writing and
signed by an officer of each Bank. Any effective waiver of any right or remedy
shall not be deemed to constitute a waiver of any other right or remedy then
existing or which may thereafter arise or accrue. The remedies herein provided
are cumulative and not exclusive of any remedies provided by law. Upon the
occurrence of any Event of Default, and pursuant to the provisions of this
Section, any Bank may sue to enforce the obligations of Borrower to such Bank
pursuant to this Agreement.
7. Conditions Precedent. This Agreement shall be effective on satisfaction of
the conditions set forth below and the Banks shall be under no obligation to
make the Term Loans unless the following conditions shall have been satisfied:
16
<PAGE>
(a) The representations and warranties of Borrower contained
herein shall be true at the time of the making of the Term Loans as though
such representations and warranties were made at such time.
(b) Borrower shall have performed and complied with all agreements
and conditions required by this Agreement to be performed or complied with
by it.
(c) On the date the Banks make the Term Loans hereunder, Borrower
shall have delivered to Banks an opinion in writing of Borrower's legal
counsel, which counsel shall be acceptable to Banks, dated on or after the
date of this Agreement, with respect to the matters set forth on Exhibit C
to this Agreement.
(d) Borrower shall furnish to the Banks copies of its most recent
financial statements prepared in accordance with the provisions of
subsection 3(a).
(e) Borrower shall furnish the Banks with certified resolutions of
its Board of Directors authorizing its execution and delivery of this
Agreement and the performance of its obligations and covenants contained
herein.
(f) Borrower shall furnish the Banks with a certificate as to (i)
the incumbency of the persons authorized to execute this Agreement, the
Term Notes, and all other documents to be executed in connection with the
transactions which are the subject of this Agreement and (ii) the
Borrower's Articles of Incorporation and By-laws, copies of which shall be
attached to such certificate.
(g) Borrower shall furnish the Banks with a Certificate of Status
from the Secretary of State of the State of Wisconsin showing the Borrower
to be in "active status."
(h) The Banks shall have received the Term Notes payable to the
order of each Bank as appropriate and M&I shall have received the M&I
Revolver Note payable to the order of M&I, conforming to the requirements
hereof and duly executed by the Borrower.
8. Definitions. For purposes of this Agreement, the following terms
shall have the following meanings:
(a) "Affiliate" shall mean any Person, firm or corporation which,
directly or indirectly, controls or is
17
<PAGE>
controlled by or is under common control with the Borrower. For the
purposes of this definition "control" (including, with the correlative
meanings, the terms "controlled by" and "under common control with") means
the possession, directly or indirectly, of the power to direct or cause the
direction of management and policies, either directly or indirectly,
whether through the ownership of voting securities or by contract or
otherwise of any Person. In addition, the term "Affiliate" shall be deemed
to include the Michael J. Cudahy Revocable Trust created under agreement
dated July 24, 1989 and the beneficiaries thereof.
(b) "Business Day" shall mean any day except a Saturday, Sunday
or a day on which commercial banks in Milwaukee, Wisconsin, Detroit,
Michigan or Atlanta, Georgia are authorized or required by law to close.
(c) "Capital Lease Obligations" shall mean all rental
obligations which, under GAAP, are or will be required to be capitalized on
the books of Borrower in each case taken at the amount thereof accounted
for as indebtedness (net of interest expense) in accordance with GAAP.
(d) "Contingent Liability" shall mean, as to any Person, any
guarantee of indebtedness or any other obligation of any second Person or
any assurance with respect to the financial condition of any second Person,
whether direct, indirect or contingent, including, without limitation, any
purchase or repurchase agreement or other arrangement of whatever nature
having the effect of assuring or holding harmless any third Person against
loss with respect to any obligation of such second Person; provided,
however, that the term "Contingent Obligation" shall not include
endorsements of instruments for deposit or collection in the ordinary
course of business.
(e) "Effective Date" shall mean the date on which all of the
conditions precedent set forth in Section 7 hereof have been satisfied.
(f) "ERISA" shall mean the Employee Retirement Income Security
Act of 1974, as the same may, from time to time, be supplemented or
amended.
(g) "Eurodollar Lendinq Office" shall mean, initially, the
offices of M&I, NBD or Wachovia, as the case may be, designated as such in
subsection 9(e); thereafter, such other office of M&I, NBD or Wachovia, as
the case may be, if
18
<PAGE>
any, through which the LIBOR Rate is determined as provided herein.
(h) "Existinq Loan Aqreement" shall mean that certain Loan
Agreement by and among Borrower, M&I AND NBD dated May 31, 1994, as amended
as of the date hereof, and any further amendments, replacements or renewals
thereof.
(i) "Existinq Term Notes" shall mean the term notes issued by
Borrower to M&I and NBD pursuant to the Existing Loan Agreement.
(j) "Funded Debt" shall mean any obligation payable more than
one year from the date of the creation thereof, which under GAAP is shown
on the balance sheet as a liability (including, without limitation,
Capital Lease Obligations and excluding reserves for deferred income taxes
and other reserves to the extent that such reserves do not constitute an
obligation).
(k) "GAAP" shall mean generally accepted accounting principles
in the United States of America in effect from time to time.
(l) "Interest Charge Coverage Ratio" shall mean, for any twelve
(12) month period, the ratio of (i) the sum of (A) Net Earnings plus (B)
all federal, foreign, state and local taxes payable by the Borrower on a
consolidated basis with respect to its income for such period plus (C)
interest expense payable by the Borrower on a consolidated basis for such
period plus (D) all restructuring charges, special charges and write-offs
relating to the Acquisition, but only to the extent such charges do not
represent cash expenditures; to (ii) interest expense payable by the
Borrower on a consolidated basis for such period, all determined in
accordance with GAAP on a consolidated basis.
(m) "Interest Period" shall mean:
(i) initially, the period commencing on the Effective Date
and ending one month, two months, three months or six months
thereafter, as selected by Borrower pursuant to its notice under
subsection l(c); and
(ii) thereafter, each period commencing on the day following
the last day of the next preceding Interest Period and ending one
month, two months, three
19
<PAGE>
months or six months thereafter as selected by the Company in its
notice pursuant to subsection l(c);
provided, however, that (A) any Interest Period which commences on the last
working day of a calendar month (or on any day for which there is no
numerically corresponding day in the appropriate subsequent calendar month)
shall end on the last Working Day of the appropriate subsequent calendar
month, (B) each Interest Period which would otherwise end on a day which
is not a Working Day shall end on the next succeeding Working Day or, if
such next succeeding Working Day falls in the next succeeding calendar
month, on the next preceding Working Day, and (C) no Interest Period which
would end after the maturity date of the applicable Term Note shall be
permitted.
(n) "LIBOR Rate" shall mean, with respect to each applicable
Interest Period, the rate per annum equal to the quotient of (a) the rate
at which the Eurodollar Lending Office of M&I, NBD or Wachovia, as the case
may be, is offered deposits in dollars two Business Days prior to the
beginning of such Interest Period in the interbank Eurodollar market as at
or about 10:00 a.m., Milwaukee time, for delivery on the first day of such
Interest Period for the number of days comprised therein and in an amount
equal to the then outstanding principal amount of the M&I Term Loan, the
NBD Term Loan and the Wachovia Term Loan, as the case may be, divided by
(b) a number equal to 1.00 minus the aggregate of the rates (expressed as a
decimal fraction) of reserve requirements current on the date two Working
Days prior to the beginning of such Interest Period (including, without
limitation, basic, supplemental, marginal and emergency reserves under any
regulations of the Board of Governors of the Federal Reserve System (the
"Boards") or other governmental authority having jurisdiction with respect
thereto), as now and from time to time hereafter in effect, dealing with
reserve requirements prescribed for Eurocurrency funding (currently
referred to as "Eurocurrency liabilities" in Regulation D of the Board)
maintained by a member bank of such System (such LIBOR Rate to be adjusted
to the next higher 1/100 of one percent).
(o) "Lien" shall mean any mortgage, pledge, security interest,
encumbrance, lien or charge of any kind (including any agreement to give
any of the foregoing, any conditional sale or other title retention
agreement, and any lease in the nature thereof).
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<PAGE>
(p) "M&I Rate" shall mean the rate per annum publicly announced from
time to time by M&I in Milwaukee, Wisconsin as its prime rate. M&I may lend at a
rate higher or lower than or the same as its prime rate.
(g) "M&I Revolver Note" shall mean that certain Second Amended and
Restated Promissory Note of Borrower payable to M&I in the stated principal
amount of $20,000,000, dated the date hereof, and any amendments, replacements
or renewals thereof.
(r) "Net Earnings" shall mean gross revenues of Borrower less all
operating and non-operating expenses of Borrower, including all charges of a
proper character (including current and deferred taxes on income, provision for
taxes on unremitted foreign earnings which are included in gross revenues, and
current additions to reserves), but not including in gross revenues any gains
(net of expenses and taxes applicable thereto) in excess of losses resulting
from the sale, conversion or other disposition of capital assets (i.e., assets
other than current assets), any gains resulting from the write-up of assets, any
equity of Borrower in the unremitted earnings of any other corporation, or any
earnings of any Person acquired by Borrower through purchase, merger or
consolidation or otherwise for any year prior to the year of acquisition, all
determined in accordance with GAAP on a consolidated basis.
(s) "Person" shall mean and include an individual, a partnership, a
joint venture, a corporation, a trust, an unincorporated organization and a
government or any department or agency thereof.
(t) "Plan" shall mean as to any Person any pension plan, including a
"multi-employer" as defined in Section 4001(a)(3) of ERISA, that is covered by
Title IV of ERISA and in respect of which that Person or an Affiliate of that
Person is an "employer" as defined in Section 3(5) of ERISA.
(u) "Significant Subsidiaries" shall mean E for M, which upon
completion of this Acquisition shall be a wholly-owned subsidiary of Borrower,
and Corometrics Medical Systems, Inc., a Delaware corporation and a wholly-owned
subsidiary of Borrower.
(v) "Substantial Stockholder" shall mean (i) any Person owning,
beneficially or of record, directly or indirectly, either individually or
together with all other
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<PAGE>
Persons to whom such Person is related by blood, adoption or marriage, stock of
Borrower (of any class having ordinary voting power for the election of
directors) aggregating 5% or more of such voting power or (ii) and Person
related by blood, adoption or marriage to any Person described or coming within
the provisions of clause (i) of this subsection.
(w) "Tangible Net Worth" shall mean, as of the time of any
determination thereof, the excess of (i) the sum of (A) the par value (or value
stated on the books of Borrower) of the capital stock of all classes of
Borrower, plus (or minus in the case of a deficit) (B) the amount of the
surplus, whether capital or earned, of Borrower, over (ii) the sum of treasury
stock, unamortized debt discount and expense, goodwill, trademarks, trade names,
patents, deferred charges, distribution agreements and other assets properly
classified as intangibles on the Borrower's balance sheet; all determined in
accordance with GAAP on a consolidated basis consistent with those followed in
the preparation of the financial statements of the Borrower referred to in
subsection 3(a).
(x) "Total Liabilities" shall mean the aggregate of all liabilities and
reserves of every kind and character of Borrower determined in accordance with
GAAP on a consolidated basis consistent with those followed in the preparation
of the financial statements referred in subsection 3(a).
(y) "Working Day" shall mean any day (i) on which dealings in foreign
currencies and exchange between banks may be carried on in the place where the
Eurodollar Lending Office of M&I, NBD or Wachovia, as the case may be, through
which the LIBOR Rate is determined is located and (ii) which is a Business Day.
9. Miscellaneous
-------------
(a) The provisions of this Agreement shall inure to the benefit of and
be binding upon any successor to any of the parties hereto and shall extend and
be available to any holder of the Term Notes and renewals thereof. Borrower may
not assign or otherwise transfer its rights under this Agreement except with the
prior written consent of the Banks. None of the Banks shall participate, assign
or otherwise transfer any portion of the loans which are the subject of this
Agreement or its rights under this Agreement (a "Transfer") to any third party
(other than an affiliate of such Bank or its holding company) without the prior
written
22
<PAGE>
consent of the Borrower. In the event any Bank (the "Transferring Bank") intends
to make a Transfer to any third party (other than an affiliate of the
Transferring Bank or its holding Company) the Transferring Bank shall provide
written notice thereof to the other Banks indicating the principal amount of the
loan or loans the Transferring Bank intends to Transfer and the proposed third
party transferee. For a period of thirty (30) days from the date of such notice,
either of the other Banks, by written notice thereof to the Transferring Bank
may elect to require the Transferring Bank to make the intended Transfer to such
Bank. Any such election may be made with respect to all or any portion of the
principal amount of the loan or loans proposed to be Transferred. If either or
both of the other Banks make such an election, the Transferring Bank shall
assign and transfer the loan or loans to the electing Bank in accordance with
their respective elections or prorata based on the principal amount of loans
outstanding held by each such Bank under this Agreement. If neither of the other
Banks has exercised such right of first refusal within such 30 day period, the
Transferring Bank may, subject to the provisions of this Agreement, make the
Transfer for which it has given notice.
(b) The Banks and the Borrower may, from time to time, enter into
written amendments, supplements or modifications hereto for the purpose of
adding provisions to any agreements, instruments or other documents hereunder or
for the purpose of changing in any manner the rights of the Banks or of the
Borrower hereunder, and the Banks may execute and deliver to the Borrower a
written instrument waiving, on such terms and conditions as the Banks may
specify in such instrument, any of the requirements of this Agreement or any
Default or Event of Default and its consequences. In the case of any waiver, the
Borrower and the Banks shall be restored to their former position and rights
under this Agreement, and any Default or Event of Default waived shall be deemed
to be cured and not continuing. However, no waiver of a Default or Event of
Default shall extend to any subsequent or other Default or Event of Default, or
impair any right consequent thereon. No amendment, supplement, modification, or
waiver shall be effective except if in writing and duly executed by both Banks
and the Borrower.
(c) The Borrower's obligations to each Bank are separate and
independent obligations, and each Bank shall be entitled to protect its rights
hereunder and enforce the obligations of the Borrower to it and it shall not be
necessary for any other Bank to be joined as an additional party
23
<PAGE>
to any proceeding for such purpose. Nothing contained in this Agreement and
no action taken by the Banks pursuant hereto shall be deemed to constitute
the Banks to be a partnership, an association, a joint venture or any other
kind of entity.
(d) In the event that any date provided herein for any payment by
Borrower shall be a Saturday, Sunday, or legal holiday, such payment date
shall be deemed to be the next Business Day following such Saturday, Sunday
or legal holiday.
(e) All representations and warranties made herein shall survive the
execution and the delivery of the Term Notes or renewals thereof.
(f) Unless otherwise specified, all notices, requests and demands to
be to or upon the respective parties hereto shall be deemed to be effective
only if in writing or if given by facsimile transmission, telegraph or
telex and, unless otherwise expressly provided herein, shall be deemed to
have been duly given or made, in the case of a delivered notice, when
delivered by hand, or, in the case of a mailed notice, when deposited in
the mail, postage prepaid, or in the case of telegraphic notice, when
delivered to the telegraph company, or, in the case of telex notice, when
sent, answer back received, or, in the case of a facsimile transmission,
upon acknowledgement of receipt, addressed as follows, or to such other
address as may be hereafter specified by the respective parties hereto and
any future holders of the Term Notes:
Borrower: Marquette Electronics, Inc.
8200 West Tower Avenue
Milwaukee, WI 53223
Attention: Ms. Mary M. Kabacinski
Fax: (414) 355-3790
Banks: M&I Marshall & Ilsley Bank
770 North Water Street
Milwaukee, WI 53202
Attention: Mr. John W. Linnen
Fax: (414) 765-7625
NDB Bank
Corporate Banking Group
One NBD Plaza
Mount Prospect, IL 60056
24
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Attention: Mr. Frederick J. Crawford
Fax: (708) 506-7799
Wachovia Bank of Georgia, N.A.
Wachovia Corporate Services
191 Peachtree Street, N.E.
Atlanta, GA 30303
Attention: Central District Loan
Administration Manager
With a copy to:
Wachovia Bank of Georgia, N.A.
Wachovia Corporate Services
70 West Madison Street, Suite 2440
Chicago, IL 60602
Attention: Ms. D. Kelly Long
Fax: (312) 853-0693
; provided that any notice, request or demand upon the Banks pursuant to
Section 1 hereof shall not be effective until received.
(g) Borrower shall (i) pay or reimburse Banks for all of their
reasonable out-of-pocket costs and expenses incurred in connection with the
negotiation, consideration, development, preparation and/or execution of
and any amendment, supplement or modification to, this Agreement, the Term
Notes or any other document prepared in connection herewith (whether or not
any such amendment, supplement or modification is effected or consummated),
and the consummation of the transactions contemplated hereby and thereby,
including, without limitation, the reasonable fees and disbursements of
counsel to the Banks, (ii) pay and reimburse Banks for all of their
reasonable costs and expenses, including, but not limited to, litigation
costs incurred in connection with the enforcement or preservation of any
rights or questions arising under this Agreement, the Term Notes or any
such other document prepared in connection herewith, including, without
limitation, reasonable fees and disbursements of counsel to the Banks, and
(iii) pay, indemnify and hold the Banks harmless from any and all recording
and filing fees and any and all liabilities with respect to or resulting
from any delay in paying, stamp, excise and other taxes, if any, which may
be payable or determined to be payable in connection with the execution and
delivery of any of the transactions contemplated by, or any amendment,
supplement or modification of, or any waiver or consent
25
<PAGE>
under or in respect of this Agreement or any such other documents. The
obligations in this Paragraph shall survive repayment of the Term Notes and
all other amounts payable hereunder.
(h) This Agreement, the Term Notes and all other documents
delivered in connection herewith and the rights and obligations of the
parties thereto shall be governed by, and construed and interpreted in
accordance with the internal laws of the State of Wisconsin. Venue for the
settlement of disputes under this Agreement (i) between Borrower and M&I
shall be the United States District Court for the Eastern District of
Wisconsin or the Circuit Court of Milwaukee County, Wisconsin, (ii) between
Borrower and NBD shall be the United States District Court for the Eastern
District of Michigan and (iii) between Borrower and Wachovia shall be the
United States District Court for the Northern District of Georgia. Borrower
consents to the exercise of jurisdiction by these courts and of vesting of
venue therein.
(i) In addition to any of the rights and remedies provided by
law, or any other rights or remedies provided for in this Agreement or any
document delivered in connection herewith, upon the occurrence of any
Event of Default, the Banks are hereby irrevocably authorized, at any time
and from time to time without prior notice to Borrower, any such notice
being expressly waived by Borrower, to set-off, appropriate and apply any
and all deposits (general or special, time or demand, provisional or
final), in any currency, and any other credits, indebtedness or claims, in
any currency, in each case direct or indirect or contingent or matured or
unmatured, at any time held or owing by the Banks to or for the credit of
the account of Borrower, or any part thereof, in such amounts as Banks may
elect, against and on account of the obligations and liabilities of
Borrower to Banks hereunder or under the Term Notes, and claims of every
nature and description of Banks against Borrower, whether arising
hereunder, under any note or otherwise, that the Banks may elect, whether
or not the Banks have made any demand for payment although such
obligations, liabilities and claims may be contingent or unmatured.
(j) If any Bank which has accelerated its Term Note pursuant to
the provisions of Section 6 hereof (a "Benefitted Bank") shall at any time
receive any payment of all or part of its Term Loan, or interest thereon,
(whether voluntarily or involuntarily, by setoff, pursuant to events or
proceedings of the nature referred to in Section 6 here-
26
<PAGE>
of, or otherwise) in a greater proportion than any such payment to any
other Bank which has also accelerated its Term Note and is pursuing
enforcement of its Term Note in good faith, if any, in respect of such
other Banks' Term Loans, or interest thereon, such Benefitted Bank shall
purchase for cash from such other Banks such portion of each such other
Bank's Term Loan as shall be necessary to cause such benefitted Bank to
share the excess payment ratably with each of such other Banks; provided,
however, that if all or any portion of such excess payment is thereafter
recovered from such benefitted Bank, or any portion of any Term Note which
has been so purchased is thereafter determined by a court of appropriate
jurisdiction to be unenforceable or subject to a valid defense, such
purchase shall be rescinded, and the purchase price returned, to the extent
of such recovery or unenforceability or defense together with such other
Bank's prorata share of interest in respect of that portion of the
purchase price which is returned. The Company agrees that each Bank so
purchasing a portion of another Bank's Term Loan may exercise all rights of
payment (including, without limitation, rights of setoff) with respect to
such portion as fully as if such Bank were the direct holder of such
portion.
(k) Any provision of this Agreement which is prohibited or
unenforceable shall be ineffective to the extent of such prohibition or
unenforceability without invalidating the remaining provisions hereof.
(l) Any term defined herein may, unless the context otherwise
requires, be used in the singular or the plural, depending on the
reference.
(m) This Agreement may be executed in one or more counterparts
which together shall constitute a single agreement.
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<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be duly executed as of the day and year first above written.
MARQUETTE ELECTRONICS, INC.
BY: Mary M. Kabacinski
-------------------------------
Mary M. Kabacinski, Vice
President and Treasurer
Attest:
/s/ Gordon W. Petersen Secretary
-------------------------------------
Title
M&I MARSHALL & ILSLEY BANK
By:
-------------------------------
John W. Linen, Vice President
By:
-------------------------------
Brian J. Casper, Vice President
NBD BANK
By:
------------------------------
Fred Crawford, Second Vice
President
WACHOVIA BANK OF GEORGIA, N.A.
By:
-----------------------------
J. Peter Peyton, Senior Vice
President - Group Executive
28
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Exhibit 10.18
-------------
COMMERCIAL LEASE AGREEMENT
THE STATE OF KANSAS
COUNTY OF JOHNSON
1. PARTIES:
This Lease Agreement, hereinafter called the "Lease", made and entered into by
and between Kansas Industrial No. 1, a Kansas Limited Partnership, hereinafter
called "Lessor", and Vari-X, Inc., a California corporation hereinafter called
"Lessee".
WITNESSETH:
2. LEASED PREMISES:
2.1 Subject to and upon the terms, provisions and conditions hereinafter set
forth, and each in consideration of the duties, covenants and obligations of the
other hereunder, Lessor hereby demises and leases, exclusively unto Lessee and
Lessee hereby rents and leases from Lessor, the following:
Suite No. 15019 W. 95th St. (herein the "Lease Premises") consisting of
approximately 14,533 gross square feet located as shown on the plan attached
hereto as Exhibit "A" and further described in Exhibit "A-1" which is
incorporated herein for all purposes. The "Leased Premises" are contained within
Lenexa Place (the "Building" or the "Project") which is located at 95th &
Lackman upon the real property described in Exhibit "B" attached hereto and
incorporated herein for all purposes.
2.2 Subject to the terms and conditions set forth herein and further subject to
the Building Rules and Regulations of the Buildings as set forth in Exhibit "C"
attached hereto and incorporated here by reference as such Building Rules and
Regulations may be modified and amended from time to time by Lessor in
accordance with Article 13 hereof, the right of use and occupancy by Lessee of
the Leased Premises shall include the use, in common with others entitled
thereto, of all common parking facilities, and common ways of ingress and egress
to and from the common areas of the Building and the Leased Premises, which
ingress and egress shall be by means of common driveways, traffic lanes,
sidewalks and Building entries (hereinafter called the "Exterior Common Area").
3. TERM:
3.1 Subject to the further provisions hereof, this Lease shall continue in force
for a term of thirty (30) months (hereinafter called the "Stated Term"),
beginning and subject to termination as hereinafter provided. The term of this
Lease shall commence on the earlier of August 2, 1994 or the obtaining of a
Certificate of Occupancy for the Tenant's use of the Leased Premises (the
"Commencement Date"). Lessee's obligation to pay rental hereunder shall commence
five (5) days after Lessor notifies Lessee that the Leased Premises are ready
for occupancy by Lessee, but in no event later than the Commencement Date
(except as expressly set forth below). If by the Commencement Date, the Leased
Premises have not been substantially completed by Lessor due to omission, delay
or default by Lessee or anyone acting under or for Lessee, Lessor shall have no
liability, and the obligations of this Lease (including, without limitation, the
obligation to pay rent) shall nonetheless commence as the Commencement Date. If,
however, the Leased Premises are not substantially complete by the Commencement
Date due to Lessor's default or due to any other cause other than Lessee's
default, as Lessee's sole remedy for the delay in Lessee's occupancy of the
Premises, the Commencement Date shall be delayed and the rent herein provided
shall not commence until the earlier of actual occupancy by Lessee or
substantial completion of the work which Lessor has agreed to perform. In the
event the Leased Premises are not substantially complete by September 1, 1994,
Lessee shall have the right to terminate this Lease in its entirety and have no
further obligation if said delay is a result of Lessor's performance.
4. BASE RENT AND SECURITY DEPOSIT:
4.1 As consideration for the use and occupancy of, and as Base Rent for the
Leased Premises. Lessee promises and agrees to pay Lessor, while this Lease
remains in force and effect during the Stated Term
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hereof, and in the manner hereinafter provided, a monthly Base Rent in the sum
of Six Thousand Fifty Five and 41/100 ($6,055.41) Dollars which shall be paid
each calendar month in advance, without demand; except that the rental payment
for any fractional calendar month at the beginning or end of the Stated
Term shall be prorated for such partial months and shall be due and payable on
the first day in such partial month which falls within the Stated Term. The Base
Rent for the first (1st) full calendar month of the Stated Term shall be due and
payable upon Lessee's execution of this Lease, and each succeeding payment of
monthly rental shall be due and payable on the first (1st) day of each calendar
month thereafter during the Stated Term of this Lease. The second monthly rental
payment and all subsequent monthly payments hereunder shall include all amounts,
both Base Rent and Additional Rent, owed Lessor at the time such payment is due.
In the event any installment of rent is not paid when due and payable, Lessee
shall pay a late charge of $25.00 per day of delinquency.
4.2 In addition to payment of the first (1st) month's Base Rent in advance,
Lessee shall pay to Lessor at time of Lease execution a security deposit in the
amount Six Thousand Fifty Five Dollars and 41/100 ($6,055,41) [herein called the
"Security Deposit"], which Security Deposit shall be held by Lessor, interest
free and without creating any trust relationship, as security for the
performance by Lessee of Lessee's covenants and obligations under this Lease,
it being expressly understood and agreed that the Security Deposit shall not be
considered as an advance payment of rental or as a measure of Lessor's damages
in the event of default by Lessee; provided, however, that upon the occurrence
of any event of default by Lessee or breach by Lessee of any of Lessee's
obligations hereunder, Lessor may, from time to time, with prejudice to any
other right or remedy of Lessor, use the Security Deposit to the extent
necessary to make good any arrears of rent and/or to offset any damages,
expenses or liability incurred by Lessor on account of the default or breach of
covenant by Lessee, and Lessee shall pay to Lessor, on demand, the amount so
applied in order to restore the Security Deposit to its original amount, and any
remaining balance of said Security Deposit, without interest, shall be returned
by Lessor to Lessee (or at Lessor's option, to the last assignee of Lessee's
interest hereunder) upon the expiration or earlier termination of this Lease.
4.3 In addition to the foregoing rental and without limitation of the foregoing,
Lessee agrees to pay to Lessor as Additional Rent all charges for any service,
goods, or materials furnished by Lessor at Lessee's request which are required
to be furnished by Lessor under this Lease, except as otherwise provided herein,
within ten (10) days after Lessor delivers a statement thereof to Lessee. All
past due amounts shall bear interest at the rate of ten per cent (10%) per annum
from the date due until paid, but in no event at a rate in excess of that
permitted by the applicable usury laws of the State of Kansas.
4.4 All rent and other sums payable to Lessor hereunder shall be payable in
lawful money of the United States to Lessor at the address stated herein or at
such other address as Lessor may from time to time designate in writing.
4.5 The Base Rent and all Additional Rent and all other sums owed to Lessor by
Lessee hereunder shall be paid without notice, demand counterclaim, setoff,
deduction or defense, and without abatement, suspension, deferment, diminution,
or reduction by reason of:
(i) any circumstance affecting the Leased Premises or the condition
thereof,
or
(ii) any failure or refusal of Lessor to perform its obligations hereunder,
or
(iii) any claim Lessee has or may hereafter assert against Lessor, or
(iv) any bankruptcy, insolvency, reorganization, composition, adjustment,
dissolution, liquidation or other similar proceeding of or on the part of Lessor
or any assignee of Lessor's interest in the Leased Premises, or any action taken
with respect to this lease by any trustee or receiver of Lessor or any such
assignee, or pursuant to order of Court in any such proceeding.
4.6 All sums which become due to Lessor by Lessee under or by virtue of this
Lease, whether Base Rent, Additional Rent or any other sum of whatever kind or
nature, shall constitute rent, and upon the failure of Lessee to pay the same as
required hereunder, Lessor shall have the same rights and remedies
2
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as otherwise provided in this Lease or by law or equity or otherwise for the
failure of Lessee to pay rent.
5. USE:
5.1 The Leased Premises shall be used and occupied only for the following
purpose: general office, light manufacturing and warehousing which does not
violate any applicable zoning laws. Lessee shall conduct its business and
control its contractors, agents, employees, invitees and visitors and other in
or on the Leased Premises in such a manner as is lawful and reputable and will
not create any nuisance or otherwise interfere with, annoy or disturb any other
tenant in its normal business operations or Lessor in its management or
operation of the Building. Lessee shall not permit the Leased Premises to be
used in any way which would, in the reasonable opinion of the Lessor, be
hazardous or which would in any way increase the premium rate of, or render
void, the fire insurance on the Leased Premises or the Building and the contents
thereof. In the event Lessor reasonably believes or is informed by its insurance
carrier that the Lessor's premium rate of fire on the Leased Premises is subject
to increase during the term of this Lease because of Lessee's use of the Lease
Premises then Lessor shall give no less than thirty (30) days written notice to
Lessee of the nature of Lessee's objectionable use and the amount of the likely
increase in insurance premiums if the use continues. If Lessee fails to alter
its use of the Premises during the thirty (30) day period, then any such
increase in Lessor's fire insurance premiums which results from any hazardous
activities conducted by Lessee on the Leased Premises shall be reimbursed to
Lessor by Lessee upon Lessor's demand. The Leased Premises are subject to any
and all restrictive covenants, encumbrances and matters on file or of record in
the office of the County Clerk of the county in which the Leased Premises are
located.
5.2 Lessee shall at Lessee's sole expense, comply with all applicable statutes,
ordinances, rules, regulations and restrictive covenants applicable to the
Leased Premises or any part thereof.
6. SIGNS:
All exterior signs and/or numerals shall be installed by Lessor at Lessor's
sole cost and expense. Lessor shall select a uniform type of sign for the
Project and no other sign of any type or design may be attached to the exterior
of any Building in the Project. Lessee shall neither make, install, erect, paint
or otherwise place or affix upon the exterior of the Project, the Building or at
any other location visible from outside of the Project any sign, graphics,
display or other identification or advertisement. Should any such sign or
advertisement be placed in or about the Project without Lessor's prior written
consent, Lessor shall be entitled, without notice to Lessee, to remove same and
Lessee shall be liable for the costs of repairing any damage to the Building or
Project caused by such removal.
7. CONSTRUCTION:
In the event certain improvements are to be constructed as part of the
Leased Premises, Lessor will perform or cause to be performed all such
construction work on and under the terms and provisions set forth in Exhibit "A"
and "A-1", attached hereto and incorporated herein by reference, and in
substantial accordance with the final plans and specifications therefore
prepared or to be prepared by Lessor and approved in writing by Lessor and
Lessee as separately provided, which written approval shall not be unreasonably
withheld or delayed. Prior to the commencement of any such construction, all
final plans and specifications shall be approved and signed by both parties
hereto, and thereafter the construction work contemplated thereby shall be
completed in substantial conformity therewith.
8. LESSOR'S MAINTENANCE:
8.1 Without limiting the provisions of Article 15 hereof, and except as
otherwise provided herein, Lessor shall, at Lessor's expense, make all repairs
and replacements, structural or otherwise, necessary to keep in good repair the
roof, foundation and structural soundness of the exterior walls of the Building
(specifically excluding the plate glass). In addition thereto Lessor agrees:
a. To provide services to the extent expressly set out and described in
Article 11 (Exterior Common Area Maintenance) which relate generally to
maintenance and upkeep of the Exterior Common Area which Lessor shall provide.
3
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b. The term "exterior walls" as used herein shall not include windows,
glass or plate glass, doors or special office or warehouse fronts and nothing
contained in this Article 8 shall require Lessor to paint, replace floor
covering or take other such action relating to the Leased Premises or the
interior of the Building (or any part thereof), or to make any such repairs or
replacements at any time except when such repairs or replacements are expressly
required under this Article 8, or are expressly required by the provisions of
Article 15 or 19 hereof pertaining to fire, other casualties and condemnation.
8.2 Lessee shall immediately give Lessor written notice of any defect or need
of repairs for which Lessor is responsible, after which Lessor shall have a
reasonable opportunity to repair same or cure such defect. Lessor's liability
hereunder shall be limited to the cost of making such repairs or curing such
defect. The curing of such defect or making of such repairs shall in no manner
affect Lessee's obligations under this Lease nor constitute any grounds for
abatement of any rentals due hereunder, and Lessee hereby expressly waives all
claims for inconvenience, disturbance, interruption and/or loss of Lessee's
business or any other damages which may be incurred by Lessee due to the curing
of any such defect or the making of any such repairs. Lessors shall use
reasonable effort not to interfere with Lessee's business in the event of said
repairs by Lessor.
9. LESSEE'S MAINTENANCE:
9.1 Lessee shall, at Lessee's sole cost and expense, where necessary to the
preservation and maintenance of the Leased Premises in good order and condition,
maintain and repair the interior and exterior parts of the Leased Premises
(except repairs and replacements for which Lessor is expressly made responsible
in the provisions of Article 8 and in any other provision of this Lease); and,
in this connection, Lessee shall repair and/or replace all windows, glass and
plate glass, doors, any special office or warehouse front, roof downspouts
connected with the Leased Premises, dock bumpers, interior walls, any finish
work, floors and floor coverings, heating and air conditioning systems,
electrical systems and fixtures, plumbing work and fixtures, and shall suffer or
permit no waste; provided, however, that Lessee shall not be obligated to repair
any damage caused by:
(i) fire, tornado or other casualty to the extent Lessor receives
insurance proceeds for such damage by virtue of Lessor's fire and extended
coverage insurance policy, or
(ii) condemnation. All damage or injury to the Leased Premises and to
Lessee's fixtures, appurtenances and equipment or to the Building or to its
fixtures, appurtenances and equipment caused by Lessee or Lessee's employees,
visitors, customers, agents or contractors shall be repaired, restored, or
replaced promptly by Lessee at Lessee's sole cost and expense, all such
replacements, restorations and/or repairs to be of a quality equal to the
original work or installation.
9.2 Without limiting the generality of the foregoing, in the event the air
conditioning equipment (including heating) in and for the Leased Premises is
provided by Lessor (which shall be in good, working order upon the commencement
date) Lessee shall, at its sole cost and expense, maintain such equipment in
good operating condition throughout the term of this Lease and shall make all
repairs and replacements necessary thereto, so that upon the termination of this
Lease such equipment shall be in as good operating condition as same was in as
of the Commencement Date of this Lease, normal wear and tear excepted. Lessee
shall, at Lessee's expense, upon the Commencement Date of this Lease, enter into
and maintain in effect during the term of this lease a regularly scheduled
preventive maintenance/service contract for servicing all mechanical equipment
(air conditioning, heating ventilating and plumbing) within the Leased
Premises; such contract must include all services recommended by the equipment
manufacturer as scheduled, must be approved in writing by Lessor and must become
effective within thirty (30) days of the Commencement Date. If Lessee fails:
(i) to make any of the aforesaid repairs, restorations or replacements, or
(ii) to adhere to a preventive maintenance work schedule same may be
accomplished by Lessor at the sole expense of the Lessee, as hereinafter
provided.
9.3 If Lessee fails to perform Lessee's obligations under this Article 9,
Lessor may, at Lessor's option, enter upon the Leased Premises after 8 days
prior written notice to Lessee and put the same in good order, condition and
good repair, and the actual cost thereof shall be due and payable as Additional
Rent to Lessor together with Lessee's next rental
4
<PAGE>
installment. If Lessor deems an emergency situation to exist by virtue of
Lessee's failure to perform its obligations under this Article 9 (or in the
event of any other emergency) Lessor may enter the Leased Premises without
notice and by force if necessary.
9.4 In the event the Leased Premises constitute a portion of a multiple
occupancy building, Lessor shall have the right to coordinate all repairs and
other maintenance of any kind relating to the Building and Leased Premises and
the exterior common areas; Lessee shall cooperate with Lessor and provide access
to the Leased Premises and all of the areas around the Leased Premises in order
to allow Lessor to expeditiously carry on such maintenance, repairs and other
work that Lessor deems necessary to preserve, maintain and enhance the safety,
cleanliness, utility and welfare of said multiple occupancy building.
9.5 Should the Leased Premises be serviced by a common water and sewage line,
electrical service apparatus and/or mechanical room which are otherwise Lessee's
obligation to repair and maintain under sub-paragraph 9.2 above, Lessee shall,
in lieu of Lessee's obligations set forth under sub-paragraph 9.2 above with
respect to such items, be liable for Lessee's Proportionate Share (as defined
in sub-paragraph 11.3(b) below) of the cost and expense of the maintenance and
repair of any such common water and sewage line, electrical service apparatus
and/or mechanical room, including all piping, conduits, junction boxes, wiring,
hose bibs, and all other parts of the systems pertaining to the above utilities
which serve the Building and grounds of which the Lease Premises are a part.
10. CHANGES AND ALTERATIONS:
Lessee shall make no change or alteration in, or improvement to, the Leased
Premises without first obtaining the express prior written consent of Lessor
which shall not be unreasonably withheld or delayed. Lessee may make such
alterations, changes and improvements in or to the interior of the Leased
Premises during the term hereof as may be so approved by Lessor, all at Lessee's
sole risk, expense and liability. Lessee shall have the right to make non-
structural changes or alterations to the Leased Premises up to Five thousand
Dollars ($5,000.00) without Lessor's consent.
11. EXTERIOR COMMON AREAS MAINTENANCE AND REPAIRS:
11.1 Lessor, at its sole cost and expense (and subject to Article 11.2 hereof)
will periodically keep swept and in a neat, clean condition all Exterior Common
Areas, and in addition, Lessor will use good faith efforts to:
(i) keep the Building entry and area lighted during regular office hours
of darkness,
(ii) repair the Exterior Common Area Improvements (as hereafter defined),
including, without limitation, the surface of the driveways, pedestrian walks,
service areas and parking areas,
(iii) keep the parking area striped and repaired, and
(iv) maintain the landscape areas(including lawn sprinkler system and the
Exterior Common Areas electrical utility system) in good order and condition.
Lessee shall notify Lessor in writing of the need for any repair, upkeep or
preventive work necessary for Lessor to comply with the purposes of this Article
11.1.
11.2 Lessee shall keep all sidewalks and service areas immediately adjoining the
Leased Premises at all times swept and free from trash, rubbish, garbage and
other refuse; Lessor reserves the right to police and clean these areas and
invoice Lessee for costs of such service subject to written notification of
Lessee of the need therefore and Lessee's curing same within forty-eight (48)
hours after the receipt of such notice. Lessor shall notify Lessee of the need
for any repair, upkeep or preventive maintenance work necessary for Lessee to
comply with this Article 11.2
11.3 Subject to the provisions hereof, Lessor agrees to pay all charges for
maintenance, upkeep and repair of the Exterior Common Area and Exterior Common
Area Improvements as provided in Article 11.1 hereof, except Lessee will pay
Lessor as stipulated herein, as Additional Rent hereunder, its Proportionate
Share of any such costs incurred by Lessor in the maintenance, upkeep and repair
of the Exterior Common Area and Exterior Common Area Improvements (such costs
being herein sometimes
5
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called "Common Area Costs"). For all purposes of this Article 11.3 hereof it is
agreed that:
(a) Lessor's annual fair-market cost of maintenance, upkeep and repair of
the Exterior Common Area Improvements (herein sometimes called "Common Area
Costs") shall include, but not limited to:
(i) all direct costs incurred in performing or causing to be
performed the maintenance, upkeep and repair responsibilities of Lessor as set
forth in Article 11.1 herein (including that portion of any maintenance
assessments imposed by any subdivision association, which is allocable to the
Building);
(ii) A management fee, but not in excess of the then prevailing rates
for management fees of other first class office/warehouse buildings in the area
in which the Building is located. The management fee shall be no greater than
five percent (5%) of the Base Rent received.
