U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-KSB/A
[X] AMENDMENT NO. 3 TO ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the Fiscal Year Ended March 31, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission file number: 0-15967
EFI ELECTRONICS CORPORATION .
(Exact name of small business issuer as specified in its charter)
Delaware 75-2072203
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
1751 South 4800 West, Salt Lake City, Utah
84104 (Address of principal executive
offices)
Registrant's telephone number, including area code: (801) 977-9009
Securities registered pursuant to Section 12(b) of the Act:
Title of each class Name of each exchange on which registered
None n/a
Securities registered pursuant to Section 12(g) of the Act:
COMMON STOCK, $.0001 PAR VALUE
Check 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 past
twelve 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. [X] Yes [ ] No
Check if there is no disclosure of delinquent filers pursuant to Item 405 of
Regulation S-B contained in this form, and no disclosure will 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-KSB or any
amendment to this Form 10-KSB. [X]
Issuer's revenues for its most recent fiscal year: $ 16,372,366
Aggregate market value of the voting stock (which consists solely of shares of
$.0001 par value common stock) held by non-affiliates of the registrant as of
June 10, 1998, computed by reference to the closing sale price of the
registrant's common stock as reported by the NASDAQ Stock Market (Small Cap) on
such date: $ 4,255,996
Number of shares of the registrant's common stock outstanding at June 10, 1998:
5,554,644
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the registrant's Proxy Statement relating to the Annual Meeting of
Shareholders held on July 29, 1998 are incorporated by reference in Part III of
this report.
Part II, Items 6 and 7 of the Company's Annual Report are hereby amended to
revise financial statements and disclosures related to the valuation of the
Company's acquisition of EFI Electronics Europe, SL and correction of an error
in valuing inventory.
Table of Contents
Part II: Items 6, 7.......................................................3-21
Part III: Items 9, 10, 11, 12...............................................22
Signature Page..............................................................23
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Item 6. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Selected Financial Data
The following Selected Financial Data should be read in conjunction with
Management's Discussion and Analysis of Financial Condition and Results of
Operations, and the consolidated financial statements and accompanying notes
appearing in this report.
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For the years ended March 31, 1998 1997
Consolidated Statement of Operations Data:
Net Sales $ 16,372,366 $ 13,759,812
Cost of Sales 11,037,479 9,212,891
Gross profit 5,334,887 4,546,921
Operating expenses 4,944,065 4,685,190
Earnings/(loss) from operations 390,882 (138,269)
Other expense, net (607,173) (302,491)
Loss before income taxes (216,351) (440,760)
Provision for income taxes (29,400) (33,895)
Net loss $ (245,751) $ (474,655)
Net loss per share
Basic $ (0.05) $ (0.12)
Diluted $ (0.05) $ (0.12)
1998 1997
Consolidated Balance Sheet Data:
Working capital (deficit) $ 346,662 $ (209,609)
Total assets 10,276,694 7,382,350
Long term debt 1,248,580 1,048,000
Total liabilities 7,710,589 6,682,967
Stockholders' equity 2,566,105 699,383
Current ratio 1.05 to 1 .96 to 1
Total liabilities to net worth 3.0 to 1 9.6 to 1
Consolidated Results of Operations:
The following table sets forth certain operational data as a percentage
of sales for the past two fiscal years: 1998 1997
Net sales 100.00% 100.00%
Cost of sales 67.42 66.96
Gross profit 32.58 33.04
Operating expenses 30.19 34.05
Earnings/(loss) from operations 2.39 (1.01)
Other expense, net (3.71) (2.20)
Loss before income taxes (1.32) (3.21)
Income taxes (0.18) (0.24)
Net loss (1.5)% (3.45)%
</TABLE>
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Item 6. Management's Discussion and Analysis of Financial Condition and
Results of Operations (continued)
Results of Operations
Net Sales for the year ended March 31, 1998, increased by $2.6 million (19%)
compared to the prior year. This increase in revenue is a result of the
Company's focus on expanding its international and utility markets. In addition,
the Company experienced strong growth in government business.
Revenue from international customers increased by $1.3 million in fiscal year
1998 as compared to the prior year. This increase was evenly spread across
Asian, Latin American and European customers. With the acquisition of 50% of the
ownership not previously held by the Company in EFI Electronics Europe, SL, a
Spanish entity, as of January 1, 1998, revenue from international customers is
expected to continue increasing substantially and become a significant portion
of the Company's business. As a result of the economic conditions in Asia,
management expects existing business in this area to be stable or slightly down
in the short term; however, new opportunities should cause this geographical
area to continue to grow.
Sales to utility-based distributors increased by $700 thousand from year to year
Several utility companies launched non-power, revenue-generating programs during
1998. TVSS protection for utility customers is one such program that utilities
are focusing on. Although such programs may have significant long-term potential
management is uncertain as to the commitment and marketing expertise that
utility customers will have for such programs over time.
Government sales increased by $600 thousand as compared to the prior year. Most
of this increase occurred in new, multi-year contracts for the FAA and Social
Security Administration.
Distribution and OEM sales for the year increased only slightly over fiscal year
1997. As a result of a long-term supply agreement executed in August 1997, with
Hubbell, Incorporated, a diversified manufacturer of electrical products, the
Company ceased selling to its electrical distribution customers on January 1,
1998. The Company has given Hubbell the exclusive right to sell Company products
into electrical distribution because of its significant presence in this
channel. This has caused and will continue to cause a short-term decrease in
revenue from this channel as Hubbell establishes its presence in electrical
distribution with TVSS products.
Gross Profit on sales for the year ended March 31, 1998, increased by $788
thousand (17%) compared to the year ended March 31, 1997, relating to the
corresponding increase in sales. As a percentage of sales, gross profit remained
unchanged from year to year. This margin percentage improvement was a result
of significant increases in international sales, which have much higher
than average margins. In addition, the mix of government sales shifted toward
hardwire products, which also have greater than average margins.
Operating Expenses increased by $259 thousand during the 1998 fiscal year
compared to the year ended March 31, 1997. Research and development costs
increased by $365 thousand for the current fiscal year. Effective February 15,
1998, Underwriters Laboratories implemented a new standard for TVSS products,
with which the Company must comply. As of the date of this report, the Company
has re-certified nearly 250 variations of 50 different products. The costs for
design, prototyping and fees at UL to complete this re-certification exceeded
$300 thousand. Simultaneously, the Company introduced an entire new hardwire
product line in conjunction with its agreement with Hubbell. This line of
products includes six new product categories.
Selling, general and administrative costs increased by $88 thousand over the
prior year. This increase was the result of several factors. During the year,
the Company:
relocated and consolidated its facilities ($ 111 thousand) relocated a
key executive from Florida to Utah ($ 36 thousand) re-established a key
employee incentive program based on profitability
($ 168 thousand)
Item 6. Management's Discussion and Analysis of Financial Condition and
Results of Operations (continued)
These increases were offset by decreases in several areas such as legal, audit,
investor public relations, postage and equipment repair.
In fiscal 1997, the Company wrote off its investment in a discontinued software
activity in the amount of $135 thousand. This unusual item did not recur in
fiscal 1998.
Bad debt provision decreased $59 thousand in the current year as compared to the
prior year. In fiscal 1997, a significant customer declared bankruptcy, which
caused the Company to increase its reserve requirement. During the current
fiscal year, the Company experienced only minor losses from customer
collections.
Other Income/Expense increased to $(607) thousand for the year ended March 31,
1998 compared to $(302) thousand for the year ended March 31, 1997. This
increase was the result of an increase in interest expense ($154 thousand) and a
reduction in equity in earnings of joint venture ($156 thousand) related to the
acquisition of EFI Electronics Europe, SL.
Net Loss of $246 thousand in the current year is a $229 thousand improvement
from the net loss of $475 thousand incurred in the year ended March 31, 1997.
This improvement resulted from an increase in gross profit of $788 thousand
offset by a $259 thousand increase in operating expenses and an increase in
other expenses of $305 thousand. In the fourth quarter of the current fiscal
year, the Company experienced a loss of $412 thousand. This is not
necessarily indicative of a reversal of the earnings trend experienced in the
first three quarters of the current year. As discussed above, expenses
required to comply with a new UL standard significantly impacted the Company's
performance during the fourth quarter. The majority of these expenses
occurred in the fourth quarter and are not expected to recur.
Liquidity and Capital Resources
Cash used in operating activities - the Company used $614 thousand cash in
operating activities during fiscal 1998 compared to $1.5 million in fiscal 1997.
The most significant areas that affected the use of the Company's cash for
operations are described below:
Net earnings for fiscal year 1998 improved over fiscal 1997 by $229
thousand, thereby eliminating the use of cash to fund the significant loss
incurred in fiscal 1997.
Receivables increased by $991 thousand (32%) during the current fiscal
year primarily as a result of an increase in sales and the consolidation of
receivables from the purchase of EFI Electronics Europe, SL. Past due accounts
as a percentage of trade receivables decreased substantially during the current
year as a result of aggressive collection efforts and more restrictive credit
policies.
Inventories increased by $365 thousand (15%) during fiscal 1998. This
increase is related to increasing sales and the consolidation of inventory from
the purchase of EFI Electronics Europe, SL.
Accounts payable increased $453 thousand during the current fiscal year
compared to a reduction of $931 thousand in accounts payable in fiscal 1997.
Cash used in investing activities was $1.0 million in the current fiscal year
compared to $385 thousand in the prior year. This was primarily the result of
investments in tooling for a new line of hardwire products and furnishings and
leasehold improvements related to the Company's move into new facilities.
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Item 6. Management's Discussion and Analysis of Financial Condition and
Results of Operations (continued)
Cash provided by financing activities was $1.6 million in fiscal 1998 compared
to $1.8 million in fiscal 1997. During the current fiscal year, the Company
received $1.7 million in cash from Hubbell Incorporated in exchange for
1,054,044 shares of the Company's common stock. This infusion was coincident
with execution of a long-term supply agreement with Hubbell to sell Company
products into electrical distribution channels. This infusion allowed the
Company to improve its working capital by nearly $1 million and to purchase
tooling and other property. In addition, the Company also negotiated a note
payable for the purchase of an axial tab inserter essential in maintaining the
Company's market strategies.
Outlook
During fiscal 1998, the Company negotiated two long-term exclusive supply
agreements with customers who are channel leaders which may generate significant
revenue and income. The impact of these agreements is expected to positively
affect the results of Company operations beginning in fiscal year 1999, since
both of these companies have significant access to TVSS markets. In addition,
during fiscal 1998 the Company received a cash infusion of $1.7 million from
Hubbell that improved its working capital position and allowed completion of
tooling and other investments to support expansion of the Company's product
lines. Relationships with suppliers and lenders are presently satisfactory.
Management believes the Company can fund its operations during fiscal 1999 from
financing arrangements in place and internally generated cash flows.
This report contains certain forward looking statements with respect to the
Company that are subject to risks and uncertainties that include, but are not
limited to, those identified in this report, described from time to time in the
Company's other Securities and Exchange Commission filings or discussed in the
Company's press releases. Actual results may vary from expectations.
Other Items
The Company's activities have not been, and in the near term are not expected to
be, materially affected by inflation or changing prices in general.
The Company has addressed issues regarding Year 2000 (Y2K) compliance. The
Company's current software information systems are not Y2K compliant. However,
the Company has contracted with a global supplier of enterprise management
software to install an information system that will comply with Y2K
requirements. Compliance with Y2K requirements is estimated to cost the Company
$300,000 in fiscal year 1999 capital expenditures amortized over 3-7 years. In
addition, significant internal resources will be diverted to this project for a
period of 9-12 months. These costs are not expected to have a material effect on
the Company in any given period. Implementation of this system is expected to be
complete by December 1998. During fiscal year 1998, the Company also evaluated
its computer and telecommunications hardware for Y2K compliance and has upgraded
all of its systems to be compliant. In addition, the Company has taken steps to
ensure that its banking and lending relationships are with Y2K compliant
financial institutions. During fiscal 1999, the Company will work with its major
customers and suppliers to ensure that Y2K compliance issues will not interrupt
the normal activities supported by these relationships.
Item 7. Financial Data
Index to Consolidated Financial Statements
Item Page Item Page
Report of Independent Accountants 7 Statements of Cash Flows 10-11
Statements of Operations 8 Statements of Stockholders' Equity 12
Balance Sheets 9 Notes to Financial Statements 13-21
Report of Independent Accountants
To the Stockholders and Board of Directors of EFI Electronics Corporation:
We have audited the accompanying consolidated balance sheets of EFI Electronics
Corporation and Subsidiary as of March 31, 1998 and 1997, and the related
consolidated statements of operations, stockholders' equity, and cash flows for
the years then ended. 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 audits to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of EFI Electronics
Corporation and Subsidiary as of March 31, 1998 and 1997, and the results of
their operations and their cash flows for the years then ended in conformity
with generally accepted accounting principles.