(iii)Lessor's cost of electricity to illuminate or light the Building
and grounds,
(iv) Lessor's cost of water for lawn/shrubbery and other Exterior
Common Area maintenance, and
(v) security for the Building and/or project, to be provided in a
manner and with a company deemed desirable by Lessor (including that portion of
any security assessments imposed by any subdivision association which is
allocable to the Building).
(vi) Lessor's costs of trash removal for normal amounts of trash
generated by Lessee.
(vii) Lessor's cost of water and sewage charges for the Building.
b. Lessee's proportionate share or part of any Common Area Costs shall
be the sum derived by multiplying the amount of such Common Area Costs by a
fraction, the numerator of which is the gross square footage of the Leased
Premises and the denominator of which is the gross leasable square footage area
of the Building (or of all buildings in the project in which the Building is
located which is 33,000 rentable square feet. Said fraction shall hereinafter
sometimes be called "Lessee's Proportionate Share" which is 10.93%. For purposes
of the remainder of the calendar year in which the Commencement Date occurs
(herein called the "Initial Calendar Year"), Lessee's Proportionate Share of
Common Area Costs shall be adjusted proportionately for the number of days
remaining in the Initial Calendar Year.
c. Lessor will provide Lessee with an annual statement for Lessee's
Proportionate Share of any Common Area Costs for the services described in
Article 11.1 hereof, which statement shall be delivered to Lessee within ten
(10) days of the end of the year. Such statement shall be prepared in reasonable
detail and shall set forth the actual costs incurred by Lessor during such
immediately preceding year. Such statement shall be due and payable ten (10)
days from Lessee's receipt thereof, and failure to pay any such statement within
ten (10) days of its receipt shall be a default hereunder. Lessee shall have the
right to review and audit Lessor's records for the previous year during normal
business hours.
Lessor has the option of making a good faith estimate of Lessee's
proportionate share of Common Area Costs for each upcoming calendar year and
upon thirty (30) days written notice to Lessee, may require the monthly payment
of Lessee's proportionate share of Common Area Costs.
Within three (3) calendar months following any calendar year in which
Lessee has said any estimated costs, Lessor shall determine the actual cost of
Lessee's share of costs for the calendar year. Following such determination,
Lessor shall refund any overpayment or Lessee shall make good any underpayment
within ten (10) days following such determination and notice.
d. In the event the Building is not fully occupied during any
calendar year or portion of any calendar year for which such Common Area Costs
are computed, an adjustment shall be made in computing said charges as though
the Building had been substantially occupied during such calendar year. For
purposes of this subparagraph (d), substantially occupied shall be deemed to
mean 95% occupied.
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12. UTILITIES:
12.1 Lessor agrees to provide, at Lessor's cost, normal water and sewage,
electricity, and telephone service connections to the Leased Premises, and
Lessee shall pay all charges incurred for water and sewage (water and sewage to
be paid for per Paragraph #11.3), electricity and telephone service used on, in,
about or from the Leased Premises, and any maintenance charges for such
utilities, together with any taxes, penalties, surcharges, or the like
pertaining thereto.
12.2 In the event the Leased Premises constitute portion of a multiple occupancy
building and the Leased Premises are not separately metered to Lessee and Lessor
provides utilities services to Lessee and other tenants occupying Building,
Lessee shall pay to Lessor Lessee's Proportionate Share of such expenses
or charges for utilities as set forth below. For the purposes of this Lease and
to establish the obligations which Lessee shall assume and be obligated to pay
hereunder, the utilities Lessor has planned to furnish or cause to be furnished
Lessee within the Leased Premises is water (which shall be paid for per
Paragraph #11.3)
12.3 (a) Within a reasonable period prior to the first day of each calendar year
during the term of this Lease, Lessor shall furnish to Lessee in writing a good
faith estimate of:
(i) the dollar amount of expenses and charges for non-submetered utilities
for such calendar year which estimate shall be based upon Lessor's actual
experience and reasonably anticipated costs, and
(ii) Lessee's Proportionate Share of said calendar year. On the first day
of each calendar month during the term of this Lease after the calendar year in
which the Building becomes substantially occupied, Lessee shall pay Lessor one-
twelfth (1/12th) of Lessee's Proportionate Share of such estimated utility costs
for such year.
b. Within a reasonable period of time following the end of each calendar
year during the term of this Lease, Lessor shall furnish Lessee a statement
covering the immediately proceeding calendar year showing:
(i) the actual amount of expenses and charges for non-submetered utilities
for such calendar year.
(ii) Lessee's Proportionate Share of such actual non-submetered utility
costs, and
(iii) the payment made by Lessee pursuant to 12.3(a) for such utility costs
during such calendar year. If Lessee's Proportionate Share of the actual non-
submetered utility costs for such year exceeds the aggregate amount of Lessee's
payments pursuant to 12.3(a) during such year for utility costs. Lessee shall
pay Lessor the deficiency within thirty (30) days after receipt of said
statement. If said payments exceed Lessee's Proportionate Share of the actual
non-submetered utility costs for such year, Lessee shall be entitled to a credit
for the amount of such excess to be applied against the amounts owed by Lessee
for the next calendar year's utility costs.
c. Upon the expiration or earlier termination of this Lease, any excess
payments by Lessee or any deficiency owed Lessor by Lessee for non-submetered
utility costs shall be refunded or paid, as the case may be, to the party
entitled thereto. Lessor shall not be required to pay Lessee interest on any
excess payments for utility costs made by Lessee.
d. In the event the Building is not fully occupied during any calendar
year or portion of any calendar year for which such utility costs are computed,
an adjustment shall be made in computing said costs as though the Building had
been substantially occupied during such calendar year.
12.4 Lessor shall in no event be liable for any interruption or failure of any
utility service in, to, or on the Leased Premises, nor shall any such
interruption or failure of any utility service be construed as an eviction of
Lessee, result in any abatement of rent or relieve Lessee from the performance
or fulfillment of any of its covenants or agreements hereunder. The phase
"normal water and sewage, electricity and telephone service connections" as used
herein shall mean that such utilities are in accordance with the plans and
specifications for the construction of improvements comprising a part of the
Leased Premises approved in writing by Lessor and Lessee.
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13. COMPLIANCE WITH LAWS, RULES AND REGULATIONS:
Lessee shall comply with all applicable laws, ordinances, orders, rules and
regulations of state, federal, municipal or other agencies or bodies having
jurisdiction relating to the use, condition of occupancy of the Leased Premises.
Lessee shall comply with the Rules and Regulations of the Building as adopted
and amended by Lessor. The current Building Rules and Regulations of the
Building are set forth in Exhibit "C" attached to and made a part of this Lease.
Lessor shall have the right at all times to change and/or amend the Rules and
Regulations of the Building in any reasonable manner that Lessor deems advisable
for the safety, care and cleanliness of, and for the preservation of good order
in and about, the Leased Premises. All changes and/or amendments to the Rules
and Regulations of the Building will be delivered by Lessor to Lessee in writing
and shall thereafter be carried out and observed by Lessee.
14. ASSIGNMENT OR SUBLEASE:
Lessee shall not assign this Lease or sublet all or any part of the Leased
Premises without the prior written consent of Lessor. In the event of any
assignment or subletting, Lessee shall nevertheless, at all times, remain fully
responsible and liable for the payment of the rent reserved herein and for
compliance with all other obligations under the terms, provisions and covenants
of this Lease. All cash or other proceeds of any assignment or sublease of
Lessee's interest in this Lease, whether consented to by Lessor or not, shall be
paid to Lessor unless Lessor agrees to the contrary in writing, and Lessee
hereby assigns all rights it might have or ever acquire in any such proceeds to
Lessor. In the event an assignment or sublet of the Leased Premises result in
proceeds in excess of the base rent, then said excess proceeds shall be split
50/50 between Lessor and Lessee; net of all cost associated with the marketing,
legal or alteration required to assign or sublet which cost Lessor shall pay to
Lessee to the extent of any excess proceeds. This covenant and assignment
shall run with the land and shall bind Lessee and Lessee's heirs, executors,
administrators, personal representatives, successors and assigns. Any assignee,
sublessee or purchaser of Lessee's interest in this Lease (all such assignees,
sublessees and purchasers being hereinafter referred to as "Successors"), by
occupying the Leased Premises and/or assuming Lessee's obligations hereunder
shall assume liability to Lessor for all amounts paid to persons other than
Lessor by such Successor in consideration of any such sale, assignment or
subletting, in violation of the provisions hereof. Any collection made directly
by Lessor from the assignee of subtenant of Lessee shall not be construed to
constitute a novation of this Lease or a release of Lessee from the further
performance of any of its obligations under this Lease. Lessor reserves the
right to transfer and assign all or any part of Lessor's right, title, interest
and estate in and to this Lease and/or any related land or in any part thereof
without notice to or approval by Lessee, and Lessor and Lessee do hereby
expressly agree that Lessor or any assignee of, or successor in interest to,
Lessor's interest hereunder, shall be relieved of all obligations or liabilities
accruing under or by virtue of this Lease after Lessor, or such assignee, or
successor in interest, as the case may be, assigns such interest. Lessee shall
have the right to assign or sublet the Leased Premises to an affiliate or
related party or any purchaser of the assets or business conducted by Lessee in
the Leased Premises without Lessor's consent.
15. DAMAGE OR DESTRUCTION OF LEASED PREMISES:
15.1 In the event of damage to the Leased Premises, or destruction of the whole
or any part thereof, by fire, tornado or other casualty, Lessor shall deliver
written notice of Lessor's intent to rebuild or not to rebuild within thirty
(30) days from the date of written notification by Lessee to Lessor of the
occurrence of such damage. The rights and obligations of Lessor and Lessee in
the event of such casualty are hereinafter described.
a. Total Destruction: If the Leased Premises should be so damaged by fire,
tornado or other casualty that rebuilding or repairs cannot, in the reasonable
opinion of Lessor, be completed within one hundred eighty (180) working days
after the occurrence of the damage, this Lease shall terminate and the rent
shall be abated for the unexpired portion of the term of this Lease, effective
as of the date of the destruction. It is specifically provided, however, that
Lessor and Lessee may agree in writing to rebuild the Leased Premises, and
should Lessor and Lessee so agree, then Lessor shall, at Lessor's sole risk and
expense, proceed with reasonable diligence to rebuild or repair the Leased
Premises to substantially the condition in which the Leased Premises existed
prior to such destruction. In such event the rent shall be
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abated during the time that the Leased Premises are untenantable.
b. Partial Destruction: If the Leased Premises should be damaged by fire,
tornado or other casualty but not to such an extent that rebuilding or repairs
cannot in the reasonable opinion of Lessor be reasonably completed within one
hundred eighty (180) working days from the date of the occurrence of the damage,
this Lease shall not terminate, but Lessor shall at Lessor's sole risk and
expense proceed with reasonable diligence to rebuild or repair the Leased
Premises to substantially the condition in which they existed prior to such
damage. If the Leased Premises are to be repaired and are untenantable in whole
or in part following such damage, the rent payable hereunder during the period
in which they are untenantable shall be adjusted to such extent as may be fair
and reasonable under all of the circumstances, provided that no rent shall be
due for the period of time commencing on the date of the destruction and ending
on the date of completion of reconstruction should the Leased Premises be wholly
untenable for such period of time. In the event that Lessor should fail to
complete such repairs or rebuilding within one hundred eighty (180) working days
from the date of delivery of written notification by Lessee to Lessor of the
occurrence of the damage so that the Leased Premises are in substantially the
same condition as existed prior to such damage, Lessee may, at Lessee's option,
terminate this Lease by delivering written notice of termination of Lessor,
whereupon all rights and obligations thereafter accruing hereunder shall cease.
Delays in rebuilding due to force majeure shall not be included in the preceding
180 working day periods. Lessor shall notify Lessee as soon as is reasonably
possible (but in any event within 90 days of a casualty) as to the length of
time repairs to the Leased Premises will require. In the event substantial or
partial damage has occurred to the Leased Premises which unreasonably interferes
with Lessee's ability to conduct business in the Leased Premises, then the
Lessee shall have the right to terminate the Lease with fifteen (15) days
written notice.
15.2 If, in the event of a partial or total destruction of the Leased Premises,
Lessor is required or elects to repair or restore the Leased Premises, Lessor
shall not be obligated to expend for such repair or restoration any amount in
excess of the casualty insurance proceeds actually received by Lessor as the
result of such partial or total destruction. If there is a mortgage, deed of
trust or other security instrument covering the Leased Premises at the time of
such partial or total destruction, and the holder of the indebtedness secured by
any such security instrument elects to have the proceeds of such casualty
insurance applied against the secured indebtedness, Lessor shall not be
obligated to repair or restore the Leased Premises, notwithstanding any other
provisions to the contrary herein contained; and, in the event that Lessor
decides not to repair or restore the Leased Premises, Lessor shall deliver
written notice of such decision to Lessee, whereupon this Lease shall terminate
effective:
(i) in the case of a total destruction, upon the date of such total
destruction, and
(ii) in the case of a partial destruction, upon the date of delivery of
Lessor's written notice to Lessee of Lessor's election not to repair or restore
the Leased Premises.
16. INSURANCE AND PROPERTY TAXES:
16.1 Lessor shall, at all times during the term of this Lease, at Lessor's
expense, maintain, to the extent available, a policy or policies of insurance
with the premiums thereon fully paid in advance, issued by a solvent insurance
company authorized to do business in the State of Kansas, insuring the Leased
Premises and the Building against loss or damage by fire, explosion or other
hazards and contingencies covered by the Kansas Standard Form of Fire and
Extended Coverage Insurance Policy for the full insurable value thereof,
provided that Lessor shall not be obligated to insure any additions, fixtures,
improvements, furniture, equipment, machinery, goods or supplies constructed by
Lessee may bring in or maintain upon the Leased Premises. Lessor additionally
shall maintain throughout the Stated Term a policy of comprehensive general
liability insurance with respect to the Project, such insurance to provide
minimum protection in an amount not less than One Million and No/100 Dollars
($1,000,000.00) combined single limit coverage for bodily injury, property
damage or combination thereof.
16.2 Should the premiums paid by Lessor for the fire and extended coverage
insurance and liability insurance carried by Lessor under this Lease during any
calendar year or part of a calendar year (on an annualized basis) exceed the sum
of actual 1994 insurance costs and herein referred to as "Base Premium Costs",
Lessee shall, in accordance with Paragraph 16.6, pay to Lessor, as Additional
Rent, Lessee's Proportionate Share of any such excess annual premium cost
(herein sometimes called "Excess Premium Costs").
16.3 Lessor agrees to pay all "Property Taxes" before same become delinquent.
The term "Property Taxes" (or in the singular "Property Tax") as used in this
Lease shall mean all general and special taxes,
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including all assessments for local improvements, and all other general and
special, ordinary and extraordinary, governmental charges assessed, levied, or
imposed upon the Leased Premises, the Building and/or the land on which same are
situated, during the term of this Lease, or any holdover or renewal period, by
any political or governmental body, or subdivision thereof, having jurisdiction
over the Leased Premises, the Building and/or the land on which same are
situated; excluding, however, franchise, estate, inheritance, succession,
capital levy, transfer, income or excess profit taxes imposed on Lessor. In the
event that any political body, or subdivision thereof, or any governmental
authority having jurisdiction over the Leased Premises, the Building and/or land
on which same are situated imposed a tax, assessment or charge either upon or
against or measured by the rentals payable by Lessee to Lessor or upon or
against the occupation of renting land and/or buildings, either by way of
substitution for the taxes and assessments levied against the Leased Premises,
the Building and/or the land on which same are situated or in addition thereto,
such tax, assessment or charge shall be deemed to constitute a Property Tax for
purposes of this Lease.
16.4 In any real estate tax year during the term of this Lease or any renewal
or extension thereof, if the Property Taxes exceed the sum of 1994 actual
property taxes and herein referred to as "Base Property Taxes", Lessee shall, in
accordance with Paragraph 16.6, pay to Lessor as Additional Rent, Lessee's
Proportionate Share of any such excess Property Taxes (herein sometimes called
the "Excess Property Taxes").
16.5 Lessor shall have the right to employ a tax consulting firm to attempt to
assure a fair tax burden on the Building and the land upon which the Building is
situated. Lessee shall pay to Lessor, upon demand from time to time, as
Additional Rent, an amount equal to Lessee's Proportionate Share of 50% of the
cost of such service. As between Lessor and Lessee, Lessor shall be responsible
for payment of the balance of the cost of such service.
16.6 Excess Premium Costs and Excess Property Taxes shall be payable as
follows:
a. For the Initial Calendar Year, Lessee's Proportionate Share of said
Excess Premium Costs and Excess Property Taxes shall be adjusted proportionately
for the number of days remaining in the Initial Calendar Year.
b. Within a reasonable period of time after the end of the Initial
Calendar Year, Lessor may provide Lessee with statements setting forth Lessee's
Proportionate Share of any Excess Premium Costs and Excess Property Taxes for
such part of the Initial Calendar Year, which statements shall be prepared in
reasonable detail. In the event the actual premium costs for such Initial
Calendar Year exceed Base Premium Costs or actual Property Taxes for such
Initial Calendar Year exceed Base Property Taxes, Lessee shall pay to Lessor
within thirty (30) days after receiving such statement Lessee's Proportionate
Share of such Excess Premium Costs and/or Excess Property Taxes, respectively.
c. Within a reasonable period of time prior to the first day of each
calendar year during the term of this Lease other than the Initial Calendar
Year, Lessor shall furnish to Lessee in writing good faith estimates of:
(i) the dollar amount of Excess Premium Costs and Excess Property
Taxes for such calendar year which estimate shall be based upon Lessor's actual
experience and reasonably anticipated costs, and
(ii) Lessee's Proportionate Share of such amounts for such calendar
year. On the first day of each calendar month during the term of this Lease
after the Initial Calendar Year, Lessee shall pay Lessor one-twelfth (1/12th) of
Lessee's Proportionate Share of the Excess Premium Costs and Excess Property
Taxes for such year as estimated by Lessor pursuant to this Article 16.6(c).
d. Within a reasonable period of time following the end of each calendar
year during the term of this Lease other than the Initial Calendar Year, Lessor
shall furnish Lessee statements covering the calendar year just expired showing:
(i) the actual amount of Excess Premium Costs and Excess Property
Taxes, respectively, for such calendar year,
(ii) Lessee's Proportionate Share of such actual Excess Premium Costs
and Excess Property Taxes, and
(iii) the payments made by Lessee for Excess Premium Costs and Excess
Property Taxes
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during such calendar year if Lessee's Proportionate Share of the actual Excess
Premium Cost or Excess Property Taxes for such year exceeds the aggregate amount
of Lessee's payments pursuant to 16.6(c) hereof during such year with respect to
Excess Premium Costs or Excess Property Taxes, respectively, then Lessee shall
pay Lessor the deficiency within thirty (30) days after receipt of said
statement. If payments pursuant to 16.6(c) hereof exceed Lessee's Proportionate
Share of the actual Excess Premium Costs or Excess Property Taxes for such year,
respectively, Lessee shall be entitled to a credit for the amount of such excess
to be applied against the amounts owed by Lessee for the next calendar year's
Excess Premium Costs or Excess Property Taxes, as the case may be. Lessee shall
have the right to review and audit Lessor's prior year's records during normal
business hours.
e. Upon the expiration or earlier termination of this Lease, any excess
payments by Lessee or any deficiency owed Lessor by Lessee for Excess Premium
Costs and/or Excess Property Taxes shall be refunded or paid, as the case may
be, to the party entitled thereto. Lessor shall not be required to pay Lessee
interest on any payments for Excess Premium Costs or Excess Property Taxes.
f. In the event the Building is not fully occupied during any calendar year
or portion of any calendar year for which such Excess Premium Costs and Excess
Property Taxes are computed, an adjustment shall be made in computing said costs
as though the Building had been substantially occupied during such calendar
year.
17. TENANT'S FIRE INSURANCE:
Lessee shall maintain at its expense, in an amount equal to full replacement
cost, fire and extended coverage insurance on all of its personal property,
including removable trade fixtures, located in the Leased Premises and in such
additional amounts as are required to repair any partitions, plumbing, wiring or
other improvements placed on the Lease Premises at Lessee's expense. Lessee
shall provide Lessor with current certificates of insurance evidencing Lessee's
compliance with this Paragraph 17. Lessee shall obtain the agreement of Lessee's
insurers to notify Lessor that a policy is due to expire at lease thirty (30)
days prior to such expiration.
18. INSURANCE:
Without limiting the foregoing, Lessee agrees to procure and maintain a policy
or policies of insurance, at its own costs and expense, insuring Lessor and
Lessee from all claims, demands, or actions for injury or death, made by or on
behalf of any person or persons, firm, or corporation arising from, related to,
or connected with, the conduct and operation of the leased premises. Said
insurance shall be a minimum of $1,000,000 Combined Single Limit for Bodily
Injury and/or Property Damage Each Occurrence and the policy or policies or duly
executed certificate or certificates for the same, showing the Lessor as an
Additional Insured with respect to the Leased Premises, together with
satisfactory evidence of the payment of premium thereon, shall be deposited with
Lessor at the commencement of the term and renewals thereof not less than thirty
(30) days prior to the expiration of the term of such coverage.
19. CONDEMNATION:
19.1 If, during the term of this Lease or any extension or renewal thereof, all
or a substantial portion of the project in which the Leased Premises are located
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 private purchase in
lieu thereof, to the extent that the use of the Leased Premises for the purposes
for which they are being leased is prevented or that the operation of such
project is no longer economical to Lessor, then, in such event, at the option of
either party hereto, the rent shall be abated during the unexpired portion of
this Lease and the Lease shall terminate effective on the date physical
possession is taken by the condemning authority. Either party hereto may
exercise such option to terminate by delivering written notice thereof to the
other party.
19.2 If less than the whole or substantially all of the building or the Leased
Premises is thus taken or sold, Lessor or Lessee (whether or not the Leased
Premises are affected thereby) may terminate this Lease by giving written notice
thereof to the other, in which event this Lease shall terminate as of the date
when physical possession of such portion of the Building or Leased Premises is
taken by the condemning authority.
19.3 In the event 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 private sale in lieu thereof and this Lease
is not terminated as provided in Articles 19.1 and 19.2 above.
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(i) Lessor shall, at Lessor's sole risk and expense, but subject to the
terms and conditions set forth in Article 19.4 hereof, restore and reconstruct
the Leased Premises to the extent reasonably necessary to make the same tenable,
and
(ii) the rent payable hereunder during the unexpired portion of this Lessee
shall be adjusted in proportion to the area of the Leased Premises so taken,
and this Lease shall terminate only as to the portion of the Leased Premises so
taken.
19.4 If, in the event of partial condemnation or taking, Lessor shall not be
obligated to expend for such repair or restoration any amount in excess of the
net amount, after deduction of attorney's fees and all other expenses, of the
award recovered by Lessor as a result of such condemnation or taking. If there
is a mortgage, deed of trust or other security instrument covering the Leased
Premises, the Building and all or part of the land on which same are situated,
at the time a condemnation or taking occurs and the holder of such indebtedness
secured by any such security instrument elects to have the award payable as a
result of such condemnation or taking applied against such indebtedness, Lessor
shall not be obligated to repair or restore the Leased Premises, notwithstanding
any other provisions to the contrary herein contained, and, in such event, if
Lessor decides not to repair or restore the Leased Premises, this Lease shall
terminate upon the delivery by Lessor to Lessee of notice of Lessor's decision
not to repair or restore, and the rent shall be abated during the unexpired term
of this Lease effective as of the date of such condemnation or taking.
19.5 All amounts awarded upon a taking of any part or all of the Building, the
Leased Premises or the real property on which same are situated, shall belong to
Lessor, and Lessee shall not be entitled to and hereby waives all claims to any
such compensation.
20. INSPECTION:
Lessor and Lessor's authorized agents and representatives shall have the
right to enter and inspect the Leased Premises with twenty-four (24) hours
notice during reasonable business hours for the purpose of ascertaining the
condition of the Leased Premises or in order to clean, or make such repairs as
may be required to be made by Lessor under the terms of this Lease. Upon
reasonable notice, Lessor and Lessor's authorized agents and representatives
shall have the right to enter the Leased Premises at any time during reasonable
business hours for the purpose of showing the Leased Premises to prospective
purchasers, tenants or lenders, and during the last six months of the Stated
Term, shall have the right to erect on or about the Leased Premises a suitable
sign indicating that the Leased Premises are available for rent. Lessor shall
have the right to enter the Leased Premises at any time, and by force if
necessary, in the event of an emergency. Lessor will use best efforts not to
interfere with Lessee's ongoing business, except in the case of emergency.
21. DEFAULT AND BANKRUPTCY OF LESSEE:
21.1 If any rent is due from Lessee and such rent is not paid in full by Lessee
within ten (10) days following delivery of written notice thereof, or if Lessee
should fail to cure any other default under the terms of this Lease (other than
those specified in this Article 21) within a reasonable time not to exceed
twenty (20) days or as soon thereafter as practically possible after delivery of
written notice of such default from Lessor, or if Lessee should become insolvent
or be adjudged a bankrupt or make any assignment for the benefit of creditors,
or if execution is issued against Lessee, or if Lessee becomes unable to pay its
debts as they mature or should Lessee commit any act of bankruptcy or file any
voluntary petition under the provisions of the Bankruptcy Act, including,
without limitation, a petition for reorganization or an arrangement, or if the
interest of Lessee under this
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Lease passes by operation of law to any person or entity other than Lessee, or
if Lessee abandons the Leased Premises, then, upon the occurrence of any such
event, Lessor may, at Lessor's option, either:
a. terminate this Lease;
b. without terminating this Lease, terminate Lessee's right to possession
of the Leased Premises;
c. enter upon the Leased Premises and do whatever Lessee is obligated to do
under the terms of this Lease; and Lessee agrees to reimburse Lessor upon demand
for any expenses which Lessor may incur in effecting compliance with Lessee's
obligations under this Lease and Lessee further agrees that Lessor shall not be
liable for any damages resulting to Lessee from such action; or
d. exercise all other remedies available to Lessor at law or in equity and
recover Lessor's reasonable attorney's fees incurred in so acting.
In the event of any above described default hereunder, Lessor may, without
additional notice and without court proceedings, reenter and repossess the
Leased Premises and remove all persons and property therefrom using such force
as may be necessary, Lessee hereby waiving any claim arising by reason of such
reentry, repossession or removal or by reason of issuance of any distress
warrant or writ of sequestration and Lessee hereby agrees to indemnify and hold
Lessor harmless from any and all such claims.
21.2 Should Lessor so elect in the event of a default by Lessee, Lessor may
require upon demand, immediate payment of all Base Rent for the balance of
the Stated Term of this Lease.
21.3 If Lessor should elect to terminate Lessee's right to possession of the
Leased Premises without terminating this Lease, Lessor may rent the Leased
Premises or any part thereof to any person or persons for such rental (granting
reasonable concessions if necessary) and for such periods of time as Lessor
deems practicable, for the account of Lessee, and credit to Lessee any rentals
as of such rental below the total rental herein provided to be paid by Lessee
for the unexpired balance of the Stated Term of this Lease, and such sum or sums
shall be paid by Lessee in monthly installments on the rent days specified
herein. Suits to enforce such liability may be brought by Lessor at any time and
from time to time. Lessor shall in no event be liable for failure to re-rent the
Leased Premises or, if the Leased Premises are re-rented, for failure to collect
the rent due under any such re-renting, and any failure to so collect shall not
diminish Lessee's liability to Lessor for rental deficiencies. Lessor shall use
reasonable commercial efforts to lease the Premises to another third party in
the event Lessor terminates this Lease as outlined in this section.
22. LESSEE'S PROPERTY AND LIENS:
22.1 Lessee shall be responsible for and shall pay, before same become
delinquent, all federal state, county and municipal taxes assessed against any
leasehold interest or personal property of any kind owned by or placed in, on or
about the Leased Premises by Lessee during the Stated Term, including without
limitation, any so-called leasehold improvements, alterations or physical
additions made by Lessee. All taxes on business, professional or trade fixtures,
inventory and merchandise, and all sales, excise and other taxes on Lessee's
business shall be paid by Lessee prior to delinquency.
22.2 Any labor, materials, work or equipment, including, without limitation,
business, professional or trade fixtures, operating equipment, furnishings and
any other property necessary for the proper operation of Lessee's business shall
be furnished and installed by Lessee at its own cost and expense unless herein
specifically provided to the contrary.
22.3 At Lessor's reasonable option, andy such approved equipment and/or fixtures
furnished or installed by Lessee which are permanently affixed to the Leased
Premises, other than Lessee's movable business, professional or trade fixtures
and operating equipment shall, upon the expiration or earlier termination of
this Lease, become a part of the fee estate remainder, or in the alternative,
Lessor may require Lessee, at Lessee's expense, to remove such equipment and/or
fixtures, as well as all movable business, professional or trade fixtures and
operating equipment, of Lessee, whether affixed or unaffixed, on or before the
expiration or earlier termination of this Lease, in which case Lessee will, at
Lessee's sole cost and expense and within the time aforesaid, properly repair
any and all damage to the Leased Premises caused by the installation and/or
removal of Lessee's fixtures and/or operating equipment as provided in this
Article 22.3 Lessor and Lessee do hereby expressly agree that heating and air
conditioning equipment shall not be considered "movable business, professional
or trade fixtures and operating equipment" within the meaning of this Article
22.3.
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22.4 Lessee shall have the right to remove Lessee's movable business,
professional or trade fixtures and operating equipment provided:
(i) such removal is made prior to the expiration or earlier termination
of the Stated Term,
(ii) Lessee is not in default of any obligation or covenant under this
Lease at the time of such removal, and
(iii) Lessee promptly repairs all damage caused by such removal.
22.5 Lessee shall neither permit nor suffer an involuntary lien to be filed or
affixed against the Leased Premises, any part hereof or any fixture attached
thereto, whether same be movable or not, and shall not voluntarily grant any
lien or security interest, including, without limitation, any mechanic's lien or
tax lien, shall be filed and/or affixed against the Leased Premises, any part
thereof or any fixture attached thereto, including without limitation, items of
work and improvements comprising the interior (notwithstanding that same may or
might constitute a part of the fee estate remainder), and Lessee has not caused
same to be released and discharged of record within twenty (20) days after
notice and demand by Lessor for the release and discharge of any lien caused to
be released and discharged of record such lien or if Lessee desires to contest
such lien, then Lessee at his option, shall post a salutary bond sufficient to
release the Leased Premises from the effect of such lien or deposit with Lessor
such security as Lessor shall reasonably demand to insure the payment of the
lien claim. In the event Lessee shall fail to (i) discharge such lien, (ii) pay
any lien claim when due or (iii) deposit the security with Lessor, then Lessor
may at Lessor's option, pursue the rights and remedies provided in Article 21
hereof without the necessity of any further notice or demand, or Lessor may
cause same to be vacated or released either by paying the amount claimed to be
due or by procuring the release of such lien or security interest by giving
security or in such offer manner provided by law. If Lessor elects to effect the
release and discharge of record of such lien or security interest, Lessee shall
repay to Lessor, immediately upon demand, as Additional Rent hereunder, all such
sums disbursed or deposited by Lessor pursuant to the foregoing provision of
this Article 22.5. Nothing contained herein, however, shall imply any consent or
agreement on the part of Lessor or anyone holding under Lessor to subject
Lessor's interest to liability under any mechanic's or other lien law,
regardless of whether the performance or the furnishing of such work, labor,
services or materials to Lessee or anyone holding under Lessee shall have been
consented to by Lessor.
22.6 Lessor shall not be liable for any damage to or loss of personal property
placed in, on or about the Leased Premises by Lessee or others, resulting from
fire, theft, explosion, flood, windstorm or casualty of any kind or nature
caused by acts of God or by the acts or omissions of other occupants of other
space in the Building or in the other buildings in the area of the Building or
caused by operations in the construction of any public or quasi-public work. All
property kept or stored on the Leased Premises shall be kept or stored at the
sole risk of Lessee, and Lessee shall hold Lessor harmless from any claims
arising out of damage to the same, including subrogation claims by Lessee's
insurer.
23. SURRENDER OF POSSESSION:
Upon the expiration or earlier termination of this Lease, Lessee shall
surrender the Leased Premises in substantially as good condition as the same
were in when Lessee accepted possession thereof from Lessor, actual wear and
tear from the reasonable or anticipated use thereof, excepted.
24. WAIVER OF SUBROGATION:
Each party hereto hereby waives any and every claim which arises or may
arise in its favor and against the other party hereto during the item of this
Lease or any renewals or extensions thereof for any and all loss of, or damage
to, any of it's property located within or upon, or constituting a part of, the
Leased Premises or the Building, which loss or damage is covered by valid fire
and extended coverage insurance policies. Said mutual waivers shall be in
addition to, and not in limitation or derogation of, any other waiver or release
contained in this Lease with respect to any loss of, or damage to, property of
the parties hereto. Inasmuch as the above mutual waivers will preclude the
assignment of any aforesaid claim by way of subrogation (or otherwise) to an
insurance company (or any other person), each party hereto hereby agrees
immediately to give each insurance company which has issued to it policies of
fire and extended coverage insurance relating to the Leased Premises and/or the
Building written notice of the terms of said mutual waivers, and to have said
insurance policies properly endorsed,
14
<PAGE>
if necessary, to prevent the invalidation of said insurance coverages by reason
of said waiver.
25. WAIVER OF DEFAULT OR REMEDY:
No waiver by either party of any default or breach of any covenant,
condition, provision or stipulation contained in this Lease shall be treated as
a waiver of any subsequent default or breach of the same or of any other
covenant, condition, provision or stipulation hereunder, and any delay in
enforcement or non-enforcement by either party of its rights and remedies for
the breach of any covenant, condition, provision or stipulation herein shall not
be construed to be a waiver of any subsequent breach or default of any covenant,
condition, provision or stipulation hereunder. The rights and remedies of the
parties hereto shall be cumulative of, and in addition to, any other rights
afforded by law. The exercise of any right or remedy shall not impair Lessor's
right to any other remedy, at law or in equity.
26. KEYS:
Lessee shall furnish Lessor with two (2) keys, giving access into the
Leased Premises for after hours emergency purposes and shall surrender to Lessor
all keys to the Leased Premises upon termination or expiration hereof, as a
condition to receiving a return of the Security Deposit.
27. HOLDING OVER:
It is agreed that any holding over of the Leased Premises by Lessee after
the expiration of the Stated Term or any extension or renewal thereof, by lapse
of time or otherwise, shall operate and be construed as a tenancy at sufferance
at one hundred and twenty-five percent (125%) of the monthly rental provided for
hereunder for up to a three (3) month period and thereafter at two hundred
percent (200%) of the monthly rental provided for herein (which term monthly
rental shall include, without limitation all Base Rent, Additional Rent and
other sums payable to Lessor hereunder). If any property not belonging to
Lessor remains in the Leased Premises after the expiration or earlier
termination of the Stated Term, Lessee hereby authorizes Lessor to dispose of
such property in such manner as Lessor may desire, without liability to Lessee
in the event that such property is the property of Lessee; and in the event that
such property is the property of someone other than Lessee, Lessee agrees to
idemnify and hold Lessor harmless from all suits, actions, liability, loss,
damages and expenses in connection with or incident to any removal, exercise of
dominion over and/or disposition of such property by Lessor.
28. HOLD HARMLESS:
Each party agrees to indemnify and hold harmless the other party and the
other party's agents, directors, officers, employees, invitees and contractors
from all claims, losses, costs, damages or expenses (including, but not limited
to, attorneys' fees) resulting or arising or alleged to arise from any and all
injuries or death of any person or damage to any property caused by any act,
omission or neglect of the offending party or their directors, officers,
employee, agents, invitees, contractors, customers or guests, which occurs
during the Stated Term in or about the Leased Premises or the Building. Lessee
agrees to use and occupy the Leased Premises and other facilities of the
Building at its own risk and hereby releases Lessor, Lessor's agents, directors,
officers, employees, invitees and contractors from all claims for any damage or
injury to the full extent permitted by law so that Lessor shall not be liable to
Lessee, and Lessee hereby waives all claims against Lessor or Lessor's agents,
directors, officers, employees, invitees and contractors for any damage or loss
of any kind for direct damages, consequential damages, loss of profits, business
interruption and for any damage to and/or theft of property, death or injury to
persons from any cause including, but not limited to, acts of other tenants,
vandalism, loss of trade secrets or other confidential information, any damage,
loss or injury caused by defect in the Leased Premises or the Building, air
conditioning, heating, plumbing or by water leakage of any kind from the roof,
walls, windows, basement or other portions of the Leased Premises of the
Building, or caused by electricity, gas, oil, fire or any cause whatsoever in,
on or about the Leased Premises, Building or land upon which the same are
situated, or any part thereof. With respect to any latent or patent defects in
the Leased Premises or in the Building, Lessor's liability shall be limited to
the repair of such defects, which liability, in the case of patent defects,
shall not extend beyond one (1) year from the Commencement Date, whether or not
such defects are discovered within such one year period and in the case of
latent defects shall not extend beyond one (1) year from the date of discovery
of said defects.
Lessee agrees that Lessor shall not be responsible or liable to Lessee, its
employees, agents, customers or invitees, for bodily injury (fatal or non-fatal)
or property damage occasioned by the acts or omissions of:
15
<PAGE>
(i) any other tenant of the Building or of any other building which
is part of the same project which contains the Building,
(ii) such tenant's employees, agents, customers or invitees.
29. FORCE MAJEURE:
Each party shall not be required to perform any covenant or obligation in
this Lease and shall not be liable in damages to other party for such
non-performance so long as the performance of such covenant or obligation is
delayed or prevented by an act of God or force majeure as defined in Article 41
(b) hereof.
30. LESSEE REMEDY:
In the event of any default by Lessor hereunder, Lessee's exclusive remedy
shall be an action for damages or specific performance, but not termination of
this Lease, but prior to any such action Lessee shall and hereby agrees to give
Lessor written notice specifying such default with particularity and Lessor
shall thereupon have thirty (30) days in which to cure any such default. Lessee
shall notify Lessor and Lessor's mortgagee(s) immediately of any condition or
actions which Lessee considers to be a default by Lessor hereunder. Unless
Lessor's mortgagee(s) fail to cure such default within such thirty (30) day
period, Lessee shall not have any remedy or cause of action by reason thereof.
If Lessee shall give notice of a default that Lessor or Lessor's mortgagee(s)
cannot through the exercise of reasonable efforts cure within such thirty (30)
day period, Lessee shall not have any remedy or cause of action by reason
thereof for so long as Lessor's mortgagee(s) shall continuously and diligently
pursue the curing of such default.
31. NO RELIEF BY TERMINATION:
No termination of this Lease, regardless of how such termination may be
brought about or occur, shall relieve any party hereto of any duties,
obligations or liabilities which shall have theretofore accrued of becoming
payable or performable by such party.