/s/ Grant Thornton LLP
Salt Lake City, Utah
May 15, 1998
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[GRAPHIC OMITTED] EFI Electronics
Item 7. Financial Data (continued)
Consolidated Statements of Operations
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<CAPTION>
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For the years ended March 31, 1998 1997 Notes
Net sales $ 16,372,366 $13,759,812 1,12
Cost of sales 11,037,479 9,212,891
Gross profit 5,334,887 4,546,921
Operating expenses:
Selling, general and administrative 4,006,339 3,918,240
Research and development 917,726 552,458 1
Unusual item -0- 135,375 8
Bad debts 20,000 79,117 2
Total operating expenses 4,944,065 4,685,190
Earnings / (loss) from operations 390,822 (138,269)
Other income/(expense):
Equity in (loss) / earnings of joint venture (3,936) 151,818 14
Other, net 4,858 106
Interest expense (608,095) (454,415) 5,6
(607,173) (302,491)
Loss before income taxes (216,351) (440,760)
Provision for income taxes (29,400) (33,895) 1,9
Net Loss $ (245,751) $ (474,655) 11,15
Loss per share:
Basic $ (0.05) $ (0.12) 1,11,16
Diluted (0.05) (0.12) 1,11,16
Weighted average shares outstanding:
Basic 4,903,596 3,815,016 1,11
Diluted 4,903,596 3,815,016 1,11
</TABLE>
The accompanying notes are an integral part of these financial statements
Item 7. Financial Data (continued)
<TABLE>
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<S> <C> <C> <C>
Consolidated Balance Sheets
As of March 31, 1998 1997 Notes
Assets
Current assets:
Cash and cash equivalents $ 9,566 $ 10,123
Receivables 3,981,682 3,010,255 2,6
Inventories 2,726,606 2,362,189 3,6
Prepaid expenses 90,817 42,791
Total current assets 6,808,671 5,425,358
Property - net 2,539,290 1,658,901 4,6
Other assets:
Investment in EFI Electronics Europe -0- 209,219 14
Goodwill 866,603 -0- 1,14
Other assets 62,130 88,872
Total other assets 928,733 298,091
Total assets $ 10,276,694 $ 7,382,350
Liabilities
Current liabilities:
Revolving line of credit $ 3,472,935 $ 3,198,381 6
Current maturities of capital
lease obligations 159,242 -0- 5
Current maturities of notes payable 681,690 531,690 6
Accounts payable 1,595,440 1,142,637
Reserve for customer warranty 258,405 293,992 1
Accrued income taxes payable -0- 113,309 9
Accrued liabilities 294,297 354,958
Total current liabilities 6,462,009 5,634,967
Long-term liabilities:
Capital lease obligations,
less current maturities 353,498 -0- 5
Notes payable, less current maturities 895,082 1,048,000 6
Total long-term liabilities 1,248,580 1,048,000
Total liabilities 7,710,589 6,682,967
Commitments - - 5,7
Stockholders' Equity
Common stock, $.0001 par value; 20,000,000 shares
authorized; 5,504,644 and 4,216,174 shares issued
and outstanding in 1998 and 1997, respectively 551 422 1,11
Additional paid-in capital 3,045,139 926,925
Cumulative foreign currency
translation adjustment (5,870) -0- 1
Retained earnings (263,715) (17,964)
Less:
Stock subscriptions and note receivable
from management and employees (210,000) (210,000) 10
Total stockholders' equity 2,566,105 699,383
Total liabilities and
stockholders' equity $ 10,276,694 $ 7,382,350
</TABLE>
The accompanying notes are an integral part of these financial statements.
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[GRAPHIC OMITTED] EFI Electronics
Item 7. Financial Data (continued)
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Consolidated Statements of Cash Flows
For the years ended March 31, 1998 1997
Cash flows from operating activities:
Net loss $ (245,751) $ (474,655)
Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation 619,250 682,685
Amortization 46,178 60,907
Loss on property dispositions 102,695 -0-
Provision for obsolete inventory 75,000 58,305
Equity in loss/(earnings) of joint venture 3,936 (151,818)
Write-off NRS software asset -0- 135,375
Provision for bad debts 20,000 79,117
Increase/(decrease) in cash due to change in:
Receivables (991,427) (436,001)
Inventories (439,417) (447,871)
Prepaid expenses (48,026) (7,339)
Accounts payable 452,803 (931,223)
Accrued income taxes payable (113,309) 38,309
Reserve for customer warranty (35,587) (98,837)
Accrued liabilities (60,661) 40,350
Net cash used in operating activities (614,316) (1,452,696)
Cash flows from investing activities:
Capital expenditures (1,080,793) (445,128)
Purchase of EFI Electronics Europe, S.L. (125,000) -0-
Proceeds from sale of property 61,896 -0-
Distribution from joint venture 147,880 60,304
Increase in other assets (19,436) (41)
Net cash used in investing activities (1,015,453) (384,865)
Cash flows from financing activities:
Net borrowings under line of credit 274,554 970,791
Proceeds from borrowings under notes payable 205,000 704,800
Principal payments under capital lease obligations (70,697) -0-
Principal payments under notes payable (482,918) (337,575)
Proceeds from issuance of common stock 1,695,356 498,500
Proceeds from exercise of stock options 13,787 2,650
Net cash provided by financing activities 1,635,082 1,839,166
Effect of exchange rate changes on cash (5,870) -0-
Net (decrease)/increase in cash and cash equivalents (557) 1,605
Cash and cash equivalents at beginning of year 10,123 8,518
Cash and cash equivalents at end of year $ 9,566 $ 10,123
</TABLE>
The accompanying notes are an integral part of these financial statements.
-continued-
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[GRAPHIC OMITTED] EFI Electronics
Item 7. Financial Data (continued)
Consolidated Statements of Cash Flows (continued)
Supplemental disclosures of cash flow information
For the years ended March 31, 1998 1997
Cash paid during the year for
Income taxes $ 113,309 $ 29,000
Interest 539,215 423,317
Supplemental schedule of non-cash investing and financing activities:
1998 The Company acquired all of the remaining outstanding shares of EFI
Electronics Europe, S.L. on January 1, 1998, in exchange for $125,000
cash, notes payable of $275,000 and 220,000 shares of the Company's
common stock valued at $1.86 per share. The Company recorded goodwill
of $866,603 on the acquisition.
The Company retired $602,273 of fully depreciated fixed assets.
The Company has entered into capital lease obligations for the
acquisition of equipment in the amount of $583,437.
1997 The Company issued 93,276 shares of common stock and retired 362,156
shares of treasury stock to retire subordinated debt and accrued
interest in the amount of $521,835.
The Company retired $142,776 of fully depreciated fixed assets.
The accompanying notes are an integral part of these financial statements.
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[GRAPHIC OMITTED] EFI Electronics
Item 7. Financial Data (continued)
Consolidated Statements of Stockholders' Equity
For the years ended March 31, 1998 and March 31, 1997
<TABLE>
<CAPTION>
<S> <C> <C>
Cumulative
Stock Foreign
Subscriptions Additional Currency
and Note Common Stock Paid-in Translation
Retained Shares Amount Capital Adjustment
Earnings Receivable Shares Amount Total
Balance at April 1, 1996 3,535,978 $ 354 $ 816,546 $ -0-
as previously reported
$ 791,772 $ (150,000) 362,156 $ (972,538) $ 486,134
Prior period adjustment -0- -0- -0- -0-
(note 17)
(335,081) -0- -0- -0- (355,081)
Balance at April 1, 1996 3,535,978 354 816,546 -0-
as Restated
456,691 (150,000) 362,156 (972,538) 151,053
Common stock issued to retire debt
(455,432 shares at $1.15 per share);
shares removed from treasury stock
at a cost of $2.69 per share 93,276 9 (450,712) -0-
- -0- -0- (362,156) 972,538 521,835
Common stock issued for cash
at $0.90 per share 383,334 38 344,962 -0- -0-
(60,000) -0- -0- 285,000
Common stock issued for cash
at $1.05 per share 195,686 20 205,980 -0- -0-
- -0- -0- -0- 206,000
Common stock issued to retire
accounts payable debt at $1.39
per share 5,400 1 7,499 -0- -0-
- -0- -0- -0- 7,500
Exercise of stock options
at $1.06 per share 2,500 -0- 2,650 -0- -0-
- -0- -0- -0- 2,650
Net loss -0- -0- -0- -0- (474,655)
- -0- -0- -0- 474,655)
Balance at March 31, 1997 4,216,174 422 926,925 -0- (17,964)
(210,000) -0- -0- 699,383
Common stock issued for cash
At $1.69 1,054,044 105 1,695,251 -0- -0-
- -0- -0- -0- 1,695,356
Exercise of stock options at
$1.06 per share 3,484 1 2,609 -0- -0-
- -0- -0- -0- 2,610
Exercise of stock options at
$1.25 per share 942 -0- 1,177 -0- -0-
- -0- -0- -0- 1,177
Exercise of stock options at
at $1.00 per share 10,000 1 9,999 -0- -0-
- -0- -0- -0- 10,000
Common stock issued for
purchase of joint venture
at $1.86 per share 220,000 22 709,178 -0- -0-
- -0- -0- -0- 409,200
Foreign currency translation
adjustment -0- -0- -0- (5,870) -0-
- -0- -0- -0- (5,870)
Net loss -0- -0- -0- -0- (245,751)
- -0- -0- -0- (245,751)
Balance at March 31, 1998 5,504,644 $ 551 $ 3,045,139 $ (5,870) $ (263,715)
$ (210,000) -0- $ -0- $2,566,105
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE>
Item 7.Financial Data (continued)
Notes To Consolidated Financial Statements
Note 1 The Company and Summary of Significant Accounting Policies:
EFI Electronics Corporation ("EFI" or the "Company") is a Delaware corporation
that manufactures and sells transient voltage surge suppression ("TVSS")
products both domestically and internationally. The accounting policies of the
Company conform to generally accepted accounting principles. The following is a
summary of the most significant of such policies:
Principals of consolidation--On January 1, 1998, the Company purchased all of
the remaining outstanding common stock of EFI Electronics Europe S.L., a company
incorporated in Spain in July 1993 as a 50% owned joint venture, engaged in the
sale of TVSS panel products to European distributors and machine tool
manufacturers. Prior to acquiring all of the outstanding common stock, the
Company's equity in earnings and investment from this operation were translated
into US Dollars at the rate of exchange as of March 31, 1997 and December 31,
1997, which approximated the average rate during the year. Foreign exchange
gains or losses have not been material. Beginning January 1, 1998, the financial
results of this operation have been consolidated into the financial results of
the Company.
Inventories--Raw materials are stated at the lower of cost (using standard costs
which approximate a first-in, first-out basis) or market. Work-in-process and
finished goods are stated at the lower of average cost or market.
Property--Property is stated at cost and depreciated on the straight-line method
over the 3- to 10-year lives of assets. Gains and losses on disposal of property
are accounted for and disclosed separately on the statement of operations.
Income taxes--The Company utilizes the liability method of accounting for income
taxes. Under the liability method, deferred tax assets and liabilities are
determined based on differences between financial reporting and tax bases of
assets and liabilities and are measured using the enacted tax rates and laws
that will be in effect when the differences are expected to reverse. An
allowance against deferred tax assets is recorded when it is more likely than
not that such tax benefits will not be realized. Research tax credits are
recognized as utilized.
Cash and cash equivalents--The Company considers all interest-bearing deposits
with an original maturity date of three months or less when purchased to be cash
equivalents.
Revenue recognition--Revenue is recognized generally when product is shipped
and/or services are performed.
Concentration of credit risk--The Company's financial instruments that are
exposed to concentrations of credit risk consist primarily of cash, cash
equivalents and trade receivables. Cash and cash equivalents are placed with
federally insured financial institutions. These balances are generally not
significant since they are transferred to reduce the Company's revolving line of
credit on a daily basis. The Company sells to a wide variety of customers
operating in several different markets and industries including domestic
companies engaged in electrical distribution, computer distribution, office
products dealers, the U.S. Government and large private label accounts.
Foreign currency translation--The asset and liability accounts of EFI
Electronics Europe, S.L., which were originally recorded in Spanish Pesetas, are
translated for financial consolidation and reporting purposes into U.S. Dollar
amounts at period-end rates of exchange. Revenue and expense accounts are
translated at the average daily rates during the period. Transaction gains and
losses, the amounts of which are not material, are included in other income and
expense. Foreign currency translation adjustments are accumulated as a separate
component of stockholders' equity.
Goodwill--The excess cost of subsidiary stock over book value is being amortized
by the straight-line method over a period of seven years. The Company reviews
goodwill annually to assess recoverability. Impairment would be recognized in
operating results if expected future operating undiscounted cash flows of the
acquired subsidiary are less than the carrying value of goodwill.
Estimates--The preparation of consolidated financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect reported amounts of assets, liabilities,
revenues and expenses during the reporting period. Estimates also affect the
disclosure of contingent assets and liabilities at the date of the financial
statements. Actual results could differ from these estimates.
Item 7. Financial Data (continued)
Note 1 The Company and Summary of Significant Accounting Policies (continued)
Research and development--The Company conducts research and development to
develop new products or product improvements not directly related to a specific
project.Research and development costs have been charged to expense as incurred.
Common stock-- The Company follows the practice of recording amounts received
upon the exercise of options by crediting common stock and additional paid-in
capital. No charges are reflected in the consolidated statements of operations
as a result of the grant or exercise of stock options. The Company realizes an
income tax benefit from the exercise of certain stock options. This benefit
results in a decrease in current income taxes payable and an increase in common
stock and additional paid-in capital.
Earnings per share-- basic earnings per common share are based on the weighted
average number of common shares outstanding during each period.Diluted earnings
per common share are based on shares outstanding (computed as under basic EPS)
and potentially dilutive common shares. Potential common shares included in the
dilutive earnings per share calculation include stock options and warrants
granted.
Reclassifications--Certain reclassifications have been made to the 1997
financial statements to conform with the 1998 presentation.
Product warranty and product returns--The Company offers replacement product
warranties ranging from 5 years to lifetime. It also allows return of EFI
branded product that is not obsolete for a restocking charge of up to 25%. It
does not allow return of custom, OEM or private label products. In addition, the
Company offers warranties on certain of its plug-in products to repair or
replace equipment that is plugged into Company products that is damaged by
electrical disturbances. The Company maintains warranty reserves for possible
future claims arising out of each of these contingencies that are based on
historical trends.
Note 2 Receivables:
At March 31, 1998 and 1997, receivables consist of the following:
1998 1997
Trade and other receivables $ 4,026,047 $ 3,124,292
Receivable from joint venture -0- 234,340
4,026,047 3,358,632
Less allowance for doubtful accounts (44,365) (348,377)
Total $ 3,981,682 $ 3,010,255
In 1997, the allowance for doubtful accounts increased due to the insolvency of
one of the Company's large customers. As of March 31, 1997, the allowance
included $317,759 for this account. During fiscal 1998, the Company wrote this
account off to the allowance for doubtful accounts.
Note 3 Inventories:
At March 31, 1998 and 1997, inventories consist of the following:
1998 1997
Raw materials $ 1,937,961 $ 1,522,012
Work-in-process 269,732 397,417
Finished goods 593,913 501,065
2,801,606 2,420,494
Less allowance for obsolete inventory (75,000) (58,305)
Total $ 2,726,606 $ 2,362,189
Item 7. Financial Data (continued)
Note 4 Property:
At March 31, 1998 and 1997, property consisted of the following:
<TABLE>
<CAPTION>
<S> <C> <C> <C>
1998 1997 Life (Years)
Machinery and equipment $ 4,843,313 $ 4,058,085 3 - 10
Furniture and fixtures 460,401 157,620 5 - 10
Leasehold improvements 85,968 131,572 5 - 10
Software 222,350 191,207 3 - 5
5,612,032 4,538,484
Less accumulated depreciation (3,072,742) (2,879,583)
Property--net $ 2,539,290 $ 1,658,901
</TABLE>
Included in the above total as of March 31, 1998, are assets with a cost of
$1,502,788 which are fully depreciated and still in service. During fiscal 1998
and fiscal 1997, the Company retired assets that were fully depreciated, with a
cost of $602,273 and $142,776, respectively.
Note 5 Capital Lease Obligations:
Maturities of capital lease obligations at March 31, 1998, consist of the
following:
Fiscal year ended March 31,
1999 $ 211,350
2000 212,253
2001 157,756
2002 31,643
Thereafter -0-
Total minimum lease payments 613,002
Less: amounts representing interest (100,262)
Present value of net minimum lease payments 512,740
Less: current maturities (159,242)
$ 353,498
Included in property is $618,208 of equipment under capital leases at March 31,
1998, The related accumulated amortization is $34,930 (None in 1997).
Note 6 Notes Payable and Revolving Line of Credit:
At March 31, 1998 and 1997, notes payable and revolving line of credit, the
carrying value of which approximates fair value, consisted of the following:
1998 1997
Revolving line of credit $ 3,472,935 $ 3,198,381
Notes payable:
Collateralized promissory note $ 848,695 $ 1,040,000
Uncollateralized subordinated note-director 300,000 500,000
Collateralized promissory note-machinery 174,247 -0-
Uncollateralized note - acquisition 253,830 -0-
Uncollateralized note to former officer -0- 39,690
1,576,772 1,579,690
Less current maturities of notes payable (681,690) (531,690)
Total notes payable less current maturities $ 895,082 $ 1,048,000
Item 7. Financial Data (continued)
Note 6 Notes Payable and Revolving Line of Credit (continued)
The revolving line of credit in place at March 31, 1998, provides for borrowings
up to $3,700,000 collateralized by accounts receivable and inventories. Interest
is payable monthly at a rate of prime (8.50% as of March 31, 1998) plus 2.5%.
Principal payments are made as cash is received from customers for accounts
receivable. Borrowings are based on formulas involving balances of accounts
receivable, inventories and certain ineligible amounts. The line of credit
agreement expires in March 2000.
At March 31, 1998, the revolving line of credit contains certain financial
covenants, including, but not limited to, provisions that the Company maintain
certain levels of net worth, achieve certain results of operations, meet certain
financial ratios, and restrict the amount of capital expenditures. At times
throughout the year, including March 31, 1998, the Company has been in violation
of certain of these covenants. The Company has received appropriate waivers for
all covenants in violation pertaining to this line of credit.
The collateralized promissory note is collateralized by the Company's property.
Interest is payable monthly at a rate of prime (8.50% as of March 31, 1998) plus
0.75%. The total monthly payment (principal and interest) equals $23,500.
The balance of the note is due October 1, 2001.
The uncollateralized promissory note-director is payable to a major shareholder
and director of the Company. Interest is at a rate of 12% per annum. Interest is
paid monthly, with scheduled principal payments made once a quarter. All unpaid
principal and interest are due on March 31, 1999. The note is subordinated to
the revolving line of credit.
The collateralized promissory note-machinery is collateralized by manufacturing
equipment. Interest is payable monthly at a rate of prime (8.50% as of March 31,
1998) plus 2.5%. Principal payments of $3,417 are made monthly. The balance of
the note is due March 31, 2000.
The uncollateralized promissory note-acquisition is payable to the previous 50%
owner of EFI Electronics Europe, S.L. Interest is at a rate of prime (8.50% as
of March 31, 1998). Principal and interest payments of $12,500 are made monthly.
The balance of the note is due December 31, 1999.
The uncollateralized note to former officer was issued in September 1994, in the
amount of $117,250 in exchange for an agreement not to compete. The note does
not provide for any interest. It was fully paid during fiscal year 1998.
Minimum principal payments on notes payable are as follows:
Fiscal year ending March 31,
1999 $ 681,690
2000 484,781
2001 251,762
2002 158,539
Thereafter -0-
Total $ 1,576,772
Note 7 Lease Obligations:
The Company leases its principal facilities in the U.S. and Spain through
October 2009 and December 2002, respectively. Monthly lease payments are $23,567
plus taxes, insurance and maintenance. Rental expense for 1998 and 1997 was
$268,155 and $184,656, respectively.
Note 8 Unusual Item
In January 1995, EFI established a new business group named Network Response
Systems ("NRS") and acquired the necessary software to
provide a service that monitors power and several other conditions that can
exist on servers in a local area network ("LAN") system. In spite of apparent
user interest, management determined that the Company did not have sufficient
financial resources to develop a significant market in this area. The Company
decided to devote greater emphasis on increasing the TVSS part of its business.
Therefore, during the year ended March 31, 1997, in an effort to reduce
operating expenses the Company wrote off all costs associated with NRS,
including the unamortized software costs in the amount of $135,375.
Item 7. Financial Data (continued)
Note 9 Income Taxes:
The (provision for)/ benefit from income taxes for the years ended March 31,
1998 and 1997, consisted of the following:
1998 1997
Current
Federal $ -0- $ (33,895)
State (7,197) -0-
Foreign (22,203) -0-
(29,400) (33,895)
Deferred -0- -0-
Total $ (29,400) $ (33,895)
The reported (provision for)/benefit from income taxes is different than the
amount computed by applying the statutory federal income tax rate of 34% to the
earnings/(loss) before income taxes as follows:
1998 1997
(Expense)/benefit at statutory rates $ 73,600 $ 150,000
Increase in valuation allowance (95,900) (155,000)
State income taxes (200) 14,000
Assessment for prior year's taxes (7,200) (33,895)
Difference between U.S.
statuatory rate and foreign rate 11,100 -0-
Non-deductible items (10,800) (9,000)
Total $ (29,400) $ (33,895)
In accordance with SFAS No. 109, the deferred tax assets and liabilities as of
March 31, 1998 and March 31, 1997, are comprised of the estimated future tax
(provision)/benefit due to different financial reporting and income tax basis
related to:
1998 1997
Deferred tax assets:
Net operating loss
carry-forward $ 1,575,000 $ 1,418,000
Research and development
credit carry-forwards 30,000 30,000
Asset reserves and accrued
liabilities 197,000 333,000
Total deferred tax assets 1,802,000 1,781,000
Deferred tax liabilities:
Depreciation (41,000) (99,000)
Valuation allowance (1,761,000) (1,682,000)
Net deferred tax liability $ -0- $ -0-
The Company has concluded that since it is uncertain as to whether the Company
will be able to recognize the benefit of its operating loss and research and
development credit carry-forwards, a full valuation allowance should be
provided. At March 31, 1998, the Company had net operating loss carry-forwards
of approximately $4,224,000 and research and development credit carry-forwards
of approximately $30,000. The net operating loss carry-forwards expire in the
years 2010 and 2011 and the research and development credits expire from 2006 to
2010.
Note 10 Related Party Transactions:
In addition to the note payable discussed in Note 6, as of March 31, 1998, the
Company held two notes receivable from an officer of the Company. These notes
receivable bear interest at the Fed Funds rate (5.37% as of March 31, 1998 and
8.50% prime rate at March 31, 1997). The first note in the amount of $150,000 is
secured by 100,000 shares of Company common stock and is due in full by the
earlier of 60 days after termination of employment or September 12, 2000. The
second note in the amount of $60,000 is secured by 66,667 shares of Company
stock and is due in full by the earlier of 60 days after termination of
employment or December 4, 2002. Because of the nature of these agreements, these
notes receivable are reflected as a reduction of stockholders' equity. Interest
will be recognized in addition to the note amount when paid.
Item 7. Financial Data (continued)
Note 11 Stockholders' Equity:
Stock Options and Warrants
In July 1988, the Company adopted an incentive and non-qualified stock option
plan and terminated a prior incentive stock option plan. Under the 1988 plan, as
amended in May, 1991, incentive stock options or non-qualified stock options, up
to a maximum of 700,000 shares, may be granted to key employees and other
persons to purchase the Company's common stock. The stock options are
exercisable at various times as determined by the board of directors but not
less than six months from the date of grant and terminate not more than ten
years from the date of grant.
Incentive stock options can be granted to employees to purchase the Company's
common stock at its fair market value, as defined, at the date of grant. No
individual may be granted stock options exceeding $100,000 in fair market value
in any one year. Non-qualified stock options can be granted to outside directors
and other individuals as well as employees to purchase the Company's common
stock at its fair market value, as defined, at the date of grant.
In January 1995, the Company modified the stock option plan. Substantially, all
of the existing grants were canceled and new grants were issued in place of the
old. The price of the new grants was set at the fair market value of $1.06 and
the number of options issued to each employee was based on the number of each
employee's original options adjusted by the options' original grant price
compared to the new option price.
In January 1996, the Company issued warrants for 20,000 shares of common stock
to a major shareholder as an incentive to initiate a $500,000 uncollateralized
loan to the Company (Note 6). The exercise price is $1.375 per share and the
warrants expire in January 2001.
Stock-Based Compensation
The Company has adopted only the disclosure provisions of Financial Accounting
Standards No. 123, "Accounting for Stock-Based Compensation" (FAS 123).
Therefore, the Company continues to account for stock based compensation under
Accounting Principles Board Opinion No. 25, under which no compensation cost has
been recognized. If the Company had elected to recognize compensation expense
based upon the fair value at the grant date for awards under these plans
consistent with the methodology prescribed by FAS 123, the Company's net
earnings/(loss) and earnings/(loss) per share would be adjusted to the pro forma
amounts indicated below:
<TABLE>
<CAPTION>
<S> <C> <C>
Fiscal Year Ended March 31,
1998 1997
--------------------------
Net Loss As reported $ (245,751) $ (474,655)
Pro Forma (359,029) (569,464)
Loss per share- basic As reported (0.05) (0.12)
Pro Forma (0.07) (0.15)
Loss per share - diluted As reported (0.05) (0.12)
Pro Forma (0.07) (0.15)
</TABLE>
These pro forma amounts may not be representative of future disclosure because
they do not take into effect pro forma compensation expense related to grants
made before 1995. The fair value of these options was estimated at the date of
grant using the Modified Black-Scholes American option-pricing model with the
following weighted-average assumptions for the fiscal years ended March 31, 1998
and 1997: expected volatility of 78.40% and 82.65%, respectively; risk-free
interest rate of 5.66% and 6.22%, respectively; and expected life of 5.36 and
4.45 years, respectively. The weighted-average fair value of options and
warrants granted was $1.54 and $0.97 in fiscal years ended March 31, 1998 and
1997, respectively.
Option pricing models require the input of highly subjective assumptions
including the expected stock price volatility. Also, the Company's employee
stock options and warrants have characteristics significantly different from
those of traded options and warrants, and changes in the subjective input
assumptions can materially affect the fair value estimate. Management believes
the best input assumptions available were used to value the options and warrants
and the resulting values are reasonable. The following is a summary of the
activity relating to warrants and options through March 31, 1998:
Item 7. Financial Data (continued)
Note 11 Stockholders' Equity - (continued)
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Warrants and Exercise Weighted average
Stock Options price exercise price
Outstanding at April 1, 1996 397,285 $ 1.06 - 2.75 $ 1.28
Granted 298,322 1.125 - 2.125 1.33
Exercised (2,500) 1.06 1.06
Expired (117,627) 1.06 - 1.44 1.28
Outstanding at March 31, 1997 575,480 1.00 - 2.75 1.31
Granted 106,108 1.63 - 2.75 2.03
Exercised (15,134) 1.00 - 1.25 1.03
Expired (20,625) 1.00 - 2.125 1.76
Outstanding at March 31, 1998 645,829 1.06 - 2.75 1.43
Exercisable at March 31, 1998 354,335 $ 1.00 - 2.75 $ 1.37
</TABLE>
The following table summarizes information concerning currently outstanding and
exercisable stock options and warrants:
Options and Warrants Outstanding
Weighted-Average
Remaining
Range of Number Contractual Life Weighted-Average
Exercise Prices Outstanding (Years) Exercise Price
$1.00 - 1.99 579,829 3.85 $1.33
2.00 - 2.75 66,000 5.38 2.35
645,829
Options and Warrants Exercisable
Range of Number Weighted-Average
Exercise Prices Outstanding Exercise Price
$1.00 - 1.99 348,335 $1.35
2.00 - 2.75 6,000 2.13
354,335
Note 12 Major Customers:
In accordance with the Company's strategy to develop large OEM/Private Label
accounts, one customer represented 16% of the Company's revenue in fiscal 1998.