32. ATTORNEY'S FEES:
In the event lessee defaults in the performance of, or compliance with, any
of the terms, covenants, agreements or conditions contained in this Lease and
Lessor places the enforcement of all or any part of this Lease, the collection
of any rent due or to become due under this Lease or the recovery of the
possession of the Leased Premises in the hands of an attorney, Lessee agrees to
pay Lessor's reasonable attorney's fees and expenses arising out of such
default. In like manner, if Lessor defaults hereunder and Lessee places the
enforcement of all or any part of this Lease in the hands of an attorney, Lessor
agrees to pay Lessee's reasonable attorney's fees and expenses arising out of
such default.
33. QUIET ENJOYMENT:
Lessor covenants, warrants and represents that Lessor has full right and
power to execute this Lease and to grant the estate demised herein and that
Lessee, upon payment of the rents herein reserved and performance of all of the
terms, conditions, covenants and agreements herein contained, shall peaceably
and quietly have, hold and enjoy the Leased Premises during the Stated Term of
this Lease and any extension or renewal thereof; provided, however, that Lessee
accepts this Lease subject to the terms and provisions of Article 34 hereof.
34. EXPENSES AND PERFORMANCE
Irrespective of whether or not expressly so stated, all of the duties,
covenants, obligations and agreements of each party hereto, respectively, and
all acts and things done or provided to be done by each party hereto,
respectively, shall be fully and punctually kept, performed and complied with by
such party at such party's sole risk, cost, expense and liability and without
cost, risk, expense or liability to or on the part of the other party.
35. ENTIRE CONTRACT:
This agreement embodies the entire contract between the parties hereto
relating to this Lease. No variations, modifications or changes herein or hereof
shall be binding upon any party hereto unless
<PAGE>
executed by it or by a duly authorized officer or a duly authorized agent of the
particular party. No waiver or waivers of any breach or default by either party
of any term, condition or liability or of performance by the other party of any
duty or obligation hereunder, including, without limitation, the acceptance by
Lessor of payment by Lessee of any rentals at any time or in any manner other
than as herein provided, shall be deemed a waiver thereof nor shall any such
waiver be deemed or construed to be a waiver of subsequent breaches or defaults
of any kind, character or description under any circumstances.
36. RIGHTS OF MORTGAGEE:
Lessee accepts this lease subject and subordinate to any first mortgage,
deed of trust or other first lien presently existing or hereafter arising upon
the Leased Premises or upon the Building and to any renewals, refinancing and
extensions thereof, but Lessee agrees that any such first mortgage shall have
the right at any time to subordinate such mortgage, deed of trust or other lien
to this Lease on such terms and subject to such conditions as such mortgagee may
deem appropriate in its discretion. Lessor is hereby irrevocably vested with
full power and authority to subordinate this Lease to any first mortgage, deed
of trust or other first lien now existing or hereafter placed upon the Leased
Premises or the Building as a whole, and Lessee agrees upon demand to execute
such further instruments subordinating this Lease or attorning to the holder of
any such liens as Lessor may request. The terms of this Lease are subject to
approval by Lessor's permanent Lender(s), and such approval is a condition
precedent to Lessor's obligations hereunder. In the event that Lessee should
fail to promptly execute any instrument required herein when so requested,
Lessee hereby irrevocably constitutes Lessor as its attorney-in-fact to execute
any such instrument in Lessee's name, place and stead, it being agreed that such
power is one coupled with an interest.
37. ESTOPPEL CERTIFICATES:
Lessee agrees to furnish promptly, from time to time, upon request of
Lessor or Lessor's mortgagee(s), a statement addressed as Lessor or its
mortgagee shall require certifying that Lessee is in possession of the Leased
Premises; that the Leased Premises are acceptable; that the Lease is in full
force and effect; that the Lease is unmodified; that Lessee claims no present
charge, lien or claim of offset against rent; that the rent is paid for the
current month, but is not paid and will not be paid for more than one month in
advance; and that there is no existing default by reason of some act or omission
by Lessor. Such statement shall also certify all other matters which may be
reasonably required by Lessor or Lessor's mortgagee(s). In the event that
Lessee does not furnish Lessor with a certified estoppel statement as set out
above, within thirty (30) days after Lessor has requested Lessee in writing,
therefore, it shall be conclusively deemed that all the conditions of the Lease
are satisfied and that Lessor has performed and is not in default of any of the
terms and conditions of the Lease and is in full compliance with the conditions
of the requested estoppel certificate.
38. NOTICE:
38.1 All rent and other payments required to be made by Lessee to Lessor
shall be payable to Lessor at the address set forth below, or at such other
address within the Continental United States as Lessor may specify from time to
time, by at least fifteen (15) days written notice delivered to Lessee
Kansas Industrial No. 1, Limited Partnership
P.O. Box 7247-8052
Philadelphia, PA 19170-8052
38.2 All payments required to be made by Lessor to Lessee shall be payable
to Lessee at the address set forth below, or at such other address within the
Continental United States as Lessee may specify from time to time, by at least
fifteen days written notice delivered to Lessor.
38.3 Any notice or document required or permitted to be delivered by 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, addresses to the parties at the respective addresses set out
below:
If to Lessor, to: Kansas Industrial No. 1, Limited Partnership
4500 Main St., Ste. 300
Kansas City, MO 64111
<PAGE>
If to Lessee, to: Robert Quinn
E For M Corporation
625 Alaska Ave.
Torrance, CA 90503-5124
If to Lessor's Mortgagee: Citicorp Real Estate
2001 Ross Avenue
Dallas, TX 75201
39. GENERAL PROVISIONS:
The word "Lessee: shall be deemed and taken to mean each and every person
or party mentioned as a Lessee hereunder, whether one or more; if there
shall be tenants in common hereunder, any notice required or permitted by the
terms of this Lease may be given by or to any one thereof and shall have the
same force and effect as if given by or to all thereof. The use of the neuter
singular pronoun or the personal singular pronoun to refer to Lessor or Lessee
shall be deemed a proper reference whether Lessor or Lessee be an individual, a
partnership, a corporation or group of two or more individuals or corporations.
The necessary grammatical changes required to make the provisions of this Lease
apply in the plural sense where there is more than one Lessor or one Lessee, and
to either corporations, associations, partnerships or individuals, males or
females, shall in all instances be assumed as though in each case fully
expressed.
40. DEFINITIONS:
The definitions set out below apply to the terms defined as those terms are used
throughout this Lease, unless the context in which such terms are used in this
Lease clearly requires a different meaning:
b. An "act of God" or "force majeure" shall mean strikes, lockouts,
sitdowns, material or labor restrictions by any governmental authority, civil
riots, flood, washout, explosions, earthquakes, fires, storms, acts of the
public enemy, wars, insurrections and any other cause not reasonably within the
control of Lessor and which by the exercise of reasonable diligence Lessor is
unable, wholly or in part, to prevent or overcome.
c. "Additional Rent" means and refers to the sums, if any, for which Lessee
is liable to Lessor under the provisions of Articles 11, 12, 16 and 17 hereof
and as otherwise stated herein, payable from time to time as stipulated herein
in legal and lawful money of the United States of America.
d. "Base Rent" means and refers to the sum stipulated in Article 4 hereof
which are payable monthly throughout the Stated Term of this Lease in legal and
lawful money of the United States of America.
e. "Building" means and refers to the building in which the Leased Premises
are situated, and referred to in Article 2 hereof.
f. "Commencement Date" shall be the date specified in Article 3, whether or
not the Lessee has then actually taken possession of the Leased Premises.
g. "Exterior Common Area" means and refers to that area referred to in
Article 2.2 hereof which is exterior to the perimeter of the Building and which
is designated and maintained for the common use of all tenants in the Building
and their employees, customers, clients and invitees.
h. "Exterior Common Area Improvements" means and refers to the following
items located on the Exterior Common Area: pavement in the parking areas,
driveways, entries, exist and car stops; exterior lighting, graphics, hand rails
and sidewalks; the underground and above ground utility service lines, meters
and other appurtenances thereto (excepting only lines and appurtenances
maintained by the supplier of the particular service involved); the underground
and surface drainage facilities, including
<PAGE>
curbs, gutters, inlets, catch basins and other appurtenances thereto; the
landscaping; and the landscape watering and/or sprinkler system.
i. "Leased Premises" means and refers to the premises described in
Article 2 hereof.
j. Except as otherwise provided herein, "Lessee" shall include the
party names as Lessee on Page One of this Lease, and its or their respective
successors and assigns.
k. "Stated Term" means and refers to the term, in months, stipulated
in Article 3 hereof and shall include any renewals and extensions thereof.
l. The term "rent" includes Base Rent, Additional Rent and all other
sums, if any, due to Lessor from Lessee hereunder.
m. The words and/or phrases "term of this Lease" and "throughout the
term of this Lease" shall include the Stated Term of this Lease.
41. COMMISSIONS:
Lessor and Lessee hereby indemnify and hold each other harmless against any
loss, claim, expense or liability with respect to any commissions or brokerage
fees claimed on account of the executive and/or renewal of this Lease due to any
action of the indemnifying party. Lessor and Lessee acknowledge that Zimmer-
Steinbach and the Staubach Company represented the Lessee in this transaction
and Zimmer-Steinbach shall be paid a commission equal to three percent (3%) of
the aggregate Base Rent paid by Lessee as a part of this Lease which shall be
paid upon occupancy.
42. AGENCY DISCLOSURE:
Winbury Realty of K.C., Inc. (Licensee) has notified Lessee that it is
acting as agent of the Lessor with the duty to represent Lessor's interest and
that Lessor is paying Licensee a commission. Licensee is not the agent of the
Lessee and any information given to Licensee by Lessee or its agent will be
disclosed to Lessor. Zimmer-Steinbeck and the Staubach Company has notified
Lessor that it is acting as agent of the Lessee with the duty to represent
Lessee's interest.
43. EFFECT OF DELIVERY OF THIS LEASE:
Lessor has delivered a copy of this Lease subject to review by Lessor's,
Lender or Mortgagee and is expressly contingent upon such Lender or Mortgagee
approving the terms hereof. This Lease shall not be effective until an executed
copy is signed by both Lessor and Lessee is approved by such Lender or Mortgagee
and delivered to and accepted by Lessor.
<PAGE>
45. RENEWAL OPTIONS:
Provided Lessee is not in default of any terms or conditions of the Lease
Agreement and has not previously been in default of the Lease Agreement, Lessee
shall have two (2) one year options to renew Lease Agreement. The first one year
option to renew shall be at a Base Rate of $5.00 per square foot and the second
one year option to renew shall be at a Base Rate of $5.25 per square foot.
Lessee shall exercise such renewal options by giving written notice to Lessor by
registered or certified mail at the address of the Lessor as set forth herein,
or at such address hereinafter designated by Lessor, at lease 180 days prior to
expiration to expiration of said Lease Agreement.
20
<PAGE>
IN WITNESS WHEREOF, Lessor and Lessee have executed this Lease as of the 28th
day of July, 1994.
LESSOR:
KANSAS INDUSTRIAL NO. 1., a
Kansas Limited Partnership
Address:
------- By: HBM-Kansas Industrial No.1
General Partner
4500 Main, Suite 300
Kansas City, MO 64111
By: /s/ Ted A. Murray
---------------------------
Ted A. Murray
Managing General Partner
LESSEE:
Vari-X, Inc.,
A California Corporation
Address:
-------
15019 W. 95th St. By: /s/ John W. Worley
Lenexa, KS 66215 ---------------------------
Title: VP CFO
------------------------
21
<PAGE>
EXHIBIT "A"
FLOOR PLAN
LENEXA PLACE
LENEXA, KANSAS
THE WINBURY GROUP
<PAGE>
EXHIBIT "A-1"
It is hereby agreed that the Lessor shall provide at no cost to the Lessee, the
Improvements as noted below. Side A refers to west half of premises, Side B
refers to east half of the premises.
Lessee agrees to pay any additional expense incurred in connection with
improving the Leased Premises other than those Improvements as noted below.
Lessee may use unused dollars per each improvement toward other improvements
only within the Leased Premises, however in no event will Lessor's obligation
exceed the aggregate dollar value as outlined below. Please note the following:
To be Provided Prior to Occupancy.
---------------------------------
1. Existing standard 2' X 4' ceiling grid with standard tile (A & B).
2. Existing standard 2' X 4' light fixtures and existing strip lighting
(A & B).
3. Building standards blinds on exterior windows (A & B).
4. Building standard exterior signage.
5. Existing drywall partitions as shown per Exhibit "A" (A & B).
6. Existing building standard solid core doors and hardware as shown per
Exhibit "A" (A & B).
7. Building standard exit signs and fire extinguisher as required by code
(A & B).
8. Existing building standard air conditioning in Side A. Building
standard heat throughout the entire Leased Premises.
9. All clean-up, supervision and permit fees required to construct Lessee
Improvements (A & B).
10. Existing building standard rest rooms (A & B).
11. All existing plumbing and plumbing fixtures (A & B).
12. Existing three-way office switches, GFI outlets, telephone drops,
dedicated outlets, office light switches and office receptacles
(A & B).
13. Existing 400 amp electrical service.
14. Two additional openings in existing dividing wall between Sides A & B
($1,000).
15. Sealed concrete floor in south half of Side B at $1,000.00 (B).
To Be Provided After Occupancy:
Improvements to be provided after occupancy must be requested within six
(6) months following occupancy by Lessee or the allowances provided for in
this Exhibit "A-1" will be forfeited by Lessee.
1. New drywall partition of approximately 66 linear feet at $50.00 per ft.
(B).
2. New opening into restroom at $200.00 (B).
4. Building standard air conditioning in south half of Side B at 4,000
sq.ft. + 400 tons per sq.ft. X $1,200.00 per ton plus $1,000.00 for
electrical and gas connection = $13,000 (B).
5. Painted walls in Side B at $1,000.00 (B).
6. All clean-up, supervision and permit fees required to construct Lessee
Improvements (B).
7. Restrooms on side B of Premises will be modified to include doors on
all interior stalls, door on women's restroom and hot water in the
men's and women's restrooms.
Accepted By: El Albury Accepted By: John W. Worley
_____________________ _____________________
<PAGE>
All that part of the NW 1/4 of Section 4,
Township 13, Range 24, now in the City
of Lenexa, Johnson, Kansas.
[FLOOR PLAN OF LENEXA PLACE]
[LOGO OF LENEXA PLACE]
<PAGE>
EXHIBIT "C"
BUILDING RULES AND REGULATIONS
1. Lessor agrees to furnish Lessee two (2) keys without charge. Additional
keys will be furnished at a nominal charge.
2. Lessee will refer all contractors, contractors' representatives, and
installation technicians rendering any service on or to the Leased Premises
for Lessee, to Lessor for Lessor's reasonable approval and supervision
before performance of any contractual service.
3. Lessee shall not at any time occupy any part of the Building as sleeping or
lodging quarters.
4. Lessee shall not place or use in or about Premises any explosives,
gasoline, acids, caustics or any other inflammable corrosive, or explosive
or hazardous material.
5. Lessor will not be responsible for lost or stolen personal property,
equipment, money or jewelry from Lessee's area or public rooms, regardless
of whether such loss occurs when area is locked against entry or not.
6. Birds, fowl or animals shall not be brought into or kept in or about the
Building.
7. Lessor will not permit entrance to Lessee's offices by use of pass key
controlled by Lessor to any person at any time without prior written
permission by Lessee, except employees, contractors or service personnel
directly supervised by Lessor.
8. Entries, passages, doors, elevators, hallways or stairways shall not be
blocked or obstructed; rubbish, litter, trash or material of any nature
shall not be placed, emptied or thrown into these areas, and such areas
shall not be used at any time except for access or egress by Lessee,
Lessee's agents, employees or invitees.
9. The water closets and other water fixtures shall not be used for any
purposes other than those for which they were constructed, and any damage
resulting to them from misuse, or the defacing or injury of any part of the
Building, shall be borne by the person who shall occasion it. No person
shall waste water by interfering with the faucets or otherwise.
10. Lessee shall be responsible for maintaining and repairing plumbing fixtures
and other appliances including but not limited to garbage disposals, hot
water heaters and dishwashers.
11. No person shall disturb the occupants of the Building by the use of any
musical instruments, the making of unseemly noises or any unreasonable use.
12. For purposes of good housekeeping, safety and cleanliness of the area
outside the Leased Premises and of the common areas, Lessee must keep all
refuse in containers. No item shall be stored outside the Leased Premises
without the express permission of the Lessor.
13. Lessee shall not place any signs on or adjacent to the Leased Premises
and/or project site under any condition.
14. Storage of vehicles within Lessee's space is strictly prohibited without
prior written consent of the Lessor.
It is Lessor's intention to maintain in the Building the highest standard
of dignity and good taste consistent with comfort and convenience for all
tenants. Any action or condition not meeting this high standard should be
reported directly to Lessor. Lessor reserves the right to make such other
and further reasonable rules and regulations as in its judgement may from
time to time be needful for the safety, care and cleanliness of the
Premises, and for the preservation of good order therein.
<PAGE>
Approved by Legal Counsel
Exhibit 10.19
COMMERCIAL AND INDUSTRIAL LEASE AGREEMENT
THIS LEASE is made as of the 24th day of March, 1995, between BOND STREET
BUILDING CO., a Missouri partnership c/o B.A. Karbank & Co., 1200 Main Street,
Suite 3910, Kansas City, Missouri 64105-2107 (816-221-4488, fax 816-221-4494),
LESSOR, and E for M Corporation, a Delaware corporation having an address at
9221 Quivira Road, Overland Park, Kansas 66214 (913-894-7594, fax 913-894-
7633), LESSEE.
LESSOR hereby leases to LESSEE and LESSEE hereby leases from LESSOR, the
following described premise ("the premises") in the City of Overland Park,
Johnson County, Kansas:
Approximately 7,200 sq. ft. in an office warehouse building comprising
approximately 14,400 sq. ft. located at 9215-33 Bond Street, all as indicated on
Exhibit "A" annexed hereto and made a part hereof. The address of the premises
shall be 9215 Bond Street.
1. TERM:
1.1 The term of this lease (the "Term") shall commence on the first day of
April 1995, and shall continue for twenty-three (23) months ending on the 28th
day of February, 1997, unless sooner terminated in accordance with provisions
hereof.
2. Rental: The basic rental for the premises shall be at sum Sixty-Nine
Thousand ($69,000) Dollars, payable in monthly installments of Three Thousand
($3,000) Dollars per month.
2.1 The basic rental for the premises shall be paid without deduction or
setoff, each due and payable to LESSOR on the first day of each and every month
of the Term, in advance, at the above address (or such other place as LESSOR may
designate from time to time). Any rentals or additional rentals not received by
LESSOR within ten (10) days after the due date set forth herein shall be subject
to a late charge of ten percent (10%) of the amount thereof, in accordance with
Section 24 herein. Failure by LESSEE to pay said late charge shall constitute a
default of this lease by LESSEE. LESSOR acknowledges receipt of Three Thousand
($3,000) Dollars paid to Lessor by LESSEE concurrently with the execution of
this lease to be applied as rent for the first month of the Term.
3. SECURITY DEPOSIT: Concurrently with the execution of this lease, LESSEE
delivered to LESSOR Three Thousand ($3,000) Dollars as Security for the
performance by LESSEE of every covenant and condition of this lease. Said
deposit may be co-mingled with other funds of LESSOR and shall bear no interest.
If LESSEE shall default with respect to any covenant or condition of this lease,
including but not limited to the payment of rent, additional rent and any late
charges, LESSOR may apply the whole or any part of such security deposit to the
payment of any sum in default or any sum which LESSOR may be required to spend
by reason of LESSEE'S default. In the case of every such use, application or
retention LESSEE shall, on demand, reimburse to LESSOR within ten (10) days the
sum so used, applied or retained which shall be added to the security deposit so
that the same shall be replenished to its former amount. Should LESSEE comply
with all of the covenants and conditions of this lease, the security deposit or
any balanced thereof shall be returned to LESSEE at the expiration of the Term.
4. POSSESSION AT BEGINNING OF TERM: LESSOR shall use due diligence to give
possession as nearly as possible at the beginning of the Term. It is understood
that if LESSOR shall be unable to give LESSEE occupancy of the premises hereby
leased at the time above provided, LESSOR shall not be liable for damages to the
LESSEE therefor, but during the period LESSEE shall be unable to occupy said
premises as hereinbefore provided, the rental therefor shall be abated and at
the option of LESSOR the Term may be extended to the full original Term recited
in Section 1 herein, and the commencement date of this lease, ending date and
option dates (if any) shall be modified in accordance therewith. Should LESSEE
occupy the herein leased premises prior to the commencement date of this lease,
with such prior occupancy being in all respects fully approved by LESSOR, all
terms of this lease shall then and there go into effect and the rental and any
other rental or additional charges shall commence (and shall be pro rated if
necessary) as of the date of such prior occupancy.
5. PERMITTED USE OF PREMISES: LESSEE covenants, warrants and represents to
LESSOR that the premises shall be used and occupied only for the purpose of
storage and distribution of film (medical grade) and processing chemicals, as
well as other medical supplies and equipment. LESSEE shall not use the premises
for any other purposes without first having secured the written consent of
LESSOR. LESSEE shall occupy the leased premises, conduct its business and
control its agents, employees, invitees and visitors in such a way as is lawful,
reputable and will not create any nuisance or otherwise interfere with, annoy or
disturb any neighbor. LESSEE shall not commit, or suffer to be committed any
waste on the leased premises. Nor shall LESSEE use the premises for storage or
processing of any toxic or hazardous materials except those stated on attached
list pesticides, solvents, flammable products or any "red label" merchandise
without LESSOR's written consent in each instance.
6. INSURANCE: LESSOR shall, throughout the Term, maintain liability, fire,
extended coverage and rent insurance on the leased premises in an amount equal
to the sound insurable value thereof, subject to any allowance for coinsurance
rating provisions utilized by LESSOR. All such insurance shall be for the sole
benefit of LESSOR and under its sole control. LESSEE shall comply with all
insurance regulations, including sprinkler system inspections and sprinkler
monitoring requirements and adhere to fire regulations required by LESSOR'S
insurance carrier and governmental regulations in the jurisdiction where the
premises are located so the lowest insurance rates consistent with the use of
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premises permitted by this lease may be obtained, and shall not permit anything
in or about the leased premises which would make void or voidable any insurance
now or hereafter on the premises. If, during the Term, the fire, extended
coverage, liability or rent insurance rates are increased or the amount of
insurance coverage is increased in order to comply with LESSOR'S obligations
contained herein, LESSEE agrees to reimburse LESSOR for LESSEE'S proportionate
share of the amount of such increased insurance premium in any year of the Term,
in excess of the insurance premium covering the premises for the policy year
1994. Such reimbursement shall be paid by LESSEE as additional rent within ten
(10) days from the date of LESSOR'S notice of the amount so due hereunder.
7. INDEMNITY AND PUBLIC LIABILITY: LESSEE covenants at all times to save
LESSOR harmless from all loss, liability, cost or damages that may occur or be
claimed with respect to any person or persons, corporation, or property on or
about the premises resulting from any act done or omission by or through LESSEE,
its agents, employees, invitees, or any person on the premises by reason of
LESSEE'S use or occupancy or resulting from LESSEE'S non-use or possession of
the premises and any and all loss, cost, liability, or expense resulting
therefrom. LESSEE further covenants and agrees to maintain at all times during
the Term, broad form comprehensive public liability insurance with a responsible
insurance company, licensed to do business in the state in which the premises
are located and satisfactory to LESSOR, properly protecting and indemnifying
LESSOR and LESSOR'S mortgages (if any) for a single combined limit of not less
than Two Million ($2,000,000) Dollars for personal injury, bodily injury, death
or property damage with respect to the premises. LESSEE shall furnish LESSOR
with a certificate or certificates of insurance regarding such insurance so
maintained by LESSEE, naming LESSOR and LESSOR'S mortgages as additional
insureds and stating that such insurance may not be modified or cancelled, nor
the coverage thereunder reduced, except upon thirty (30) days' prior written
notice to LESSOR and LESSOR'S mortgages.
8. INCREASE IN TAXES: In the event that the real estate taxes, including
without limitation both general and special, payable with respect to the
premises during any calendar year during the Term shall be greater than those
payable for the year 1994, whether by reason of an increase in tax rate or an
increase in assessed valuation or otherwise, LESSEE shall pay to LESSOR LESSEE'S
proportionate share of such increase as additional rent within ten (10) days
after notice from LESSOR that the same is due. For any partial calendar year
during the Term, such excess shall be prorated for the actual number of days of
the Term in such calendar year.
9. MAINTENANCE & REPAIRS BY LESSEE: LESSEE shall at its own cost and
expense keep and maintain all parts of the premises (except those for which
LESSOR is expressly responsible under the terms of this lease) in good
condition, promptly making and performing all regular maintenance, necessary
repairs and replacements, including but not limited to, windows, glass and plate
glass, doors, overhead doors, sliding doors, door tracks, frames, any special
office entry, exterior stairways, interior walls and furnish work, floors and
floor covering, heating and air-conditioning systems, mechanical & electrical
systems, dock boards, dock levelers and bumpers, pipe guards, fences, gates,
paving, plumbing work and fixtures, sewer lines, sprinkler systems, sprinkler
monitoring systems, elevators and alarm systems (if any), termite and pest
extermination, regular removal of trash and debris, regular mowing of any grass,
trimming, weed removal, shrubbery and general landscape maintenance, including
rail spur areas and maintaining any spur track serving the premises (LESSEE
agrees to sign a joint maintenance agreement with the railroad company servicing
the premises, if requested by the railroad company). LESSEE shall maintain a
preventive maintenance contract, approved by LESSOR, providing for the regular
inspection and maintenance of the heating and air-conditioning systems by a
licensed heating and air-conditioning contractor. If the premises shall have
lawn sprinklers, LESSEE shall maintain a lawn sprinkler inspection contract,
approved by LESSOR, providing for the regular inspection and maintenance of the
lawn sprinkler system by a licensed, reputable lawn sprinkler contractor. LESSEE
shall be responsible for repair and maintenance of the driveways, sidewalks,
alleyways and parking lot, including without limitation snow removal, cleaning,
repainting, striping, paving, resurfacing and repairs. LESSEE shall also insure
that the parking lot is not damaged by placement or movement of trash
containers, truck trailer dollies, etc. LESSEE shall not damage any exterior or
demising wall or disturb the integrity and support provided by any wall or
interior columns and shall, at its sole cost and expense, promptly repair to
LESSOR'S satisfaction any damage or injury to any wall or column caused by
LESSEE or its employees, agents or invitees. LESSEE shall be responsible for any
damage, to the extent the cost of repair or replacement resulting therefrom is
not reimbursed to LESSOR by LESSOR'S insurer, caused by any burglary or
vandalism. Any equipment installed on or removed from the roof or modifications
made to the roof by LESSEE must first be approved by LESSOR and flashed and
mopped-in by LESSOR'S roofing contractor at the LESSEE'S cost. Upon removal of
any such roof-top equipment, whether during or at the expiration of the lease,
LESSEE shall be responsible for repairs to the roof in a manner approved by
LESSOR. LESSEE shall not store, release or dispose of any hazardous, toxic or
dangerous substance, waste or material at or on the leased premises ("Hazardous
Material") defined as such in any federal, state or local statute, law,
ordinance, code, rule, regulations, order or decree regulating, relating to, or
imposing liability or standards of conduct concerning any Hazardous Material
("Environmental Law"). If LESSEE receives (a) any notice of violation or
possible violation of any Environmental Law affecting LESSEE or the premises or
any part thereof or (b) any complaint, order, citation or notice with regard to
any Hazardous Material or any air emissions, water discharges, noise emissions
or any other environmental, health or safety matter affecting LESSEE or the
premises or any part thereof from any court, government or quasi-governmental
agency or any other entity which is authorized by law to issue orders under any
Environmental Law or from anyone else, LESSEE shall give, within three (3) days
of receipt of such notice, written notice thereof to LESSOR. All of LESSEE'S
obligations recited in Section 9 hereof shall
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be accomplished at LESSEE'S sole expense. If LESSEE fails to maintain or repair
the premises as required by this provision, LESSOR may, upon ten (10) days'
prior written notice to LESSEE, enter the premises and perform such maintenance
or repair on behalf of LESSEE. In such case, LESSEE shall reimburse LESSOR as
additional rent for all costs incurred in performing such maintenance or repair
within ten (10) days of LESSOR's notice of the amount so due hereunder. It is
specifically understood and agreed by the parties hereto that the LESSEE'S
obligations under this Section 9 shall survive the expiration of the Term or any
holdover period.
10. OUTSIDE STORAGE: LESSEE understands and agrees that no personal
property shall be stored in the parking areas or anyplace outside of the
building without the prior written consent of LESSOR and any outside storage so
permitted shall be maintained only in accordance with the provisions of such
permission. No trash, crates, pallets or refuse shall be permitted anywhere on
the outside of the premises by LESSEE except in enclosed metal containers.
11. MAINTENANCE AND REPAIRS BY LESSOR: LESSOR shall at its expense maintain
only the roof, gutters, downspouts, foundation and structural soundness of the
exterior walls of the building in good repair. Notwithstanding the foregoing,
LESSEE shall repair and pay for any damage caused by the negligence of LESSEE,
its employees, agents or invitees, or caused by LESSEE'S default hereunder. The
term "walls" as used herein shall not include windows, glass or plate glass,
doors (interior or exterior), special store fronts or office entries. LESSEE
shall immediately give LESSOR written notice of defects or need for repairs,
after which LESSOR shall have reasonable opportunity to repair same or cure such
defect. LESSOR'S liability with respect to any defects, repairs or maintenance
for which LESSOR is responsible under any of the provisions of this lease shall
be limited to the cost of such repairs or maintenance or the curing of such
defect.
12. LESSOR'S RIGHT OF ENTRY: LESSOR and/or LESSOR'S agents may enter the
premises at reasonable hours to examine the same and to do anything LESSOR may
be required to do hereunder or which LESSOR may deem necessary for the good of
the premises, and during the last six (6) months of the Term, LESSOR may display
a sign on and show the premises. If LESSEE fails to maintain the premises
(including without limitation the lawns, shrubs, sidewalks, driveways and
parking lots) in good and sanitary order, condition and repair as required by
this lease, or if the premises are damaged by the negligent or willful act or
omission of LESSEE or any of its agents, employees, invitees or licensees,
LESSOR shall have the right but no obligation, in addition to all other rights
and remedies available to LESSOR under this lease or by law, to enter the
premises and to do such acts and expend such funds at the expense of LESSEE as
are reasonably required to keep the premises in good and sanitary order,
condition and repair. Any amount so expended by LESSOR shall be reimbursed by
LESSEE as additional rent within ten (10) days from the date of LESSOR'S notice
of the amounts so expended. LESSOR'S entry into the premises shall not
unreasonably interfere with LESSEE'S business conducted therein. Notwithstanding
the foregoing, the preceding sentence shall be of no force or effect with
respect to any entry by LESSOR made for the purpose of (a) curing LESSEE'S
defaults (including without limitation by collecting late rent) or (b)
responding to emergencies. LESSOR shall no liability to LESSEE for any damage,
inconvenience or interference with the use of the premises by LESSEE resulting
from LESSOR'S performance of maintenance or repair work.
13. SIGNS AND ADVERTISEMENTS: LESSEE shall not put upon nor permit to be
put upon any part of the premises any signs, billboards, or advertisements
whatever, including real estate signs, without the prior written consent (which
shall not be unreasonably withheld) of LESSOR and subject to any applicable
governmental laws, ordinances, regulations and other applicable requirements.
LESSEE shall remove all such signs by the termination date of this lease. The
installations and removals shall be made in such manner as to avoid damage or
defacement of the building and other improvements, and LESSEE shall repair any
damage or defacement, including without limitation, discoloration caused by such
installations and/or removal.
14. ASSIGNMENT AND SUBLETTING: LESSEE shall not have the right to assign
this lease or to sublet the whole or any part of the premises without prior
written consent of LESSOR in each and every instance. For the purpose of this
provision, any transfer of a majority or controlling interest in LESSEE (whether
in one or more related or unrelated transactions), whether by transfer of stock,
consolidation, merger, transfer or a partnership interest or transfer of any or
all of LESSEE'S assets or otherwise, or by operation of law, shall be deemed an
assignment of this lease. Any assignment or sublet in contravention of this
provision shall be void an shall be a default hereunder. Notwithstanding any
permitted assignment or subletting, LESSEE shall at all times remain directly,
primarily and fully responsible and liable for the payment of the rent herein
specified and for compliance with all of its other obligations under the terms,
provisions and covenants of this lease. Upon the occurrence of a default
hereunder, if the premises or any part thereof are then sublet or if the lease
shall be assigned, LESSOR, in addition to any other remedies herein provided, or
provided by law, may at its option collect directly from such subtenant or
assignee all rents and additional rents becoming due to LESSEE under such
assignment or sublease and apply such rent against any sums due to LESSOR from
LESSEE hereunder, and no such collection shall be construed to constitute a
novation or release of LESSEE from the further performance of LESSEE'S
obligations hereunder.
15. DAMAGE BY CASUALTY: If, during the Term of previous thereto, the
premises hereby let, or the building of which said premises are a part, shall be
destroyed or shall be so damaged by fire or other casualty, as to become
untenantable, then in such event, at the option of LESSOR, the Term hereby
created shall cease as of the date of such damage or destruction and LESSEE
shall immediately surrender the premises and all interest therein to LESSOR, and
LESSEE shall pay rent within said term only to the time of such surrender;
provided, however, that LESSOR shall exercise such option to so terminate this
lease by notice in writing delivered to LESSEE within thirty (30) days after
damage or destruction.
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In case LESSOR shall not so elect to terminate this lease, in such event, this
lease shall continue in full force and effect and LESSOR shall repair the
premises with all reasonable promptitude, placing the same in as good a
condition as they were at the time of the damage or destruction, and for that
purpose may enter said premises and rent shall abate (to the extent such rent is
reimbursed to LESSOR by the proceeds of rent insurance) in proportion to the
extent and duration of untenantability. It is further agreed that the period for
reconstruction may be delayed for such time during which strikes, riots, civil
commotion, governmental intervention, acts of god or any other contingency such
as adjustment of insurance claims, beyond LESSOR's control, may occur. In either
event, LESSEE shall remove all rubbish, debris, merchandise, furniture,
equipment and other of its personal property, within five (5) days after the
request of LESSOR. If the premises shall be but slightly injured by fire or
other casualty, so as not to render the same untenantable and unfit for
occupancy, then LESSOR, shall repair the same with all reasonable promptitude,
and in that case the rent shall not abate. No compensation or claim shall be
made by or allowed to the LESSEE by reason of any inconvenience or annoyance
arising from the necessity of repairing any portion of the building or the
premises, however the necessity may occur. Notwithstanding anything to the
contrary herein, in the event the holder of any indebtedness secured by a
mortgage or deed of trust covering the premises requires that the insurance
proceeds be applied to such indebtedness, then LESSOR shall have the right to
terminate this lease by delivering written notice of termination to LESSEE,
whereupon all rights and obligations hereunder shall cease and terminate.
16. PERSONAL PROPERTY: LESSOR shall not be liable for any loss or damage to
any merchandise or personal property in or about the premises, regardless of the
cause of such loss or damage.
17. ALTERATIONS AND FIXTURES: LESSEE shall not make any alterations,
additions or improvements to the premises (including but not limited to roof,
floor and wall penetrations) without prior written consent of LESSOR of the
plans and specifications and of the proposed contractor who is to perform such
work. All work, if approved, shall be done in accordance with applicable
building codes and shall be completed in a good workmanlike manner. Racking and
shelving to be attached to the floor shall be installed only in a manner
satisfactory to LESSOR in all respects and only under the supervision of LESSOR.
LESSEE also agrees to indemnify LESSOR in connection with any improvements by
providing a completion bond or such other guarantee to preclude the filing of
liens by the LESSEE'S contractors. LESSOR's approval of any plans for
modifications or improvements to the property by the LESSEE does not imply
LESSOR's approval of the integrity or structural design of the improvements and
LESSOR assumes no liability should such improvements fail and cause damage or
bodily injury due to the inadequacy of design. All alterations, additions,
improvements and partitions erected by LESSEE shall become part of the premises;
provided, however, that at LESSOR'S option anytime prior to the expiration of
the Term, LESSOR may require LESSEE to restore the premises to their original
condition at the end of the Term or other termination of this lease, including
without limitation by removing warehouse racking and fastening bolts and by
repairing damage therefrom. If after LESSOR'S request LESSEE fails to remove
such installations, alterations, additions, improvements or partitions, LESSOR
may perform such removal and make repairs to the premises as are required by
such removal, at LESSEE's sole cost and expense. Any increase in real estate
taxes, both general and special, and insurance resulting from such improvements
shall be the sole responsibility of LESSEE. LESSEE may, without the consent of
LESSOR, but at its own cost and expense and in a good workmanlike manner erect
such shelves, bins, machinery and trade fixtures as it may deem advisable,
without altering the basic character of the building or improvements and without
overloading or damaging the roof, walls, floors or other improvements, and in
each case complying with all applicable governmental laws, ordinances,
regulations and other requirements. Only pneumatic or non-metallic (i.e. rubber)
wheeled equipment may be used on the floors of the premises. LESSEE shall remove
from the premises all personal property, i.e. machinery, equipment and business
and trade fixtures at the termination of this lease, and LESSEE shall repair any
damage occasioned by the installation and/or removal of such personal property.
If LESSEE shall obtain written consent of LESSOR to leave any machinery or like
equipment in the premises, then the full title to such machinery and equipment
shall thereupon pass to LESSOR.
18. UTILITIES AND SERVICES: LESSEE shall contract in its own name, and pay
for all charges for water, sewer charges, sprinkler line charges, gas, heat,
electricity, fuel, telephone, alarm systems, and other utilities (including
utility taxes and/or surcharges) used in or serving the premises during the
Term. LESSEE'S use of such utilities in the premises shall not, at any time,
exceed the capacity of any of the lines or equipment in or otherwise serving the
building.
19. PUBLIC REQUIREMENTS: LESSEE shall comply with all laws, orders,
ordinances and other public requirements now or hereafter affecting the premises
or the use thereof (including without limitation the Americans With Disabilities
Act), and save LESSOR harmless from expense or damage resulting from failure to
do so.
20. MULTIPLE TENANCY BUILDING: If the premises are a part of a multiple
tenancy building and/or complex, it is understood and agreed that LESSOR may
elect to perform certain maintenance obligations of the LESSEE pertaining to the
entire building/complex and the common areas of which the premises are a part.
Said common areas shall include sidewalks, driveways, parking areas, green areas
and all other ancillary accessory areas serving the building/complex. Charges
for which the LESSOR shall receive reimbursement as additional rent from LESSEE
shall include labor and supplies for the following (by way of illustration and
not limitation): snow removal, trash removal, exterior painting, cleaning,
repairing, pavement repair and resurfacing and restriping, lighting, utilities,
sprinkler line charges, common sewage and plumbing lines, mowing, spraying,
trimming, removal and/or replacement of plantings, seeding and laying of sod,
maintenance repair or replacement of sprinkler systems, maintenance of rail
trackage, management fees. If LESSEE uses any such services for other than
normal use, LESSOR may equitably adjust such charges.
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For the purposes of pro rating (a) common area maintenance charges,
LESSEE'S proportionate share shall be a percentage based on the total rentable
square footage in the two-building complex compared to the rentable square
footage occupied by LESSEE, which is 25% percent and (b) taxes and insurance
premium and charges shall be a percentage based on the total rentable square
footage in the building compared to the rentable square footage occupied by
LESSEE, which is 50% percent. Should additional buildings be built within the
complex, LESSOR reserves the right to reapportion LESSEE'S pro rata percentage
of common area maintenance charges in relation to the adjusted total rentable
square footage within the complex.