The five largest customers accounted for 44% of revenue. Management expects the
number of customers representing more than 10% of Company revenue to increase.
The loss or insolvency of these customers could have a material adverse effect
on the Company's results of operations. In fiscal 1997, two customers
represented more than 10% of the Company's revenue. Each one was 13% of total
revenue, one being the U.S. Government.
Note 13 Employee Benefit Plan:
The Company has a contributory 401(k) savings and profit sharing plan covering
all full-time employees. The employer contribution amount is determined at the
discretion of the board of directors. During the years ended March 31, 1998 and
1997, the Company matched employee contributions to the 401(k) savings and
profit sharing plan up to 1% of employee base wages resulting in total
contributions of $15,661 and $13,813, respectively.
Item 7. Financial Data (continued)
Note 14 Investment in Subsidiary:
On January 1, 1998, the Company acquired all of the remaining outstanding common
stock of EFI Electronics Europe S.L., in a business combination accounted for as
a purchase. EFI Electronics Europe S.L. was incorporated in Spain in July 1993
as a 50% owned joint venture, engaged in the sale of TVSS panel products to
European distributors and machine tool manufacturers. Prior to acquiring all of
the outstanding common stock, the Company's equity in earnings and investment
from this operation were translated into US Dollars at the rate of exchange as
of March 31, 1997 and December 31, 1997, which approximated the average rate
during each period. Foreign exchange gains or losses have not been material.
Beginning January 1, 1998, the financial results of this operation have been
consolidated into the financial results of the Company. The total cost of the
acquisition consisted of $125,000 cash, notes payable of $275,000 and 220,000
shares of the Company's common stock valued at $1.86 per share. The Company
recorded goodwill of $866,603, which represents the excess of consideration
paid over the net book value of the acquired company.
Note 15 Quarterly Financial Data (Unaudited):
Summarized financial data by quarter for 1998 and 1997 are as follows:
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
Net Earnings (Loss)
Per Common
Net Earnings and Common
Quarter ended Net Sales Gross Profit (Loss) Equivalent Share
1998:
June 30, 1997 $, 3,639,459 $ 1,354,602 $ 43,002 $ 0.01
September 30, 1997 4,190,824 1,378,027 90,304 0.02
December 31, 1997 4,248,981 1,549,688 32,688 0.01
March 31, 1998 4,293,102 1,052,570 (411,745) (0.09)
Total $ 16,372,366 $ 5,334,887 $ (245,751) $ (0.05)
1997:
June 30, 1996 $ 3,109,044 $ 1,155,954 $ (186,633) $ (0.06)
September 30, 1996 3,559,318 1,186,981 (12,788) (0.00)
December 31, 1996 3,613,694 1,105,255 1,447 0.00
March 31, 1997 3,477,756 1,098,731 (276,681) (0.06)
Total $ 13,759,812 $ 4,524,258 $ (474,655) $ (0.12)
</TABLE>
Note 16 Earnings/(loss) per share
The following data show the amounts used in computing earnings/(loss) per common
share, including the weighted average number of shares and dilutive potential
common stock.
Fiscal Year Ended March 31,
1998 1997
Shares outstanding during the entire period 4,216,174 3,535,978
Weighted average shares issued during the period 687,422 279,038
Weighted average number of shares used in
basic EPS 4,903,596 3,815,016
Dilutive effect of stock options and warrants -0- -0-
Weighted average number of shares and dilutive potential
stock used in diluted EPS 4,903,596 3,815,016
For the years ended March 31,1998 and 1997, all of the options and warrants
that were outstanding, as described in Note 11, were not included in the
computation of diluted EPS because to do so would have been anti-dilutive.
Note 17 Prior period adjustment
The Company's financial statements have been restated to reflect the correction
of an error in calculating absorption of indirect manufacturing costs into
inventory. The Company had included certain general and administrative costs
in the overhead pool used to establish absorption rates. Management has
determined that certain of these costs are not related to production and has
incorporated changes herewith.
The effect of this restatement for 1998 and 1997 is as follows:
For the year ended March 31, 1998 1997
- --------------------------------------------------------------------------------
As previously As As previously As
reported restated reported restated
Balance Sheet
Inventory $3,359,178 $2,726,606 $2,674,607 $2,362,189
Retained Earnings/(deficit) 368,857 (263,714) 294,454 (17,964)
Statement of operations:
Cost of Sales 10,717,325 11,037,479 9,235,554 9,212,891
Net earnings/(loss) 74,403 (245,751) (497,318) (474,655)
Net earnings/(loss)per common
and Common equivalent share
Basic 0.02 (0.05) (0.13) (0.12)
Diluted $ 0.01 $ (0.05) $ (0.13) $ (0.12)
Retained earnings as of April 1, 1997 has been decreased by $335,081 for the
effects of the restatement on prior years.
<PAGE>
PART III
Items 9, 10, 11 and 12.
These items are incorporated by reference to the Company's Proxy Statement
related to the Annual Meeting of Shareholders to be held on July 29, 1998, as
filed with the Securities and Exchange Commission pursuant to Regulation 14A
under the Securities Exchange Act of 1934.
Item 13. Exhibits and Reports on Form 8-K
(a) Exhibits:
S-B Incoporated Filed 10-KSB/A
Number Exhibit by Reference Herewith Page
3.1 Certificate of Incorporation
as Restated and Amended (1) (1)
3.2 Amended and Restated Bylaws (2) (2)
10.1 Non-Qualified Stock Option Plan
and Incentive Stock Option Plan
As Amended (May 1991) (3) (3)
10.2 Lease Agreement, dated July 21,
1997 between Ninigret Park
Development, L.C., as landlord
and the Company, as tenant X (5)
10.3 Supply Agreement, dated August 26,
1997, between the Company and
Hubbell Incorporated (Delaware),
a Delaware corporation X
10.4 Employment Contract, dated
September 12, 1994, between the
Company and Richard D. Clasen X
21 List of subsidiaries X
23.1 Independent Accountant's Consent
Grant Thornton LLP X
27 Financial Data Schedule X
(1) Incorporated by reference to Exhibit Nos. 1 and 2 to Annual Report on
Form 10-K (File No. 0-15967) for fiscal year ended April 1, 1988, and as
Exhibit Nos. 4.3 and 4.4 to Registration Statement on Form S-8
(Reg. No. 33-40279) filed on May 1, 1991.
(2) Incorporated by reference to Exhibit No. 1 to Annual Report on Form 10-K
for fiscal year ended March 31, 1989.
(3) Incorporated by reference to Exhibit No. 1 to Annual Report on Form 10-K
for fiscal year ended March 29, 1991.
(b) Reports on Form 8-K:
On January 12, 1998, form 8-K was filed stating that the Company acquired all of
the outstanding shares of EFI Electronics Europe, S.L. on January 1, 1998. In
addition to $125,000 of cash, the Company issued notes payable of $275,000 and
220,000 shares of the Company's common stock.
On June 1, 1998 Form 8-K/A was filed by the Company as an Amendment to the 8-K
filed on January 12, 1998 to provide the financial statements and pro forma
statements not filed with the 8-K report.
<PAGE>
[GRAPHIC OMITTED] EFI Electronics
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 on June 2, 1999.
EFI ELECTRONICS CORPORATION
By: /s/
Richard D. Clasen
Chief Executive Officer and President
<PAGE>
[TYPE] EX 10.2
EXHIBIT 10.2
LEASE AGREEMENT
FOR
NINIGRET VIII
BETWEEN
NINIGRET PARK DEVELOPMENT, L.C., AS LANDLORD
AND
EFI ELECTRONICS CORPORATION, AS TENANT
DATED
JULY 21, 1997
<PAGE>
LEASE AGREEMENT
FOR
NINIGRET VIII
THIS AGREEMENT TO LEASE (the "Lease") dated this 21st day of July, 1997, by
and between NINIGRET PARK DEVELOPMENT, L.C., a Utah limited liability company,
hereinafter called "Landlord," and EFI ELECTRONICS CORPORATION, a Delaware
corporation, hereinafter called "Tenant".
WITNESSETH:
Whereas, Tenant desires to lease from Landlord, for the term set forth below,
for Tenants use, the Leased Premises, as hereinafter defined, to be constructed
on a portion of that certain real property consisting of approximately 9.5 acres
known by Landlord as "Ninigret VIII", consisting of approximately 212,000 square
feet of building, and located at approximately 4800 West 1825 South, Salt Lake
City, Utah (herein the "Property").
NOW, THEREFORE, in consideration of the covenants and premises contained
herein and other good and valuable consideration, the receipt and sufficiency of
which are hereby acknowledged, it is agreed by the parties hereto as follows:
ARTICLE I
LEASED PREMISES
Landlord hereby demises and leases to Tenant, and Tenant hereby leases and
takes from Landlord, approximately 56,466 gross square feet of warehouse space
located in that certain building (the "Building") constructed upon the Property,
a site plan of which space is attached hereto as Exhibit A (the "Site Plan"),
together with (a) the items set forth in the Building Standards as are listed on
Exhibit B hereto (to the extent not inconsistent with Exhibits C-1 through 3
below), (b) such Landlord improvements ("Landlord's Improvements") as are listed
on Exhibits C-1 through 3 hereto, and (c) the nonexclusive right to use and
enjoy all improvements, ingresses and egresses located on the Property outside
of the Building, including without limitation the driveways, sidewalks, Tenant's
pro rate share of the car parking spaces (plus such additional car parking
spaces that Landlord will construct or otherwise make available for Tenant's
exclusive use, either on the Property or in reasonable proximity thereto, so
that Tenant will have for its use approximately 110 car parking spaces in total)
and landscaping (all of which are designated herein, the "Leased Premises"), for
the term and upon the rental herein set forth.
<PAGE>
ARTICLE 11
TERM
2.1 TERM: This Lease shall be for a term of twelve years (the "Term")
commencing on the Commencement Date, as hereinafter defined, and the date which
is twelve (12) years after the Commencement Date plus such number of additional
days so as to cause the expiration date to end on the last day of a month (the
"Fixed Expiration Date"), or on such earlier or later date upon which the Term
shall sooner or later end pursuant to any of the terms, conditions or covenants
of this Lease or pursuant to law (the"Expiration Date'). Tenant shall have no
option or other right to renew this Lease beyond such Term.
2.2 POSSESSION: Landlord shall cause to be constructed the Tenant
Improvements and shall use reasonable efforts to complete such Improvements by
October 1, 1997, at which time Tenant may fully occupy the Leased Premises and
payment of rent shall begin (the "Commencement Date"). If Landlord is unable to
provide Tenant with full possession of the Leased Premises on or before November
15, 1997, Tenant at its option upon written notice to Landlord, on or before
December 1, 1997, may terminate this Lease and neither party shall thereupon
have any liability to the other under the terms of this Lease.
ARTICLE III
RENT
3.1 RENT: (a) Tenant shall pay to Landlord in monthly installments payable in
advance on the first day of each month base rent at the following monthly rates
(the "Base Rent"):
First 60 Months of Lease Term $ 22,586.40
Second 60 Months of Lease Term $ 25,296.77
Last 24 Months of Lease Term $ 28,332.38
Base rent shall be payable from the Commencement Date until the Expiration Date,
together with the additional rent and other charges provided for in this Lease.
Rent for any period during the term of this Lease that is for less than one
month shall be a prorata portion of the monthly installment.
(b) All rent and additional rent payable under this Lease shall be paid
at the office of Landlord stated herein, or at such other place as Landlord may
hereafter designate by notice to Tenant, without any offset or deduction
whatsoever. Should any rental payment by Tenant to Landlord hereunder not be
made within ten (1 0) days after the date when due, Tenant shall pay Landlord a
late payment charge equal to five percent (5%) of the unpaid payment; provided
that Landlord shall waive such late payment penalty
<PAGE>
on such first occurrence provided such delay is cured immediately after notice
thereof. This late payment charge shall be deemed additional rent and at
Landlord's election shall be added to the rent for the month in which the rent
shall be due and Landlord shall have all right with respect to additional rent
as for non-payment of any and all other rents due under the terms of this Lease.
The demand for and collection of the aforesaid late payment charge shall in no
way be deemed a waiver of any and all other remedies that Landlord may have
under the Lease by way of summary proceeding or otherwise in the event of a
default in payment of rent.
3.2 NO SET-OFF: The Base Rent shall be paid to Landlord without notice,
demand, abatement, deduction or set-off, except as provided in this Lease.
Tenant will also pay without notice, except as may be required in this Lease,
and without abatement, deduction or set-off, except as otherwise provided in
this Lease, as additional rent, all other payments that Tenant in any of the
provisions of this Lease assumes and agrees to pay and/or deposit (which,
together with the Base Rent are hereinafter referred to as "Rental") and, in the
event of any non-payment or non-deposit thereof, Landlord shall have (in
addition to all other rights and remedies) all the rights and remedies provided
for herein or by law in the case of non-payment of the Rental.
3.3 PAYMENT OF TAXES: (a) Beginning on and after the Commencement Date,
Tenant shall pay when due its "Pro Rata Share" (as determined under Section
5.6(b)(iii) below) of all real or personal property taxes, license fees and
assessments levied or imposed against, or measured by, the land and improvements
of which the Leased Premises are a part or measured by the rent payable
hereunder during the term of the Lease or any extension thereof, by state,
municipal or other governmental authority (but excluding Federal, state or
municipal income or corporate franchise taxes) or by private body pursuant to
applicable covenants, conditions and restrictions that relate to the terms of
this Lease, regardless of whether payment of such tax is due during the Term of
the Lease or may be postponed until a time after the lease Term (herein "Taxes")
Payment of such Taxes relating to a particular taxable year, prorated in the
event that the Taxes are payable for a partial lease year, shall be paid at the
time and in the manner as provided in Section 5.6(a). If Tenant fails to pay
when due any of such Taxes as set forth herein, Landlord may pay the same under
the provisions of Article XIII, set forth below. Tenant's obligations to pay
Taxes hereunder, with respect to the period covered by the Lease, shall survive
the Expiration Date.
(b) Tenant shall also pay to Landlord, as additional Taxes, Tenants
share (based on Tenant's Pro Rata Share) of the reasonable costs and expenses
paid or incurred by Landlord during each calendar year of the Lease Term for
professional and other services (including, but not limited to, reasonable fees
and expenses of consultants, attorneys, appraisers and experts) in connection
with efforts which successfully lowered Taxes or successfully resisted increased
Taxes. Such costs and expenses shall be determined in accordance with generally
accepted accounting principles and allocated to any particular calendar year on
the accrual method of accounting. Tenant shall pay its share of such costs and
expenses annually within thirty (30) days following receipt by
<PAGE>
Tenant of a statement therefor, and Tenant's share shall be prorated in the
event Tenant is required to make such payment for a partial lease year. If
Tenant shall request Landlord to contest any increase in Taxes, and provided in
Landlord's reasonable judgment the requested contest has a reasonable prospect
for success, Landlord shall undertake such contest and Tenant shall pay its
share of the costs thereof as provided hereinabove.
3.4 SECURITY DEPOSIT: Tenant shall not be required to pay any security
deposit to Landlord.
ARTICLE IV
INSURANCE
4.1 BUILDING INSURANCE: Landlord shall cause to be issued, and Tenant shall
pay Men due its Pro Rata Share (as determined under Section 5.6(b)(iii) below)
of the cost of, building insurance for the Property insuring against the perils
of fire, the extended coverages "all risk' property insurance, vandalism and
malicious mischief, and all risks to the Building improvements constituting the
Leased Premises (subject to customary insurance policy exclusions) in an amount
substantially equal to one hundred (100%) percent of its full replacement cost
(including demolition and debris removal costs and compliance costs at the time
of construction) without regard to depreciation (herein, the "Building
Insurance"), or such lesser or greater coverage (including without limitation
earthquake coverage) as Landlord in its reasonable discretion may determine.
4.2 LIABILITY AND OTHER INSURANCE: (a) Tenant shall at all times during the
Term, at Tenant's sole cost and expense, with Landlord named as an additional
insured, maintain with a financially responsible insurance company, commercial
general liability insurance, including without limitation contractual and legal
liability, to afford protection on an "occurrence basis" against claims for
personal injury (including without limitation bodily injury or death)or property
damage and machinery insurance, occurring on, in or about the Leased Premises,
the Property and any elevators, or any adjoining properties, with coverage
limits of at least the following amounts (which amounts may be increased from
time to time as Landlord in its reasonable discretion may determine):
Bodily Injury, $2,000,000.00 each occurrence; Property Damage, $2,000,000.00;
or in lieu thereof, a combined limit of bodily injury and property damage
liability of not less than $5,000,000.00 per occurrence.
(b) Tenant shall also maintain such insurance covering Tenant's
property as Tenant shall reasonably determine, certificates of which upon
reasonable request of Landlord shall be furnished to Landlord.
(c) Tenant shall also maintain workers' compensation and disability
benefits insurance covering Tenant's employees at the Leased Premises, and such
other and additional insurance, and in such amounts, as may from time to time
reasonably be required by law, against such other hazards as are commonly
insured against in the case
<PAGE>
of similarly situated premises or with respect to persons engaged in businesses
similar to Tenants business conducted from the Leased Premises.
(d) Each policy of insurance required to be obtained by Tenant as
herein provided and each certificate therefor issued by the insurer shall
provide that: (1) no act or omission of Tenant shall affect or limit the
obligation of the insurance company to pay to Landlord the amount of any loss
sustained, and (ii) such policy (or if such policy is an umbrella or blanket
policy, such policy as it relates to the Leased Premises) shall not be canceled
or modified without at least thirty (30) days' prior written notice to Landlord.
All general liability policies shall name Landlord and, if requested by
Landlord, any mortgagee of the Property as an additional insured, as their
interests may appear.
4.3 SUBROGATION: Neither Landlord nor Tenant shall be liable to the other or
anyone claiming by, through or under the other, including an insurance carrier
or carriers, for any loss or damage actually covered by insurance earned by the
other to the extent of such coverage, and no such carriers shall have the right
to subrogate against Landlord or Tenant.
ARTICLE V
CONDITION AND MAINTENANCE OF THE PROPERTY
5.1 CONDITION OF THE PREMISES: (a) Landlord agrees that the Leased Premises
shall be, at the Commencement Date, subject to normal "punch list" items
requiring correction, which Landlord will be obligated to correct, and that the
Leased Premises shall be constructed, substantially in accordance with the list
of Landlord Improvements summarized on Exhibits C-1 through 3 hereto, and upon
completion of the office and other improvements shall contain all of the
elements of Building Standards as are set forth on Exhibit B hereto (but only to
the extent not inconsistent with Exhibits C-1 through 3 hereto); (b) the Leased
Premises shall, at the Commencement Date, be in all material respects in
compliance with the Hazardous Materials Laws (as defined in Section 6.3(b)) and
applicable provisions of the Americans with Disabilities Act and all other
applicable laws, ordinances, rules and regulations; (c) Landlord shall, at its
sole cost and expense, be solely responsible for the replacement of the roof as
and when needed and the "Structural Portions" (as defined in Section 5.3) of the
Leased Premises; (d) Landlord hereby represents and warrants that the Building
and all improvements that will comprise the Leased Premises and all mechanical
systems, including without limitation heating, ventilation and air conditioning
systems ("HVAC") and water sprinkling systems, shall comply with subsections 5.1
(a) and (b) hereof and be in good working condition for the first twenty four
(24) months of the Term of this Lease and shall, upon notice from Tenant, and at
Landlord's sole cost and expense, immediately correct any such item that is not
in good working condition during such period of time; and (e) Landlord shall
enforce, for the benefit of Landlord and Tenant, any service or product warranty
provided to Landlord with respect to the Leased Premises by any third party
workman or vendor, in cases where such warranty periods extend beyond 24 months
from the Commencement Date of this Lease.
<PAGE>
5.2 MAINTENANCE OF LEASED PREMISES BY TENANT: Except as set forth in Section
5.1 or 5.3, Tenant agrees to maintain and to take good care of that portion of
the Leased Premises to which the Tenant has exclusive possession, and to keep
the same in a clean, attractive and sanitary condition, all at the sole cost and
expense of Tenant, reasonable wear and tear and damage excepted. Tenant shall
not commit or suffer, and shall use all reasonable precaution to prevent, waste,
damage or injury to the Leased Premises. Further, Tenant agrees to pay when due
all charges for water, heat, gas, electricity and other public utilities used on
the Leased Premises including the replacement of light bulbs, tubes, ballasts
and starters within a reasonable time after they fail to operate properly. In
the event any of the foregoing utilities are not separately metered to the
Leased Premises, but rather are metered to the Building, Tenant shall pay its
Pro Rata Share of such costs when billed for the same by Landlord.
5.3 REPAIR AND MAINTENANCE OF PROPERTY BY LANDLORD: Landlord shall be
responsible for, and keep in good order, repair and condition, at Landlord's
sole expense, and without reimbursement from Tenant, the roof and "Structural
Portions" (as hereinafter defined) of the Building; provided that Tenant shall
be responsible for all repairs and maintenance resulting from its use of the
floor slabs and any uses of any Structural Portions that are inconsistent with
the design intent of the particular elements.
By way of illustration, those situations for which Tenant would be responsible
for the repairs and maintenance of the Structural Portions would include the
puncturing of the roof with mechanical equipment, hitting or damaging columns,
floors or walls with products, fork lifts or other matters or burdening the
floors, roof, columns or wall with excessive stress or weight.) As used in this
Lease, the term 'Structural Portions" shall mean the foundations, floor slabs
(but only to the extent that such floor slabs evidence cracking or settlement
resulting from their original construction, as opposed to Tenant activities
thereon or uses therewith), weight bearing elements and other structural
elements of the Building. Further, Landlord shall be responsible for and shall
perform the Applicable Maintenance and Repairs, as hereinafter defined, with
respect to the Leased Premises and all of the Property (including that portion
of the Property, if any, leased by Landlord to another tenant), and subject to
Section 5.6(a) below Tenant shall reimburse Landlord for Tenant's Pro Rate Share
of all Operating Costs, as hereinafter defined, incurred by Landlord in
performing the Applicable Maintenance and Repairs.
5.4 ERECTION AND REMOVAL OF SIGNS: Tenant shall have the right, subject to
all applicable municipal ordinances and regulations and Covenants, Conditions
and Restrictions applicable to the Property, to affix or display on the Building
such signs identifying the Tenant and/or its business as Tenant may consider
necessary or desirable, and as may be reasonably approved by Landlord. All of
Tenant's signs shall be removed by Tenant at or prior to the expiration or
termination of this Lease.
5.5 ALTERATIONS BY TENANT: Tenant may, with the written consent of Landlord,
whose consent shall not be unreasonably withheld, but in any event at Tenant's
sole cost and expense, make alterations to the Leased Premises, in a good and
workmanlike manner, for Tenant's reasonable use of the Leased Premises.
<PAGE>
Any alterations or improvements to the Leased Premises, including partitions,
all electrical fixtures, lights and wiring, and other fixtures, equipment and
improvements installed by Tenant, shall become the property of the Landlord at
the expiration of the Term or sooner termination of the Lease, unless (a) such
alterations or improvements may reasonably be removed by Tenant without damage
to the Leased Premises, or (b) upon removal, Tenant repairs any and all damage
to the Leased Premises caused by such removal; provided, however, that in
Landlord's discretion, Landlord may require Tenant, at Tenant's sole expense and
in a good and workmanlike manner, to remove such alterations, fixtures, or
equipment as are particularly suited to or for Tenant's use and return the
Leased Premises to its condition at inception of the Term. Any alterations or
improvements made by Tenant shall be done in a good and workmanlike manner in
accordance with design plans prepared by or under the direction of Tenant that
were first submitted to Landlord for its reasonable approval. Tenant shall be
solely responsible for providing that all such alterations and improvements
comply in all respects with all applicable Federal, state and local statutes,
including without limitation, local building and zoning ordinances and all
disability laws, and Tenant shall provide such protections to Landlord in
connection with the construction of such improvements, including without
limitation, adequate insurance, mechanics lien waivers, architect and engineer
certifications, as Landlord may reasonably request.
5.6 ADDITIONAL RENT: (a) Tenant agrees to pay or reimburse Landlord, as
additional rental, for Tenant's Pro Rata Share of all Operating Costs paid or
incurred by Landlord for Applicable Maintenance and Repairs, and for Building
Insurance and Taxes attributable to the Building and the Property (all such
items of expense, together, referred to herein as the "CAM's"), all in
accordance with the provisions of this Section 5.6.
Landlord shall estimate each year the estimated CAM's (including Taxes
and Building Insurance) and charge Tenant monthly one-twelfth of such estimated
CAM'S, and shortly after the end of the calendar year in question, Landlord
shall furnish to Tenant an itemized statement ("Landlord's CAM Statement') in
reasonable detail of the CAM's for the immediately preceding year and thereupon
there shall be an adjustment between Landlord and Tenant, with payment to or
repayment by Landlord, as the case maybe, and Tenant's CAM contribution for the
next ensuing year shall be adjusted upward or downward based upon Landlords CAM
Statement. Within ninety (90) days of Tenant's receipt of a Landlord's CAM
Statement, Tenant may question or contest any aspect of the Statement by
providing written notice to Landlord specifying in reasonable detail the basis
for such question or contest. In such case, Landlord shall provide such
additional back-up to Landlord's CAM Statement as may be reasonably necessary to
provide proof of the payment in question.