Such reimbursement shall be made by LESSEE to LESSOR as additional rent
within ten (10) days from the date of LESSOR'S notice of the amount so due
hereunder. In addition thereto, on or after January 1 of any calendar year
subsequent to the commencement date of the lease Term, LESSOR may elect to
notify LESSEE of LESSOR'S estimate of common area maintenance charges, increase
in taxes, and increase in insurance, which estimate shall be based on the actual
amounts so billed to the LESSEE for the previous year. If LESSOR so notifies
LESSEE, LESSEE shall be required on the first day of each calendar month after
receipt of such notice to pay as additional rent 1/12 of the amount of such
estimate; provided, however, that within sixty (60) days after the end of each
calendar year LESSOR shall determine the actual amounts expended for common area
maintenance, insurance and taxes for such calendar year (and LESSEE'S
proportionate share thereof) and furnish a copy of such computations in writing
to LESSEE. If the monthly payments made by LESSEE in such calendar year exceed
LESSEE'S proportionate share of actual costs, LESSOR shall rebate such excess to
the LESSEE; if LESSEE'S pro rata portion of such actual costs exceeds the
monthly payments made in such calendar year by LESSEE, then LESSEE shall pay the
difference to LESSOR as additional rent within ten (10) days from the date of
LESSOR'S notice of the amount so due hereunder. LESSEE'S obligation to pay its
pro rata share of such actual amounts above those estimated shall survive the
expiration of this lease.
LESSEE agrees to conduct its business in a manner that will not be
objectionable to other tenants in the building/complex of which the premises are
a part, including noise, vibration, odor, or fumes. In the event LESSOR receives
complaints from other tenants in the building/complex or determines, in its sole
reasonable judgment, that LESSEE is conducting its operations in a manner so as
to be objectionable to other tenants, LESSEE agrees, upon notice from LESSOR
thereof, to promptly modify the conduct of its operations to eliminate such
objectionable operations. It is herewith understood by LESSEE that it shall have
the non-exclusive use of the parking lot and driveways serving the
building/complex.
21. EMINENT DOMAIN: If the premises or any substantial part thereof shall
be taken by any competent authority under the power of eminent domain or be
acquired for any public or quasi-public use or purpose or by purchase in lieu
thereof, the Term shall cease and terminate upon the date when the possession of
the premises or the part thereof so taken shall be required for such use or
purpose and without apportionment of the award, and LESSEE shall have no claim
against LESSOR for the value of any unexpired Term of this lease. If any
condemnation proceeding shall be instituted in which it is sought to take or
damage any part of LESSOR'S building or the land under it or if the grade of any
street or alley adjacent to the building is changed by any competent authority
and such change of grade makes it necessary or desirable to remodel the building
to conform to the changed grade, LESSOR shall have the right to cancel this
lease after having given written notice of cancellation to LESSEE not less than
ninety (90) days prior to the date of cancellation designated in the notice. In
either of said events, rent at the then current rate shall be apportioned as of
the date of the termination. No money or other consideration shall be payable by
LESSOR to LESSEE for the right of cancellation and LESSEE shall have no right to
share in the condemnation award or in any judgment for damages caused by the
taking or the change of grade. Nothing in this Section shall preclude a separate
award being made to LESSEE for loss of its business or depreciation to and cost
of removal of equipment or fixtures; provided, however, that no award to LESSEE
shall diminish any award made by the taking authority to LESSOR.
22. WAIVER OF SUBROGATION: As part of the consideration for this lease,
each of the parties hereto does hereby release the other party hereto from all
liability for damage due to any act or neglect of the other party (except as
hereinafter provided) occasioned to property owned by said parties which is or
might be incident to or the result of a fire or any other casualty against loss
for which either of the parties is now carrying or hereafter may carry
insurance; provided however, that the releases herein contained shall not apply
to any loss or damage occasioned by the willful or wanton acts of either of the
parties hereto, and the parties hereto further covenant that any insurance that
they obtain on their respective properties shall contain an appropriate
provision whereby the insurance company or companies consent to the mutual
release of liability contained in this Section.
23. DEFAULT AND REMEDIES: In the event:(a) LESSEE fails to comply with any
term, provision, condition or covenant of this lease; (b) LESSEE deserts,
vacates or abandons the premises; (c) any petition is filed by or against LESSEE
under any section or chapter of the Federal Bankruptcy Act, as amended, or under
any similar law or statute of the United States or any state thereof; (d) LESSEE
becomes insolvent or makes a transfer in fraud of creditors; (e) LESSEE makes an
assignment for benefit of creditors; (f) LESSEE shall commit waste in or about
the premises; or (g) a receiver is appointed for LESSEE or any of the assets of
LESSEE, then in any of such event, LESSEE shall be in default and LESSOR shall
have the option to do any one or more of the following, in addition to and not
in limitation of any other remedy permitted by law: LESSOR may enter upon the
premises or any part thereof either with or without process of law, and to
expel, remove and put out LESSEE or any other persons who might be thereon,
together with all personal property found therein; and, LESSOR may terminate
this lease or it may from time to time, without terminating this lease, rent the
premises or any part thereof for such term or terms (which may be for a term
extending beyond the Term of this lease) and at such rental or rentals and upon
such other terms and conditions as LESSOR in its sole discretion may deem
advisable, with the
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right to repair, renovate remodel, redecorate, alter and change said premises.
At the option of LESSOR, rents received by LESSOR from such reletting shall be
applied first to the payment of any costs and expenses of such reletting,
including but not limited to attorney's fees, advertising fees and brokerage
fees, and to the payment of any repairs, renovation, remodeling, redecorations,
alterations and changes in the premises third, to the payment of rent and
additional rent and interest thereon due and payable hereunder, and, if after
applying said rentals there is any deficiency in the rent and additional rent
and interest to be paid by LESSEE under this lease, LESSEE shall pay any such
deficiency to LESSOR and such deficiency shall be calculated and collected by
LESSOR monthly. No such re-entry or taking possession of said premises shall be
construed as an election on LESSOR'S part to terminate this lease unless a
written notice of such intention be given to LESSEE. Notwithstanding any such
reletting without termination, LESSOR may at any time thereafter elect to
terminate this lease, for such previous breach and default. Should LESSOR at any
time terminate this lease by reason of any default, in addition to any other
remedy it may have, it may recover from LESSEE a sum equal to the entire rent
payable to the end of the Term. LESSOR shall also have the right and remedy to
seek redress in the courts at any time to correct or remedy any default of
LESSEE by injunction or otherwise, without such resulting or being deemed a
termination of this lease, and LESSOR, whether this lease has been or is
terminated or not, shall have the absolute right by court action or otherwise to
collect any and all amounts of unpaid rent, unpaid additional rent and interest
thereon or any other sums due from LESSEE to LESSOR under this lease which were
or are unpaid at the date of termination.
24. LATE CHARGES: LESSEE acknowledges that LESSOR shall be required to
expend certain administrative efforts in the event LESSEE shall fail to timely
remit payment due under the terms of this lease. Accordingly, LESSEE agrees to
pay LESSOR a late charge of ten percent (10%) of any remittance (i.e. rent,
additional rent or reimbursement due hereunder) which is not received by LESSOR
within ten (10) days of the due date hereunder. Failure by LESSEE to pay said
late charge shall constitute a default of this lease by LESSEE.
25. WAIVER: The rights and remedies of LESSOR under this lease, as well as
those provided or accorded by law, shall be cumulative, and none shall be
exclusive of any other rights or remedies hereunder or allowed by law. A waiver
by LESSOR of any breach or breaches, default or defaults of LESSEE hereunder
shall not be deemed or construed to be a continuing waiver of such breach or
default nor as a waiver of or permission, expressed or implied, for any
subsequent breach or default, and it is agreed that the acceptance by LESSOR of
any installment of rent subsequent to the date the same should have been paid
hereunder, shall in no manner alter or affect the covenant and obligation of
LESSEE to pay subsequent installments of rent promptly upon the due date
thereof. No receipt of money by LESSOR after the termination in any way of this
lease shall reinstate, continue or extend the Term.
26. NOTICES: All rent and other payments required to be made by LESSEE
shall be payable to LESSOR at the address set forth on the first page of this
lease. All payments required to be made by LESSOR to LESSEE shall be payable to
LESSEE at the premises 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 under 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 their respective address.
27. SUBORDINATION: This lease shall be subject and subordinate to any
mortgage or deed of trust now or at any time hereafter constituting a lien or
charge upon the premises or the improvements situated thereon. LESSEE shall at
any time hereafter on demand execute any instruments, releases or other
documents which may be required by any such mortgagee for the purpose of
subjecting and subordinating this lease to the lien of any such mortgage or deed
of trust. LESSOR shall endeavor to obtain for the benefit of LESSEE an
instrument of nondisturbance in the event of any financing of the premises.
28. SUCCESSORS: The provisions, covenants and conditions of this lease
shall bind and inure to the benefit of the legal representatives, heirs,
successors and assigns of each of the parties hereto, except that no assignment
or subletting by LESSEE without the written consent of LESSOR shall vest any
right in the assignee or sublessee of LESSEE.
29. QUIET POSSESSION: LESSOR agrees that so long as LESSEE fully complies
with all of the terms, covenants and conditions herein contained on LESSEE'S
part to be kept and performed, LESSEE shall and may peaceably and quietly have,
hold and enjoy the premises during the Term, it being expressly understood and
agreed that such covenant of quiet enjoyment shall be binding upon LESSOR, its
heirs, successors or assigns. LESSOR further covenants and represents that
LESSOR has full right, title, power and authority to make, execute and deliver
this lease.
30. BANKRUPTCY: Neither this lease nor any interest therein nor any estate
hereby created shall pass to any trustee or receiver in bankruptcy or to any
other receiver or assignee for the benefit of creditors by operation of law of
otherwise during the Term or any renewal thereof. Notwithstanding the foregoing,
LESSOR may demand reasonable assurances of continued performance under this
lease in connection with any proceeding pertaining to bankruptcy, insolvency or
reorganization of LESSEE or its affiliates or principals.
31. SURRENDER: At the expiration of this lease or any extension thereof,
LESSEE agrees, without demand or notice by LESSOR, to return the premises to
LESSOR in broom-clean condition with restrooms mopped, all trash removed inside
and outside, all painted or tape lines removed from the concrete floors. All
plumbing, plumbing fixtures, electrical systems, heating, ventilation and air
conditioning systems, overhead unit heaters, dock levelers, overhead doors and
door tracks shall be in good working order and repair. All light fixtures shall
be in working order with working bulbs installed. All dock bumpers and dock
shelters shall be present and in good condition. All storage racks and
<PAGE>
connecting bolts shall be removed and holes resulting therefrom shall be filled
and leveled to LESSOR'S satisfaction. LESSEE agrees to repair all damage to the
premises which may be required as a result of LESSEE'S obligations under the
terms and conditions of Section 9 herein, including those repairs which may be
necessitated by the removal of signs, personal property, etc. This provision is
further subject to the terms and conditions recited in Section 17. LESSEE shall
remain liable for rent and additional rent due hereunder until the same are
paid in full and all keys to the premises are returned to and accepted by
LESSOR.
32. HOLDING OVER: In the event of holding over by LESSEE after the
expiration of the Term or termination of this lease, the holdover shall be as a
tenant at will and all of the terms and provisions of this lease shall be
applicable during that period, except that LESSEE shall pay LESSOR as rental for
the period of such holdover and amount equal to one and one-half the rent which
would have been payable by LESSEE had the holdover period been a part of the
Term created by this lease. LESSEE agrees to vacate and deliver the 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.
LESSEE'S obligation to pay LESSOR and reimbursements due hereunder and its pro
rata share of any additional rents due in accordance with Sections 6 and 8
hereof shall survive the expiration of the Term or and holdover thereof. No
holding over by LESSEE, whether with or without consent of LESSOR, shall operate
to extend this lease except as otherwise expressly provided, and LESSEE shall
indemnify LESSOR against any and all liability to other parties claiming rights
in or to the premises during the period of LESSEE'S holdover tenancy.
33. MECHANIC'S LIENS: LESSEE shall not permit any mechanic's or
materialmen's liens arising from any work or materials requested or suffered by
LESSEE and affecting the premises to be filed prior to, during or after the
expiration of the Term, and if any such lien if filed, LESSEE agrees to remove
such lien within ten (10) days thereafter. If LESSEE shall fail to clear any
such lien within such ten (10) day period, LESSOR shall have the right to remove
such lien (by bonding or otherwise) at LESSEE'S sole cost and expense, and
LESSEE shall reimburse LESSOR for such removal (together with LESSOR'S expense
therefor) upon demand. LESSEE'S failure to clear any such liens shall be a
default hereunder.
34. FORCE MAJEURE: 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
by or prevented by an act of God or force majeure.
35. ATTORNEY'S FEES: In the event LESSEE defaults in the performance of
any of the terms, covenants, agreements or conditions contained in this lease
and LESSOR places in the hands of an attorney the enforcement of all or any part
of this lease, the collection of any rent due or to become due or recovery of
the possession of the leased premises, LESSEE agrees to pay LESSOR reasonable
attorney's fees for the services of the attorney, whether suit is actually filed
or not.
36. LESSOR'S LIABILITY: Recourse by LESSEE for any claim against LESSOR
shall at all times be limited to LESSOR'S interest in the premises, and LESSEE
hereby waives any right to assert any claims against any other interest of
LESSOR or of LESSOR'S partners, principals or stockholders. The term "LESSOR" as
used in this lease, so far as agreements on the part of LESSOR to be performed
are concerned, shall be limited to mean the owner of the landlord's interest in
the premises at the time in question; in the event of any transfer of such
interest (except for transfers as security), the particular lessor named herein
shall be automatically freed and relieved from and after the date of such
transfer of any and all liability for acts then to be performed by LESSOR
hereunder.
37. INTERPRETATION; CHOICE OF FORUM: The parties hereto agree that it is
their intention hereby to create only the relationship of the LESSOR and LESSEE,
and no provision hereof, nor act of either party hereunder shall ever be
construed as creating the relationship of principal and agent, or a
partnership, or a joint venture or any enterprise between the parties hereto.
Any suit to enforce any rights hereunder, or for the interpretation of any of
the provisions of this Lease, or for damages or any other relief arising from or
in connection with this Lease, shall be filed in and only in the state or
federal courts located in the county (or district and division, in the instance
of federal courts) in which the premises are located.
38. LEASE STATUS: Upon request of LESSOR, LESSEE shall execute,
acknowledge and deliver an estoppel certificate prepared by LESSOR stating, if
the same be true, that this lease is a true and exact copy of the lease between
the parties hereto and that there are no amendments hereof (or stating what the
amendments are) that the same is then in full force and effect and that, to the
best of LESSEE'S knowledge, there are no offsets, defense or counterclaims with
respect to the payment of rent reserved hereunder or in the performance of the
other terms, covenants, and conditions hereof on the part of LESSEE to be
performed, and that as of such date, no default has been declared hereunder by
either party hereto, and that LESSEE, at the time, has no knowledge of any facts
or circumstances which it might reasonably believe would give rise to a default
by either party. Notwithstanding anything to the contrary contained herein,
without relieving LESSEE of its obligation under this Section, LESSEE'S failure
to execute, acknowledge and deliver to LESSOR such estoppel certificate within
(10) days after written demand shall constitute the acknowledgement of LESSEE
that all matters set for in such instrument are true and correct. LESSEE shall
deliver to LESSOR, within ten (10) days after the commencement date, an estoppel
certificate confirming the Commencement Date and setting forth the matters
prescribed in this Section 38.
39. RECORDING: LESSEE shall not record this lease, or any memorandum
thereof, without the written consent of LESSOR.
40. CAPTIONS: Captions throughout this instrument are for convenience and
reference only, and the words contained herein shall in no way be held to
explain, modify, amplify or aid in the interpretation, construction or meaning
of the provisions of this lease.
-7-
<PAGE>
41. SEVERABILITY: If any provision of this lease or any term, paragraph,
sentence, clause, phrase or word appearing herein shall be judicially or
administratively held invalid or unenforceable for any reason, such holding
shall not be deemed to affect, alter, modify or impair in any manner any other
provision, term, paragraph, sentence, clause,phrase or word appearing herein.
42. NO OFFER: Submission of this instrument for examination or signature
by LESSEE does not constitute a reservation or offer of or option for lease, and
it is not effective as a lease or otherwise until execution and delivery by
LESSOR and LESSEE.
43. ENTIRE AGREEMENT AND LIMITATION OF WARRANTIES: This lease is the
complete agreement between LESSOR and LESSEE concerning the premises. There are
no oral agreements, understanding, promises or representations between LESSOR
and LESSEE affecting this lease. All prior negotiations and understandings, if
any, between the parties hereto with respect to the premises shall be of no
force or effect and shall not be used to interpret this lease. 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 kind
arising out of this lease and there are no warranties which extend beyond those
expressly set forth in this lease. It is likewise agreed that this lease may not
be altered, waived, amended, or extended except by an instrument in writing
signed and dated by both LESSOR and LESSEE.
44. INTENTIONALLY OMITTED
45. BROKERS: LESSEE represents and warrant to LESSOR that except with
respect to B.A. Karbank & Co. ( the "Broker"), there are no brokers or other
parties entitled to any brokerage or leasing commissions or finder's fees in
connection with the leasing of the premises to LESSEE. In reliance upon such
representation and warranty, LESSOR agrees to pay any brokerage commission which
may be payable to the Broker in connection with this lease. LESSEE agrees to
indemnify, defend and hold LESSOR harmless from any and all costs, expenses,
liabilities, claims and fees arising out of any claim for any other brokerage
commission or finder's fee claimed in connection with the lease of the premises
by LESSEE.
46. LESSOR'S WORK: Prior to the commencement or the Term, LESSOR will
perform the following work at LESSORS's sole cost and expense:
**Replace pedestrian door at rear of building.
**Clean the office carpeting.
Except for the foregoing, LESSEE accepts the premises in "as is" condition.
-8-
<PAGE>
IN WITNESS WHEREOF, LESSOR and LESSEE have each caused to be subscribed
their names as of the date first above written. This lease has been executed in
four counterpart originals.
LESSOR: BOND STREET BUILDING CO.
/s/ Neil D. Karbank
By:_________________________________________________________
Neil D. Karbank, Partner
LESSEE: E for M Corporation
/s/ Drew Hofmann
By:_________________________________________________________
Drew Hofmann, Chief Operating officer
AGENCY DISCLOSURE FOR LEASE OF REAL PROPERTY
____________________________________________
The following agency relationships are hereby confirmed:
LICENSEE REPRESENTS LESSOR:
1. B.A. Karbank & Co. is the agent of the Lessor, has a duty to represent
the lessor's interest, and will not be the agent of the Lessee.
2. Jack Allen, licensee, representing B.A. Karbank & Co. (licensee's
company), is the agent of the Lessor, has a duty to represent the Lessor's
interest, and will not be the agent of the Lessee. Information given to the
licensee will be disclosed to the Lessor.
Lessee: E for M Corporation
/s/ Drew Hofmann
By:________________________________________ Date:_________________
Drew Hofmann, Chief Operating Officer
/s/ Jack Allen 3-21-95
___________________________________________ Date:_________________
Jack Allen, Licensee
Addendum
________
3-24-96
To lease agreement dated:__________________________________,
by and between Bond Street Building, Co., Lessor, and E for M Corporation,
Lessee, for property located at 9215 Bond Street, Overland Park, Kansas.
This shall confirm that the above recited agency disclosures were made.
LESSOR: BOND STREET BUILDING CO.
/s/ Neil D. Karbank 3-24-95
By:_______________________________________ Date:__________________
Neil D. Karbank, Partner
LESSEE: E FOR M CORPORATION
/s/ Drew Hofmann
By:_______________________________________ Date:__________________
Drew Hofmann, Chief Operating Officer
-9-
<PAGE>
Exhibit A -- Floor Plan
[DIAGRAM OF A/C--WAREHOUSE]
<PAGE>
LIST OF MATERIALS
Chempact (TM) Microfilm Developer Replenisher (BW-92)
Chempact HD Cine Film Developer Replenisher (BW-95)
Chempact (TM) Cine Film Developer/Replenisher (BW-89M)
Chempact (TM) Cine Cath Fixer/Non-Hardening (BW-90)
2407 Automatic X-Ray Fixer Hardener Part B
Vari-X FFCV-1C Fixer Concentrate
Vari-X Developer Concentrate #CFS-HDT * XL
Vari-Cath PDCV-1C Developer Concentrate
Vari-X HMCV-1C Developer Concentrate (5570)
Vari-X MDCV-1C Developer
CFS MD Developer Concentrate
Vari-X Developer Concentrate #CFS-HDT * LC
Vari-X LDCV-1C Heart Cath Developer Concentrate
CFS HDT Developer Concentrate
Vari-X ADCV-3C Developer Concentrate
Medical Gases Containing Various Mixtures of the following:
Nitrous Oxide
Oxygen
Carbon Dioxide
Nitrogen
Chlorodifluoromethane
Argon
Enflurane
Isoflurane
Halothane
Refer to attached Material Safety Data Sheets for further information.
<PAGE>
<TABLE>
<CAPTION>
[LOGO]
Exhibit 10.20
AMERICAN INDUSTRIAL REAL ESTATE ASSOCIATION
STANDARD INDUSTRIAL/COMMERCIAL SINGLE-TENANT LEASE-NET
(Do not use this form for Multi-Tenant Property)
<S> <C>
1. Basic Provisions ("Basic Provisions")
1.1. Parties: This Lease ("Lease"), dated for reference purposes only May 24, 1994 is made by and between
------------
Albor Properties I, L.P., a California limited partnership ("Lessor") and Enhanced Imaging Technologies, Inc., a Delaware
- ---------------------------------------------------------- ------------------------------------------------
corporation ("Lessee"), (collectively the "Parties," or individually a "Party").
- ------------------
1.2 Premises: That certain real property, including all improvements therein or to be provided by Lessor under the terms of
this Lease, and commonly known by the street address of 625 Alaska Avenue, Torrance, CA 90503 located in the County of Los Angeles
------------------------------------- -----------
State of California and generally described as (describe briefly the nature of the property) an approximate 65,519 sq. ft.
---------- -------------------------------
industrial building on approximately 130,244 sq. ft. of land. ("Premises"). (See Paragraph 2 for further provisions.)
- -------------------------------------------------------------
1.3 Term: 10 years and 7 months ("Original Term") commencing June 1, 1994 ("Commencement Date") and ending December 31, 2004
-- -- ------------ ------------------
("Expiration Date"). (See Paragraph 3 for further provisions.)
1.4 Early Possession: Lessee is presently in possession ("Early Possession Date"). (See Paragraphs 3.2 and 3.3 for further
----------------------------------
provisions.)
1.5 Base Rent: $25,104.00 per month ("Base Rent"), payable on the first day of each month commencing June 1, 1994 (See
---------- ----- ------------
Paragraph 4 for further provisions.)
[_] If this box is checked, there are provisions in this Lease for the Base Rent to be adjusted.
1.6 Base Rent Paid Upon Execution: $25,104.00 as Base Rent for the period June 1-30, 1994
---------- ---------------
1.7 Security Deposit: $325,000.00 Cash or Letter of ("Security Deposit"). (See Paragraph 5 for further provisions.)
------------------------------
1.8 Permitted Use: Credit may be substitute at a future date. (See Paragraph 6 for future provisions.)
-------------------------------------------
1.9 Insuring Party: Lessor is the "Insuring Party" unless otherwise stated herein. (See Paragraph 8 for further provisions.)
1.10 Real Estate Brokers: The following real estate brokers (collectively, the "Brokers") and brokerage relationships exist in
this transaction and are consented to by the Parties (check applicable boxes):
None
--------------------------------------------------------------------------------------------------------------- represents
[_] Lessor exclusively ("Lessor's Broker"); [_] both Lessor and Lessee, and
--------------------------------------------------------------------------------------------------------------- represents
[_] Lessee exclusively ("Lessee's Broker"); [_] both Lessee and Lessor. (See Paragraph 15 for further provisions.)
None
1.11 Guarantor. The obligations of the Lessee under this Lease are to be guaranteed by ____________________("Guarantor").
(See Paragragh 37 for further provisions.)
1.12 Addenda Attached hereto is an Addendum or Addenda consisting of Paragraphs 49 through 50 and continuations of printed
-- -------------------------------
text paragraphs [and Schedule 1] all of which constitute a part of this Lease.
---------------
2. Premises.
2.1 Letting. Lessor hereby leases to Lessee, and Lessee hereby leases from Lessor, the Premises, for the term, at the rental,
and upon all of the terms covenants and conditions set forth in this Lease. Unless otherwise provided herein, any statement of
square footage set forth in this Lease, or that may have been used in calculating rental, is an approximation which Lessor and
Lessee agree is reasonable and the rental based thereon is not subject to revision whether or not the actual square footage is more
or less.
2.2 Condition. Lessor shall deliver the Premises to Lessee clean and free of debris on the Commencement Date and warrants to
Lessee that the existing plumbing, fire sprinkler system, lighting, air conditioning, heating, and loading doors. If any, in the
Premises, other than those constructed by Lessee, shall be in good operating condition on the Commencement Date. If a non-compliance
with said warranty exists as of the Commencement Date. Lessor shall, except as otherwise provided in this Lease, promptly after
receipt of written notice from Lessee setting forth with specificity the nature and extent of such non-compliance, rectify same at
Lessor's expense. If Lessee does not give Lessor written notice of a non-compliance with this warranty within thirty (30) days after
the Commencement Date, correction of that non-compliance shall be the obligation of Lessee at Lessee's sole cost and expense.
2.3 Compliance with Covenants, Restrictions and Building Code. Lessor warrants to Lessee that the improvements on the Premises
comply with all applicable covenants or restrictions of record and applicable building codes, regulations and ordinances in effect
on the Commencement Date. Said warranty does not apply to the use to which Lessee will put the Premises or to any Alterations or
Utility installations (as defined in Paragraph 7.3(a)) made or to be made by Lessee. If the Premises do not comply with said
warranty, Lessor shall, except as otherwise provided in this Lease, promptly after receipt of written notice from Lessee setting
forth with specificity the nature and extent of such non-compliance, rectify the same at Lessor's expense. If Lessee does not give
Lessor written notice of a non-compliance with this warranty within six (6) months following the Commencement Date, correction of
that non-compliance shall be the obligation of Lessee at Lessee's sole cost and expense.
2.4 Acceptance of Premises. Lessee hereby acknowledges: (a) that it has been advised by the Brokers to satisfy itself with
respect to the condition of the Premises (including but not limited to the electrical and fire sprinkler systems, security,
environmental aspects, compliance with Applicable Law, as defined in Paragraph 6.3) and the present and future suitability of the
Premises for Lessee's intended use, (b) that Lessee has made such investigation as it deems necessary with reference to such matters
and assumes all responsibility therefor as the same relate to Lessee's occupancy of the Premises and/or the term of this Lease, and
(c) that neither Lessor, nor any of Lessor's agents, has made any oral or written representations or warranties with respect to the
said matters other than as set forth in this Lease.
2.5 Lessee Prior Owner/Occupant. The warranties made by Lessor in this Paragraph 2 shall be of no force or effect if
immediately prior to the date set forth in Paragraph 1.1 Lessee was the owner or occupant of the Premises. In such event Lessee
shall at Lessee's sole cost and expense, correct any non-compliance of the Premises with said warranties. Lessee is in possession of
the Premises, prior to the termination of this or any successor lease between Lessor and Lessee.
3. Term.
3.1 Term. The Commencement Date, Expiration Date and Original Term of this Lease are as specified in Paragraph 1.3.
3.2 Early Possession. If Lessee totally or partially occupies the Premises prior to the Commencement Date, the obligation to
pay Base Rent shall be abated for the period of such early possession. All other terms of this Lease, however, (including but not
limited to the obligations to pay Real Property Taxes and Insurance premiums and to maintain the Premises) shall be in effect during
such period. Any such early possession shall not affect nor advance the Expiration Date of the Original Term.
*Indicates paragraph is continued on Addendum.
Initials
--------
--------
PAGE 1
</TABLE>
<PAGE>
4. Rent.
4.1 Base Rent. Lessee shall cause payment of Base Rent and other rent or
charges, as the same may be adjusted from time to time, to be received by
Lessor in lawful money of the United States, without offset or deduction, on or
before the day on which it is due under the term of this Lease. Base Rent and
all other rent and charges for any period during the term hereof which is for
less than one (1) full calendar month shall be prorated based upon the actual
number of days of the calendar month involved. Payment of Base Rent and other
charges shall be made to Lessor at its address stated herein or to such other
persons or at such other addresses as Lessor may from time to time designate in
writing to Lessee.
5. Security Deposit. Lessee shall deposit with Lessor upon execution hereof the
Security Deposit set forth in Paragraph 1.7 as security for Lessee's faithful
performance of Lessee's obligations under this Lease. If Lessee fails to pay
Base Rent or other rent or charges due hereunder, or otherwise Defaults under
this Lease (as defined in Paragraph 13.1). Lessor may use, apply or retain all
or any portion of said Security Deposit for the payment of any amount due Lessor
or to reimburse or compensate Lessor for any liability, cost, expense loss or
damage (including attorneys' fees) which Lessor may suffer or incur by reason
thereof. If Lessor uses or applies all or any portion of said Security Deposit,
Lessee shall within ten (10) days after written request therefor deposit moneys
with Lessor sufficient to restore said Security Deposit to the full amount
required by this Lease. Lessor shall not be required to keep all or any part of
the Security Deposit separate from its general accounts. Lessor shall, at the
expiration or earlier termination of the term hereof and after Lessee has
vacated the Premises, return to Lessee (or, at Lessor's option, to the last
assignee, if any, of Lessee's interest herein), that portion of the Security
Deposit not used or applied by Lessor. Unless otherwise expressly agreed in
writing by Lessor, no part of the Security Deposit shall be considered to be
held in trust, to bear interest or other increment for its use, or to be
prepayment for any moneys to be paid by Lessee under this Lease.
6. Use.
6.1 Use. Lessee shall use and occupy the Premises only for the purposes
set forth in Paragraph 1.8, or any other use which is comparable thereto, and
for no other purpose. Lessee shall not use or permit the use of the Premises in
a manner that creates waste or a nuisance, or that disturbs owners and/or
occupants of, or causes damage to, neighboring premises or properties.
6.2 Hazardous Substances.
(a) Reportable Uses Require Consent. The term "Hazardous Substance" as
used in this Lease shall mean any product, substance, chemical, material or
waste whose presence, nature, quantity and/or intensity of existence, use,
manufacture, disposal, transportation, spill, release or effect, either by
itself or in combination with other materials expected to be on the Premises, is
either: (i) potentially injurious to the public health, safety or welfare, the
environment or the Premises, (ii) regulated or monitored by any governmental
authority, or (iii) a basis for liability or Lessor to any governmental agency
or third party under any applicable statute or common law theory. Hazardous
Substance shall include, but not be limited to, hydrocarbons, petroleum,
gasoline, crude oil or any products, by-products or fractions thereof. Lessee
shall not engage in any activity in, on or about the Premises which constitutes
a Reportable Use (as hereinafter defined) of Hazardous Substances without the
express prior written consent of Lessor and compliance in a timely manner (at
Lessee's sole cost and expense) with all Applicable Law (as defined in Paragraph
6.3). "Reportable Use" shall mean (i) the installation or use of any above or
below ground storage tank, (ii) the generation, possession, storage, use,
transportation, or disposal of a Hazardous Substance that requires a permit
from, or with respect to which a report, notice, registration or business plan
is required to be filed with any governmental authority. Reportable Use shall
also include Lessee's being responsible for the presence in, on or about the
Premises of a Hazardous Substance with respect to which any Applicable Law
requires that a notice be given to persons entering or occupying the Premises or
neighboring properties. Notwithstanding the foregoing, Lessee may,
without Lessor's prior consent, but in compliance with all Applicable Law, use
any ordinary and customary materials reasonably required to be used by Lessee
in the normal course of Lessee's business permitted on the Premises, so long as
such use is not a Reportable Use and does not expose the Premises or
neighboring properties to any meaningful risk of contamination or damage or
expose Lessor to any liability therefor. In addition, Lessor may (but without
any obligation to do so) condition its consent to the use or presence of any
Hazardous Substance, activity or storage tank by Lessee upon Lessee's giving
Lessor such additional assurances as Lessor, in its reasonable discretion, deems
necessary to protect itself, the public, the Premises and the environment
against damage, contamination or injury and/or liability therefrom or therefor,
including, but not limited to, the installation (and removal on or before Lease
expiration or earlier termination) of reasonably necessary protective
modifications to the Premises (such as concrete encasements) and/or the deposit
of an additional Security Deposit under Paragraph 5 hereof.
(b) Duty to inform Lessor. If Lessee knows, or has reasonable cause to
believe, that a Hazardous Substance, or a condition involving or resulting from
same, has come to be located in, on, under or about the Premises, other than as
previously consented to by Lessor, Lessee shall immediately give written notice
of such fact to Lessor. Lessee shall also immediately give Lessor a copy of any
statement, report, notice, registration, application, permit, business plan,
license, claim, action or proceeding given to, or received from, any
governmental authority or private party, or persons entering or occupying the
Premises, concerning the presence, spill, release, discharge of or exposure to,
any Hazardous Substance or contamination in, on, or about the Premises including
but not limited to all such documents as may be involved in any Reportable Uses
involving the Premises.
(c) Indemnification. Lessee shall indemnify, protect, defend and hold
Lessor, its agents, employees, lenders and ground Lessor, if any, and the
Premises, harmless from and against any and all loss of rents and/or damages,
liabilities, judgments, costs, claims, liens, expenses, penalties, permits and
attorney's and consultant's fees arising out of or involving any Hazardous
Substance or storage tank brought onto the Premises by or for Lessee or
under Lessee's control. Lessee's obligations under this Paragraph 6 shall
include, but be limited to, the effects of any contamination or injury to
person, property or the environment created or suffered by Lessee, and the cost
of investigation (including consultant's and attorney's fees and testing),
removal remediation, restoration and/or abatement thereof, or of any
contamination therein involved, and shall survive the expiration or earlier
termination of this Lease. No termination, cancellation or release agreement
entered into by Lessor and Lessee shall release Lessee from its obligations
under this Lease with respect to Hazardous Substances or storage tanks, unless
specifically so agreed by Lessor in writing at the time of such agreement.
6.3 Lessee's Compliance with Law. Except as otherwise provided in this
Lease, Lessee, shall, at Lessee's solo cost and expense, fully, diligently and
in a timely manner, comply with all "Applicable Law," which term is used in this
Lease to include all laws, rules, regulations, ordinances, directives,
convenants, easements and restrictions of record, permits, the requirements of
any applicable fire insurance underwriter or rating bureau, and the
recommendations of Lessor's engineers and/or consultants, relating in any manner
to the Premises (including but not limited to matters pertaining to (i)
industrial hygiene, (ii) environmental conditions on, in, under or about the
Premises, including soil and groundwater conditions, and (iii) the use,
generation, manufacture, production, installation, maintenance removal,
transportation, storage, spill or release of any Hazardous Substance or storage
tank), now in effect or which may hereafter come into effect, and whether or not
reflecting a change in policy from any previously existing policy. Lessee shall,
within five (5) days after receipt of Lessor's written request, provide Lessor
with copies of all documents and information, including, but not limited to,
permits, registrations, manifests, applications, reports and certificates,
evidencing Lessee's compliance with any Applicable law specified by Lessor, and
shall immediately upon receipt, notify Lessor in writing (with copies of any
documents involved) of any threatened or actual claim, notice, citation,
warning, complaint or report pertaining to or involving failure by Lessee or the
Premises to comply with any Applicable Law.
6.4 Inspection: Compliance. Lessor and Lessor's Lender(s) (as defined in
Paragraph 8.3(a)) shall have the right to enter the Premises at any time, in the
case of an emergency, and otherwise at reasonable times after no less than 48
hours advance notice to Lessee for the purpose of inspecting the condition of
the Premises and for verifying compliance by Lessee with this Lease and all
Applicable Laws (as defined in Paragraph 6.3) and to employ experts and/or
consultants in connection therewith and/or to advise Lessor with respect to
Lessee's activities, including but not limited to the installation, operation,
use, monitoring, maintenance, or removal of any Hazardous Substance or storage
tank on or from the Premises. The costs and expenses of any such inspections
shall be paid by the party requesting same, unless a Default or Breach of this
Lease, violation of Applicable Law, or a contamination, caused or materially
contributed to by Lessee is found to exist or be imminent, or unless the
inspection is requested or ordered by a governmental authority as the result of
any such existing or imminent violation or contamination. In any such case,
Lessee shall upon request reimburse Lessor or Lessor's Lender, as the case may
be, for the costs and expenses of such inspections.
7. Maintenance; Repairs; Utility Installations; Trade Fixtures and Alterations.
7.1 Lessee's Obligations.
(a) Subject to the provisions of Paragraphs 2.2 (Lessor's warranty as
to condition). 2.3 (Lessor's warranty as to compliance with Covenants, etc).
7.2 (Lessor's obligations to repair). 9 (damage and destruction), and 14
(condemnation). Lessee's shall, at Lessee's sole cost and expense and at all
times, keep the Premises and every part thereof in good order, condition and
repair, structural and non-structural (whether or not such portion of the
Premises requiring repair, or the means of repairing the same, are reasonably
or readily accessible to Lessee, and whether or not the need for such repairs
occurs
Initials _______
<PAGE>
as a result of Lessee's use, any prior use, the elements or the age of such
portion of the Premises), including, without limiting the generality of the
foregoing all equipment or facilities serving the Premises, such as plumbing,
heating, air conditioning, ventilating, electrical, lighting facilities, fire
sprinkler and/or standpipe and hose or other automatic fire extinguishing
system, including fire alarm and/or smoke detection systems and equipment, fire
hydrants, fixtures, walls (interior and exterior), foundations, ceilings, roofs,
floors, windows, doors, plate glass, skylights, landscaping, driveways, parking
lots, fences, signs, sidewalks and parkways located in, on, about, or adjacent
to the Premises. Lessee shall not cause or permit any Hazardous Substance to be
spilled or released in, on, under or about the Premises (including through the
plumbing or sanitary sewer system) and shall promptly at Lessee's expense, take
all investigatory and/or remedial action reasonably recommended, whether or not
formally ordered or required, for the cleanup of any contamination of, and for
the maintenance, security and/or monitoring of the Premises, the elements
surrounding same, or neighboring properties, that was caused or materially
contributed to by Lessee, or pertaining to or involving any Hazardous Substance
and/or storage tank brought onto the Premises by or for Lessee or under its
control. Lessee, in keeping the Premises in good order, condition and repair,
shall exercise and perform good maintenance practices. Lessee's obligations
shall include restorations, replacements or renewals when necessary to keep the
Premises and all Improvements hereon or a part thereof in good order, condition
and state of repair. If Lessee occupies the Premises for seven (7) years or
more. Lessor may require Lessee to repaint the exterior of the buildings on the
Premises as reasonably required, but not more frequently than once every seven
(7) years.
(b) Lessee shall, at Lessee's sole cost and expense, procure and
maintain contracts, with copies to Lessor, in customary form and substance for
and with contractors specializing and experienced in, the inspection,
maintenance and service of the following equipment and improvements, if any,
located on the Premises: (i) heating, air conditioning, and ventilation
equipment.
7.2 Lessor's Obligations. Except as provided in Paragraph 49 and except
for the warranties and agreements of Lessor contained in Paragraphs 2.2
(relating to condition of the Premises). 2.3 (relating to compliance with
covenants, restrictions and building code). 9 (relating to destruction of the
Premises) and 14 (relating to condemnation of the Premises), it is intended
by the Parties hereto that Lessor have no obligation, in any manner whatsoever,
to repair and maintain the premises, the improvements located hereon, or the
equipment therein, whether structural or non structural, all of which
obligations are intended to be that of the Lessee under Paragraph 7.1 hereof. It
is the intention of the Parties that the terms of this Lease govern the
respective obligations of the Parties as to maintenance and repair of the
Premises. Lessee and Lessor expressly waive the benefit of any statute now or
hereafter in effect to the extent it is inconsistent with the terms of this
Lease with respect to, or which affords Lessee the right to make repairs at the
expense of Lessor or to terminate this Lease by reason of any needed repairs.