(b) Definitions. (i) The term "Applicable Maintenance and Repairs"
shall mean, subject to Sections 5.1 and 5.3, all necessary, reasonable or
customary operation, maintenance, replacement and repairs of any kind on or with
respect to the (A) exterior
<PAGE>
entrances, doors, wells, ceilings, glass, windows, moldings, to the extent the
same are not part of the structural portions or the roof of the Building,
sidewalks, driveways, parking lots, landscaping, fences, and water, sewer and
gas connections, pipes, mains, and all other fixtures, machinery and equipment,
and the servicing of and general repairs to the electrical wiring, plumbing and
HVAC systems (including spring and fall servicing, and replacement of filters as
recommended by the manufacturers); (B)the mowing of grass, care of shrubs,
general landscaping, snow removal, sweeping of parking lot and truck dock areas,
and the cleaning and painting of the exterior of the Building as the same may or
might be necessary or appropriate in order to maintain the Property in a clean,
attractive and sanitary condition; and (C) the cost of periodic maintenance and
restoration of Building surfaces, including floors and walls, and other surfaces
both on the interior and exterior of the Building and in exterior areas of the
Property, as well as repaving and restriping of the parking areas. To the extent
that any part of the Property or Building is or becomes irreparable or worn out
or exhausted by ordinary use or otherwise or is inadequate for the general use
by the Tenant thereof, including without limitation the HVAC, the water
sprinkling system or the electrical or plumbing systems, Applicable Maintenance
and Repairs shall include the repair, replacement or improvement of such item,
as the case may be. When used in this Article V, the term "repairs" shall
include all necessary replacements, renewals, alterations and additions. All
repairs made shall be equal in quality and class to the original work and shall
be made in compliance with all applicable legal requirements and under the
building code then in effect.
(ii) The term "Operating Costs" shall mean the sum of all reasonable
expenses and costs paid or incurred by Landlord in performing and accomplishing
the Applicable Maintenance and Repairs, including all costs and expenses for
labor, materials and other costs or expenses, plus an administrative fee payable
to Landlord of 5% of the amount of the total CAM's for such year. By way of
example, Operating Costs shall include without limitation: the cost of all
building and cleaning supplies and materials; the cost of all charges for
cleaning, maintenance, and service contracts and other services, the cost of all
professional services, and the cost of any replacement equipment. Any expenses
for maintenance incurred by Landlord that pertain to both the Property and other
properties contiguous to or in the vicinity of the Property shall be reasonably
and equitably allocated between the relevant properties.
(iii) The term "Pro Rata Share" shall mean the percentage set forth in
Exhibit D hereof.
(iv) To the extent they do not interfere materially with Tenant's use of
the Leased Premises, there shall be no allowance to Tenant for diminution of
rental value and no liability on the part of Landlord by reason of
inconvenience, annoyance or injury to business or person arising from Landlord
or others making repairs, alterations, additions or improvements in or to any
portion of the Building or the Leased Premises or in and to the fixtures,
appurtenances or equipment thereof. Tenant shall not be entitled to any set off
or reduction of rent by reason of any failure of Landlord to comply with the
covenants of this or any other article of this Lease. Tenant agrees that
Tenant's sole
<PAGE>
remedy at law in such instance will be by way of an action for damages for
breach of contract or specific performance. The provisions of this Article V
shall not apply in the case of fire or other casualty, which are dealt with in
Article IX hereof. Anything herein contained to the contrary notwithstanding, in
no event shall Landlord be liable to Tenant in connection with the undertakings
of Landlord pursuant to this Section 5.6 except in the case of Landlord's gross
negligence or willful misconduct.
ARTICLE VI
AUTHORIZED USE; COMPLIANCE WITH LAWS
6.1 AUTHORIZED USE: Tenant may use the Leased Premises for the manufacture,
distribution and sale of electronic products and all lawful activities
associated therewith; provided that Tenant shall not (i) store or do anything on
or in the Leased Premises that would cause the existing fire protection system
to be deemed or declared inadequate or illegal under any existing law or under
existing and customary insurance rating guidelines or policies, unless Tenant
upgrades, at Tenants expense, the system to comply with such @ or guidelines;
(ii) do, bring or keep anything in or about the Leased Premises that will cause
a cancellation of any insurance policies covering the Leased Premises, (iii) use
the Leased Premises in any manner that will constitute waste, nuisance or cause
unreasonable annoyance to owners or occupants of neighboring properties, or (iv)
create or permit to be created any lien, encumbrance or charge upon the Building
or Property or any part thereo or the income therefrom, or any assets of
Landlord, or suffer any other matter or thing whereby the estate, rights and
interest of Landlord in the Property or any part thereof, or any assets of
Landlord, might be impaired or (v) do anything on the Leased Premises or the
Property that will cause damage to the Leased Premises or the Property or any
part thereof, ordinary v,/ear and tear excepted. The Leased Premises shall not
be used for any dangerous, noxious or offensive trade or business, and Tenant
will at all times use and operate the Leased Premises in such a manner as to
minimize the risk of indoor air quality problems or any diagnosable illness that
can be identified and attributed to contaminants in the Leased Premises
attributable to Tenant. Tenant shall take all steps necessary to prevent
inadequate ventilation and emission of chemical or other contaminants from
indoor and outdoor sources under or within Tenant's control.
6.2 COMPLIANCE WITH LAWS: (a) Throughout the term of this Lease, Tenant, at
its sole cost and expense, shall promptly comply with all present and future
safety, health, environmental or other laws, ordinances, orders, rules,
regulations and requirements of all federal, state, county and municipal
governments, departments, commissions, boards and officers, and all orders,
rules and regulations of the National Board of Fire Underwriters or any other
body exercising similar functions, which may be applicable to Tenants use of the
Leased Premises.
(b) Tenant shall be responsible for obtaining all permits, licenses and
approvals of all Governmental Authorities that are necessary for the operation
of its business at the Leased Premises.
<PAGE>
(c) Tenant shall not at any time use or occupy the Leased Premises in
violation of the certificate of occupancy issued for the Building.
(d) No abatement or reduction of the Rental or other charges required to
be paid by Tenant pursuant to the terms of this Lease shall be claimed by or
allowed to the Tenant for any inconvenience, interruption or loss of business
caused directly or indirectly by any such present or future laws, ordinances,
orders, rules, regulations or requirements, or as a result of any diminution of
the amount of space used by Tenant caused by legally required changes in the
operation or use of the Leased Premises.
6.3 ENVIRONMENTAL MATTERS: (a) Tenant shall not allow the use, generation,
handling, storage, transportation, treatment or disposal of "Hazardous
Materials" (as defined in Paragraph (b) of this Section 6.3) at the Leased
Premises or allow Hazardous Materials to be released or discharged upon or from
the Leased Premises or to be located at the Leased Premises without the prior
written consent of Landlord; provided that Tenant shall be allowed to use,
store, handle or otherwise use any cleaning materials or any other Hazardous
Materials if used in the ordinary course of Tenant's operations at the Leased
Premises in compliance with all applicable laws and regulations regarding the
use of same.
(b) Tenant shall not cause or permit the Leased Premises to be in
violation of any Federal, State or local laws, regulations, guidelines, codes,
permits, rules, administrative and judicial orders and ordinances relating to
industrial hygiene, indoor air quality laws, regulations and industry standards
or to the environmental conditions on, under or about the Leased Premises or the
Property including, but not limited to, soil and ground water conditions;
provided, however, that Tenant shall not be obligated to Landlord for any
Hazardous Material Claims (i) attributable to any pre-existing conditions of the
Leased Premises or the Property as of the Commencement Date or (ii) caused by
any person other than Tenant or its employees, agents, guests or invitees.
Tenant agrees at all times to comply fully and in a timely manner with, and to
cause all its employees, agents, invitees, licensees, contractors and any other
persons occupying or present on the Leased Premises to comply with, all such
laws and all applicable Federal, State and local laws, regulations, guidelines,
codes, permits, rules, executive, administrative and judicial orders and
ordinances and all provisions and requirements of any casualty, liability or
other insurance policy required to be carried by Tenant under the provisions of
this Lease (collectively, "Hazardous Materials Laws") applicable to the use,
generation, manufacture, handling, storage, treatment, transport and disposal of
any flammable materials, explosives, radioactive materials, hazardous wastes,
toxic substances or similar materials, including, without limitation, any
substances now or hereafter defined as or included in the definition of
"hazardous substance," "hazardous waste," "hazardous material," "pollutant or
contaminant," or "toxic substance" under any applicable Federal, State or local
laws or regulations (including but not limited to _ 101 (1 4) of the
Comprehensive Environmental Response, Compensation andLiability Act (CERCLA), 42
U.S.C. _ 9601(14); 101 (33) of CERCLA, 42 U.S.C. _ 9601(33); _ 104(5) of the
Resource Conservation and Recovery Act, 42 U.S.C. 6903(5)), (collectively,
"Hazardous Materials").
<PAGE>
(c) Tenant shall immediately advise Landlord in writing of (1) any and
all enforcement, cleanup, removal or other governmental or regulatory actions,
of which Tenant is aware or has received notice, instituted, contemplated or
threatened against the Leased Premises pursuant to any applicable Hazardous
Materials Laws; (ii) all claims made or threatened in writing by any third party
against Tenant or the Leased Premises relating to damage, contribution, cost
recovery, compensation, loss or injury resulting from any Hazardous Materials
(the matters set forth in clauses (1) and (ii) above are hereinafter referred to
as "Hazardous Materials Claims"); and (iii) Tenant's discovery of any occurrence
or conditions on the Leased Premises, the Property or any real property
adjoining or in the vicinity of the Property that could cause the Property or
any part thereof to be subject to any restrictions on the ownership, occupancy,
transferabilit or use of the Property or any part thereof under any Hazardous
Materials Laws.
(d) Landlord shall have the right at its expense to join and
participate in, as a party if it so elects, any legal proceedings or actions
initiated in connection with any Hazardous Materials Claims caused by Tenant or
Tenant's Agents. Tenant shall be solely responsible for, and shall indemnify and
hold harmless Landlord, its directors, officers, employees, agents, successors
and assigns from and against, any loss, damage, cost, expense and liability
directly or indirectly arising out of or attributable to the use, generation,
handling, storage, transportation, release, threatened release, discharge,
disposal, or presence of Hazardous Materials on, under or about the Leased
Premises or the Property; provided, however, that Tenant shall not be obligated
to Landlord for any Hazardous Material Claims (or the payment of attorney's fees
or disbursements) (i) attributable to any pre-existing conditions of the Leased
Premises or the Property as of the Commencement Date, or (ii) caused by any
person other than Tenant or its employees, agents, guests or invitees. The
indemnity hereunder shall include, without limitation, the costs of any required
or necessary repair, cleanup or detoxification, and the preparation and
implementation of any closure, remedial or other required plans (including
without limitation, the costs arising from the imposition of any lien,
governmental or otherwise, for the recovery of environmental cleanup costs
expended in connection with any such Hazardous Materials Claims) and all costs
and expenses incurred by Landlord in connection therewith, including but not
limited to reasonable attorneys' fees and disbursements. The foregoing indemnity
shall apply regardless of whether the generation, use, handling, storage,
transport, release, disposal, discharge of presence of any such Hazardous
Materials was or will be undertaken in accordance with applicable laws,
regulations, codes, or ordinances. The provisions of this Section 6.3 shall
survive the expiration or termination of this Lease.
ARTICLE VII
RIGHT OF ENTRY BY LANDLORD
So long as such action does not materially interfere with Tenant's use of the
Leased Premises, upon receipt of at least 3 hours notice from Landlord, Tenant
shall permit reasonable inspections of the Leased Premises during reasonable
business hours by Landlord or Landlord's agents or representatives for the
purposes of (a) ascertaining the
<PAGE>
condition of the Leased Premises, (b) making such repairs or maintenance as may
be required or permitted to be made by Landlord under the terms of this Lease,
including without limitation Applicable Maintenance and Repairs, (c) making any
repairs and performing any work therein that may be necessary by reason of
Tenant's failure to make any repairs or perform any work required to be made or
performed by Tenant under this Lease, and (d) exhibiting the Leased Premises to
prospective tenants, lenders or purchasers.
ARTICLE VIII
ASSIGNMENT AND SUBLETTING
This Lease may not be assigned, transferred, mortgaged, disposed of, or
pledged by Tenant, nor may the Leased Premises be sublet by Tenant, without the
prior written consent of Landlord, whose consent shall not be unreasonably
withheld if the proposed assignee, sublessee or other transferee is financially
and otherwise responsible, Landlord is furnished a copy of the proposed
agreement between Tenant and the transferee, the proposed assignee's or
sublessee's use is compatible with the structure and general construction of the
Leased Premises, as well as the use and occupancy of the Building by other
tenants, if any, of Landlord; provided, that, at Landlord's sole and absolute
discretion, it may upon presentment by Tenant of the proposed assignment or
sublease elect to recapture the Lease by terminating Tenant's leasehold interest
in the Leased Premises as of the date that Tenant otherwise would have commenced
the assignment or sublease, with the effect that the Lease shall be terminated
and thereafter be of no further force or effect. Any such assignment, transfer,
mortgage, disposal, pledge or sublet done without Landlord's consent shall be
considered a default by Tenant that shall allow Landlord to use all of its
remedies applicable to a default, including a termination of the Lease. For this
purpose, a transfer of this lease to an entity under the control of, controlled
by or under common control with Tenant shall not be deemed to be an assignment
or sublet of the lease so long as Tenant remains obligated fully under the terms
of this Lease and provided further that Landlord receives written notice of such
transfer within thirty (30) days of such transfer.
ARTICLE IX
DAMAGE OR DESTRUCTION
9.1 FIRE OR OTHER CASUALTY: (a) If the Leased Premises or any part thereof
shall be damaged by fire or other casualty, Tenant shall give immediate notice
thereof to Landlord and this Lease shall continue in full force and effect
except as hereinafter set forth.
(b) If the Leased Premises are partially damaged or rendered partially
unusable by fire or other casualty, the damages thereto shall be repaired by and
at the expense of Landlord, but only to the extent of any insurance proceeds
thereto, and the Rental, until such repair shall be substantially completed,
shall be apportioned from the day following the casualty according to the part
of the Leased Premises that is usable.