7.3 Utility Installations; Trade Fixtures; Alterations.
(a) Definitions; Consent Required. The term "Utility Installations"
is used in this Lease to refer to all carpeting, window coverings, air lines,
power panels, electrical distribution, security, fire protection systems,
lighting fixtures, heating, ventilating, and air conditioning equipment,
plumbing, and fencing in, on or about the Premises. The term "Trade Fixtures"
shall mean Lessee's machinery and equipment that can be removed without doing
material damage to the Premises. The term "Alterations" shall mean any
modification of the improvements on the Premises from that which are provided by
Lessor under the terms of this Lease, other than Utility Installations or Trade
Fixtures, whether by addition or deletion. "Lessee Owned Alterations and/or
Utility Installation" are defined as Alterations and/or Utility Installations
made by Lessee that are not yet owned by Lessor as defined in Paragraph 7.4(a).
Lessee shall not make any Alterations or Utility Installations in, on, under or
about the Premises without Lessor's prior written consent. Lessee may, however,
make non-structural Utility Installations to the interior of the Premises
(excluding the roof), as long as they are not visible from the outside, do not
involve puncturing, relocating or removing the roof or any existing walls, and
the cumulative cost thereof during the term of this Lease as extended does not
exceed $25,000.
(b) Consent. Any Alterations or Utility Installations that Lessee
shall desire to make and which require the consent of the Lessor shall be
presented to Lessor in written form with proposed detailed plans. All consents
given by Lessor, whether by virtue of Paragraph 7.3(a) or by subsequent specific
consent, shall be deemed conditioned upon: (i) Lessee's acquiring all applicable
permits required by governmental authorities, (ii) the furnishing of copies of
such permits together with a copy of the plans and specifications for the
Alteration or Utility Installation to Lessor prior to commencement of the work
hereon and (iii) the compliance by Lease with all conditions of said permits in
a prompt and expeditious manner. Any Alterations or Utility Installations by
Lessee during the term of this Lease shall be done in a good and workmanlike
manner, with good and sufficient materials, and in compliance with all
Applicable Law; Lessee shall promptly upon completion thereof furnish Lessor
with as-built plans and specifications therefor, Lessor may (but without
obligation to do so) condition its consent to any requested Alteration or
Utility Installation that costs $10,000 or more upon Lessee's providing Lessor
with a lien and completion bond in an amount equal to one and one-half times the
estimated cost of such Alteration or Utility Installation and/or upon Lessee's
posting an additional Security Deposit with Lessor under Paragraph 36 hereof.
(c) Indemnification. Lessee shall pay, when due, all claims for labor
or materials furnished or alleged to have been furnished to or for Lessee at or
for use on the Premises, which claims are or may be secured by any mechanics' or
materialmen's lien against the premises or any interest therein, Lessee shall
give Lessor not less than ten (10) days' notice prior to the commencement of any
work in, on or about the Premises, and Lessor shall have the right to post
notices of non-responsibility in or on the Premises as provided by law. If
Lessee shall in good faith, contest the validality of any such lien, claim or
demand, then Lessee shall at its sole expense defend and protect itself, Lessor
and the Premises against the same and shall pay and satisfy any such adverse
judgment that may be rendered thereon before the enforcement thereof against the
lessor or the Premises. If Lessor shall require, Lessee shall furnish to Lessor
a surety bond satisfactory to Lessor in an amount equal to one and one-half
times the amount of such contested lien claim or demand, indemnifying Lessor
against liability for the same, as required by law for the holding of the
Premises free from the effect of such lien or claim. In addition, Lessor may
require Lessee to pay Lessor's attorney's fees and costs in participating in
such action if Lessor shall decide it is to its best interest to do so.
7.4 Ownership; Removal; Surrender; and Restoration.
(a) Ownership. Subject to Lessor's right to require their removal or
become the owner thereof as hereinafter provided in this Paragraph 7.4, all
Alterations and Utility Additions made to the Premises by Lessee shall be the
property of and owned by Lessee, but considered a part of the Premises. Lessor
may, at any time and at its option, elect in writing to Lessee to be the owner
of all or any specified part of the Lessee Owned Alterations, and Utility
Installations. Unless otherwise instructed per subparagraph 7.4(b) hereof, all
Lessee Owned Alterations and Utility Installations shall, at the expiration or
earlier termination of this Lease, become the property of Lessor and remain upon
and be surrendered by Lessee with the Premises.
(b) Removal. Unless otherwise agreed in writing, Lessor may require
that any or all Lessee Owned Alterations or Utility Installations be removed by
the expiration or earlier termination of this Lease, notwithstanding their
installation may have been consented to by Lessor. Lessor may require the
removal at any time of all or any part of any Lessee Owned Alterations or
Utility Installations made without the required consent of Lessor.
(c) Surrender/Restoration. Lessee shall surrender the Premises by
the end of the last day of the Lease term or any earlier termination date with
all of the improvements, parts and surfaces (hereof clean and free of debris and
in good operating order, condition and state of repair, ordinary wear and tear
excepted. "Ordinary wear and tear" shall not include any damage or deterioration
that would have been prevented by good maintenance practice or by Lessee
performing all of its obligations under this Lease. Except as otherwise agreed
or specified in writing by Lessor, the Premises, as surrendered, shall include
the Utility Installations. The obligation of Lessee shall include the repair of
any damage occasioned by the installation, maintenance or removal of Lessee's
Trade Fixtures, furnishings, equipment, and Alterations and/or Utility
Installation, as well as the removal of any storage tank installed by or for
Lessee, and the removal, replacement, or remediation of any soil, material or
ground water contaminated by Lessee, all as may then be required by Applicable
Law and/or good practice. Lessee's Trade Fixtures shall remain the property of
Lessee and shall be removed by Lessee subject to its obligation to repair and
restore the Premises per this Lease.
8. Insurance; Indemnity.
8.1 Payment For Insurance. Regardless of whether the Lessor or Lessee is
the Insuring Party, Lessee shall pay for all insurance required under this
Paragraph 8 except to the extent of the cost attributable to liability insurance
carried by Lessor in excess of $10,000,000 per occurrence. Premiums for policy
periods commencing prior to or extending beyond the Lease term shall be prorated
to correspond to the Lease term. Payment shall be made by Lessee to Lessor
within ten (10) days following receipt of an invoice for any amount due.
8.2 Liability Insurance.
(a) Carried by Lessee. Lessee shall obtain and keep in force during
the term of this Lease a Commercial General Liability policy of insurance
protecting Lessee and Lessor (as an additional insured) against claims for
bodily injury, personal injury and property damage based upon, involving or
arising out of the ownership, use, occupancy or maintenance of the Premises and
all areas appurtenant thereto. Such insurance shall be on an occurrence basis
providing single limit coverage in an amount not less than $1,000,000 per
occurrence with an "Additional Insured-Managers or Lessor of Premises"
Endorsement and contain the "Amendment of the Pollution Exclusion" for damage
caused by heat, smoke or fumes from a hostile fire. The policy shall not
contain any intra-insured exclusions as between insured persons or
organizations, but shall include coverage for liability assumed under this
Lease as an "insured contract" for the performance of Lessee's indemnity
obligations under this Lease. The limits of said insurance required by this
Lease or as carried by lease shall not, however, limit the liability of Lessee
nor relieve Lessee of any obligation hereunder. All insurance to be carried by
Lessee shall be primary to and not contributory with any similar insurance
carried by Lessor, whose insurance shall be considered excess insurance only.
(b) Carried By Lessor. In the event Lessor is the Insuring Party,
Lessor shall also maintain liability insurance described in Paragraph 8.2(a)
above. In addition to, and not in lieu of, the insurance required to be
maintained by Lessee. Lessee shall not be named as an additional insured
therein.
8.3 Property Insurance-Building, Improvements and Rental Value.
(a) Building and Improvements. The Insuring Party shall obtain and
keep in force during the term of this Lease a policy or policies in the name of
Lessor, with loss payable to Lessor and to the holders of any mortgages, deeds
of trust or ground leases on the Premises ("Lender(s)"), insuring loss
<PAGE>
or damage to the Premises. The amount of such Insurance shall be equal to the
full replacement cost of the Premises, as the same shall exist from time to
time, or the amount required by Lenders, but in no event more than the
commercially reasonable and available insurable value thereof if by reason of
the unique nature or age of the improvements involved, such latter amount is
less than full replacement cost. If Lessor is the Insuring Party, however,
Lessee Owned Alterations and Utility Installations shall be insured by Lessee
under Paragraph 8.4 rather than by Lessor, if the coverage is available and
commercially appropriate, such policy or policies shall insure against all risks
of direct physical loss or damage (except the perils of flood and/or earthquake
unless required by a Lender), including coverage for any additional costs
resulting from debris removal and reasonable amounts of coverage for the
enforcement of any ordinance or law regulating the reconstruction or replacement
of any undamaged sections of the Premises required to be demolished or removed
by reason of the enforcement of any building, zoning, safety or land use laws as
the result of a covered cause of loss. Said policy or policies shall also
contain an agreed valuation provision in lieu of any coinsurance clause, waiver
of subrogation, and inflation guard protection causing an increase in the annual
property insurance coverage amount by a factor of not less than the adjusted
U.S. Department of Labor Consumer Price Index for All Urban Consumers for the
city nearest to where the Premises are located. If such insurance coverage has a
deductible clause, the deductible amount shall not exceed $1,000 per occurrence,
and Lessee shall be liable for such deductible amount in the event of an Insured
Loss, as defined in Paragraph 9.1(c).
(b) Rental Value. The Insuring Party shall, in addition, obtain and keep in
force during the term of this Lease a policy or policies in the name of Lessor,
with loss payable to Lessor and Lenders(s), insuring the loss of the full rental
and other charges payable by Lessee to Lessor under this Lease for one (1) year
(including all real estate taxes, insurance costs, and any scheduled rental
increases). Said insurance shall provide that in the event the Lease is
terminated by reason of an insured loss, the period of indemnity for such
coverage shall be extended beyond the date of the completion of repairs or
replacement of the Premises, to provide for one full year's loss of rental
revenues from the date of any such loss. Said insurance shall contain an agreed
valuation provision in lieu of any coinsurance clause, and the amount of
coverage shall be adjusted annually to reflect the projected rental income,
property taxes, insurance premium costs and other expenses, if any, otherwise
payable by Lessee, for the next twelve (12) month period. Lessee shall be liable
for any deductible amount in the event of such loss.
(c) Tenants improvements. If the Lessor is the Insuring Party, the Lessor
shall not be required to insure Lessee Owned Alterations and Utility
Installations unless the item in question has become the property of Lessor
under the terms of this Lease. If Lessee is the Insuring Party, the policy
carried by Lessee under this Paragraph 8.3 shall insure Lessee Owned
Alterations and Utility Installations.
8.4 Lessee's Property Insurance. Subject to the requirements of Paragraph 8.5
Lessee at its cost shall either by separate policy or, at Lessor's option by
endorsement to a policy already carried, maintain insurance coverage on all of
Lessee's personal property. Lessee Owned Alterations and Utility Installations
in, on, or about the Premises similar in coverage to that carried by the
Insuring party under Paragraph 8.3. Such insurance shall be full replacement
cost coverage with a deductible of not to exceed $1,000 per occurrence. The
proceeds from any such insurance shall be used by Lessee for the replacement of
personal property or the restoration of Lessee Owned Alterations and Utility
Installations. Lessee shall be the Insuring Party with respect to the insurance
required by this Paragraph 8.4 and shall provide Lessor with written evidence
that such insurance is in force.
8.5 Insurance Policies. Insurance required hereunder shall be in companies
duly licensed to transact business in the state where the Premises are located
and maintaining during the policy term a "General Policyholders Rating" of at
least B+ or such other rating as may be required by a lender having a lien on
the Premises, as set forth in the most current issue of "Best's Insurance
Guide". Lessee shall not do or permit to be done anything which shall invalidate
the insurance policies referred to in this Paragraph 8. If Lessee is the
Insuring Party, Lessee shall cause to be delivered to Lessor certified copies of
policies of such insurance or certificates evidencing the existence and amounts
of such insurance with the insureds and loss payable clauses as required by this
Lease. No such policy shall be cancellable or subject to modification except
after thirty (30) days prior written notice to Lesssor. Lessee shall at least
thirty (30) days prior to the expiration of such policies, furnish Lessor with
evidence of renewals or "insurance binders" evidencing renewal thereof or Lessor
may order such insurance and charge the cost thereof to Lessee, which amount
shall be payable by Lessee to Lessor upon demand. If the Insuring Party shall
fail to procure and maintain the insurance required to be carried by the
Insuring Party under this Paragraph 8 the other Party may but shall not be
required to procure and maintain the same, but at Lessee's expense.
8.6 Waiver of Subrogation. Without affecting any other rights or remedies.
Lessee and Lessor ("Waiving Party"] each hereby release and relieve the other,
and waive their entire right to recover damages (whether in contract or in tort)
against the other for loss of or damage to the Waiving Party's property arising
out of or incident to the perils required to be insured against under Paragraph
8. The effect of such releases and waivers of the right to recover damages shall
not be limited by the amount of insurance carried or required or by any
deductibles applicable thereto.
8.7 Indemnity. Except for Lessor's negligence and/or breach of express
warranties, Lessee shall indemnify, protect, defend and hold harmless the
Premises, Lessor and its agents, Lessor's master or ground lessor, partners and
Lenders, from and against any and all claims, loss of rents and/or damages,
costs, liens, judgments, penalties, permits, attorney's and consultant's fees,
expenses and/or liabilities arising out of, involving, or in dealing with the
occupancy of the Premises by Lessee, the conduct of Lessee's business, any act,
omission or neglect or Lessee, its agents, contractors, employees or invitees
and out of any Default or Breach by Lessee in the performance in a timely manner
of any obligation on Lessee's part to be performed under this Lease. The
foregoing shall include, but not be limited to the defense or pursuit of any
claim or any action or proceeding involved therein and whether or not (in the
case of claims made against Lessor) litigated and/or reduced to judgment, and
whether well founded or not in case any action or proceeding be brought against
Lessor by reason of any of the foregoing matters. Lessee upon notice from Lessor
shall defend the same at Lessee's expense by counsel reasonably satisfactory to
Lessor and Lessor shall cooperate with Lessee in such defense. Lessor need not
have first paid any such claim in order to be so indemnified.
8.8 Exemption of Lessor from Liability. Lessor shall not be liable for injury
or damage to the person or goods, wares, merchandise or other property of
Lessee, Lessee's employees, contractors, invitees, customers, or any other
person in or about the Premises, whether such damage or injury is caused by or
results from fire, steam, electricity, gas, water or rain, or from the breakage,
leakage, obstruction or other defects of pipes, fire sprinklers, wires,
appliances, plumbing, air conditioning or lighting fixtures, or from any other
cause, whether the said injury or damage results from conditions arising upon
the Premises or upon other portions of the building of which the Premises are a
part, or from other sources or places, and regardless of whether the cause of
such damage or injury or the means of repairing the same is accessible or not
except that Lessor shall be liable for injuries or damages and claims arising
out of the gross negligence or willful misconduct of Lessor, its agents,
contractors or employees. Lessor shall not be liable for any damages arising
from any act or, neglect of any other tenant of Lessor. Notwithstanding Lessor's
negligence or breach of this Lease, Lessor shall under no circumstances be
liable for injury to Lessee's business or for any loss of income or profit
therefrom.
9. Damage or Destruction
9.1 Definitions.
(a) "Premises Partial Damage" shall mean damage or destruction to the
improvements on the Premises, other than Lessee Owned Alterations and Utility
Installations, the repair cost of which damage or destruction is less than 50%
of the then Replacement Cost of the Premises immediately prior to such damage or
destruction, excluding from such calculation the value of the land and Lessee
Owned Alterations and Utility Installations.
(b) "Premises Total Destruction" shall mean damage or destruction to the
Premises other than Lessee Owned Alterations and Utility Installations the
repair cost of which damage or destruction is 50% or more of the then
Replacement Cost of the Premises immediately prior to such damage or
destruction, excluding from such calculation the value of the land and Lessee
owned Alterations and Utility Installations.
(c) "Insured Loss" shall mean damage or destruction to improvements on
the Premises, other than Lessee Owned Alterations and Utility Installations,
which was caused by an event required to be covered by the insurance described
in Paragraph 8.3(b), irrespective of any deductible amounts or coverage limits
involved.
(d) "Replacement Cost" shall mean the cost to repair or rebuild the
improvements owned by Lessor at the time of the occurrence to their condition
existing immediately prior thereto, including demolition, debris removal and
upgrading required by the operation of applicable building codes, ordinances or
laws, and without deduction for depreciation.
(e) "Hazardous Substance Condition" shall mean the occurrence or
discovery of a condition of involving the presence of or a contamination by a
Hazardous Substance as defined in Paragraph 6.2(a), in, on, or under the
Premises.
9.2 Partial Damage - Insured Loss. If a Premises Partial Damage that is an
Insured Loss occurs, then Lessor shall, at Lessor's expense, repair such damage
(but not Lessee's Trade Fixtures or Lessee Owned Alterations and Utility
Installations) as soon as reasonably possible and this Lease shall continue in
full force and effect; provided, however, that Lessee shall at Lessor's
election, make the repair of any damage or destruction the total cost to repair
of which is $10,000 or less, and, in such event, Lessor shall make the insurance
proceeds available to Lessee on a reasonable basis for that purpose.
Notwithstanding the foregoing, if the required insurance was not in force or the
insurance proceeds are not sufficient to effect such repair, the Insuring Party
shall promptly contribute the shortage in proceeds (except as to the deductible
which is Lessee's responsibility) as and when required to complete said repairs.
In the event, however, the shortage in proceeds was due to the fact that, by
reason of the unique nature of the improvements, full replacement cost insurance
coverage was not commercially reasonable and available, Lessor shall have no
obligation to pay for the shortage in Insurance proceeds or to fully restore the
unique aspects of the Premises unless Lessee provides Lessor with the funds to
cover same, or adequate assurance thereof within ten (10) days following receipt
of written notice of such shortage and request therefore. If Lessor receives
said funds or adequate assurance thereof within said ten (10) day period, the
party responsible for making the repairs shall complete them as soon as
reasonably possible and this Lease shall remain in full force and effect. If
Lessor does not receive such funds or assurance within said period, Lessor may
nevertheless elect by written notice to Lessee within ten (10) days thereafter
to make such restoration and repair as is commercially reasonable with Lessor
paying any shortage in proceeds, in which case this Lease shall remain in full
force and effect. If in such case Lessor does not so elect then this Lease shall
terminate sixty (60) days following the occurrence of the damage or destruction.
Unless otherwise agreed, Lessee shall in no event have any right to
reimbursement from Lessor for any funds contributed by Lessee to repair any such
damage or destruction. Premises Partial Damage due to flood or earthquake shall
be subject to Paragraph 9.3 rather than Paragraph 9.2 notwithstanding that there
may be some insurance coverage but the net proceeds of any such insurance shall
be made available for the repairs if made by either Party.
<PAGE>
9.3 Partial Damage--Uninsured Loss. If a Premises Partial Damage that is
not an Insured Loss occurs, unless caused by a negligent or willful act of
Lessee (in which event Lessee shall make the repairs at Lessee's expense and
this Lease shall continue in full force and effect, but subject to Lessor's
rights under Paragraph 13). Lessor may at Lessor's option, either: (i) repair
such damage as soon as reasonably possible at Lessor's expense, in which event
this Lease shall continue in full force and effect, or (ii) give written notice
to Lessee within thirty (30) days after receipt by Lessor of knowledge of the
occurrence of such damage of Lessor's desire to terminate this Lease as of the
date sixty (60) days following the giving of such notice. In the event Lessor
elects to give such notice of Lessor's intention to terminate this Lease, Lessee
shall have the right within ten (10) days after the receipt of such notice to
give written notice to Lessor of Lessee's commitment to pay for the repair of
such damage totally at Lessee's expense and without reimbursement from Lessor.
Lessee shall provide Lessor with the required funds or satisfactory assurance
thereof within thirty (30) days following Lessee's said commitment. In such
event this Lease shall continue in full force and effect and Lessor shall
proceed to make such repairs as soon as reasonably possible and the required
funds are available. If Lessee does not give such notice and provide the funds
or assurance thereof within the times specified above, this Lease shall
terminate as of the date specified in Lessor's notice of termination.
9.4 Total Destruction. Notwithstanding any other provision hereof, if a
Premises Total Destruction occurs (including any destruction required by any
authorized public authority), this Lease shall terminate sixty (60) days
following the date of such Premises Total Destruction, whether or not the damage
or destruction is an Insured Loss or was caused by a negligent or willful act of
Lessee. In the event, however, that the damage or destruction was caused by
Lessee, Lessor shall have the right to recover Lessor's damages from Lessee
except as released and waived in Paragraph 8.6.
9.5 Damage Near End of Term. If at any time during the last six (6) months
of the term of this Lease there is damage for which the cost to repair exceeds
one (1) month's Base Rent, whether or not an Insured Loss, Lessor may, at
Lessor's option, terminate this Lease effective sixty (60) days following the
date of occurrence of such damage by giving written notice to Lessee of Lessor's
election to do so within thirty (30) days after the date of occurrence of such
damage. Provided, however, if Lessee at that time has an exercisable option to
extend this Lease or to purchase the Premises, then Lessee may preserve this
Lease by, within twenty (20) days following the occurrence of the damage, or
before the expiration of the time provided in such option for its exercise,
whichever is earlier ("Exercise Period"), (i) exercising such option and (iii)
providing Lessor with any shortage in insurance proceeds (or adequate assurance
thereof) needed to make the repairs. If Lessee duly exercises such option during
said Exercise Period and provides Less or with funds (or adequate assurance
thereof) to cover any shortage in insurance proceeds, Lessor shall at Lessor's
expense repair such damage as soon as reasonably possible and this Lease shall
continue in full force and effect. If Lessee fails to exercise such option and
provide such funds or assurance during said Exercise Period, then Lessor may at
Lessor's option terminate this Lease as of the expiration of said sixty (60)
day period following the occurrence of such damage by giving written notice to
Lessee of Lessor's election to do so within ten (10) days after the expiration
of the Exercise Period, notwithstanding any term or provision in the grant of
option to the contrary.
9.6 Abatement of Rent; Lessee's Remedies.
(a) In the event of damage described in Paragraph 9.2 (Partial Damage
- --Insured) whether or not Lessor or Lessee repairs or restores the Premises, the
Base Rent, Real Property Taxes, Insurance premiums, and other charges, if any,
payable by Lessee hereunder for the period during which such damage, its repair
or the restoration continues (not to exceed the period for which rental value
insurance is required under Paragraph 8.3(b)), shall be abated in proportion to
the degree to which Lessee's use of the Premises is impaired. Except for
abatement of Base Rent, Real Property Taxes, insurance premiums, and other
charges, if any, as aforesaid, all other obligations of Lessee hereunder shall
be performed by Lessee, and Lessee shall have no claim against Lessor for any
damage suffered by reason of any such repair or restoration.
(b) If Lessor shall be obligated to repair or restore the Premises
under the provisions of this Paragraph 9 and shall not commence, in a
substantial and meaningful way, the repair or restoration of the Premises within
sixty (60) days after such obligation shall accrue, Lessee may, at any time
prior to the commencement of such repair or restoration, give written notice to
Lessor and to any Lenders of which Lessee has actual notice of Lessee's election
to terminate this Lease on a date not less than sixty (60) days following the
giving of such notice. If Lessee gives such notice to Lessor and such Lenders
and such repair or restoration is not commenced within thirty (30) days after
receipt of such notice, this Lease shall terminate as of the date specified in
said notice. If Lessor or a Lender commences the repair or restoration of the
Premises within thirty (30) days after receipt of such notice, this Lease shall
continue in full force and effect. "Commence" as used in this Paragraph shall
mean either the unconditional authorization of the preparation of the required
plans, or the beginning of the actual work on the Premises, whichever first
occurs.
9.7 Hazardous Substance Conditions. If a Hazardous Substance Condition
occurs, unless Lessee is legally responsible (in which case Lessee shall make
the investigation and remediation thereof required by Applicable Law and this
Lease shall continue in full force and effect, but subject to Lessor's rights
under Paragraph 13). Lessor may at Lessor's option either (i) investigate and
remediate such Hazardous Substance Condition, if required as soon as reasonably
possible at Lessor's expense, in which event this Lease shall continue in full
force and effect, or (ii) if the estimated cost to investigate and remediate
such condition exceeds twelve (12) times the then monthly Base Rent or $100,000,
whichever is greater, give written notice to Lessee within thirty (30) days
after receipt by Lessor of knowledge of the occurrence of such Hazardous
Substance Condition of Lessor's desire to terminate this Lease as of the date
sixty (60) days following the giving of such notice. In the event Lessor elects
to give such notice of Lessor's intention to terminate this Lease, Lessee shall
have the right within ten (10) days after the receipt of such notice to give
written notice to Lessor of Lessee's commitment to pay for the investigation and
remediation of such Hazardous Substance Condition totally at Lessee's expense
and without reimbursement from Lessor except to the extent of an amount equal to
twelve (12) times the then monthly Base Rent or $100,000, whichever is greater.
Lessee shall provide Lessor with the funds required of Lessee or satisfactory
assurance thereof within thirty (30) days following Lessee's said commitment, in
such event this Lease shall continue in full force and effect, and Lessor shall
proceed to make such investigation and remediation as soon as reasonably
possible and the required funds are available. If Lessee does not give such
notice and provide the required funds or assurance thereof within the times
specified above, this Lease shall terminate as of the date specified in Lessor's
notice of termination. If a Hazardous Substance Condition occurs for which
Lessee is not legally responsible, there shall be abatement of Lessee's
obligations under this Lease to the same extent as provided in Paragraph 9.6(a)
for a period of not to exceed twelve months.
9.8 Termination--Advance Payments. Upon termination of this Lease pursuant
to this Paragraph 9, an equitable adjustment shall be made concerning advance
Base Rent and any other advance payments made by Lessee to Lessor, Lessor shall,
in addition, return to Lessee so much of Lessee's Security Deposit as has not
been, or is not then required to be, used by Lessor under the terms of this
Lease.
9.9 Waive Statutes. Lessor and Lessee agree that the terms of this Lease
shall govern the effect of any damage to or destruction of the Premises with
respect to the termination of this Lease and hereby waive the provisions of any
present or future statute to the extent inconsistent herewith.
10. Real Property Taxes.
10.1 (a) Payment of Taxes. Lessee shall pay the Real Property Taxes, as
defined in Paragraph 10.2 applicable to the Premises during the term of this
Lease. Subject to Paragraph 10.1(b), all such payments shall be made at least
ten (10) days prior to the delinquency date of the applicable installment.
Lessee shall promptly furnish Lessor with satisfactory evidence that such taxes
have been paid. If any such taxes to be paid by Lessee shall cover any period of
time prior to or after the expiration or earlier termination of the term hereof,
Lessee's share of such taxes shall be equitably prorated to cover only the
period of time within the tax fiscal year this Lease is in effect, and Lessor
shall reimburse Lessee for any overpayment after such proration. If Lessee shall
fail to pay any Real Property Taxes required by this Lease to be paid by Lessee,
Lessor shall have the right to pay the same, and Lessee shall reimburse Lessor
therefor upon demand.
(b) Advance Payment. In order to insure payment when due and before
delinquency of any or all Real Property Taxes. Lessor reserves the right, at
Lessor's option, to estimate the current Real Property Taxes applicable to the
Premises, and to require such current year's Real Property Taxes to be paid in
advance to Lessor by Lessee, either: (i) a lump sum amount equal to the
installment due, at least twenty (20) days prior to the applicable delinquency
date, or (ii) monthly in advance with the payment of the Base Rent. If Lessor
elects to require payment monthly in advance, the monthly payment shall be that
equal monthly amount which, over the number of months remaining before the month
in which the applicable tax installment would become delinquent (and without
interest thereon), would provide a fund large enough to fully discharge before
delinquency the estimated installment of taxes to be paid. When the actual
amount of the applicable tax bill is known, the amount of such equal monthly
advance payment shall be adjusted as required to provide the fund needed to pay
the applicable taxes before delinquency. If the amounts paid to Lessor by Lessee
under the provisions of this Paragraph are insufficient to discharge the
obligations of Lessee to pay such Real Property Taxes as the same become due,
Lessee shall pay to Lessor, upon Lessor's demand, such additional sums as are
necessary to pay such obligations. All moneys paid to Lessor under this
Paragraph may be inter-mingled with other moneys of Lessor and shall not bear
interest.
102. Definitions of "Real Property Taxes." As used herein, the term "Real
Property Taxes" shall include any form of real estate tax or assessment,
general, special, ordinary or extraordinary, and any license fee, commercial
rental tax, improvement bond or bonds, levy or tax (other than inheritance,
personal income or estate taxes) imposed upon the Premises by any authority
having the direct or indirect power to tax, including any city, state or federal
government, or any school, agricultural, sanitary, fire, street, drainage or
other improvement district thereof, levied against any legal or equitable
interest of Lessor in the Premises or in the real property of which the Premises
are a part, Lessor's right to rent or other income therefrom, and/or Lessor's
business of leasing the Premises. The term "Real Property Taxes" shall also
include any tax, fee, levy, assessment or charge, or any increase therein,
imposed by reason of events occurring, or changes in applicable law taking
effect, during the term of this Lease, including but not limited to a change in
the ownership of the Premises or in the improvements thereon, the execution of
this Lease, or any modification, amendment or transfer thereof, and whether or
not contemplated by the Parties.
<PAGE>
10.4 Personal Property Taxes. Lessee shall pay prior to delinquency all
taxes assessed against and levied upon Lessee Owned Alterations, Installations,
Trade Fixtures, furnishings, equipment and all personal property of Lessee
contained in the Premises or elsewhere. When possible, Lessee shall cause its
Trade Fixtures, furnishings, equipment and all other personal property to be
assessed and billed separately from the real property of Lessor, if any of
Lessee's said personal property shall be assessed with Lessor's real property,
Lessee shall pay Lessor the taxes attributable to Lessee within ten (10) days
after receipt of a written statement setting forth the taxes applicable to
Lessee's property or, at Lessor's option, as provided in Paragraph 10.1(b).
12. Assignment and Subletting.
12.1 Lessor's Consent Required.
(a) Lessee shall not voluntarily or by operation of law assign, transfer,
mortgage or otherwise transfer or encumber (collectively, "assignment") or
sublet all or any part of Lessee's interest in this Lease or in the Premises
without Lessor's prior written consent given under and subject to the terms of
Paragraph 36.
(b): See Addendum.
(c) The Involvement of Lessee or its assets in any transaction, or series
of transactions (by way of merger, sale, acquisition, financing, refinancing,
transfer, leveraged buy-out or otherwise), whether or not a formal assignment or
hypothecation of this Lease or Lessee's assets occurs, which results or will
result in a reduction of the Net Worth of Lessee, as hereinafter defined, by an
amount equal to or greater than twenty-five percent (25%) of such Net Worth of
Lessee as it was represented to Lessor at the time of the execution by Lessor of
this Lease or at the time of the most recent assignment to which Lessor has
consented, or as it exists immediately prior to said transaction or transactions
constituting such reduction, at whichever time said Net Worth of Lessee was or
is greater, shall be considered an assignment of this Lease by Lessee to which
Lessor may reasonably withhold its consent. "Net Worth of Lessee" for purposes
of this Lease shall be the net worth of Lessee (excluding any guarantors)
established under generally accepted accounting principles consistently applied.
12.2 Terms and Conditions Applicable to Assignment and Subletting.
(a) Regardless of Lessor's consent, any assignment or subletting shall not:
(i) be effective without the express written assumption by such assignee or
sublessee of the obligations of Lessee under this Lease, (ii) release Lessee of
any obligations hereunder, or (iii) alter the primary liability of Lessee for
the payment of Base Rent and other sums due Lessor hereunder or for the
performance of any other obligations to be performed by Lessee under this Lease.
(b) Lessor may accept any rent or performance of Lessee's obligations from
any person other than Lessee pending approval or disapproval of an assignment.
Neither a delay in the approval or disapproval of such assignment nor the
acceptance of any rent or performance shall constitute a waiver or estoppel of
Lessor's right to exercise its remedies for the Default or Breach by Lessee of
any of the terms, covenants or conditions of this Lease.
(c) The consent of Lessor to any assignment or subletting shall not
constitute a consent to any subsequent assignment or subletting by Lessee or to
any subsequent or successive assignment or subletting by the sublessee. However,
Lessor may consent to subsequent sublettings and assignments of the sublease or
any amendments or modifications thereto without notifying Lessee or anyone else
liable on the Lease or sublease and without obtaining their consent, and such
action shall not relieve such persons from liability under this Lease or
sublease.
(d) In the event of any Default or Breach of Lessee's obligations under
this Lease, Lessor may proceed directly against Lessee, any Guarantors or any
one else responsible for the performance of the Lessee's obligations under this
Lease, including the sublessee, without first exhausting Lessor's remedies
against any other person or entity responsible therefor to Lessor, or any
security held by Lessor or Lessee.
(e) Each request for consent to an assignment or subletting shall be in
writing, accompanied by information relevant to Lessor's determination as to the
financial and operational responsibility and appropriateness of the proposed
assignee or sublessee, including, but not limited to the intended use and/or
required modification of the Premises, if any, together with a non-refundable
deposit of $350 for Lessor's considering and processing the request for consent.
Lessee agrees to provide Lessor with such other or additional information and/or
documentation as may be reasonably requested by Lessor.
(f) Any assignee of, or sublessee under, this Lease shall, by reason of
accepting such assignment or entering into such sublease, be deemed, for the
benefit of Lessor, to have assumed and agreed to conform and comply with each
and every term, covenant, condition and obligation herein to be observed or
performed by Lessee during the term of said assignment or sublease, other than
such obligations as are contrary to or inconsistent with provisions of an
assignment or sublease to which Lessor has specifically consented in writing.
(h) Lessor, as a condition to giving its consent to any assignment or
subletting, may require that the amount and adjustment structure of the rent
payable under this Lease be adjusted to what is then the market value and/or
adjustment structure for property similar to the Premises as then constituted.
12.3 Additional Terms and Conditions Applicable to Subletting. The following
terms and conditions shall apply to any subletting by Lessee of all or any part
of the Premises and shall be deemed included in all subleases under this Lease
whether or not expressly incorporated therein.
(a) Lessee hereby assigns and transfers to Lessor all of Lessee's interest
in all rentals and income arising from any sublease of all or a portion of the
Premises heretofore or hereafter made by Lessee, and Lessor may collect such
rent and income and apply same toward Lessee's obligations under this Lease;
provided, however, that until a Breach (as defined in Paragraph 13.1) shall
occur in the performance of Lessee's obligations under this Lease, Lessee may,
except as otherwise provided in this Lease, receive, collect and enjoy the rent
accruing under such sublease. Lessor shall not, by reason of this or any other
assignment of such sublease to Lessor, nor by reason of the collection of the
rents from a sublessee, be deemed liable to the sublessee for any failure of
Lessee to perform and comply with any of Lessee's obligations to such sublessee
under such sublease. Lessee herby irrevocably authorizes and directs any such
sublessee, upon receipt of a written notice from Lessor stating that a Breach
exists in the performance of Lessee's obligations under this Lease, to pay to
Lessor the rents and other charges due and to become due under the sublease.
Sublessee shall rely upon any such statement and request from Lessor and shall
pay such rents and other charges to Lessor without any obligation or right to
inquire as to whether such Breach exists and notwithstanding any notice from or
claim from Lessee to the contrary. Lessee shall have no right or claim against
said sublessee, or, until the Breach has been cured, against Lessor, for any
such rents and other charges so paid by said sublessee to Lessor.
(b) In the event of a Breach by Lessee in the performance of its
obligations under this Lease, Lessor, at its option and without any obligation
to do so, may require any sublei to attorn to Lessor, in which event Lessor
shall undertake the obligations of the sublessor under such sublease from the
time of the exercise of said option to the expiration of such sublease;
provided, however, Lessor shall not be liable for any prepaid rents or security
deposit by such sublessee to such sublessor or for any other prior Defaults or
Breaches of such sublessor under such sublease.
(c) Any matter or thing requiring the consent of the sublessor under a
sublease shall also require the consent of Lessor herein.
(d) No sublessee shall further assign or subject all or any part of the
Premises without Lessor's prior written consent.
(e) Lessor shall deliver a copy of any notice of Default or Breach by
Lessee to the sublessee, who shall have the right to cure the Default of Lessee
within the grace period, if any, specified in such notice. The sublessee shall
have a right of reimbursement and offset from and against Lessee for any such
Defaults cured by the sublessee.
13. Default; Breach; Remedies.
13.1 Default; Breach, Lessor and Lessee agree that if an attorney is
consulted by Lessor in connection with a Lessee Default or Breach (as
hereinafter defined), $350.00 is a reasonable minimum sum per such occurence for
legal services and costs in the preparation and service of a notice of Default,
and that Lessor may include the cost of such services and costs in said notice
as rent due and payable to cure said Default. A "Default" is defined as a
failure by the Lessee to observe, comply with or perform any of the terms,
covenants, conditions or rules applicable to Lessee under this Lease. A "Breach"
is defined as the occurence of any one or more of the following Defaults, and,
where a grace period for cure after notice is specified herein, the failure by
Lessee to cure such Default prior to the expiration of the applicable grace
period, and shall entitle Lessor to pursue the remedies set forth in Paragraphs
13.2 and/or 13.3:
(a) The vacating of the Premises without the intention to reoccupy same, or
the abandonment of the Premises.
<PAGE>
(b) Except as expressly otherwise provided in this Lease, the failure by
Lessee to make any payment of Base Rent or any other monetary payment required
to be made by Lessee hereunder, whether to Lessor or to a third party, as and
when due, the failure by Lessee to provide Lessor with reasonable evidence of
insurance or surety bond required under this Lease, or the failure of Lessee to
fulfill any obligation under this Lease which endangers or threatens life or
property, where such failure continues for a period of three (3) days following
written notice thereof by or on behalf of Lessor to Lessee.
(c) Except as expressly otherwise provided in this Lease, the failure by
Lessee to provide Lessor with reasonable written evidence (in duly executed
original form, if applicable) of (i) compliance with applicable law per
Paragraph 6.3, (ii) the inspection, maintenance and service contracts required
under Paragraph 7.1(b), (iii) the recission of an unauthorized assignment or
subletting per Paragraph 12.1(b), (iv) a Tenancy Statement per Paragraphs 16 or
37, (v) the subordination or non-subordination of this Lease per Paragraph 30,
(vi) the guaranty of the performance of Lessee's obligations under this Lease if
required under Paragraphs 1.11 and 37, (vii) the execution of any document
requested under Paragraph 42 (easements), or (viii) any other documentation or
information which Lessor may reasonably require of Lessee under the terms of
this lease, where any such failure continues for a period of ten (10) days
following written notice by or on behalf of Lessor to Lessee.
(d) A Default by Lessee as to the terms, covenants, conditions or provisions
of this Lease, or of the rules adopted under Paragraph 40 hereof, that are to be
observed, complied with or performed by Lessee, other than those described in
subparagraphs (a), (b) or (c), above, where such Default continues for a period
of thirty (30) days after written notice thereof by or on behalf of Lessor to
Lessee; provided, however, that if the nature of Lessee's Default is such that
more than thirty (30) days are reasonably required for its cure, then it shall
not be deemed to be a Breach of this Lease by Lessee if Lessee commences such
cure within said thirty (30) day period and thereafter diligently prosecutes
such cure to completion.