<PAGE>
(c) If the Leased Premises are totally damaged or rendered wholly
unusable by fire or other casualty, then the rent shall be proportionately paid
up to the time of the casualty and thenceforth shall cease until the date when
the Leased Premises shall have been repaired and restored by Landlord, subject
to Landlord's right to elect not to restore the same as hereinafter provided.
(d) If the Leased Premises are rendered wholly unusable or (whether or
not the Leased Premises are damaged in whole or in part) if the Building shall
be so damaged that Landlord shall decide to demolish it or to rebuild it or if
the Building shall be partially damaged and such partial damage
is not otherwise covered under section 9.1 (b) above, then, in any of such
events, Landlord may elect to terminate this Lease by written notice to Tenant,
given within 30 days after such fire or casualty, specifying a date for the
expiration of the Lease, which date shall not be more than 30 days after the
giving of such notice, and upon the date specified in such notice the term of
this Lease shall expire as fully and completely as if such date were the date
set forth above for the termination of this Lease and Tenant shall forthwith
quit, surrender and vacate the Leased Premises without prejudice however, to
Landlord's rights and remedies against Tenant under the provisions of the Lease
in effect priorto such termination, and any Rental owing shall be paid up to the
date of such fire or casualty and any payments of Rental made by Tenant which
were on account of any period subsequent to such date shall be returned to
Tenant. If Landlord does not serve a termination notice as provided for herein,
and provided the repairs can reasonably be made within ninety (90) days and
provided Landlord commits to Tenant to make such repairs within said 90 days of
damage, Landlord shall make the repairs and restorations under the conditions of
(b) and (c) hereof, but only to the extent of any insurance proceeds thereof,
with all reasonable expedition, subject to delays due to adjustment of insurance
claims, labor troubles and causes beyond Landlord's control. If Landlord cannot
reasonably accomplish such repairs within said 90 days, or does not commit to so
accomplish such repairs within 90 days, then Tenant may terminate this Lease.
After any such casualty, Tenant shall cooperate with any restoration by removing
from the premises as promptly as reasonably possible, all of Tenants salvageable
inventory and movable equipment, furniture, and other property. Tenants
liability for Rental shall resume five (5) days after written notice from
Landlord that the Leased Premises are substantially ready for Tenant's
occupancy.
9.2 NO WAIVER OF UABILITY: Except as specifically set forth in Section 9.1
hereinabove or in Section 4.3, nothing contained in this Lease shall be
construed to relieve Landlord or Tenant from liability that may exist as a
result of damage from fire or other casualty. Tenant acknowledges that Landlord
will not carry insurance on Tenant's inventory, furniture and/or furnishings or
any fixtures or equipment, improvements, or appurtenances removable by Tenant.
<PAGE>
ARTICLE X
INJURIES AND PROPERTY DAMAGE
10.1 INDEMNIFICATION:(a)Tenant shall not do or permit any act or thing to be
done upon the Leased Premises or any other part of the Property that may subject
Landlord to any liability or responsibility for injury, damages to persons or
property or to any liability by reason of any violation of law or any other
requirement of a governmental authority and shall exercise such control over the
Leased Premises as to fully protect Landlord against any such liability Tenant
shall indemnify and save Landlord, its officers, employees, partners, agents,
contractors, successors, heirs and assigns, harmless from and against (a) all
claims of whatever nature by third parties arising from Tenant's use of the
Leased Premises or any act, omission or negligence of Tenant, its contractors,
agents, employees, invitees or visitors, (b) all claims by third parties arising
from any accident, injury or damage whatsoever caused to any person or to the
property of any person and occurring during the Term in or about the Leased
Premises, and (c) any claim by any third party arising from any breach,
violation or non-performance of any covenant, condition or agreement in this
Lease set forth and contained on the part of Tenant to be fulfilled, kept,
observed and performed.This indemnity and hold harmless agreement shall include
indemnity from and against any and all liability, fines, suits, demands, costs
and expenses of any kind or nature (including, without limitation, attorneys'
fees and disbursements) incurred in or in connection with any such claim or
proceeding brought by third parties thereon, and the defense thereof, except to
the extent such liability, fines, claims or costs are occasioned by the willful
misconduct or gross negligence of Landlord by third parties, in which case
Tenants liability to Landlord under this indemnity provision shall be reduced
only by the percentage of the loss, damage or liability resulting from or
attributable to Landlord's or its agent's willful misconduct, gross negligence
or negligence.The obligations of Tenant under this Section 10.1(a) shall not in
any way be affected by the absence in any case of covering insurance or by the
failure or refusal of any insurance carrier to perform any obligation on its
part to be performed under insurance policies required to be maintained by this
Lease.Tenant's obligations under this Article shall survive the expiration of
this Lease.
(b) Landlord shall not do or permit any act or thing to be done upon the
Leased Premises or any other part of the Property that may subject Tenant to any
liability or responsibility for injury, damages to persons or property or to any
liability by reason of any violation of law or any other requirement of a
governmental authority. Landlord shall indemnify and save Tenant, its officers,
employees, partners, agents, contractors, successors, heirs and assigns,
harmless from and against (a) all claims of whatever nature by third parties
arising from Landlord's material omission or gross negligence of Landlord, its
contractors, agents, employees, invitees or visitors resulting from Landlord's
performance of Applicable Maintenance and Repairs, (b) all claims by third
parties arising from any accident, injury or damage whatsoever caused by
Landlord, its contractors, agents, employees, invitees or visitors to any person
or to the property of any person and occurring during the Term in or about the
Leased Premises from Landlord's performance of Applicable Maintenance and
Repairs, and (c) any claim by any third party arising from
<PAGE>
any breach, violation or non-performance of any covenant, condition or agreement
in this Lease set forth and contained on the part of Landlord to be fulfilled,
kept, observed and performed. This indemnity and hold harmless agreement shall
include indemnity from and against any and all liability, fines, suits, demands,
costs and expenses of any kind or nature (including, without limitation,
attorneys' fees and disbursements) incurred in or in connection with any such
claim or proceeding brought by third parties thereon, and the defense thereof,
except to the extent such liability, fines, claims or costs are occasioned by
the willful misconduct or negligence of Tenant by third parties, in which case
Landlord's liability to Tenant under this indemnity provision shall be reduced
only by the percentage of the loss, damage or liability resulting from or
attributable to Tenant's or its agent's willful misconduct or negligence. The
obligations of Landlord under this Section 0. I (b) shall not in any way be
affected by the absence in any case of covering insurance or by the failure or
refusal of any insurance carrier to perform any obligation on its part to be
performed under insurance policies required to be maintained by this Lease.
Landlord's obligations under this Article shall survive the expiration of this
Lease.
10.2 WAIVER OF LIABILITY: (a) To the extent permitted by law, Tenant releases
Landlord, and Landlord's agents from, and waives all claims for, damage to
person or property sustained by Tenant resulting from the Building or the Leased
Premises or any part of either or any equipment or appurtenance becoming out of
repair or resulting from any accident in or about the Building or resulting
directly or indirectly from any act or omission of any other Tenant or occupant
of the Building, or of any other person other than Landlord or its agents. This
section shall apply especially, but not exclusively, to 1) fire, steam,
electricity, water, gas, snow or rain, ii) leakage, obstruction or other defects
of pipes, sprinklers, wires, plumbing, air conditioning, boilers, snow removal
or lighting fixtures; or iii) condition of the Leased Premises; provided that
the provisions of this Section shall not exempt Landlord from liability in the
event of Landlord's gross negligence or willful misconduct. This Section shall
apply equally whether such damage be caused or result from any thing or
circumstance above mentioned or referred to, or any other thing or circumstances
whether of a like nature or of a wholly different nature.
(b) Notwithstanding the foregoing, the Landlord shall not be liable for
any loss or damage to the Building even if due to the negligence, gross
negligence or intentional misconduct of Landlord to the extent of the recovery
by Tenant under any property damage insurance carried by it. Tenant shall make
reasonably diligent efforts to recover from its insurers the full amount of any
insured claim.
(c) Tenant shall not be liable to Landlord for any loss or damage to
property even if due to the negligence, gross negligence or intentional
misconduct of Tenant to the extent of the recovery of Landlord under any
property damage or rent loss insurance carried by it (@ether or not required to
be carried by the terms of this Lease) or such amount as would have been
recovered if Landlord had carried the insurance required under this Lease.
Landlord shall make reasonably diligent efforts to recover from its insurers the
full amount of any insured claim.
<PAGE>
ARTICLE XI
SURRENDER OF PREMISES
11.1 SURRENDER: Tenant agrees to surrender the Leased Premises at the
expiration, or sooner termination, of the term of this Lease, or any extension
thereof, in the same condition as v4hen said premises were delivered to Tenant,
except as otherwise permitted by Landlord, or as altered, pursuant to the
provisions of this Lease, ordinary wear, tear and damage by natural casualty or
the elements excepted, and Tenant shall remove all of its furniture, equipment
and other personal property and surrender the Leased Premises in broom clean
condition.
11.2 HOLDOVER: If the Leased Premises be not surrendered by Tenant as and
when required, Tenant shall indemnify Landlord against any charges, loss or
liability resulting therefrom, including, without limitation, any claims made by
any succeeding occupant founded on such delay. Should the Landlord permit Tenant
to holdover the Leased Premises or any part thereof after the expiration of the
term of this Lease, such holdover shall constitute a tenancy from month-to-month
only, and shall in no event be construed as a renewal of this Lease and all
provisions of this Lease not inconsistent with a tenancy from month-to-month
shall remain in full force and effect.During the month-to- month tenancy, Tenant
agrees to give Landlord thirty (30) days prior written notice of its intent to
vacate premises.Tenant agrees to vacate the premises upon thirty (30) days prior
written notice from Landlord.The rental for the month-to-month tenancy shall be
at a rate that is fifteen (15%)percent greater than the Base Rent that is then
being paid by Tenant. Tenants obligations under this Section 11.2 shall survive
the expiration or sooner termination of this Lease.
11.3 EMINENT DOMAIN: If at any time during the term of this Lease the entire
premises or any part thereof shall be taken as a result of the exercise of the
power of eminent domain or by an agreement in lieu thereof, this Lease shall
terminate as to the part so taken as of the date possession is taken by the
condemning authority. If all or any substantial portion of the Leased Premises
shall be taken, Landlord may terminate this Lease at its option, by giving
Tenant at least ninety (90) days written notice of such termination within
thirty (30) days of such taking. If a portion of the Leased Premises taken are
so substantial that Tenant's use of the premises is substantially impaired and
the remaining portion is not suitable for the operation of Tenants business,
Tenant may terminate this Lease at its option by giving Landlord written notice
of such termination within thirty (30) days of such taking. Otherwise, this
Lease shall remain in full force and effect, except that the Basic Rent payable
by Tenant hereunder shall be reduced in the proportion that the area of the
Building so taken bears to the total area of the Building immediately prior to
such taking and the Tenants Pro Rata Share shall be so adjusted.Landlord shall
be entitled to and Tenant hereby assigns to Landlord the entire amount of any
award in connection with such taking without deduction therefrom for any
leasehold estate vested in Tenant by reason of this Lease; provided, however,
that nothing in this Article shall give Landlord any interest in or preclude
Tenant from seeking, on its own
<PAGE>
account, any award attributable to the taking of personal property or trade
fixtures belonging to Tenant, or for loss of its leasehold estate or the
interruption of Tenant's business and any moving expenses incurred in connection
with the relocation of its business.
ARTICLE XII
QUIET ENJOYMENT
If and so long as Tenant pays the rent required by this Lease and performs
and observes all the covenants and provisions hereof, Tenant shall quietly enjoy
the Leased Premises, subject, however, to the terms of this Lease, and Landlord
will warrant and defend Tenant in the enjoyment and peaceful possession of the
Leased Premises throughout the term of this Lease.
ARTICLE XIII
DEFAULT AND BANKRUPTCY
13.1 DEFAULT: (a) If Tenant shall make default in the fulfillment of any of
the covenants and conditions hereof except default in payment of Rental,
Landlord may, at its option, after fifteen (15) days prior written notice to
Tenant, and Tenant's failure to cure such default within such fifteen (15) days,
make performance for Tenant and for the purpose advance such amounts as may be
necessary. Any reasonable amounts so advanced, or any expense incurred, or sum
of money paid by Landlord by reason of the failure of Tenant to comply with any
covenant, agreement, obligation or provision of this Lease, or in defending any
action to which Landlord may be subjected by reason of any such failure for any
reason of this Lease, shall be deemed to be additional rent for the Leased
Premises and shall be due and payable to Landlord on demand. The acceptance by
Landlord of any installment of fixed rent, or of any additional rent due under
this or any other paragraph of this Lease, shall not be a waiver of any other
rent then due nor of the right to demand the performance of any other obligation
of the Tenant under this Lease. Interest shall be paid to Landlord on all sums
advanced by Landlord at a monthly interest rate of 1 114% per month.