(e) The occurrence of any of the following events: (i) The making by Lessee
of any general arrangement or assignment for the benefit of creditors; (ii)
Lessee's becoming a "debtor" as defined in 11 U.S.C. (S)101 or any successor
statute thereto (unless, in the case of a petition filed against Lessee, the
same is dismissed within sixty (60) days); (iii) the appointment of a trustee or
receiver to take possession of substantially all of Lessee's assets located at
the Premises or of Lessee's interest in this Lease, where possession is not
restored to Lessee within thirty (30) days; or (iv) the attachment, execution or
other judicial seizure of substantially all of Lessee's assets located at the
Premises or of Lessee's interest in this Lease, where such seizure is not
discharged within thirty (30) days; provided, however, in the event that any
provision of this subparagraph (e) is contrary to any applicable law, such
provision shall be of no force or effect, and not affect the validity of the
remaining provisions.
(f) The discovery by Lessor that any financial statement given to Lessor by
Lessee or any Guarantor of Lessee's obligations hereunder was materially false.
(g) If the performance of Lessee's obligations under this Lease is
guaranteed; (i) the death of a guarantor, (ii) the termination of a guarantor's
liability with respect to this Lease other than in accordance with the terms of
such guaranty, (iii) a guarantor's becoming insolvent or the subject of a
bankruptcy filing, (iv) a guarantor's refusal to honor the guaranty, or (v) a
guarantor's breach of its guaranty obligation on an anticipatory breach basis,
and Lessee's failure, within sixty (60) days following written notice by or on
behalf of Lessor to Lessee of any such event, to provide Lessor with written
alternative assurance or security, which, when coupled with the then existing
resources of Lessee, equals or exceeds the combined financial resources of
Lessee and the guarantors that exited at the time of execution of this Lease.
13.2 Remedies. If Lessee fails to perform any affirmative duty or obligation
of Lessee under this Lease, within ten (10) days after written notice to Lessee
(or in case of an emergency, without notice), Lessor may at its option (but
without obligation to do so), perform such duty or obligation on Lessee's
behalf, including but not limited to the obtaining of reasonably required bonds,
insurance policies, or governmental licenses, permits or approvals. The costs
and expenses of any such performance by Lessor shall be due and payable by
Lessee to Lessor upon invoice therefor, if any check given to Lessor by Lessee
shall not be honored by the bank upon which it is drawn. Lessor, at its option,
may require all future payments to be made under this Lease by Lessee to be made
only by cashier's check. In the event of a Breach of this Lease by Lessee, as
defined in Paragraph 13.1, with or without further notice or demand, and without
limiting Lessor in the exercise of any right or remedy which Lessor may have by
reason of such Breach, Lessor may:
(a) Terminate Lessee's right to possession of the Premises by any lawful
means, in which case this Lease and the term hereof shall terminate and Lessee
shall immediately surrender possession of the Premises to Lessor. In such event
Lessor shall be entitled to recover from Lessee: (i) the worth at the time of
the award of the unpaid rent which had been earned at the time of termination;
(ii) the worth at the time of award of the amount by which the unpaid rent which
would have been earned after termination until the time of award exceeds the
amount of such rental loss that the Lessee proves could have been reasonably
avoided; (iii) the worth at the time of award of the amount by which the unpaid
rent for the balance of the term after the time of award exceeds the amount of
such rental loss that the Lessee proves could be reasonably avoided; and (iv)
any other amount necessary to compensate Lessor for all the detriment
proximately caused by the Lessee's failure to perform its obligations under this
Lease or which in the ordinary course of things would be likely to result
therefrom, including but not limited to the cost of recovering possession of the
Premises, expenses of reletting, including necessary renovation and alteration
of the Premises, reasonable attorneys' fees, and that portion of the leasing
commission paid by Lessor applicable to the unexpired term of this Lease. The
worth at the time of award of the amount referred to in provision (iii) of the
prior sentence shall be computed by discounting such amount at the discount rate
of the Federal Reserve Bank of San Francisco at the time of award plus one
percent. Efforts by Lessor to mitigate damages caused by Lessee's Default or
Breach of this Lease shall not waive Lessor's right to recover damages under
this Paragraph. If termination of this Lease is obtained through the provisional
remedy of unlawful detainer, Lessor shall have the right to recover in such
proceeding the unpaid rent and damages as are recoverable therein, or Lessor may
reserve therein the right to recover all or any part thereof in a separate suit
for such rent and/or damages. If a notice and grace period required under
subparagraphs 13.1(b), (c) or (d) was not previously given, a notice to pay rent
or quit, or to perform or quit as the case may be, given to Lessee under any
statute authorizing the forfeiture of leases for unlawful detainer shall also
constitute the applicable notice for grace period purposes required by
subparagraphs 13.1(b), (c) or (d). In such case, the applicable grace period
under subparagraphs 13.1(b), (c) or (d) and under the unlawful detainer statue
shall run concurrently after the one such statutory notice, and the failure of
Lessee to cure the Default within the greater of the two such grace periods
shall constitute both an unlawful detainer and a Breach of this Lease entitling
Lessor to the remedies provided for in this Lease and/or by said statute.
(b) Continue the Lease and Lessee's right to possession in effect (in
California under California Civil Code Section 1951.4) after Lessee's Breach and
abandonment and recover the rent as it becomes due, provided Lessee has the
right to sublet or assign, subject only to reasonable limitations. See
Paragraphs 12 and 36 for the limitations on assignment and subletting which
limitations Lessee and Lessor agree are reasonable. Acts of maintenance or
preservation, efforts to relet the Premises, or the appointment of a receiver to
protect the Lessor's interest under the Lease, shall not constitute a
termination of the Lessee's right to possession.
(c) Pursue any other remedy now or hereafter available to Lessor under the
laws or judicial decisions of the state wherein the Premises are located.
(d) The expiration or termination of this Lease and/or the termination of
Lessee's right to possession shall not relieve Lessee from liability under any
indemnity provisions of this Lease as to matters occurring or accruing during
the term hereof or by reason of Lessee's occupancy of the Premises.
13.3 Inducement Recapture In Event Of Breach. Any agreement by Lessor for
free or abated rent or other charges applicable to the Premises, or for the
giving or paying by Lessor to or for Lessee of any cash or other bonus,
inducement or consideration for Lessee's entering into this Lease, all of which
concessions are hereinafter referred to as "Inducement Provisions," shall be
deemed conditioned upon Lessee's full and faithful performance of all of the
terms, covenants and conditions of this Lease to be performed or observed by
Lessee during the term hereof as the same may be extended. Upon the occurrence
of a Breach of this Lease by Lessee, as defined in Paragraph 13.1, any such
Inducement Provision shall automatically be deemed deleted from this Lease and
of no further force or effect, and any rent, other charge, bonus, inducement or
consideration theretofore abated, given or paid by Lessor under such an
Inducement Provision shall be immediately due and payable by Lessee to Lessor,
and recoverable by Lessor as additional rent due under this Lease,
notwithstanding any subsequent cure of said Breach by Lessee. The acceptance by
Lessor of rent or the cure of the Breach which initiated the operation of this
Paragraph shall not be deemed a waiver by Lessor of the provisions of this
Paragraph unless specifically so stated in writing by Lessor at the time of such
acceptance.
13.4 Late Charges. Lessee hereby acknowledges that late payment by Lessee to
Lessor of rent and other sums due hereunder will cause Lessor to incur costs not
contemplated by this Lease, the exact amount of which will be extremely
difficult to ascertain. Such costs include, but are not limited to, processing
and accounting charges, and late charges which may be imposed upon Lessor by the
terms of any ground lease, mortgage or trust deed covering the Premises.
Accordingly, if any installment of rent or any other sum due from Lessee shall
not be received by Lessor or Lessor's designee within five (5) days after such
amount shall be due, then, without any requirement for notice to Lessee, Lessee
shall pay to Lessor a late charge equal to six percent (6%) of such overdue
amount. The parties hereby agree that such late charge represents a fair and
reasonable estimate of the costs Lessor will incur by reason of late payment by
Lessee. Acceptance of such late charge by Lessor shall in no event constitute a
waiver of Lessee's Default or Breach with respect to such ovedue amount, nor
prevent Lessor from exercising any of the other rights and remedies granted
hereunder. In the event that a late charge is payable hereunder, whether or not
collected, for three (3) consecutive installments of Base Rent, then
notwithstanding Paragraph 4.1 or any other provision of this Lease to the
contrary, Base Rent shall, at Lessor's option, become due and payable quarterly
in advance.
Breach by Lessor. Lessor shall not be deemed in breach of this Lease unless
Lessor fails within a reasonable time to perform an obligation required to be
performed by Lessor. For purposes of this Pararaph 13.5, a reasonable time shall
in no event be less than thirty (30) days after receipt by Lessor, and by the
holdes of any ground lease, mortgage or deed of trust covdring the Premises
whose name and address shall have been furnished Lessee in writing for such
purpose, of written notice specifying wherein such obligation of Lessor has not
been performed; provided, however, that if the nature of Lessor's obligation is
such that more than thirty (30) days after such notice are reasonably required
for its performance, then Lessor shall not be in breach of this Lease if
performance is commenced within such thirty (30) day period and thereafter
diligently pursued to completion.
14 Condemnation. If the Premises or any portion thereof are taken under the
power of eminent domainn or sold under the threat of the exercise of said power
(all of which are herein called "condemnation"), this Lease shall terminate as
to the part so taken as of the date the condemning authority takes ??? or
possession, whichever first occurs. If more than ten percent (10%) of the floor
area of the Premises, or more than twenty-five percent (25%) of the land area
not occupied by any bulding, is taken by condemnation, Lessee may, at Lessee's
option, to be exercised in writing within ten (10) days after Lessor shall have
given Lessee written notice of such taking (or in the absence of such notice,
within ten (10) days after the condemming authority shall
<PAGE>
have taken possession) terminate this Lease as of the date the condemning
authority takes such possession. If Lessee does not terminate this Lease in
accordance with the foregoing, this Lease shall remain in full force and effect
as to the portion of the Premises remaining, except that the Base Rent shall be
reduced in the same proportion as the rentable floor area of the Premises taken
bears to the total rentable floor area of the building located on the Premises.
No reduction of Base Rent shall occur if the only portion of the Premises taken
is land on which there is no building. Any award for the taking of all or any
part of the Premises under the power of eminent domain or any payment made under
threat of the exercise of such power shall be the property of Lessor, whether
such award shall be made as compensation for diminution in value of the
leasehold or for the taking of the fee, or as severance damages; provided,
however, that Lessee shall be entitled to any compensation, separately awarded
to Lessee for Lessee's relocation expenses and/or loss of Lessee's Trade
Fixtures. In the event that this Lease is not terminated by reason of such
condemnation, Lessor shall to the extent of its net severance damages received,
over and above the legal and other expenses incurred by Lessor in the
condemnation matter, repair any damage to the Premises caused by such
condemnation, except to the extent that Lessee has been reimbursed therefor by
the condemning authority. Lessee shall be responsible for the payment of any
amount in excess of such net severance damages required to complete such repair.
15. Broker's Fee.
15.1 Neither party was represented by a broker.
15.2 Lessee and Lessor each represent and warrant to the other that it has
had no dealings with any person, firm, broker or finder (other than the Brokers,
if any named in Paragraph 1.10) in connection with the negotiation of this Lease
and/or the consummation of the transaction contemplated hereby, and that no
broker or other person, firm or entity other than said named Brokers is
entitled to any commission or finder's fee in connection with said transaction,
Lessee and Lessor do each hereby agree to indemnify, protect, defend and hold
the other harmless from and against liability for compensation or charges which
may be claimed by any such unnamed broker, finder or other similar party by
reason of any dealings or actions of the indemnifying Party, including any
costs, expenses, attorneys' fees reasonably incurred with respect thereto.
16. Tenancy Statement.
16.1 Each Party (as "Responding Party") shall within ten (10) days after
written notice from the other Party (the "Requesting Party") execute,
acknowledge and deliver to the Requesting Party a statement in writing in form
similar to the then most current "Tenancy Statement" form published by the
American Industrial Real Estate Association, plus such additional information,
confirmation and/or statements as may be reasonably requested by the Requesting
Party.
16.2 If Lessor desires to finance, refinance, or sell the Premises, any
part thereof, or the building of which the Premises are a part, Lessee and all
Guarantors of Lessee's performance hereunder shall deliver to any potential
tender or purchaser designated by Lessor such financial statements of Lessee and
such Guarantors as may be reasonably required by such lender or purchaser,
including but not limited to Lessee's financial statements for the past three
(3) years. All such financial statements shall be received by Lessor and such
lender or purchaser in confidence and shall be used only for the purposes herein
set forth.
17. Lessor's Liability. The term "Lessor" as used herein shall mean the
owner or owners at the time in question of the fee title to the premises, or, if
this is a sublease, of the lessee's interest in the prior lease. In the event of
a transfer of Lessor's title or interest in the Premises or in this Lease,
Lessor shall deliver to the transferee or assignee (in cash or by credit) any
unused Security Deposit held by Lessor at the time of such transfer or
assignment. Except as provided in Paragraph 15, upon such transfer or assignment
and delivery of the Security Deposit, as aforesaid, the prior Lessor shall be
relieved of all liability with respect to the obligations and/or covenants under
this Lease thereafter to be performed by the Lessor. Subject to the foreoging,
the obligations and/or covenants in this Lease to be performed by the Lessor
shall be binding only upon the Lessor as hereinabove defined.
18. Severability. The invalidity of any provision of this Lease, as determined
by a court of competent jurisdiction, shall in no way affect the validity of any
other provision hereof.
19. Interest on Past-Due Obligations. Any monetary payment due Lessor
hereunder, other than late charges, not received by Lessor within thirty (30)
days following the date on which it was due, shall bear interest from the
thirty-first (31st) day after it was due at the rate of 12% per annum, but not
exceeding the maximum rate allowed by law, in addition to the late charge
provided for in Paragraph 13.4.
20. Time of Essence. Time is of the essence with respect to the performance of
all obligations to be performed or observed by the Parties under this Lease.
21. Rent Defined. All monetary obligations of Lessee to Lessor under the terms
of this Lease are deemed to be rent.
22. No Prior or Other Agreements; Disclaimer. This Lease contains all
agreements between the Parties with respect to any matter mentioned herein, and
no other prior or contemporaneous agreement or understanding shall be effective.
Lessor and Lessee each represents and warrants to the other that it has made,
and is relying solely upon, its own investigation as to the nature, quality,
character and financial responsibility of the other Party to this Lease and as
to the nature, quality and character of the Premises.
23. Notices.
23.1 All notices required or permitted by this Lease shall be in writing
and may be delivered in person (by hand or by messenger or courier service) or
may be sent by regular, certified or registered mail or U.S. Postal Service
Express Mail, with postage prepaid, or by facsimile transmission, and shall be
deemed sufficiently given if served in a manner specified in this Paragraph 23.
The addresses noted adjacent to a Party's signature on this Lease shall be that
Party's address for delivery or mailing of notice purposes. Either Party may by
written notice to the other specify a different address for notice purposes,
except that upon Lessee's taking possession of the Premises, the Premises shall
constitute Lessee's address for the purpose of mailing or delivering notices to
Lessee. A copy of all notices required or permitted to be given to Lessor
hereunder shall be concurrently transmitted to such party or parties at such
addresses as Lessor may from time to time hereafter designate by written notice
to Lessee.
23.2 Any notice sent by registered or certified mail, return receipt
requested, shall be deemed given on the date of delivery shown on the receipt
card, or if no delivery date is shown, the postmark thereon, if sent by regular
mail the notice shall be deemed given forty-eight (48) hours after the same is
addressed as required herein and mailed with postage prepaid. Notices delivered
by United States Express Mail or overnight courier that guarantees next day
delivery shall be deemed given twenty-four (24) hours after delivery of the same
to the United States Postal Service or courier. If any notice is transmitted by
facsimile transmission or similar means, the same shall be deemed served or
delivered upon telephone confirmation of receipt of the transmission thereof,
provided a copy is also delivered via delivery or mail. If notice is received on
a Sunday or legal holiday, it shall be deemed received on the next business day.
24. Waivers. No waiver by Lessor of the Default or Breach of any term, covenant
or condition hereof by Lessee, shall be deemed a waiver of any other term,
covenant or condition hereof, or of any subsequent Default or Breach by Lessee
of the same or of any other term, covenant or condition hereof. Lessor's consent
to, or approval of, any act shall not be deemed to render unnecessary the
obtaining of Lessor's consent to, or approval of, any subsequent or similar act
by Lessee, or be construed as the basis of an estoppel to enforce the provision
or provisions of this Lease requiring such consent. Regardless of Lessor's
knowledge of a Default or Breach at the time of accepting rent, the acceptance
of rent by Lessor shall not be a waiver of any preceding Default or Breach by
Lessee of any provision hereof, other than the failure of Lessee to pay the
particular rent so accepted. Any payment given Lessor by Lessee may be accepted
by Lessor on account of moneys or damages due Lessor, notwithstanding any
qualifying statements or conditions made by Lessee in connection therewith,
which such statements and/or conditions shall be of no force or effect
whatsoever unless specifically agreed to in writing by Lessor at or before the
time of deposit of such payment.
26. No Right To Holdover. Lessee has no right to retain possession of the
Premises or any part thereof beyond the expiration or earlier termination of
this Lease.
27. Cumulative Remedies. No remedy or election hereunder shall be deemed
exclusive but shall wherever possible, be cumulative with all other remedies at
law or in equity.
<PAGE>
28. Covenants and Conditions. All provisions of this Lease to be observed or
performed by Lessee are both covenants and conditions.
29. Binding Effect; Choice of Law. This Lease shall be binding upon the
parties, their personal representatives, successors and assigns and be governed
by the laws of the State in which the Premises are located. Any litigation
between the Parties hereto concerning this Lease shall be initialed in the
county in which the Premises are located.
30. Subordination; Attornment; Non-Distubance.
30.1 Subordination. This Lease and any Option granted hereby shall be
subject and subordinate to any ground lease, mortgage, deed of trust, or other
hypothecation or security device (collectively, "Security Device"), now or
hereafter placed by Lessor upon the real property of which the Premises are a
part, to any and all advances made on the security thereof, and to all renewals,
modifications, consolidations, replacements and extensions thereof. Lessee
agrees that the Lenders holding any such Security Device shall have no duty,
liability or obligation to perform any of the obligations of Lessor under this
Lease, but that in the event of Lessor's default with respect to any such
obligation, Lessee will give any Lender whose name and address have been
furnished Lessee in writing for such purpose notice of Lessor's default and
allow such Lender thirty (30) days following receipt of such notice for the cure
of said default before invoking any remedies Lessee may have by reason thereof.
If any Lender shall elect to have this Lease and/or any Option granted hereby
superior to the lien of its Security Device and shall give written notice
thereof to Lessee, this Lease and such Options shall be deemed prior to such
Security Device, notwithstanding the relative dates of the documentation or
recordation thereof.
30.2 Attornment. Subject to the non-disturbance provisions of Paragraph
30.3, Lessee agrees to attorn to a Lender or any other party who acquires
ownership of the Premises by reason of a foreclosure of a Security Device, and
that in the event of such foreclosure, such new owner shall not: (i) be liable
for any act or omission of any prior lessor or with respect to events occurring
prior to acquisition of ownership, (ii) be subject to any offsets or defenses
which Lessee might have against any prior lessor, or (iii) be bound by
prepayment of more than one month's rent.
30.3 Non-Disturbance. With respect to Security Devices entered by Lessor
after the execution of this Lease, Lessee's subordination of this Lease shall be
subject to receiving assurance (a "non-disturbance agreement") from the Lender
that Lessee's possession and this Lease, including any options to extend the
term hereof, will not be disturbed so long as Lessee is not in Breach hereof and
attorns to the record owner of the Premises.
30.4 Self-Executing. The agreements contained in this Paragraph 30 shall be
effective without the execution of any further documents; provided, however,
that, upon written request from Lessor or a Lender in connection with a sale,
financing or refinancing of the Premises, Lessee and Lessor shall execute such
further writings as may be reasonably required to separately document any such
subordination or non-subordination, attornment and/or non-disturbance agreement
as is provided for herein.
31. Attorney's Fees. If any Party or Broker brings an action or proceeding to
enforce the terms hereof or declare rights hereunder, the Prevailing Party (as
hereafter defined) or Broker in any such proceeding, action, or appeal thereon,
shall be entitled to reasonable attorney's fees. Such fees may be awarded in the
same suit or recovered in a separate suit, whether or not such action or
proceeding is pursued to decision or judgment. The term, "Prevailing Party"
shall include, without limitation, a Party or Broker who substantially obtains
or defeats the relief sought, as the case may be, whether by compromise,
settlement, judgment, or the abandonment by the other Party or Broker of its
claim or defense. The attorney's fee award shall not be computed in accordance
with any court fee schedule, but shall be such as to fully reimburse all
attorney's fees reasonably incurred. Lessor shall be entitled to attorney's
fees, costs and expenses incurred in the preparation and service of notices of
Default and consultations in connection therewith, whether or not a legal action
is subsequently commenced in connection with such Default or resulting Breach.
32. Lessor's Access; Showing Premises; Repairs. Lessor and Lessor's agents shall
have the right to enter the Premises at any time, in the case of an emergency,
and otherwise at reasonable times for the purpose of showing the same to
prospective purchasers, lenders, or lessees, and making such alterations,
repairs, improvements or additions to the Premises or to the building of which
they are a part, as Lessor may reasonably deem necessary. Lessor may at any time
place on or about the Premises or building any ordinary "For Sale" signs and
Lessor may at any time during the last one hundred twenty (120) days of the term
hereof place on or about the Premises any ordinary "For Lease" signs. All such
activities of Lessor shall be without abatement of rent or liability to Lessee.
33. Auctions. Lessee shall not conduct, nor permit to be conducted, either
voluntarily or involuntarily, any auction upon the Premises without first having
obtained Lessor's prior written consent. Notwithstanding anything to the
contrary in this Lease, Lessor shall not be obligated to exercise any standard
of reasonableness in determining whether to grant such consent.
34. Signs. Lessee shall not place any sign upon the Premises, except that Lessee
may, with Lessor's prior written consent, install (but not on the roof) such
signs as are reasonably required to advertise Lessee's own business. The
Installation of any sign on the Premises by or for Lessee shall be subject to
the provision of Paragraph 7 (Maintenance, Repairs, Utility Installations, Trade
Fixtures and Alterations). Unless otherwise expressly agreed herein, Lessor
reserves all rights to the use of the roof and the right to install, and all
revenues from the installation of, such advertising signs on the Premises,
including the roof, as do not unreasonably interfere with the conduct of
Lessee's business.
35. Termination; Merger. Unless specifically stated otherwise in writing by
Lessor, the voluntary or other surrender of this Lease by Lessee, the mutual
termination or cancellation hereof, or a termination hereof by Lessor for Breach
by Lessee, shall automatically terminate any sublease or lesser estate in the
Premises; provided, however, Lessor shall, in the event of any such surrender,
termination or cancellation, have the option to continue any one or all of any
existing subtenancies. Lessor's failure within ten (10) days following any such
event to make a written election to the contrary by written notice to the holder
of any such lesser interest, shall constitute Lessor's election to have such
event constitute the termination of such interest.
36. Consents.
(a) Except for Paragraph 33 hereof (Auctions) or as otherwise provided
herein, wherever in this Lease the consent of a Party is required to an act by
or for the other Party, such consent shall not be unreasonably withheld or
delayed. Lessor's actual reasonable costs and expenses (including but not
limited to architects', attorneys', engineers' or other consultants' fees)
incurred in the consideration of, or response to, a request by Lessee for any
Lessor consent pertaining to this Lease or the Premises, including but not
limited to consents to an assignment, a subletting or the presence or use of a
Hazardous Substance, practice or storage tank, shall be paid by Lessee to Lessor
upon receipt of an invoice and supporting documentation therefor. Subject to
Paragraph 12.2(c) (applicable to assignment or subletting), Lessor may, as a
condition to considering any such request by Lessee, require that Lessee deposit
with Lessor an amount of money (in addition to the Security Deposit held under
Paragraph 5) reasonably calculated by Lessor to represent the cost Lessor will
incur in considering and responding to Lessee's request. Except as otherwise
provided, any unused portion of said deposit shall be refunded to Lessee without
interest. Lessor's consent to any act, assignment of this Lease or subletting
of the Premises by Lessee shall not constitute an acknowledgment that no Default
or Breach by Lessee of this Lease exists, nor shall such consent be deemed a
waiver of any then existing Default or Breach, except as may be otherwise
specifically stated in writing by Lessor at the time of such consent.
(b) All conditions to Lessor's consent authorized by this Lease are
acknowledged by Lessee as being reasonable. The failure to specify herein any
particular condition to Lessor's consent shall not preclude the imposition by
Lessor at the time of consent of such further or other conditions as are then
reasonable with reference to the particular matter for which consent is being
given.
37. Guarantor.
37.1 If there are to be any Guarantors of this Lease per Paragraph 1.11, the
form of the guaranty to be executed by each such Guarantor shall be in the form
most recently published by the American Industrial Real Estate Association, and
each said Guarantor shall have the same obligations as Lessee under this Lease,
including but not limited to the obligation to provide the Tenancy Statement and
information called for by Paragraph 16.
37.2 It shall constitute a Default of the Lessee under this Lease if any
such Guarantor fails or refuses, upon reasonable request by Lessor to give: (a)
evidence of the due execution of the guaranty called for by this Lease,
including the authority of the Guarantor (and of the party signing on
Guarantor's behalf) to obligate such Guarantor on said guaranty, and including
in the case of a corporate Guarantor, a certified copy of a resolution of its
board of directors authorizing the making of such guaranty, together with a
certificate of incumbency showing the signatures of the persons authorized to
sign on its behalf, (b) current financial statements of Guarantor as may from
time to time be requested by Lessor, (c) a Tenancy Statement, or (d) written
confirmation that the guaranty is still in effect.
38. Quiet Possession. Upon payment by Lessee of the rent for the Premises and
the observance and performance of all of the covenants, conditions and
provisions on Lessee's part to be observed and performed under this Lease,
Lessee shall have quiet possession of the Premises for the entire term hereof
subject to all of the provisions of this Lease.
39. Options.
39.1 Definition. As used in this Paragraph 39 the word "Option" has the
following meaning: (a) the right to extend the term of this Lease or to renew
this Lease or to extend or renew any lease that Lessee has on other property of
Lessor; (b) the right of first refusal to lease the Premises or the right of
first offer to lease the Premises or the right of first refusal to lease other
property of Lessor or the right of first offer to lease other property of
Lessor; (c) the right to purchase the Premises, or the right of first refusal to
purchase the Premises, or the right of first offer to purchase the Premises, or
the right to purchase other property of Lessor, or the right of first refusal to
purchase other property of Lessor, or the right of first offer to purchase other
property of Lessor.
39.2 Options Personal To Original Lessee. Each Option granted to Lessee in
this Lease is personal to the original Lessee named in Paragraph 1.1 hereof, and
cannot be voluntarily or involuntarily assigned or exercised by any person or
entity other than said original Lessee while the original Lessee is in full and
actual possession of the Premises and without the intention of thereafter
assigning or subletting The Options, if any, herein granted to Lessee are not
assignable, either as a part of an assignment of this Lease or separately or
apart therefrom, and no Option may be separated from this Lease in any manner,
by reservation or otherwise.
39.3 Multiple Options. In the event that Lessee has any multiple Options to
extend or renew this Lease, a later option cannot be exercised unless the prior
Options to extend or renew this Lease have been validly exercised.
?
Initials______
<PAGE>
39.4 Effect of Default on Options.
(a) Lessee shall have no right to exercise an Option, notwithstanding any
provision in the grant of Option to the contrary: (i) during the period
commencing with the giving of any notice of Default under Paragraph 13.1 and
continuing until the noticed Default is cured, or (ii) during the period of time
any monetary obligation due Lessor from Lessee is unpaid (without regard to
whether notice thereof is given Lessee), or (iii) during the time Lessee is in
Breach of this Lease, or (iv) in the event that Lessor has given to Lessee three
(3) more notices of Default under Paragraph 13.1, whether or not the Defaults
are cured, during the twelve (12) month period immediately preceding the
exercise of the Option.
(b) The period of time within which an Option may be exercised shall not
be extended or enlarged by reason of Lessee's inability to exercise an Option
because of the provisions of Paragraph 39.4(a).
(c) All rights of Lessee under the provisions of an Option shall terminate
and be of no further force or effect, notwithstanding Lessee's due and timely
exercise of the Option, if, after such exercise and during the term of this
Lease, (i) Lessee fails to pay to Lessor a monetary obligation of Lessee for a
period of thirty (30) days after such obligation becomes due (without any
necessity of Lessor to give notice thereof to Lessee), or (ii) Lessor gives to
Lessee three or more notices of Default under Paragraph 13.1 during any twelve
month period, whether or not the Defaults are cured, or (iii) if Lessee commits
a Breach of this Lease.
41. Security Measures. Lessee hereby acknowledges that the rental payable
to Lessor hereunder does not include the cost of guard service or other security
measures, and that Lessor shall have no obligation whatsoever to provide same.
Lessee assumes all responsibility for the protection of the Premises, Lessee,
its agents and invitees and their property from acts of third parties.
42. Reservations. Lessor reserves to itself the right, from time to time,
to grant, without the consent or joinder of Lessee, such easements, rights and
dedications that Lessor deems necessary, and to cause the recordation of parcel
maps and restrictions, so long as such easements, rights, dedications, maps and
restrictions do not unreasonably interfere with the use of the Premises by
Lessee. Lessee agrees to sign any documents reasonably requested by Lessor to
effectuate any such easement rights, dedication, map or restrictions.
43. Performance Under Protest. If at any time a dispute shall arise as to
any amount or sum of money to be paid by one Party to the other under the
provisions hereof, the Party against whom the obligation to pay money is
asserted shall have the right to make payment "under protest" and such payment
shall not be regarded as a voluntary payment and there shall survive the right
on the part of said Party to institute suit for recovery of such sum. If it
shall be adjudged that there was no legal obligation on the part of said Party
to pay such sum or any part thereof, said Party shall be entitled to recover
such sum or so much thereof as it was not legally required to pay under the
provisions of this Lease.
44. Authority. If either Party hereto is a corporation, trust, or general
or limited partnership, each individual executing this Lease on behalf of such
entity represents and warrants that he or she is duly authorized to execute and
deliver this Lease on its behalf. If Lessee is a corporation, trust or
partnership, Lessee shall, within thirty (30) days after such request by Lessor,
deliver to Lessor evidence satisfactory to Lessor of such authority.
45. Conflict. Any conflict between the printed provisions of this Lease
and the typewritten or handwritten provisions shall be controlled by the type-
written or handwritten provisions.
46. Offer. Preparation of this Lease by Lessor or Lessor's agent and
submission of same to Lessee shall not be deemed an offer to lease to Lessee.
This Lease is not intended to be binding until executed by all Parties hereto.
47. Amendments. This Lease may be modified only in writing, signed by the
parties in interest at the time of the modification. The parties shall amend
this Lease from time to time to reflect any adjustments that are made to the
Base Rent or other rent payable under this Lease. As long as they do not
materially change Lessee's obligations hereunder, Lessee agrees to make such
reasonable non-monetary modifications to this Lease as may be reasonably
required by an institutional, insurance company, or pension plan Lender in
connection with the obtaining of normal financing or refinancing of the property
of which the Premises are a part.
48. Multiple Parties. Except as otherwise expressly provided herein, if
more than one person or entity is named herein as either Lessor or Lessee, the
obligations of such multiple parties shall be the joint and several
responsibility of all persons or entities named herein as such Lessor or Lessee.
LESSOR AND LESSEE HAVE CAREFULLY READ AND REVIEWED THIS LEASE AND EACH TERM AND
PROVISION CONTAINED HEREIN, AND BY THE EXECUTION OF THIS LEASE SHOW THEIR
INFORMED AND VOLUNTARY CONSENT THERETO. THE PARTIES HEREBY AGREE THAT, AT THE
TIME THIS LEASE IS EXECUTED, THE TERMS OF THIS LEASE ARE COMMERCIALLY REASONABLE
AND EFFECTUATE THE INTENT AND PURPOSE OF LESSOR AND LESSEE WITH RESPECT TO THE
PREMISES.
IF THIS LEASE HAS BEEN FILLED IN, IT HAS BEEN PREPARED FOR SUBMISSION
TO YOUR ATTORNEY FOR HIS APPROVAL. FURTHER, EXPERTS SHOULD BE
CONSULTED TO EVALUATE THE CONDITION OF THE PROPERTY AS TO THE POSSIBLE
PRESENCE OF ASBESTOS, STORAGE TANKS OR HAZARDOUS SUBSTANCES. NO
REPRESENTATION OR RECOMMENDATION IS MADE BY THE AMERICAN INDUSTRIAL
REAL ESTATE ASSOCIATION OR BY THE REAL ESTATE BROKER(S) OR THEIR
AGENTS OR EMPLOYEES AS TO THE LEGAL SUFFICIENCY, LEGAL EFFECT, OR TAX
CONSEQUENCES OF THIS LEASE OR THE TRANSACTION TO WHICH IT RELATES; THE
PARTIES SHALL RELY SOLELY UPON THE ADVICE OF THEIR OWN COUNSEL AS TO THE
LEGAL AND TAX CONSEQUENCES OF THIS LEASE. IF THE SUBJECT PROPERTY IS
LOCATED IN A STATE OTHER THAN CALIFORNIA, AN ATTORNEY FROM THE STATE
WHERE THE PROPERTY IS LOCATED SHOULD BE CONSULTED.
The parties hereto have executed this Lease at the place on the dates specified
above their respective signatures.
Santa Monica, CA Irvine, CA
Executed at _________________________ Executed at _________________________
June 24, 1994 June 20, 1994
on __________________________________ on __________________________________
by LESSOR: by LESSEE:
Albor Properties I, L.P., Enhanced Imaging Technologies, Inc.
_____________________________________ _____________________________________
a California limited partnership a Delaware corporation
_____________________________________ _____________________________________
Albor Properties, Inc. /s/ Robert G. Quinn
By __________________________________ By __________________________________
its General Partner Robert G. Quinn
__________________________________ Name Printed: _______________________
Vice President,
Corporate Affairs
Title: ______________________________
/s/ Alan S. Borstein
By __________________________________ By __________________________________
Alan S. Borstein
Name Printed: _______________________ Name Printed: _______________________
President
Title: ______________________________ Title: ______________________________
2730 Wilshire Blvd., Suite 300 625 Alaska Avenue
Address: ____________________________ Address: ____________________________
Santa Monica, CA 90403 Torrance, CA 90503
_____________________________________ _____________________________________
Tel. No. (310) 582-1991 Tel. No. (310) 320-8334
____________________________ ____________________________
(310) 582-1999 (310) 212-5125
Fax No. ____________________________ Fax No. ____________________________
NET PAGE 10
NOTICE: These forms are often modified to meet changing requirements of law and
industry needs. Always write or call to make sure you are utilizing the
most current form: American Industrial Real Estate Association,
345 South Figueroa Street, Suite M-1, Los Angeles, CA 90071.
(213) 687-6777, Fax No. (213) 687-8618
<PAGE>
SCHEDULE 1
The Lessor represents and warrants to Lessee as follows:
a. To Lessor's knowledge, the property is in compliance with applicable
laws regarding Hazardous Substances as defined herein;
b. To Lessor's knowledge, there are no current or pending claims,
administrative proceedings, judgments, declarations or orders relating
to the presence of hazardous substances on, in or under the Premises;
c. To Lessor's knowledge, no Hazardous Substances have been released,
introduced, spilled, dumped, buried, discharged or disposed of on,
in or under the Premises;
d. To Lessor's knowledge, there is no leak or release of Hazardous
Substances from any underground storage tank or piping located under
the Premises and any such tanks and piping are in compliance with
existing applicable laws.
Lessor shall defend, protect, defend and hold lessee, its agents, employees
and lenders harmless from and against any and all loss of income and/or damages,
liabilities, judgments, costs, claims, liens, expenses, penalties, permits and
attorneys' and consultants' fees arising out of or in connection with any breach
of Lessors representations and warranties in this paragraph. Lessor's
obligations under this paragraph shall include, but not be limited to, the
effects of any contamination or injury to person, remediation, restoration
and/or abatement thereof, or of any contamination therein involved, and shall
survive the expiration or earlier termination of this Lease. No termination,
cancellation or release agreement entered into by Lessor and Lessee shall
release Lessor from its obligations under this Lease with respect to hazardous
Substances or storage tanks, unless specifically so agreed by Lessee in writing
at the time of such agreement.
<PAGE>
<TABLE>
<CAPTION>
ADDENDUM TO LEASE
Albor Properties I, L.P. as Lessor and
Enhanced Imaging Technologies, Inc.
as Lessee - Lease Dated May 24, 1994
<S> <C> <C> <C> <C>
1.5 (Continued)
The Base Rent payable monthly in advance on the first day of each month
shall be as follows:
June 1, 1994 - December 31, 1995 - $25,104.00
January 1, 1996 - December 31, 1996 - 25,891.00
January 1, 1997 - December 31, 1997 - 26,677.00
January 1, 1998 - December 31 1998 - 27,463.00
January 1, 1999 - December 31, 1999 - 28,249.00
January 1, 2000 - December 31, 2000 - 29,035.00
January 1, 2001 - December 31, 2001 - 29,822.00
January 1, 2002 - December 31, 2002 - 30,608.00
January 1, 2003 - December 31, 2003 - 31,394.00
January 1, 2004 - December 31, 2004 - 32,181.00
</TABLE>
2.6 Lessee has been in possession of the Premises for approximately one year by
virtue of an unwritten assignment to it by AGFA Corporation. Under a Lease
dated June 22, 1989, AGFA Corporation is the Lessee of the Premises. Lessee is
aware of and accepts the existence of that sublease dated December 21, 1990
between AGFA Corporation and 1-Ward U.S.A., Inc.
5. (Continued)
Lessee may post the Security Deposit in the form of an irrevocable bank
Letter of Credit drawn on a commercial bank reasonably acceptable to Lessor.
Said Letter of Credit shall be for not less than a twelve (12) month duration,
shall be payable by our draft accompanied by a signed statement declaring that
Lessee has failed in its obligations under the Lease dated May 24, 1994, shall
be automatically renewed and extended for successive periods of twelve (12)
months unless written notice is delivered to Lessor as Beneficiary of the Letter
of Credit and shall continue in effect until 30 days after expiration of the
Lease, which 30-day date is January 30, 2005.
Following the publication of an annual corporate statement accompanied by a
"clean" independent auditor's report showing the (i) stockholder equity minus
(ii) the sum of (a) all intangible assets, (b) good will, (c) excess of cost
over acquired assets and (d) any contingent liability equal to a minimum
$30,000,000 the Letter of Credit may be reduced on a permanent and continuing
basis to $100,000. Stockholders Equity is defined only as paid-in capital and
net retained earnings.
7.1 (Continued) Lessee expressly waives the benefit of any statute now or
hereafter in effect which would otherwise afford Lessee the right to make
repairs to the Premises at Lessor's expense, including without limitation,
Sections 1941 and 1942 of the California Civil Code, or to terminate this Lease
because of Lessor's failure to keep the Premises in good order, condition and
repair.
7.3 (d)
Lessee may wish to do certain improvements to the Premises at its own cost
and expense. Lessor has agreed to arrange for a general contractor to perform
the work, which work is to be paid for by Lessee except for the general
contractor's overhead and profit account which will be paid by Lessor. The
improvements covered by this paragraph shall be limited to:
a) Exterior painting
b) New windows for 10 offices
c) Air Conditioning on the north side of the building
d) Parking lot lighting.
7.4 (b) and (c) (Continued)
Since Lessee has been in possession under assignment from AGFA Corporation
as stated in 2.6 above, Lessee agrees to Removal and Surrender/Restoration as if
Lessee had occupied the Premises from the commencement of the AFGA Corporation
Lease, which date was December 1, 1989.
In the event that Lessor consented to any of the Alterations or Utility
Installations made by AGFA and did not simultaneously notify AFGA of the
necessity
<PAGE>
to remove and restore at the termination of the Lease or if in the future
Lessor consents to any Alterations or Utility Installations by Lessee and
does not simultaneously notify Lessee of the necessity to remove and restore
at the termination of the Lease, then in neither of the two aforementioned
examples may Lessor require that Lessee remove any or all of said Alterations
or Utility Installations at the expiration of the term of the Lease and
restore the Premises to their prior condition.
To establish a basis for the requirements of this provision of the Lease,
Lessor and Lessee shall inspect the Premises and establish in writing the
existing condition of the Premises and Lessor's expectations as to Removal
and Surrender/Restoration.
8.2(a) (Continued) If Lessee shall fail to procure and maintain said liability
insurance, Lessor may, but shall not be required to, procure and maintain the
same, but at the expense of Lessee. No more frequently than each three (3)
years, if, in the reasonable opinion of Lessor, the amount of liability
insurance required hereunder is not adequate, Lessee shall increase said
insurance coverage as reasonably required by Lessor. The failure of Lessor to
require any additional insurance coverage shall not be deemed to relieve
Lessee from any obligations under this Lease.
9.9(Continued) Lessee hereby specifically waives the provisions of California
Civil Code Sections 1932 (2) and 1933 (4) which relate to termination of Leases
when the thing leased is destroyed, and agrees that such event shall be governed
by the terms of this Lease.
9.10 Abatement and Destruction Cancellation Penalty.
----------------------------------------------
Notwithstanding any statement or condition listed in Paragraphs 9.1 through
9.9 above, and regardless of the actual cause or the party responsible, if the
rent is abated in full or if the Lease is terminated, Lessee shall continue to
pay to Lessor the sum of $4,466.00 per month through the end of the "abatement"
period or through December 31, 2004 in the case of a lease termination. If the
rent is abated in part, the sum of $4,466.00 shall be added to the non-abated
portion of the rent payable to Lessor and shall be paid each month until the
"partial abatement" period has ended.
12.1(b) Lessee Affiliate.
----------------
Notwithstanding the provisions of paragraph 12.1(a) hereof, Lessee may
assign or sublet the Premises, or any portion thereof, without Lessor's consent,
to any corporation which controls, is controlled by or is under common control
with Lessee, or to any corporation resulting from the merger or consolidation
with Lessee, or to any person or entity which acquires all the assets of Lessee
as a going concern of the business that is being conducted on the Premises,
provided that said assignee assumes, in full, the obligations of Lessee under
this Lease. Any such assignment shall not, in any way, affect or limit the
liability of Lessee under the terms of this Lease even if after such assignment
or subletting the terms of this Lease are materially changed or altered without
the consent of Lessee, the consent of whom shall not be necessary.
12.4 In the event Lessor consents to any such assignment, transfer or
subletting, Lessee shall pay to Lessor, in addition to all other amounts payable
under this Lease, fifty percent (50%) of the amount of any rentals or other
consideration payable by such assignee, transferee or sublessee to Lessee in
excess of the rentals payable by Lessee to Lessor under this Lease.
25. Lessee shall not record this Lease without Lessor's prior written consent,
and such recording without Lessor's consent shall, at the option of Lessor,
constitute a non-curable default of Lessee hereunder. Lessor may withhold its
consent without cause and without regard to the provisions of
Paragraph 36 of this Lease.
26. (Continued) In the event that Lessee fails to vacate the Premises at the
expiration of the term, such continued occupancy shall be considered a holdover.
During any holdover period, the month to month Base Rent will be one hundred and
fifty percent (150%) of the Base Rent due for the last month of the Lease term
plus pro rata reimbursement for all taxes, insurance payments and any other
monetary requirements of the Lease.
<PAGE>
34 Lessee may place a sign of up to six feet high including its name
and/or Logo on the building in a position approved by Lessor. Lessee agrees
to remove the sign at the end of the lease term and to restore the area to
its original condition.
49. Lessor's Obligations
--------------------
Notwithstanding anything to the contrary contained within Paragraph 7,
Lessor shall, at Lessor's sole cost and expense, be required to make any
structural repairs that may be required to the walls, foundation, roof or
roof support system of the Premises during the term of the Lease provided,
however, that such repairs are not a result of Lessee's use or neglect of
the Premises. Lessor shall not be obligated to reimburse Lessee for any
roof repair expense less than or equal to the sum of two thousand five
hundred dollars ($2,500.00) per year, provided that Lessor is notified, in
writing, by Lessee in advance of such roof repairs.
Lessor has agreed that Lessee shall not be responsible to repair any
damage to the asphalt parking areas which may be caused by tree root growth
or spread.
50. Lessee's Right to Cancel
------------------------
Lessee shall have the right to cancel this Lease effective only on
December 31, 1999, by giving Lessor written notice not later than March 31,
1999. In copy consideration for Lessor granting Lessee this right to
cancel, if and only if Lessee exercises such right, then Lessee shall pay
Lessor the sum of $285,420.00 on December 31, 1999.
LESSOR LESSEE
- ------ ------
/s/ By: /s/
- -------------------------------- --------------------------------
<PAGE>
MARQUETTE MEDICAL SYSTEMS
MARKET STRENGTH
Working as a strategic partner with customers to improve patient care and
control costs through innovative diagnostic, monitoring, and clinical
information systems.
HISTORY OF GROWTH
. Founded in 1965
. Current annual revenues: more than $550M
. 3,000 employees
CUSTOMERS
Serving healthcare providers in more than 67 countries throughout the Americas,
Europe, Middle East, Africa, and Asia-Pacific regions. Customers include:
. National and regional health care systems
. Hospitals
. Teaching and research institutions
. Medical clinics
. Physician practices
. Emergency and alternative care providers
MAJOR PRODUCTS
. Clinical information systems
. Non-invasive cardiac diagnostics
. Catheterization laboratories
. Cardiovascular information systems
. Patient monitors
. Fetal and neonate monitoring
. Respiratory and anesthetic gas analysis
. Ventilator management systems
. Defibrillators
. Image processing and electronic imaging systems
Marquette Electronics, Inc. and Subsidiaries
FIVE YEAR SUMMARY OF SELECTED FINANCIAL DATA
(Dollars in Thousands Except Per Share Data)
<TABLE>
<CAPTION>
Year Ended April 30,
------------------------------------------------
1996 1995 1994 1993 1992
------ ---- ---- ---- -----
<S> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
- ----------------------------------------------------------------------------
Net sales $416,293 $342,176 $253,808 $250,178 $233,140
- ----------------------------------------------------------------------------
Net income (loss) before
cumulative effect of
change in accounting
principle (24,868) 19,557 18,641 17,258 14,575
- ----------------------------------------------------------------------------
Net income (loss) (24,868) 19,557 18,641 17,790 14,575
- ----------------------------------------------------------------------------
PER SHARE AMOUNTS:
- ----------------------------------------------------------------------------
Net income (loss) before
cumulative effect of
change in accounting
principle $ (1.53) $ 1.21 $ 1.16 $ 1.08 $ .93
- ----------------------------------------------------------------------------
Net income (loss) (1.53) 1.21 1.16 1.11 .93
- ----------------------------------------------------------------------------
Shares used in per
share calculation 16,254 16,172 16,090 16,039 15,648
- ----------------------------------------------------------------------------
BALANCE SHEET DATA:
- ----------------------------------------------------------------------------
Working capital $133,197 $100,400 $109,560 $ 91,477 $ 82,789
- ----------------------------------------------------------------------------
Total assets 431,718 264,865 203,180 176,646 181,978
- ----------------------------------------------------------------------------
Long-term debt 81,254 8,112 102 747 12,825
- ----------------------------------------------------------------------------
Shareholders' equity 147,925 170,893 149,421 130,589 112,706
- ----------------------------------------------------------------------------
</TABLE>
<PAGE>
[LOGO]
To Our Shareowners
Throughout our thirty year history, Marquette has established itself as a leader
in developing technology for healthcare. Our organization has always prized
innovation, but also has an infrastructure to support growth, and is positioned
to capitalize on the fundamental changes taking place in healthcare.
We believe the acquisition of E for M Corporation in the third quarter will
greatly enhance our long-term potential. A respected developer of healthcare
systems and equipment since 1951, E for M is a well-known and highly regarded
brand name in the medical community. Its largest subsidiary, Hellige GmbH, has a
strong German/European franchise in healthcare equipment dating back 100 years.
Results in 1996 reflect the actions required to forge a new Marquette. By the
end of fiscal 1996, all non-recurring charges relating to the E for M
acquisition had been recorded, and the integration of E for M with Marquette
was complete, including redundant facility closings, relocations, product line
consolidations, and staffing reductions. We enter 1997 anticipating a definite
and positive contribution to earnings from E for M, and far greater market
penetration for Marquette, especially in Europe.
In the normal course of our business, excluding one-time charges relating to the
E for M acquisition, net income for the year was $13.3 million, or $0.82 per
share. With the acquisition completed, we elected to record $39.7 million on
one-time write-offs and non-recurring restructuring expenses, resulting in a net
loss for the year of $24.9 million, or $1.53 per share. Net sales for fiscal
year 1996, including E for M sales for the last four months of the year, were
$416.3 million, up 21.7% from net sales of $342.2 million for fiscal year 1995.
Fiscal 1996 ended on a strong note; fourth quarter income from operations,
excluding restructuring expenses, surpassed last year's level.
Looking ahead to fiscal 1997 and beyond, we are excited about the opportunities
to improve financial performance and growth. The changes we have made bring us
closer to our goals by adding new strengths to Marquette:
<PAGE>
. Our product breadth, distribution channels, and market opportunities are
significantly greater than just two years ago.
. Marquette's annual revenues are expected to exceed the half-billion-dollar
level in fiscal 1997, giving us significant worldwide presence with 35%-40% of
our base in international markets.
. Long-standing business and technological partnerships with our customers
- --hospitals and integrated healthcare delivery networks in the U.S. and
worldwide--have been broadened and strengthened.
. Manufacturing and engineering capacity at our six production facilities can
now support our growth through 1997 with no meaningful addition to fixed costs.
Marquette's 15-year unbroken record of increased revenues is due chiefly to
our ability to develop systems that enable customers to improve patient care
while better managing costs. Along with maintaining our customer focus, we
intend to capitalize on our new strategic strength, increase our profitability,
and provide shareholders with an optimum long-term return on their investment.
Sincerely,
/s/ Timothy C. Mickelson /s/ Michael J. Cudahy
- ------------------------ ---------------------
Timothy C. Mickelson Michael J. Cudahy
President Chairman
[PHOTO]
<PAGE>
[LOGO]
Stability and Evolution
[PHOTO]
The new Solar(R) 9000 anesthesia information monitor provides almost limitless
flexibility. Part of the Marquette Unity Network (TM), the Solar 9000 offers a
convenient "one-look" modern windows-style display that shows all data,
customized formats, and operation so simple it feels like second nature even to
first-time users.
Even for Marquette -- a company built on entrepreneurial risk-taking and
visionary thinking -- the past year has been a period of extraordinary change.
We tapped into new leadership, strengthened our presence in Europe, introduced
world-class products, added many new employees, consolidated facilities, re-
organized into eight divisions, became the number one cath lab supplier in the
world -- and even tinkered with our name.
But one thing we didn't change was our mindset.
We still believe that Marquette's greatest strength is our ability to listen
and then deliver innovative technologies that make a real difference to
patients, physicians, clinicians, and the people who manage the business side of
healthcare. Today we call it "improving cost and quality outcomes." Thirty
years ago, we called it "meeting customers' needs."
It's the same thing. Marquette continues to evolve so that we can continue to
help our customers succeed.
What's in a name?
This year the company acknowledged what the world already knows: that
Marquette produces much more than electronic "instruments." Clinical information
today is gathered from many sources, and our "systems" have become the most
important part of our business. To reflect this evolution, we are now calling
ourselves Marquette Medical Systems instead of Marquette Electronics.
[LOGO OF MARQUETTE MEDICAL SYSTEMS]
Today, no monitor is an island. What we offer to customers must either be a
medical system or fit into a system. How well our products sell is increasingly
a function of how successfully they integrate with hospital information systems
and other equipment, including our competitors' products.
The name change is also a clear reminder that Marquette is -- and always has
been -- focused exclusively on healthcare. Our resources are committed entirely
to making medical enterprises more efficient, from the NICU to home care.
4
<PAGE>
Of course, this change will have only a minor effect on our customers. Most
of them refer to our company simply as "Marquette" and identify our products the
same way.
That's okay. We prefer being on a first name basis with customers anyway.
THE MISSING LINK
In rethinking our name, we've also taken a fresh look at our company
positioning to make sure that Marquette is differentiated clearly in the
marketplace.
Our strength lies in data. We gather, convert, store, and disseminate it.
What makes us different from other companies that do the same thing? The quality
of our information, and our ability to make it easily and cost-effectively
available to all decision makers within the medical institution.
Products like the MUSE(R) cardiovascular information system and the
Quantitative Sentinel(R) clinical information system are prime examples of what
today's medical buyers are looking for: immediate, convenient access to accurate
data that enables them to make better decisions.
More than providing devices or systems or networks, Marquette creates
solutions that encompass all these elements in ways that optimize patient care,
work flow, and economics. In short, it's being the link between data and
decision--the statement that defines Marquette's unique position in healthcare.
THE MUSE(R) CARDIOVASCULAR INFORMATION SYSTEM CONTINUES TO BE THE BEST SELLING
SYSTEM OF ITS KIND IN THE WORLD, PROBABLY BECAUSE IT'S THE MOST VERSATILE. THE
MUSE SYSTEM GIVES PHYSICIANS AND MANAGERS IMMEDIATE ACCESS TO PATIENT RESULTS
FROM CARDIOVASCULAR SERVICES AND TO VALUABLE CLINICAL AND ADMINISTRATIVE
OUTCOMES REPORTS.
[PHOTO HERE]
<PAGE>
[LOGO]
Power through Change
In November 1995, Marquette took a major step in expanding the company's power
to serve customers throughout the world by acquiring E for M Corporation.
A manufacturer of cardiology, diagnostic imaging and patient monitoring
equipment since 1951, E for M is a well-known and highly regarded brand name in
the medical community. Its largest subsidiary -- Hellige GmbH of Germany, a
strong European franchise in healthcare systems and equipment -- was founded by
one of the pioneers in electrocardiography over 100 years ago.
The acquisition dramatically increases the breadth and depth of Marquette's
existing product lines, and adds new medical imaging and electrophysiology cath
lab products to our portfolio. It also turns "local" distribution channels into
international highways for technology transfer.
Hellige's leadership in European markets, for example, will open doors for
Marquette's monitoring systems. Cost-conscious buyers in the U.S., Latin
America, and the Asia-Pacific region will welcome the addition of Hellige's
electrocardiographs and exercise test systems to our cardiology offerings. The
combined resources of Marquette and E for M make us the largest, most complete
cath lab provider in the world.
Although the acquisition will nearly double Marquette's revenues and the
size of our sales force, this change is not about making the company bigger.
It's about increasing the power of each Marquette representative to serve
today's customers. It's being able to enter the office of any healthcare
decision-maker in the world, confident that we have solutions that span the
entire price-performance spectrum.
From office-based equipment to tertiary care systems, Marquette can now
satisfy all levels of the healthcare delivery system.
[PHOTO HERE]
The CardioSmart(TM) resting ECG system is Marquette's newest offering for
the rapidly growing non-hospital market. Configurable functionality gives
CardioSmart an edge over competitive systems. Users get a basic ECG system,
attractively priced, with the ability to add modular capabilities as needed.
<PAGE>
[PHOTO HERE]
The new OnlineABG(TM) Monitoring System delivers arterial blood gas values
at the point of care in about 60 seconds, with no blood handling and no blood
loss. Blood gas values are integrated on the Solar 8000 monitor display with
other vital signs information, providing a fast, accurate, and cost effective
solution for ventilator management.
[PHOTO HERE]
Hellige had been unable to get a foothold in Sweden, where Marquette was
strong. The situation changed with the Marquette Hellige alliance. The first
CardioSmart(R) resting ECG cardiograph was recently sold in that country.
<PAGE>
[LOGO]
Independent, yet Integrated
The E for M acquisition is the latest in a series of strategic moves to
expand our resources, which included the Corometrics and QMI acquisition in
1994. One reason we were drawn to all of these companies was that their
entrepreneurial drive and independent spirit complemented Marquette's own
approach.
The question then is -- how to integrate such companies without
disintegrating the unique strengths that made them so successful?
First, to preserve the essential nature of the core businesses, we have
formed eight independent divisions within the Marquette family. Second, their
efforts will be focused through strong unified vision from management. Third,
all of these resources will be applied to help customers meet their objectives.
The eight divisions within Marquette are:
CARDIOLOGY
ECG equipment; exercise testing systems; Holter systems; MUSE(R)
cardiovascular information system; MARS(R) Unity workstations,
defibrillators.
PATIENT MONITORING
Monitoring solutions for general purpose and ambulatory monitoring, as well
as critical care and anesthesia departments.
COROMETRICS FETAL AND NEONATAL MONITORING
Global leader in sophisticated perinatal and neonatal monitoring systems.
E FOR M CATH LAB PRODUCTS
The world's broadest array of cath lab solutions, including the Mac-Lab(R)
system; Midas(R) system; CardioWindow(R) system; and E for M
electrophysiology products.
QMI CLINICAL INFORMATION SYSTEMS
Point-of-care clinical information systems to automate hospital charting
and integrate patient information throughout the hospital.
[PHOTO HERE]
The quality and efficiency of obstetric care is being improved with the
Spectra-Tel(R) remote fetal monitoring system from the Corometrics division.
Obstetricians can be "in two places at once" -- evaluating fetal data on
actively laboring patients in the hospital, while also seeing patients in an
outpatient setting.
<PAGE>
E FOR M IMAGING SYSTEMS
Leading supplier of specialized cine films and related imaging services, as
well as electronic imaging systems.
SUPPLIES
Everything needed to keep Marquette equipment performing at peak levels,
from recording paper to lead wires and electrodes.
SERVICE
Highly trained technicians provide fast service on any Marquette product
anywhere in the world, at any time day or night.
This structure offers the best of both worlds to the customer: integrated,
strategically focused solutions across all care areas, supported by clinical and
technical depth within each care area.
The challenge of integrating these divisions has been more logistical than
philosophical. After all, it was shared qualities, not differences, that brought
us together. A Marquette Engineering Manager put it best after meeting with
Hellige engineers from Germany: "Why shouldn't it work? We are very similar
people -- just operating in different time zones."
[PHOTE HERE]
Marquette's entry to the low- to mid-range monitor market -- the Eagle(R)
3000 monitor -- is designed for lower-activity, non-transport applications. This
large market includes pre- and post-anesthesia care, outpatient surgery centers,
CUs in rural and small hospitals and free-standing emergency centers.
<PAGE>
[LOGO]
Change through Leadership
Marquette has also been an instrument of change in healthcare in the past year.
Increasingly, the hospitals, networks, and payer organizations that benchmark
the clinical, financial, and information management standards in healthcare are
looking to Marquette for the answers.
CHEST PAIN CENTERS: "THE CCUS OF THE 90's"
Health disease is the number one cost factor in hospitals, the major cost
driver in health plans, and the fastest growing medical problem in our aging
population base.
It's no wonder then that Marquette's Chest Pain Center solutions are
gaining so much attention. Perfected in collaboration with Dr. Tony Joseph,
president of American Medical Consulting, it's an alternative way to manage
patients with chest pain through continuous monitoring in an observation unit in
the ER.
Chest Pain Centers can save lives and money. Dr. Joseph estimates that
medical accuracy potential heart attack management can be increased to more than
99%, while the per patient cost can be lowered by 75%.
Many people believe that Chest Pain Centers will become as prevalent as
Coronary Care Units (CCUs). One HMO executive comments: "Often we see
improvements in medical technology that increase the quality of care but also
increase the cost. Here we have an improvement that reduces cost, which is what
employers are asking us to do."
MANAGED USE PROGRAM: "THE MOST INNOVATIVE PROGRAM IN THE INDUSTRY"
It's no longer a "we make it, you buy it" business. Under increasing
financial stain, medical customers expect us to share more than our best
thinking with them; they expect us to shoulder financial risk as well.
That's why Marquette has developed the Managed Use(TM) program. One major
for-profit healthcare organization calls it "the single most innovative program
in the capital equipment industry."
[PHOTO HERE]
The ST Guard(R) system is central to the success of Marquette's Chest Pain
Center solution. It displays patient data so that physicians can easily identify
serial ECG changes and make quicker, more informed diagnoses.
<PAGE>
[LOGO]
The concept is simple but radical. Customers have a revenue-based expense,
with payment indexed to utilization. If patient use in affected areas -- like
the CCU, for example -- declines, so do payments. The Management use Program
combines the fiscal flexibility of a "fee for service" arrangement with the
traditionally lower rates of a long-term lease.
Why do we do it? Because we trust the broad applicability of our equipment
and the savvy of our sales consultants to understand a provider's needs.
We also believe that customers have the right to expect us to put our own
money where our products are.
INFORMATION SERVICES: "CONSISTENCY IN A NON-CONSISTENT WORLD"
Information Systems are a top priority and a major stress point for
healthcare enterprises these days. Marquette's Quantitative Sentinel(R) system
- -- an automated clinical information system -- is proving itself under the
scrutiny of the most demanding audiences.
A 725-bed U.S. hospital conducted an 18-month feasibility study to evaluate
providers for automated ICU records. Our QS(R) product was selected because of
its practicality: "The 'real [paper] world' is not necessarily consistent, but
the QS offers conformity and consistency.
Six months after installation, the selection team repeated the study and
reported these findings. The Quantitative Sentinel system improved charting
quality for 62% to 95%; saved more than $13,000 in overtime pay through more
efficient charting, enabled nurses to spend nearly an hour more on patient care
per shift; and increased positive cash flow at a projected annual rate of
$35,000 through more accurate documentation of patient charges.
"We are fully confident in its capabilities," commented one team member.
Even given the size of the facility, "there is no question that the QS can
handle it."
Perhaps the ability to inspire such trust -- and provide such quantifiable
benefits -- is why the QS clinical information system is Marquette's fastest
growing product line.
Marquette's newest address is www.mei.com -- our home page on the World
Wide Web. Visited by about 7,000 people a day from all over the world, it
recently received the highest rating of any medical device company by an
independent website evaluation firm.
[PHOTO HERE]
The Children's Medical Centre in Kazan is the site of the first MAC-Lab(R)
installation in Russia. An American doctor who came to demonstrate surgical
procedures was so impressed that he vowed to order a MAC-Lab for his facility in
California.
<PAGE>
<TABLE>
<CAPTION>
MARQUETTE ELECTRONICS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
APRIL 30, 1996 AND 1995 (Dollars In Thousands Except Per Share Data)
ASSETS 1996 1995
-------- --------
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 2,890 $ 3,330
Accounts receivable, less allowances of
$6,430 and $1,066 138,455 91,118
Inventories 106,168 75,140
Prepaid expenses and other 5,543 4,112
Deferred income tax benefits 7,904 1,630
-------- --------
Total current assets 260,960 175,330
-------- --------
PROPERTY AND EQUIPMENT:
Land and improvements 23,669 6,238
Buildings 43,579 30,865
Equipment 82,896 66,663
Construction in Progress 458 1,817
-------- --------
150,602 105,583
Less- Accumulated depreciation 53,826 44,636
-------- --------
Net property and equipment 96,776 60,947
-------- --------
OTHER ASSETS:
Goodwill, less accumulated amortization of
$6,635 and $4,224 45,882 23,604
Other intangibles, less accumulated amortization
of $648 and $0 20,587 --
Cash surrender value and other 7,513 4,984
-------- --------
Total other assets 73,982 28,588
-------- --------
$431,718 $264,865
======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated balance
sheets.
12
<PAGE>
<TABLE>
<CAPTION>
LIABILITIES AND SHAREHOLDERS' EQUITY
<S> <C> <C>
CURRENT LIABILITIES: 1996 1995
-------- --------
Amounts due to bank $ 7,101 $ 6,450
Notes payable to bank 28,822 22,544
Current maturities of long-term debt 3,122 100
Accounts payable 31,764 18,957
Accrued liabilities-
Payroll related expenses 22,014 12,258
Warranty 6,475 4,194
Other 28,465 10,460
-------- --------
Total current liabilities 127,763 74,963
-------- --------
LONG-TERM DEBT, less current maturities 81,254 8,112
DEFERRED INCOME TAXES 21,404 2,897
PENSION AND OTHER LONG-TERM LIABILITIES 45,372 --
CLASS A COMMON STOCK UNDER REPURCHASE
AGREEMENTS (Note 10) 8,000 8,000
SHAREHOLDERS' EQUITY:
Class A Common Stock, $.10 par value, 30,000,000
shares authorized, 16,060,311 and 15,946,605
shares issued and outstanding in 1996 and 1995,
respectively 1,606 1,594
Class C Common Stock, $.01 par value, 50,000,000
shares authorized, 26,250,000 shares issued
and outstanding 263 263
Additional paid-in capital 31,569 26,870
Retained earnings 126,152 151,020
Cumulative translation adjustment (3,665) (854)
Class A Common Stock under repurchase
agreements (Note 10) (8,000) (8,000)
-------- -------
Total liabilities and shareholders' equity $431,718 $264,865
======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated balance
sheets.
13
<PAGE>
MARQUETTE ELECTRONICS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
FOR THE YEARS ENDED APRIL 30, 1996, 1995 AND 1994
(Dollars In Thousands Except Per Share Data)
<TABLE>
<CAPTION>
1996 1995 1994
-------- -------- --------
<S> <C> <C> <C>
NET SALES $416,293 $342,176 $253,808
COST OF SALES 214,947 167,130 122,187
-------- -------- --------
Gross profit 201,346 175,046 131,621
-------- -------- --------
ENGINEERING EXPENSES 37,307 30,716 22,417
SELLING EXPENSES 105,259 85,072 62,397
GENERAL AND ADMINISTRATIVE EXPENSES 32,880 25,362 18,824
RESTRUCTURING EXPENSES 3,956 -- --
WRITE-OFF OF ACQUIRED IN-PROCESS
RESEARCH & DEVELOPMENT 35,700 -- --
-------- -------- --------
Total operating expenses 215,102 141,150 103,638
-------- -------- --------
Operating income(loss) (13,756) 33,896 27,983
INTEREST EXPENSE 4,386 2,973 322
OTHER EXPENSE(INCOME), net (1,162) (107) (554)
-------- -------- --------
Income(loss) before provision
for income taxes (16,980) 31,030 28,215
PROVISION FOR INCOME TAXES 7,888 11,473 9,574
-------- -------- --------
NET INCOME(LOSS) $(24,868) $ 19,557 $ 18,641
======== ======== =======
PER CLASS A COMMON SHARE:
Net Income (Loss) $(1.53) $1.21 $1.16
======== ======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
<TABLE>
<CAPTION>
MARQUETTE ELECTRONICS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<S> <C> <C> <C>
FOR THE YEARS ENDED APRIL 30, 1996, 1995 AND 1994
(Dollars In Thousands)
1996 1995 1994
-------- ------- -------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $(24,868) $19,557 $18,641
Adjustments to reconcile net income (loss) to
net cash provided by operating activities-
Depreciation and amortization 12,042 14,378 9,817
Write-off of acquired in-process
research & development 35,700 - -
Deferred income taxes (634) 826 (695)
Changes in assets and liabilities
Accounts receivable 992 364 (4,050)
Inventories 2,379 (7,037) (2,325)
Prepaid expenses and other assets 6,497 (675) (184)
</TABLE>
14
<PAGE>
<TABLE>
<CAPTION>
1996 1995 1994
---------- ------- -------
<S> <C> <C> <C>
Accounts payable and accrued liabilities (8,123) 8,806 4,625
--------- ------- ------
Net cash provided by operating activities 23,985 36,219 25,829
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (11,399) (15,124) (8,858)
Purchase of E for M Corporation and Corometrics
Medical Systems, Inc., net of cash acquired (89,171) (70,045) -
--------- ------- -------
Net cashed used in investing activities (100,570) (85,169) (8,858)
CASH FLOWS FROM FINANCING ACTIVITIES:
Net proceeds from notes payable to bank 3,005 14,737 4,993
Proceeds from issuance of long-term debt 90,000 45,000 -
Payments on long-term debt (17,000) (37,003) (1,339)
Proceeds from issuance of common stock 1,393 1,110 551
--------- ------- -------
Net cash provided by financing activities 77,398 23,844 4,205
EFFECT OF EXCHANGE RATE CHANGES ON CASH AND
CASH EQUIVALENTS (1,253) 626 (413)
--------- ------- -------
Net increase (decrease) in cash and cash (440) (24,480) 20,763
equivalents
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 3,330 27,810 7,047
--------- ------- -------
CASH AND CASH EQUIVALENTS AT END OF YEAR $ 2,890 $ 3,330 $27,810
========= ======= =======
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the year for-
Interest $ 4,153 $ 2,911 $ 343
Income taxes $ 9,789 $11,523 $ 8,835
Supplemental Schedule of Noncash Investing and
Financing Activities
The Company purchased all of the capital stock
of E for M Corporation and of Corometrics
Medical Systems, Inc. for $90,333 and $70,766,
in fiscal 1996 and 1995, respectively.
In conjunction with the acquisition, liabilities
were assumed as follows:
Fair value of assets acquired
(including goodwill) $ 215,524 $78,729
Cash paid for the capital stock 90,333 70,766
Stock options converted 3,083 -
--------- -------
Liabilities assumed $ 122,108 $ 7,963
========= =======
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
15
<PAGE>
MARQUETTE ELECTRONICS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
FOR THE YEARS ENDED APRIL 30, 1996, 1995 AND 1994 (Dollars in Thousands)
<TABLE>
<CAPTION>
Class A Class C
Common Stock Common Stock Additional Cumulative
---------------------- --------------------- Paid-In Retained Translation
Shares Amount Shares Amount Capital Earnings Adjustment
---------- ---------- ---------- ---------- ---------- -------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE, April 30, 1993 15,790,975 $1,579 26,250,000 $263 $24,992 $112,822 $(1,067)
.............................................................................................................................
Issuance of common stock under option 61,380 6 -- -- 545 -- --
.............................................................................................................................
Cumulative translation adjustment -- -- -- -- -- -- (413)
.............................................................................................................................
Other -- -- -- -- 53 -- --
.............................................................................................................................
Net income -- -- -- -- -- 18,641 --
...........................................----------....------....----------.....----.....-------.....--------....-------
BALANCE, April 30, 1994 15,852,355 $1,585 26,250,000 $263 $25,590 $131,463 $(1,480)
.............................................................................................................................
Issuance of common stock under option 94,250 9 -- -- 1,101 -- --
.............................................................................................................................
Cumulative translation adjustment -- -- -- -- -- -- 626
.............................................................................................................................
Other -- -- -- -- 179 -- --
.............................................................................................................................
Net income -- -- -- -- -- 19,557 --
...........................................----------....------....----------.....----.....-------.....--------....-------
BALANCE, April 30, 1995 15,946,605 $1,594 26,250,000 $263 $26,870 $151,020 $ (854)
.............................................................................................................................
Issuance of common stock under option 113,706 12 -- -- 1,381 -- --
.............................................................................................................................
Cumulative translation adjustment -- -- -- -- -- -- (2,811)
.............................................................................................................................
Conversion of E for M stock options
into Marquette options -- -- -- -- 3,083 -- --
.............................................................................................................................
Other -- -- -- -- 235 -- --
.............................................................................................................................
Net income(loss) -- -- -- -- -- (24,868) --
...........................................----------....------....----------.....----.....-------.....--------....-------
BALANCE, April 30, 1996 16,060,311 $1,606 26,250,000 $263 $31,569 $126,152 $(3,665)
...........................................==========....======....==========.....====.....=======.....========....=======
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
16
<PAGE>
MARQUETTE ELECTRONICS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
APRIL 30, 1996, 1995 AND 1994 (Dollars In Thousands Except Per Share Data)
(1) Nature of Operations
Marquette Electronics, Inc. (the "Company") is a multi-national
manufacturer of medical electronic equipment and clinical information
systems for the diagnosis and monitoring of patients requiring
critical care. The Company's principal product lines include
electrocardiographic equipment, patient monitors, clinical information
systems, cardiac catheterization and electrophysiology laboratories,
defibrillators and a complete line of supplies. The Company's
principal markets are the major medical institutions and teaching
hospitals, particularly those institutions specializing in the diagnosis
and treatment of heart disease. The Company also markets its products to
smaller hospitals, medical clinics, physician offices, government
hospitals, research institutions, and providers of emergency care. The
Company covers the United States market, most of Western Europe and
Australia through its own sales force. The remainder of the
international market is served by dealers.
(2) Summary of Significant Accounting Policies-
(a) Basis of consolidation-
The consolidated financial statements include the accounts of Marquette
Electronics, Inc. and its foreign and domestic subsidiaries. All
significant intercompany accounts and transactions have been eliminated
in consolidation.
(b) Revenue recognition-
Revenue is recognized on an accrual basis when equipment and supplies
are shipped. Revenue for service contracts is recognized over the term
of the contract, typically twelve months. Costs related to service
contracts are expensed as incurred.
(c) Inventories-
Inventories consist of the following:
<TABLE>
<CAPTION>
April 30,
----------------
1996 1995
-------- -------
<S> <C> <C>
Raw materials and component parts $35,716 $20,551
Work-in-process and finished goods 45,869 33,561
Inventory on loan or consignment 24,583 21,028
-------- -------
$106,168 $75,140
======== =======
</TABLE>
For its domestic inventories (representing 61% and 93% of total
inventories at April 30, 1996 and 1995, respectively), the Company
employs the last-in, first-out (LIFO) cost method. The first-in, first-
out (FIFO) cost method is used for all remaining inventories. If the
FIFO cost method had been used for domestic inventories instead of the
LIFO cost method, the carrying value assigned to inventories would have
been $1,962 and $2,651 less at April 30, 1996 and 1995, respectively.
(d) Property and equipment-
Property and equipment, along with improvements that significantly
extend the useful life of existing assets, are carried at cost.
Depreciation is provided on the straight-line method over the estimated
useful lives of the assets which
17
<PAGE>
MARQUETTE ELECTRONICS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
APRIL 30, 1996, 1995 AND 1994 (Dollars In Thousands Except Per Share Data)
range from 15-20 years for land improvements, 40-50 years for buildings
and 3-7 years for equipment.
(e) Research and development costs-
Research and development costs are charged to operations as incurred.
Such charges were $23,756, $22,501 and $17,413 in fiscal 1996, 1995 and
1994, respectively. The Company also charged to operations $35,700
related to the write-off of acquired in-process research and development
attributable to the E for M acquisition. See Note 3 for further
discussion of purchased research and development costs.
(f) Advertising costs-
Advertising costs are charged to operations as incurred. Such charges
were $2,260, $1,691 and $1,755 in fiscal 1996, 1995 and 1994,
respectively.
(g) Cash and cash equivalents-
For purposes of the consolidated statements of cash flows, the Company
considers all highly liquid investments with a maturity of three months
or less at the time of purchase to be cash equivalents.
(h) Foreign currency-
Asset and liability accounts of the Company's foreign operations are
translated at the current exchange rate, and income and expense accounts
are translated at the average of the monthly exchange rates. Gains and
losses resulting from the translation of foreign currency financial
statements are classified as a separate component of shareholders'
equity.
Foreign currency transaction gains (losses) totalling $744, $124, and
$(490) are included in other income in the consolidated statements of
income for fiscal 1996, 1995 and 1994, respectively.
As a hedge against foreign accounts payable, the Company at times has
entered into various forward exchange contracts to exchange foreign
currencies for United States dollars at a fixed contract rate. Market
value gains and losses resulting from these contracts are recognized in
the consolidated statements of income and offset foreign exchange gains
or losses on the foreign payables at their maturity date. As of April
30, 1996, the Company has three such contracts to exchange various
foreign currencies for a total contract amount of $758 and a maturity
date of May 31, 1996. The carrying value of these contracts
approximates fair value.
(i) Net income per Class A common share-
Class C Common Stock participates in income with Class A Common Stock in
the ratio of 1:100. Consequently, the weighted average shares for
calculating net income per Class A common share is equal to the sum of
the weighted average number of shares of Class A Common Stock
outstanding and 1/100
18
<PAGE>
MARQUETTE ELECTRONICS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
APRIL 30, 1996, 1995 AND 1994 (Dollars In Thousands Except Per Share Data)
of the weighted average number of shares of Class C Common Stock
outstanding during the year. Such weighted average shares were
16,254,000, 16,172,000 and 16,090,000 for fiscal 1996, 1995 and 1994,
respectively.
(j) Goodwill-
The excess of the purchase cost over the fair value of net assets
acquired is being amortized over a range of 15-20 years on a straight-
line basis. The Company continually evaluates whether later events and
circumstances have occurred that indicate the remaining estimated useful
life of goodwill may warrant revision or that the remaining balance of
goodwill may not be recoverable. When factors indicate that goodwill
should be evaluated for possible impairment, the Company uses an
estimate of the related business segment's discounted net cash flows
over the remaining life of the goodwill in measuring whether the
goodwill is recoverable. Goodwill (net of accumulated amortization) was
$45,882 and $23,604 at April 30, 1996 and 1995, respectively.
Amortization of goodwill was $2,453 in fiscal 1996, $1,871 in fiscal
1995 and $451 in fiscal 1994. See Note 3 for further discussion related
to the goodwill attributable to the E for M and Corometrics
acquisitions. In March, 1995, the Financial Accounting Standards Board
("FASB") issued SFAS No. 121 "Accounting for the Impairment of Long-
Lived Assets and for Long-Lived Assets to be Disposed Of", which
addresses accounting for the impairment of long-lived assets that either
will be held and used in operations or that will be disposed of. The
Company does not believe that the adoption of this statement on May 1,
1996 will have a material impact on the financial position or results of
operations of the Company.
(k) Use of estimates-
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities
and disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those
estimates.
(l) Reclassification of prior year amounts-
Certain prior year amounts have been reclassified to conform with
current year presentations.
(3) Acquisition of Corometrics Medical Systems, Inc. and E for M Corporation
On May 31, 1994, the Company acquired 100% of the common stock of
Corometrics Medical Systems, Inc.
19
<PAGE>
MARQUETTE ELECTRONICS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
APRIL 30, 1996, 1995 AND 1994 (Dollars In Thousands Except Per Share Data)
("Corometrics"), a manufacturer of fetal monitors and related products.
The purchase price was approximately $70,800 and was paid in cash.
Related to this purchase, the Company borrowed $49,200 under a bank loan
agreement. As of April 30, 1996, these borrowings have been paid in
full. The acquisition has been accounted for as a purchase, and the
excess of the purchase price over the fair value of net assets acquired
has been allocated to goodwill. The value of such goodwill is $23,230.
Effective January 1, 1996, the Company acquired 100% of the common stock
of E for M Corporation ("E for M"), an international medical equipment,
software and supplies company serving patient monitoring and cardiology,
which includes cardiac catheterization and electrophysiology
laboratories. The purchase price was approximately $93,400 and was paid
in cash and through the issuance of stock options. The Company converted
outstanding options for E for M stock into options for Marquette stock
as part of the transaction. The fair value of the converted options was
$3,083. Related to this purchase, the Company borrowed $90,000 under
bank loan agreements payable periodically over the next five years. The
acquisition has been accounted for as a purchase and the excess of the
purchase price over the fair value of the net assets acquired has been
allocated to goodwill. Based on a preliminary allocation of purchase
price, the approximate value of such goodwill is $26,196. In addition,
the Company acquired intangible assets related to in-process research
and development (R&D), product technologies and tradenames with values
of $35,700, $12,672 and $8,468, respectively. The acquired in-process
R&D was entirely written-off during the year. The remaining intangibles
have estimated useful lives ranging from 7 to 40 years.
In connection with the acquisition, the Company implemented a
restructuring plan for the purpose of integrating the E for M operation
into the Company's existing operations. This restructuring plan
included consolidation of facilities as well as a reduction in the
number of employees required for the combined operations. The costs
expected to be incurred with respect to this restructuring plan were
recorded as liabilities of E for M which were assumed in the purchase
transaction. The total restructuring charges attributable to E for M
were $8,447. This total liability recorded at the acquisition included
$5,532 of severance costs, $992 of dealer termination costs and $1,923
of facility closing, legal and other costs. This restructuring plan is
expected to be completed by April 30, 1997. As of April 30, 1996,
20
<PAGE>
MARQUETTE ELECTRONICS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
APRIL 30, 1996, 1995 AND 1994 (Dollars In Thousands Except Per Share Data)
$7,662 of the restructuring charges remained in "Other current
liabilities" in the Consolidated Balance Sheets.
Unaudited pro-forma results of operations, assuming the acquisition of
both Corometrics and E for M as of May 1, 1994, and the $35,700 write-
off of acquired in-process R&D in fiscal 1996, would be as follows:
<TABLE>
<CAPTION>
Year Ended
April 30,
-------------------
1996 1995
-------- --------
<S> <C> <C>
Net Sales $540,936 $541,138
Net Income (Loss) (27,430) 11,493
Net Income (Loss) Per Class
A Common Share (1.69) .71
</TABLE>
(4) Income Taxes-
Deferred income taxes are recorded to reflect the tax consequences on
future years on differences between the tax basis of assets and
liabilities and their financial reporting amounts at fiscal year end.
Deferred tax expense is the result of changes in deferred tax assets and
liabilities.
The provision for income taxes consists of the following:
<TABLE>
<CAPTION>
Year Ended April 30,
-------------------------
1996 1995 1994
------ ------- ------
<S> <C> <C> <C>
Current-
Federal $7,692 $ 8,609 $ 8,617
State 1,072 1,547 1,363
Foreign (242) 491 289
------ ------- ------
8,522 10,647 10,269
Deferred (634) 826 (695)
------ ------- ------
$7,888 $11,473 $ 9,574
====== ======= =======
</TABLE>
A reconciliation of the statutory Federal income tax rate to the
consolidated effective income tax rate is as follows:
<TABLE>
<CAPTION>
Year Ended April 30,
-----------------------
1996 1995 1994
------- ------ ------
<S> <C> <C> <C>
Statutory Federal income tax rate (35.0)% 35.0% 35.0%
State and local income taxes, net
of Federal income tax benefit 4.1 3.4 3.0
Tax credits - (1.9) (1.8)
Foreign tax rate differences and
foreign tax losses not benefited 7.4 0.2 1.2
FSC benefit (2.7) (1.4) (2.5)
Purchased R&D 73.6 -- --
Other (0.9) 1.7 (1.0)
------- ------ ------
Effective income tax rate 46.5% 37.0% 33.9%
======= ====== ======
</TABLE>
Temporary differences which give rise to the deferred tax assets and
liabilities at April 30, 1996 and 1995 are as follows:
<TABLE>
<CAPTION>
April 30,
-------------------
1996 1995
-------- -------
<S> <C> <C>
Short-term deferred tax
assets (liabilities):
Net operating loss carryforward $ 14,281 $ 741
Pension 1,773 --
Warranty reserve 1,350 1,193
Inventories (999) (1,755)
Accrued vacation 1,216 942
Intercompany profit
in inventory 486 607
Restructuring reserve 4,371 --
Self-insurance reserve 341 199
Bad debt reserve 201 150
Capital loss carryforward 532 63
Other 406 231
Valuation allowance (16,054) (741)
-------- -------
$ 7,904 $ 1,630
======== =======
Long-term deferred tax
assets (liabilities):
Tax Basis Difference
of Fixed Assets $ (1,251) $(1,161)
Tax Basis Difference
of Intangible Assets (19,672) (1,872)
Other (481) 136
-------- -------
$(21,404) $(2,897)
======== =======
</TABLE>
21
<PAGE>
MARQUETTE ELECTRONICS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
APRIL 30, 1996, 1995 AND 1994 (Dollars In Thousands Except Per Share Data)
(5) Notes Payable to Bank-
The Company has an unsecured line of credit with a bank whereby it may
borrow up to $20,000. As of April 30, 1996, the borrowings outstanding
are $14,500. Standby letters of credit of $1,604 reduce the available
credit to $3,896 as of April 30, 1996.
The Company has loan authorizations and overdraft facilities with
various banks whereby it may borrow up to $33,244 (or Eurocurrency
equivalent) to be used for general purposes. As of April 30, 1996, the
borrowings outstanding are $14,322. Outstanding bank guarantees of
$4,924 reduce the available credit to $13,998 as of April 30, 1996.
The Company has entered into some of the above foreign currency loans in
an amount and term similar to the expected collection period of foreign
accounts receivable as a natural hedge against these amounts. The amount
outstanding on such loans was $6,236 and $8,803 in fiscal 1996 and
fiscal 1995, respectively.
The following table summarizes certain information regarding these
short-term borrowings:
<TABLE>
<CAPTION>
Year Ended April 30,
------------------------
1996 1995 1994
------- ------- ------
<S> <C> <C> <C>
Maximum amount of borrowings $28,742 $27,256 $7,806
Average amount of borrowings 21,975 20,924 3,462
Weighted average interest rate
during year 6.8% 6.1% 7.9%
Weighted average interest rate
at year end 6.5% 6.7% 7.6%
</TABLE>
(6) Long-Term Debt-
<TABLE>
<CAPTION>
Long-term debt consists of the following:
April 30,
---------------
1996 1995
------- ------
<S> <C> <C>
Term note, repaid in fiscal 1996
bearing interest at LIBOR + 1% $ -- $3,000
Term note, repaid in fiscal 1996
bearing interest at LIBOR + 1% $ -- 5,000
Term note, due in installments through
October 31, 2000, bearing interest at
LIBOR + 1% (6.4375% at April 30, 1996) 27,000 --
Term note, due in installments through
October 31, 2000, bearing interest at
LIBOR + 1% (6.4375% at April 30, 1996) 27,000 --
Term note, due in installments through
October 31, 2000, bearing interest at
LIBOR + 1% (6.4375% at April 30, 1996) 27,000 --
Installment promissory note, due
March 31, 1999, bearing interest at
fixed rate of 7.175% 1,224 --
Installment promissory note, due
September 30, 1999, bearing interest
at fixed rate of 8.750% 1,687 --
Other 465 212
------- ------
84,376 8,212
Less- Current maturities 3,122 100
------- ------
$81,254 $8,112
======= ======
</TABLE>
Scheduled maturities:
Year Ending
April 30, Amount
----------- -------
1997 $ 3,122
1998 23,753
1999 23,470
2000 22,781
2001 11,250
-------
$84,376
=======
The carrying value of long-term debt approximates fair value.
The term notes contain restrictive covenants which, among other things,
require the Company to maintain a
22
<PAGE>
MARQUETTE ELECTRONICS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
APRIL 30, 1996, 1995 AND 1994 (Dollars In Thousands Except Per Share Data)
minimum tangible net worth, a minimum interest coverage ratio and a
maximum liabilities to tangible net worth ratio. The Company was in
compliance with all such covenants at April 30, 1996.
(7) Commitments and Contingencies-
The Company leases plant, office space, and automobiles under various
operating lease agreements. Minimum rental commitments under leases
having initial or remaining terms of greater than one year are as
follows:
Year Ending
April 30, Amount
----------- -------
1997 $ 1,504
1998 1,253
1999 783
Thereafter 20
Rental expense charged to operations was $1,585, $1,591 and $1,727 in
fiscal 1996, 1995 and 1994, respectively.
The Company leases automobiles from a company owned by two directors.
Rental expense was $589, $1,028 and $1,058 in fiscal 1996, 1995 and
1994, respectively.
Various lawsuits and claims are pending against the Company. Although
the outcome of such lawsuits and claims cannot be predicted with
certainty, the resolution of these lawsuits and claims will not, in the
opinion of management, result in a material adverse effect on the
financial position or results of operations of the Company.
(8) Common Stock-
Class A and Class C Common Stock have equal voting rights. Dividends
may be declared on the Class A Common Stock without the declaration of
any dividend on the Class C Common Stock. Dividends may only be
declared on the Class C Common Stock if at the same time a dividend in
an amount at least 100 times as great per share is declared on the Class
A Common Stock. In the event of liquidation, amounts distributed with
respect to each share of Class A Common Stock must be 100 times as great
as amounts distributed with respect to each share of Class C Common
Stock.
(9) Stock Option Plans-
The Company has reserved 2,500,000 shares of Class A Common Stock for
issuance under the Amended and Restated Stock Option Plan for Employees
of Marquette Electronics Inc. (the "Plan"). The number of shares
reserved for issuance by the Company under this Plan increased from
2,500,000 shares to 3,500,000 on February 9, 1996 by a vote by the
Company's Board of Directors, subject to shareholder approval. Under
the Plan, incentive options may be granted to purchase shares at or
above fair market value on the date of grant and expire within ten
years, and non-qualified options may be granted at or above 85% of fair
market value on the
23
<PAGE>
MARQUETTE ELECTRONICS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
APRIL 30, 1996, 1995 AND 1994 (Dollars In Thousands Except Per Share Data)
date of grant and expire within fifteen years. If stock options granted
under the Plan expire or otherwise terminate without being exercised,
the Class A Common Stock not issued under such stock options shall again
become available for issuance under the Plan.
Option activity during fiscal 1996, 1995 and 1994 is as follows:
<TABLE>
<CAPTION>
Number of Shares
Under Option
----------------
<S> <C>
Outstanding, April 30, 1993 349,921
Granted 1,090,000
Exercised (61,380)
Cancelled (73,875)
---------
Outstanding, April 30, 1994 1,304,666
Granted 292,200
Exercised (94,250)
Cancelled (80,250)
---------
Outstanding, April 30, 1995 1,422,366
Granted 895,600
Exercised (96,800)
Cancelled (407,950)
---------
Outstanding, April 30, 1996 1,813,216
=========
</TABLE>
The prices of options exercised during fiscal 1994 were 15,000 shares at
$6.17 per share, 15,000 shares at $8.33 per share, 7,500 shares at $9.00
per share, 19,880 shares at $11.13 per share and 4,000 shares at $11.20
per share.
The prices of options exercised during fiscal 1995 were 51,750 shares at
$11.13 per share, 2,000 shares at $9.67 per share, 4,750 shares at
$10.00 per share, 15,750 shares at $11.20 per share, 15,000 shares at
$14.25 per share, and 5,000 shares at $15.50 per share.
The prices of options exercised during fiscal 1996 were 9,250 shares at
$9.67 per share, 10,250 shares at $10.00 per share, 1,250 shares at
$11.20 per share, 4,050 shares at $13.67 per share, 2,000 shares at
$16.75 per share, 50,000 shares at $14.25 per share, and 20,000 shares
at $16.25 per share.
The options outstanding at April 30, 1996, consist of the following:
<TABLE>
<CAPTION>
Number of Shares
-------------------------
Outstanding Exercisable Option Price
------------------------- ---------------
<S> <C> <C>
611,116 199,366 $11.20 - $14.99
1,064,600 101,500 15.00 - 20.99
137,500 12,500 21.00 - 21.50
--------- -------
1,813,216 313,366
========= =======
</TABLE>
The Company has reserved 276,042 shares of Class A Common Stock for
issuance under the E for M 1991 Stock Option Plan and E for M 1991 Key
Employee Stock Option Plan. The E for M stock options outstanding on
the acquisition date were converted into stock options of the Company in
conjunction with the acquisition. Each option converted by the Company
continues to have, and is subject to, the same terms and conditions set
forth in E for M's stock option plan prior to the acquisition. The E
for M stock options were converted into 276,042 stock options of the
Company pursuant to this plan based on an exchange ratio of the average
price of Marquette stock at the acquisition date to the tender price of
E for M stock.
24
<PAGE>
MARQUETTE ELECTRONICS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
APRIL 30, 1996, 1995 AND 1994 (Dollars In Thousands Except Per Share Data)
Option activity related to this plan in fiscal 1996 is as follows:
<TABLE>
<CAPTION>
Number of Shares
Under Option
----------------
<S> <C>
Outstanding, April 30, 1995 --
Granted 276,042
Exercised (16,906)
Cancelled --
-------
Outstanding, April 30, 1996 259,136
=======
</TABLE>
The prices of the options exercised during fiscal 1996 were 12,532
shares at $1.10 per share, 546 shares at $6.58 per share, 912 shares at
$7.61 per share, and 2,916 shares at $12.34 per share.
The options outstanding at April 30, 1996, consist of the following:
<TABLE>
<CAPTION>
Number of Shares
------------------------ --------------
Outstanding Exercisable Option Price
------------------------ --------------
<S> <C> <C>
118,924 50,367 $5.93 - $ 8.99
90,170 74,091 9.00 - 10.99
50,042 16,052 11.00 - 12.76
------- -------
259,136 140,510
======= =======
</TABLE>
On August 25, 1994, the Company's shareholders approved the Marquette
Electronics, Inc. Directors' (Non-Employee) Stock Option Plan (the
"Directors' Plan"). The Directors' Plan is designed to compensate non-
employee members of the Board of Directors by an annual grant of non-
qualified options for 4,000 shares of Class A Common Stock at the then
fair market value of the stock. These options become exercisable in
four equal annual installments on each of the first four anniversaries
of the date of grant and expire on the tenth anniversary date. The
aggregate number of shares that may be issued under the Directors' Plan
shall not exceed 250,000. During fiscal 1994, options to purchase
16,000 shares were granted at $14.50 per share. During fiscal 1995,
options to purchase 20,000 shares were granted at $16.00 per share.
During fiscal 1996, options to purchase 20,000 shares were granted at
$16.25 per share. All options granted were outstanding at April 30,
1996, 20,000 shares of which were exercisable.
(10) Stock Repurchase Agreements-
By agreement, the Company is obligated to repurchase up to $4,000 worth
of Class A Common Stock from each of two shareholders, in each case at
the shareholder's death and at a price per share determined in
accordance with the agreements. Life insurance with a face value of
$6,744 has been secured on the lives of the two shareholders to fund the
payments required under the repurchase agreements. As of April 30,
1996, 444,444 shares of Class A Common Stock were subject to these stock
repurchase agreements. The amount of the purchase price is payable
within 210 days of the death of the shareholder.
(11) Restructuring of Operations-
In fiscal 1996, the Company initiated and began to implement a plan to
restructure its worldwide operations, primarily in Europe. The
restructuring
25
<PAGE>
MARQUETTE ELECTRONICS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
APRIL 30, 1996, 1995 AND 1994 (Dollars In Thousands Except Per Share Data)
plan consists of a consolidation of European offices as well as a
corresponding reduction in the number of employees. The restructuring
plan is undertaken for purposes of consolidating the distribution
function in Europe in order to address competitive conditions. In
addition, the restructuring plan is necessary as the existing Marquette
operations are integrated with E for M's European operations. In
connection with these actions, the Company recorded restructuring
charges of $3,956 to operating expenses in fiscal 1996. These charges
include $1,267 of severance costs, $1,366 of facility closing costs
including asset write-offs, and $1,323 of other costs such as dealer
termination fees and related legal fees. This restructuring plan
implementation is expected to be completed by the end of fiscal 1997.
As of April 30, 1996, $2,513 of the restructuring charges remained in
"Other current liabilities" in the Consolidated Balance Sheets.
(12) Employee Benefit Plans-
Profit Sharing and 401(k) Plan - The Company has a Profit Sharing and
401(k) Plan (the "Plan") covering substantially all non-union employees.
The Plan allows participants to make annual contributions ranging from
1% to 12% of their compensation, subject to certain limitations imposed
by the Internal Revenue Code. The Company matches 25% of the
Participants' contributions, subject to maximum annual matching per
participant of five hundred dollars or 1.5% of the participants
qualified compensation, whichever is greater. The Company may make
annual discretionary contributions as authorized by the Board of
Directors. Total Company contributions were $3,313, $3,300 and $2,449
in fiscal 1996, 1995 and 1994, respectively.
Defined Benefit Plans - E for M has an unfunded noncontributory defined
pension plan covering substantially all of its German-based employees
over 25 years of age and with at least 10 years of service. The benefits
are based on an employee's final month's salary and the number of years
of continuous service with E for M.
The components of net periodic pension cost for the four month period
ended April 30, 1996 are:
Service costs $ 377
Interest costs 1,127
Unrecognized net loss (503)
------
Net pension costs $1,001
======
The following is a reconciliation of the plan's projected benefit
obligation to the recorded pension obligation at April 30, 1996:
Accumulated benefit obligation $41,099
=======
Vested benefit obligation $38,364
=======
Projected benefit obligation $45,339
Unrecognized net loss (503)
-------
Accrued pension obligation $44,836
=======
26
<PAGE>
MARQUETTE ELECTRONICS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
APRIL 30, 1996, 1995 AND 1994 (Dollars In Thousands Except Per Share Data)
The weighted average discount rate and rate of increase in future
compensation levels used in determining the actuarial present value of
the projected benefit obligation were 6% and 2.75%, respectively.
Corometrics established a defined benefit pension plan for certain of
its union employees effective June 1, 1994. Pension expense charges to
operations in fiscal 1996 and 1995 were not material.
(13) Segment and Geographic Information-
The Company operates primarily in one business segment, the medical
electronics equipment industry. Financial information by geographic
area is summarized as follows:
<TABLE>
<CAPTION>
Year Ended April 30,
-------------------------------
1996 1995 1994
-------- -------- --------
<S> <C> <C> <C>
Net sales originating from:
United States $355,689 $321,408 $236,497
Europe 98,137 45,634 38,283
Australia 5,479 6,281 3,749
Corporate and eliminations (43,012) (31,147) (24,721)
-------- -------- --------
$416,293 $342,176 $253,808
======== ======== ========
Income (loss) from operations:
United States $ 11,307 $ 34,198 $ 29,816
Europe (27,481) (1,103) (1,247)
Australia (157) 321 62
Corporate and eliminations 2,575 480 (648)
-------- -------- --------
$(13,756) $ 33,896 $ 27,983
======== ======== ========
Identifiable assets:
United States $332,492 $237,224 $183,241
Europe 98,141 21,199 16,443
Australia 2,680 2,167 1,919
Corporate and eliminations (1,595) 4,275 1,577
-------- -------- --------
$431,718 $264,865 $203,180
======== ======== ========
</TABLE>
Transfers between geographic areas are recorded at market-based transfer
prices. Corporate assets are principally cash and cash equivalents.
Export sales, excluding sales to affiliates, totalled $39,566, $38,731
and $25,882 in fiscal 1996, 1995 and 1994, respectively.
(14) Derivative Financial Instruments
The Company uses foreign currency forward exchange contracts to hedge
specific foreign currency exposures. These derivative financial
instruments are not used for trading purposes.
(15) Quarterly Data (Unaudited)
<TABLE>
<CAPTION>
1996
---------------------------------------
1st 2nd 3rd 4th
---------------------------------------
<S> <C> <C> <C> <C>
Net Sales $81,127 $84,511 $110,309 $140,346
Gross Profit 38,641 43,843 53,578 65,284
Net Income(loss) 979 4,043 (30,665) 775
Per Class A
Common Share .06 .25 (1.89) .05
1995
---------------------------------------
1st 2nd 3rd 4th
---------------------------------------
Net Sales $76,572 $86,720 $92,968 $85,916
Gross Profit 39,226 44,105 47,705 44,010
Net Income(loss) 4,224 5,502 6,112 3,719
Per Class A
Common Share .26 .34 .38 .23
</TABLE>
The following table sets forth the high and low sales prices for the
Class A common stock as reported on the NASDAQ National Market System.
The prices reflect inter-dealer prices, without retail mark-up, mark-
down or commission:
<TABLE>
<CAPTION>
Year Ended
April 30, 1996 April 30, 1995
---------------- ----------------
High Low High Low
<S> <C> <C> <C> <C>
First Quarter 19 13 16 1/2 15
Second Quarter 18 3/4 15 3/4 20 15 1/2
Third Quarter 21 17 3/4 23 1/2 19
Fourth Quarter 20 16 1/2 23 3/4 17
</TABLE>
27
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Shareholders of Marquette Electronics, Inc.:
We have audited the accompanying consolidated balance sheets of MARQUETTE
ELECTRONICS, INC. (a Wisconsin corporation) and subsidiaries as of April 30,
1996 and 1995, and the related consolidated statements of income, shareholders'
equity and cash flows for each of the three years in the period ended April 30,
1996. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Marquette Electronics, Inc. and
subsidiaries as of April 30, 1996 and 1995, and the results of their operations
and their cash flows for each of the three years in the period ended April 30,
1996, in conformity with generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Milwaukee, Wisconsin,
June 13, 1996.
28
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
FISCAL 1996 COMPARED TO FISCAL 1995
Net sales for 1996 were $416.3 million, an increase of 21.7% from $342.2 million
for 1995. The results include four months of activity from operations related to
E for M Corporation. Marquette Electronics, Inc. purchased the stock of E for M
Corporation, an international medical equipment, software and supplies company
serving patient monitoring and cardiology, which includes cardiac
catheterization and electrophysiology laboratories, effective January 1, 1996.
Sales increased $54.5 million related to the E for M product lines. The
remaining increase for the year of $19.6 million, or 5.7%, related to the
Company's historic product lines. An improving healthcare market contributed to
an increase in net sales of $8.6 million, or 7.6% for the patient monitoring
product line. The service, supplies and Corometrics product lines combined to
record a sales increase over 1995 of $11.7 million, or 8.7%. Prior year results
include eleven months activity from operations related to Corometrics Medical
Systems, Inc., a manufacturer of fetal monitors and clinical information systems
acquired on May 31, 1994. The cardiology product line (formerly known as the
diagnostics line) maintained a relatively level amount of net sales for 1996 as
compared to 1995 with a 0.7% decrease.
Gross profit was $201.3 million for 1996, an increase of $26.3 million as
compared to 1995. Gross margin was 48.4% for the year as compared to 51.1% for
1995. The decrease is primarily attributable to a lower gross margin realized on
the E for M product lines. The gross margin on the four months of E for M
activity from operations included in 1996 was 38.1%. Lower than expected
shipment levels for the E for M operations, attributable in part to the
integration of various operations into Marquette, resulted in an inability to
fully absorb fixed costs. All product lines experienced decreases in gross
margins mainly attributable to increased pricing pressures, especially in
Europe. In addition, the imaging line at Corometrics was liquidated at a
significant discount resulting in a margin decline in that line.
Engineering expenses increased $6.6 million, or 21.5%, for the year. Most of
this increase is related to the acquisition of E for M Corporation which had
$4.9 million of engineering expense in the four months since the acquisition.
The remaining increase is a result of additional new product development,
particularly in operating room and emergency care products. Management believes
that the market for its products is rapidly changing due to technological
advances. Therefore, the Company will continue to invest significantly in both
new
29
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
product development and enhancements to current products in order to remain
competitive in the healthcare market.
During 1996, the Company took a charge related to the write-off of purchased in-
process research and development (R&D) in the amount of $35.7 million. This one-
time charge is attributable to the in-process R&D acquired from E for M in the
stock purchase. The purchase price of E for M was allocated to the fair value of
net tangible and intangible assets acquired. The portion of the purchase price
allocated to the in-process R&D costs of E for M was immediately written-off
resulting in this non-recurring charge.
Selling expenses increased $20.2 million, or 23.7%, for 1996 over last year
primarily related to the E for M acquisition. Of the total increase, $13.1
million related to the operations of E for M during 1996. In addition to the
increased expenses related to E for M, the increase is also related to the
incremental month of Corometrics expenses in the current year as compared to
last year. The remaining increase is primarily related to an increased sales
staff for all product lines. For the year, the selling expenses have remained
relatively constant as a percentage of sales as compared to last year. For 1996,
selling expenses were 25.3% of sales versus 24.9% of sales for 1995.
General and administrative expenses increased $7.5 million, or 29.6% for 1996 as
compared to 1995. General and administrative expenses increased $6.0 million for
1996 related to the operations of E for M Corporation. The remaining operations
of the Company had an increase of $1.5 million for 1996 as compared to 1995. In
addition to the increase related to E for M, an incremental month of Corometrics
expenses in the current year accounts for the remaining difference.
Interest expense for 1996 was $4.4 million as compared to $3.0 million for 1995.
This entire increase is attributable to the additional debt incurred for the
acquisition of E for M. The increased interest expense related to this
acquisition debt was offset to some extent by the decreased debt originally
incurred in connection with the Corometrics acquisition in May, 1994. Cash flow
from operations enabled the Company to retire the remaining debt related to the
Corometrics acquisition during 1996.
The Company incurred a restructuring charge of $4.0 million for 1996 mainly
related to its European operations. The restructuring was undertaken for
purposes of consolidating the distribution function in Europe as well as
integrating the E for M operations with Marquette. It is management's belief
that the Company
30
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
will be able to recover the restructuring costs in 1997 through decreased
operating expenses. Other income increased to $1.2 million for 1996 related to
increased foreign exchange gains of $0.6 million. In addition, losses related to
equity investments were $0.7 million less in 1996 as compared to 1995.
The provision for income taxes for 1996 was $7.9 million. Even though the
Company incurred a before-tax loss of $17.0 million for the year, the $35.7
million charge related to purchased in-process R&D is a permanent tax difference
for which the Company does not receive any tax benefit, either current or
deferred. Excluding this charge, the provision for taxes for the year was 42.1%
as compared to 37.0% for 1995. The increase in the provision is partly due to
the expiration of the research and development credit (1.9% benefit in 1995).
This credit has typically been extended by Congress, retroactively, for other
years it was to have expired. If this credit is reinstated retroactively, as it
has been in the past, when Congress finalizes a budget agreement, the Company
will have a tax credit of $0.7 million. The additional increase in the tax rate
is related to foreign net operating losses which the Company is unable to
utilize currently. It is the intention of management that the European
restructuring actions as well as the synergies gained from the integration of E
for M's foreign operations into Marquette, will put the Company in a position to
begin to generate benefit from these losses over the course of the next few
years.
FISCAL 1995 COMPARED TO FISCAL 1994
Net sales for 1995 of $342.2 million were $88.4 million, or 34.8% higher than
net sales for 1994. The increase in net sales for 1995 was primarily related to
the acquisition of Corometrics Medical Systems, Inc. which added $77.1 million
to net sales for 1995. The Diagnostic and Monitoring product lines increased
sales $5.3 million and $5.2 million, or 6.5% and 4.8%, respectively.
Gross profit increased $43.4 million, or 33.0% in 1995 as compared with 1994
related to increased sales. The gross profit margin was 51.1% in 1995 as
compared with 51.9% in 1994. Productivity gains in manufacturing were offset
somewhat by lower gross margins due to pricing pressure in the United States. In
addition, including Corometrics in the product mix caused a decline in
consolidated gross margins.
Engineering expenses increased $8.3 million, or 37.0% in 1995 as compared with
1994. Approximately $6.3 million of the increase relates to engineering expenses
incurred by Corometrics and new product development. The increase in engineering
cost is also related
31
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
to the completion of the quadrupole project which was partially funded by NASA
on a cost-plus basis and the reassignment of those engineers to other internal
projects.
Selling expenses increased $22.7 million, or 36.3% in 1995 as compared with 1994
primarily as a result of selling expense incurred by Corometrics and the
addition of sales representatives to sell the Corometrics line direct in Europe.
General and administrative expenses increased $6.5 million, or 34.7% in 1995 as
compared with 1994. The majority of the increase is attributable to the
Corometrics acquisition, including $1.4 million in goodwill amortization.
Interest expense increased $2.7 million in 1995 as compared with 1994 due to the
additional debt incurred for the acquisition of Corometrics Medical Systems,
Inc. Significant cash flow from operations in 1995 and the liquidation of cash
equivalents enabled the Company to prepay approximately $30 million in
obligations related to the acquisition.
Other income decreased $0.4 million, or 80.8% in 1995 as compared with 1994 due
to a decrease in interest income as cash on hand in 1994 was used in the
Corometrics acquisition on June 1, 1994. This increased expense was offset to
some extent by foreign exchange losses in 1994 which did not recur in 1995.
The effective income tax rate increased to 37.0% in 1995 as compared with 33.9%
in 1994. The increase in the effective rate is attributable to an increase in
the effective state tax rate and decreased benefits associated with the
Company's Foreign Sales Corporation.
FINANCIAL OUTLOOK
In as much as the Company's principal product lines are all related to the
health care industry, they are subject to the current uncertainty surrounding
the industry including consolidation of hospital groups and a move towards
managed care. While the Company cannot predict the impact, if any, that such
modifications might have on its business, the Company's operating results are
closely linked to the healthcare economy. If revenue or earnings fail to meet
expectations of the investment community, there could be a significant impact on
the trading price for the Company's stock. Management believes the introduction
of new products will put the Company in a competitive position as the healthcare
economy's demand for new equipment increases. However, the Company's results of
operation in the future will be affected by conditions both in the healthcare
industry as well as conditions in the general economy, such as interest and
foreign currency
32
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
exchange rate fluctuations, changes in trade policy, and
recessionary periods.
Effective January 1, 1996, the Company acquired 100% of the outstanding stock of
E for M Corporation. This acquisition resulted in significant restructuring
charges before the end of the fiscal year as the combined companies are
reorganized. In addition to restructuring charges, the Company experienced
recurring additional charges with respect to interest expense, intangible
amortization and goodwill amortization.
LIQUIDITY AND CAPITAL RESOURCES
As of April 30, 1996, the Company had $14.5 million outstanding on lines of
credit of $20.0 million available for U.S. borrowings. In addition, the Company
had $14.3 million, U.S. dollar equivalent, in foreign currency loans outstanding
on lines of credit of $33.2 million for foreign currency borrowings. The foreign
currency loans were placed as a natural hedge against foreign currency
receivables.
Working capital was $133.2 million at April 30, 1996 compared to $100.4 million
at April 30, 1995. Total inventories and receivables increased $31.0 and $47.3
million, respectively, primarily due to the E for M acquisition. In addition,
the increase in accounts payable and accrued liabilities is primarily
attributable to the acquisition of E for M.
Capital expenditures during the year ended April 30, 1996 were $11.4 million,
primarily related to replacement and addition of machinery and equipment needed
for future business requirements. The capital purchases were funded with cash
from operations.
Effective January 1, 1996, the Company acquired 100% of the common stock of E
for M Corporation. E for M Corporation is an international medical equipment,
software and supplies company serving patient monitoring and cardiology, which
includes cardiac catheterization and electrophysiology laboratories. The cash
acquisition price of $90.3 million was funded by three term loans in the amounts
of $30.0 million each.
Each term note is payable in eight equal installments of $3.75 million each
beginning on April 30, 1997 and each October 31 and April 30, thereafter through
October 31, 2000. As of April 30, 1996, the Company had paid $9.0 million of the
debt, $3.0 million on each of the loans, through cash flow from operations. Each
note bears interest at a rate equal to the LIBOR Rate plus one percent, reset
monthly. At April 30, 1996 the rate was 6.4375% per annum. The Company intends
to pay the interest and retire the debt through the cash flow from operations.
The acquisition has been accounted for as a purchase and the excess of the
purchase price
33
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
over the fair value of net assets acquired has been allocated to goodwill. The
approximate value of such goodwill is $26.2 million. The Company expects to
amortize the goodwill over a life of 20 years. In addition, the Company acquired
intangible assets related to product technologies and tradenames with a value of
$12.7 million and $8.5 million, respectively. These intangibles will be
amortized over 7 years and 40 years, respectively.
On May 31, 1994, the Company acquired 100% of the common stock of Corometrics
Medical Systems, Inc., a manufacturer of fetal monitors and related products.
The acquisition price of $70.8 million was funded in part by two term loans in
the amount of $20.0 million and $25.0 million, a draw on the Company's line of
credit of $4.2 million and liquidation of investments in the amount of $21.6
million. Both term notes have been retired through cash flow from operations.
Management believes the Company has financial resources sufficient to meet its
short term and long term cash requirements. The current U.S. inflation rate has
little impact on company operations.
In 1995, the Financial Accounting Standards Board ("FASB") issued SFAS No. 123
"Accounting for Stock-Based Compensation." This statement will apply to fiscal
1997 and the Company will elect to disclose the required information in the
footnotes to the consolidated financial statements. In addition, FASB issued
SFAS No. 121 "Accounting for Impairment of Long-Lived Assets and for Long-Lived
Assets to be Disposed Of", in 1995. The Company does not believe that the
adoption of this statement on May 1, 1996 will have a material impact on the
financial position or results of operations of the Company.
34
<PAGE>
BOARD OF DIRECTORS
MICHAEL J. CUDAHY
Chairman
Marquette Electronics, Inc.
TIMOTHY C. MICKELSON
President
Marquette Electronics, Inc.
PETER P. TONG
Senior Advisor
Marquette Electronics, Inc.
FREDERICK G. LUBER
Chairman
Super Steel Products Corp.
MELVIN S. NEWMAN
Attorney
Schoenberg, Fisher & Newman, Ltd.
WALTER L. ROBB
Retired
Senior Vice President
General Electric Company
OFFICERS
MICHAEL J. CUDAHY
Chairman and Chief Executive Officer
TIMOTHY C. MICKELSON
President and Chief Operating Officer
MARY M. KABACINSKI
Vice President and Chief Financial Officer
GERALD G. WOODARD
Vice President, Sales and Marketing
LOUIS P. SCAFURI
Division President, Corometrics Medical Systems, Inc.
FREDERICK A. ROBERTSON
Division President, Patient Monitoring
STEVEN G. BOOKS
Division President, Cardiology
JAMES R. MERTENS
Division President, E for M Cath Lab
P. MICHAEL BREEDLOVE
Division President, E for M Imaging Systems
MARK STEGA
Division President, QMI Clinical
Information Systems
GERALD J. LENTZ
Division President, Service
KARL F. BRAUN
Vice President, Europe, Middle East,
Africa (EMEA)
GORDON W. PETERSEN
Secretary
MELVIN S. NEWMAN
Assistant Secretary
35
<PAGE>
GENERAL INFORMATION
The 1996 annual meeting of shareholders will be held at 9:00 a.m. local time on
Thursday, August 15, 1996 at the Company's principal offices, 8200 West Tower
Avenue, Milwaukee, WI 53223.
WORLD HEADQUARTERS:
Marquette Electronics, Inc.
8200 W. Tower Avenue
Milwaukee, WI 53223
INDEPENDENT PUBLIC ACCOUNTANTS:
Arthur Andersen LLP
Milwaukee, WI
LEGAL COUNSEL:
Schoenberg, Fisher & Newman, Ltd.
Chicago, IL
PRINCIPAL INTERNATIONAL SUBSIDIARIES AND OFFICES:
Marquette Electronics (Australia) Pty Ltd
Sydney, AUSTRALIA
Hellige Ges.m.b.H.
Vienna, AUSTRIA
Marquette Benelux n.v./s.a.
Brussels, BELGIUM
Marquette Electronics, Inc.
Asia Pacific District
Tokyo, Japan
Marquette Hellige S.A.S.
Paris, FRANCE
Hellige GmbH
Freiburg, GERMANY
Marquette Italia, Srl
Milano, ITALY
Marquette Espana S.A.
Madrid, SPAIN
Marquette Scandinavia
Stockholm, SWEDEN
Marquette Electronics (G.B.) Ltd.
Manchester, UNITED KINGDOM
STOCKHOLDER AND SECURITY ANALYST INQUIRIES AND REQUESTS FOR FORM 10-K SHOULD BE
DIRECTED TO:
Mary M. Kabacinski
Chief Financial Officer
Marquette Electronics, Inc.
8200 W. Tower Avenue
Milwaukee, WI 53223
(414) 362-2560
STOCK LISTING - SYMBOL MARQA:
Marquette Electronics, Inc. Class A Common Stock is listed on NASDAQ National
Market System.
TRANSFER AGENT/REGISTRAR:
Firstar Trust Company
777 E. Wisconsin Avenue
Milwaukee, WI 53202
The Company's Class A common stock, par value $0.10, is, and since November 1,
1991 has been, traded on the NASDAQ National Market System under the symbol
MARQA.
At July 1, 1996, Marquette had approximately 891 shareholders of record
(excluding beneficial owners of stock held in street names). Marquette has not
declared or paid dividends on its Class A common stock. The Company intends to
retain its earnings for use in its business and therefore does not anticipate
paying any cash dividends in the foreseeable future.
36
<PAGE>
GRAPHIC MATERIAL CROSS-REFERENCE PAGE
Graphs of the Registrant's Sales Revenue and Net Income between 1986 and 1996
appear on the inside cover
A photograph of Timothy C. Mickelson, President, and Michael J. Cudahy,
Chairman, appears on Page 3
A photograph of the Solar 9000 Anesthesia Information Monitor appears on the
left hand margin of Page 4
A photograph of a MUSE Cardiovascular Information System and an operator appears
in the lower right hand corner of Page 5
A photograph of the CardioSmart Resting ECG display appears in the margin of
Page 6
A photograph of a Patient Monitor appears in the lower left hand corner of Page
7
A photograph of a nurse observing a monitor appears in the margin of Page 8
A photograph of a patient, nurse and monitor appears in the upper right hand
corner of Page 9
A partial photograph of an ST Guard System appears in the lower left hand corner
of Page 10
A logo and photograph of Russian handicraft appears in the margin of Page 11
<PAGE>
EXHIBIT 21.1
MARQUETTE ELECTRONICS, INC.
Subsidiaries:
The Company subsidiaries are listed below:
STATE OR COUNTRY
----------------
NAME OF ORGANIZATION
---- ---------------
Marquette Electronics Anesthesia &
Respiratory Care Corp. Missouri
Marquette Leasing, Inc. Wisconsin
Marquette International, Ltd. Virgin Islands
Marquette Hellige UK, Ltd. England
Marquette Hellige Italia, SRL Italy
Marquette Hellige S.A.S. France
Marquette Benelux n.v./s.a. Belgium
Marquette Espana, S.A. Spain
Marquette (Australia) PTY, Ltd. Australia
Corometrics Medical System, Inc. Delaware
Hellige Ges.m.b.H. Austria
Hellige GmbH Germany
Hellige S.A.R.L. France
E For M Corporation Delaware
Vari X, Inc. California
<PAGE>
EXHIBIT 23.1
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
-----------------------------------------
As independent public accountants, we hereby consent to the
incorporation of our reports included (or incorporated by reference) in
this Form 10-K, into the Company's previously filed Registration Statements
File Nos. 33-46729, 33-98468 and 333-1334.
ARTHUR ANDERSEN LLP
/s/ Arthur Andersen LLP
Milwaukee, Wisconsin
July 24, 1996
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND> This schedule contains summary financial information extracted from
the registrant's financial statements as of and for year ended April 30, 1996
and is qualified in its entirety by reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> APR-30-1996
<PERIOD-START> MAY-01-1995
<PERIOD-END> APR-30-1996
<CASH> 2,890
<SECURITIES> 0
<RECEIVABLES> 144,885
<ALLOWANCES> 6,430
<INVENTORY> 106,168
<CURRENT-ASSETS> 260,960
<PP&E> 150,602
<DEPRECIATION> 53,826
<TOTAL-ASSETS> 431,718
<CURRENT-LIABILITIES> 127,763
<BONDS> 81,254
<COMMON> 1,606
0
0
<OTHER-SE> 146,319
<TOTAL-LIABILITY-AND-EQUITY> 431,718
<SALES> 416,293
<TOTAL-REVENUES> 416,293
<CGS> 214,947
<TOTAL-COSTS> 214,947
<OTHER-EXPENSES> 213,123
<LOSS-PROVISION> 817
<INTEREST-EXPENSE> 4,386
<INCOME-PRETAX> (16,980)
<INCOME-TAX> 7,888
<INCOME-CONTINUING> (24,868)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (24,868)
<EPS-PRIMARY> (1.53)
<EPS-DILUTED> (1.53)
</TABLE>