(b) If Tenant shall make default in fulfillment of any of the covenants
or conditions of this Lease (other than the covenants for the payment of Rental
or other amounts) or if the Leased Premises are abandoned or become vacant; or
if any execution or attachment shall be issued against Tenant or any of Tenant's
property whereupon the Leased Premises shall be taken or occupied by someone
other than Tenant; or if this Lease be rejected under applicable provisions of
the U.S. bankruptcy code; or if Tenant shall fail to move into or take
possession of the premises within fifteen (15) days after the commencement of
the Term of this Lease, then, in any one or more of such events, upon Landlord
serving a written seven (7) days notice upon Tenant specifying the nature of
said default and upon the expiration of said seven (7) days, if Tenant shall
have failed to comply with or remedy such default, or if the said failure or
omission complained of shall be of a nature that the same cannot be completely
cured or remedied within said seven
<PAGE>
(7) day period, and if Tenant shall not have diligently commenced curing such
default within such seven (7) day period, and shall not thereafter with
reasonable diligence and in good faith, proceed to remedy or cure such default,
then Landlord may serve a written five (5) days' notice of cancellation of this
Lease upon Tenant, and upon the expiration of said five (5) days this Lease and
the Term thereof shall end and expire as fully and completely as if the
expiration of such five (5) day period were the day herein definitely fixed for
the end and expiration of this Lease and the Term thereof, and Tenant shall then
quit and surrender the Leased Premises to Landlord but Tenant shall remain
liable as hereinafter provided.
(c) If Tenant shall make default in the payment of the Rental required
hereunder, or any part thereof, including without limitation any Basic Rent or
CAM's payable at any time, or in making any other payment herein provided for,
then Landlord may serve a written ten (10) days' notice of cancellation of this
Lease upon Tenant, and unless during such ten (10) day period Tenant shall cure
said default in payment upon the expiration of said ten (10) days this Lease and
the Term thereof shall end and expire as fully and completely as if the
expiration of such ten (10) day period were the day herein definitely fixed for
the end and expiration of this Lease and the Term thereof and Tenant shall then
quit and surrender the Leased Premises to Landlord but Tenant shall remain
liable as hereinafter provided.
(d) In the event of any default by Tenant under this Lease, then
Landlord, in addition to any other rights or remedies it may have under this
Lease or pursuant to applicable law, may, after attempting to mitigate its
damages to the extent reasonable as may be required under then existing law,
accelerate its right to receive from Tenant all Rentals, and any other sums due
under this Lease, less any amounts actually received by Landlord or which could
have been received had Landlord properly mitigated its damages to the extent
reasonably required under then existing law, that are otherwise payable for the
remainder of the term of the lease and declare all such sums to be immediately
due and payable along with reasonable attorneys fees and costs associated with
the collection of such sums from Tenant. In addition, without limiting its
rights hereunder or by operation of law, Landlord may take possession pursuant
to this Lease and relet the Leased Premises or any part thereof for such term
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 Landlord may
deem reasonably advisable with the right to make alterations and repairs to the
Leased Premises. Upon each subletting, Tenant shall be immediately liable for
and shall pay to Landlord, in addition to any indebtedness due hereunder, the
cost and expenses of such reletting including advertising costs, brokerages fees
, any reasonable attorney's fees incurred and the amount, if any, by which the
rent reserved in this Lease for the period of such reletting (up to but not
beyond the Term of this Lease) exceeds the amount agreed to be paid as rent for
the premises for said period by such reletting. No such re-entry or taking
possession of the Leased Premises by Landlord shall be construed as an election
by Landlord to terminate this Lease unless the termination thereof be decreed by
a court of competent jurisdiction or stated specifically by the Landlord in
writing addressed to Tenant. Landlord shall in no event be liable in any
<PAGE>
way whatsoever for failure to relet the Leased Premises, or in the event that
the Leased Premises are relet, for failure to collect the rent thereof under
such reletting, except to the extent of Landlord's obligation under then
existing law to mitigate damages, and in no event shall Tenant be entitled to
receive any excess, if any, of such net rents collected over the sums payable by
Tenant to Landlord hereunder.
13.2 REMEDIES NOT EXCLUSIVE: Mention in this Lease of any particular remedy
shall not preclude Landlord from any other remedy, in law or in equity.
13.3 ENFORCEMENT: In the event that either party hereto seeks to enforce the
terms of this Lease against the other party by suit or otherwise, the
prevailing party shall pay the costs and expenses incident thereto, including
reasonable attorneys' fees and costs.
13.4 BANKRUPTCY: (a) Anything elsewhere in this Lease to the contrary
notwithstanding, this Lease may be canceled by Landlord by the sending of a
written notice to Tenant within a reasonable time after the happening of any one
or more of the following events: (1) the commencement of a case in bankruptcy or
under the laws of any state naming Tenant as a debtor; or (2) the making by
Tenant of an assignment or any other arrangement for the benefit of creditors
under any state statute. Neither Tenant norany person claiming through or under
Tenant, or by reason of any statute or order of court, shall thereafter be
entitled to possession of the Leased Premises but shall forthwith quit and
surrender the Leased Premises.If this Lease shall be assigned in accordance with
its terms, the provisions of this Section 13.4 shall be applicable only to the
party then owning Tenant's interest in this Lease.
(b) It is stipulated and agreed that in the event of the termination of
this Lease pursuant to (a) hereof, Landlord shall forthwith, notwithstanding any
other provisions of this Lease to the contrary, be entitled to recover from
Tenant as and for liquidated damages an amount equal to the difference between
the rent reserved hereunder for the unexpired portion of the Term and the fair
and reasonable rental value of the Leased Premises for the same period. In the
computation of such damages the difference between any installment of Rental
becoming due hereunder after the date of termination and the fair and reasonable
rental value of the Leased Premises for the period for which such installment
was payable shall be discounted to the date of termination at the rate of four
percent (4%) per annum. If the Leased Premises or any part thereof be relet by
the Landlord for the unexpired portion of the Term, or any part thereof, before
presentation of proof of such liquidated damages to any court, commission or
tribunal, the amount of Rental reserved upon such reletting shall be deemed to
be the fair and reasonable rental value for the part or the whole of the Leased
Premises so relet during the term of the reletting. Nothing herein contained
shall limit or prejudice the right of the Landlord to prove for and obtain as
liquidated damages by reason of such termination, an amount equal to the maximum
allowed by any statute or rule of law in effect at the time when, and governing
the proceedings in which, such damages are to be proved, whether or not such
amount be greater, equal to, or less than the amount of the difference referred
to above.The foregoing Section 13.4 is subject to Landlord's obligation to
mitigate damages pursuant to applicable laws then in effect.
ARTICLE XIV
MISCELLANEOUS
14.1 RIGHTS OF SUCCESSORS AND ASSIGNS: The covenants and agreements contained
in this Lease will apply to, inure to the benefit of, and be binding upon the
parties hereto, their heirs, distributees, executors, administrators, legal
representatives, assigns, and upon their respective successors in interest
except as expressly otherwise hereinabove provided.
14.2 ESTOPPEL STATEMENT: Upon Landlord's request, Tenant shall, without
charge, execute, acknowledge and deliver to Landlord a written statement
certifying: (1) the commencement date of this Lease; (ii) the expiration date of
this Lease; (iii) as to the existence of any default under this Lease of which
Tenant is aware, (iv) as to the existence of any offsets, counterclaims or
defenses to this Lease on the part of Tenant; (v) as to the dates to which
Rental payments have been made; and (vi) such other matters as may be reasonably
requested by Landlord, by any prospective purchaser of Landlord or the Property
or by any mortgagee of Landlord.
14.3 SUBORDINATION AND ATTORNMENT: Landlord shall obtain a nondisturbance
agreement from any existing mortgagee in favor of Tenant, consistent with the
terms of any mortgage loan agreement between Landlord and such mortgagee, and
deliver the same to Tenant on or prior to the Lease Commencement Date. This
Lease is subject and subordinate to any mortgage which may now or hereafter
encumber the Leased Premises, and any renewals, modifications, consolidations,
replacements or extensions thereof. If Landlord's interest in the Leased
Premises is acquired by any mortgagee, or purchaser at a foreclosure sale,
provided this Lease Agreement remains in force, Tenants occupancy of the Leased
Premises is not interrupted and Tenant receives from the holder of such mortgage
or purchaser a commercially reasonable nondisturbance agreement, Tenant shall
attorn to the transferee of or successor to Landlord's interest in the Leased
Premises and recognize such transferee or successor as landlord under this Lease
, and so long as Tenant is not in default under this Lease Agreement, this Lease
shall, with regard to the Leased Premises, continue in full force and effect as
a direct lease between the lender or its successors and assigns and Tenant.
Tenant shall execute promptly any certificate or instrument of subordination
that Landlord may request, provided that Tenant also obtains the nondisturbance
agreement referred to above. In the event that Landlord sells the Leased
Premises to any other person or entity, Tenant upon notice of same shall
thereafter look only to such other person or entity for enforcement of any
provisions of this Lease Agreement for the period following such sale.
14.4 INFORMATION FOR MORTGAGEE: Upon request from Landlord, Tenant shall
furnish to Landlord a financial statement of Tenant (including a balance sheet,
income statement, statement of cash flows and accompanying notes and other
<PAGE>
documentation) for the immediately preceding fiscal year of Tenant and unaudited
quarterly statements through the period of time in question; provided that in
connection with the use of such statements by Landlord by itself or for the use
of its lender(s) or potential purchasers, any such persons shall agree to use
such information only for lease/financing credit evaluation and not to disclose
such information to others except as may be required by law.
14.5 EFFECT OF UNAVOIDABLE DELAYS: If either party to this Lease, as the
result of any (1) strikes, lockouts or labor disputes, (ii) inability to obtain
labor or materials or reasonable substitutes therefor, (iii) acts of God,
governmental action, condemnation, civil commotion, fire or other casualty, or
(iv) other conditions similar to those enumerated in this Section beyond the
reasonable control of the party obligated to perform, fails punctually to
perform any obligation on its part to be performed under this Lease, then such
failure shall be excused and not be a breach of this Lease by the party in
question, but only to the extent occasioned by such event.
14.6 BROKERAGE: Tenant hereby represents to Landlord that it has not dealt
with any broker in connection with this Lease other than Commerce Properties,
Inc. Landlord agrees that it shall pay a brokerage commission to its broker,
Commerce Properties, Inc.
14.7 CONSTRUCTION OF LEASE: (a) This Lease shall be construed without regard
to any presumption or other rule requiring construction against the party
causing this Lease or any party thereof to be drafted.
(b) The Article, Section and Paragraph headings of this instrument are
for convenience only, and are not intended to be part of this Lease, or to be
used in determining the intent of the parties or interpreting this Lease. All
cross-references in this Lease, unless specifically directed to another
agreement or document, refer to provisions in this Lease, and shall not be
deemed to be references to any other transaction or to any other agreement or
document.
(c) With respect to the use of pronouns in this Lease, the singular
shall include the plural and the masculine shall include the feminine or the
neuter and vice versa, as the context and the identity of the parties require.
14.8 NOTICES: It is agreed that all notices required or permitted to be given
hereunder, or for purposes of billing process (other than payment of rent, which
may be sent by ordinary mail or by wire transfer), correspondence, and any other
legal purposes whatsoever, shall be deemed sufficient if given by a
communication in writing by United States mail, postage prepaid and certified,
or by overnight delivery service that provides acknowledgment of receipt, and
addressed as follows:
<PAGE>
If to Landlord, at the following address:
The Ninigret Group, Manager
Ninigret Park Development, L.C.
1700 South 4650 West
Salt Lake City, Utah 84101
Attention: Randolph G. Abood, Manager
With a copy to:
Randolph G. Abood, Manager
The Ninigret Group, L.C.
Suite 1120
10 Rockefeller Plaza
New York, NY 10020
If to Tenant, at the following address:
EFI Electronics Corporation
4800 West 1515 South
Salt Lake City, Utah 84104
Attention: Mr. Richard D. Clasen,
President and Chief Executive Officer
14.9 SURVIVAL OF OBLIGATIONS: Any obligation of Landlord or Tenant which can
only be, or which, by the provisions of this Lease, may be, performed after the
expiration or earlier termination of this Lease, and Landlord's or Tenants
liability to make any payment which is allocable to any period during the term
of this Lease, shall, unless expressly otherwise provided in this Lease, survive
the expiration or termination of this Lease.
14.10 GOVERNING LAW: The terms of this Agreement shall be governed by and
construed in accordance with Utah law without regard to its conflicts of law
principles.
14.11 DOCUMENTATION: The parties hereto agree to execute such additional
documentation as may be necessary or desirable to carry out the intent of this
Agreement.
14.12 REPRESENTATION REGARDING AUTHORITY: The persons who have executed this
Lease represent and warrant that they are duly authorized to execute this Lease
in their individual or representative capacity as indicated.
14.13 ENTIRE AGREEMENT: This Lease constitutes the entire agreement and
understanding between the parties hereto and supersedes all prior discussions,
understandings and agreements. This Lease may not be altered or amended except
by
<PAGE>
a subsequent written agreement signed by the party against which enforcement of
such alteration or amendment is sought.
14.14 SEVERABILITY: If any provision of this Lease or the application thereof
to any person or circumstances shall be determined to be invalid or
unenforceable, the remaining provisions of this Lease or the application of such
provision to persons or circumstances other than those to which it is held
invalid or unenforceable shall not be affected thereby and shall be valid and
enforceable to the fullest extent permitted by law.
14.15 WAIVER: Except as otherwise herein expressly provided to the contrary,
no delay on the party of either party hereto in exercising any power or right
hereunder shall operate as a waiver thereof; nor shall any single or partial
exercise of any power or right hereunder preclude other or further exercise
thereof or the exercise of any other power or right. No waiver shall be
enforceable against either party hereto unless in writing, signed by the party
against whom such waiver is claimed, and shall be limited solely to the one
event.
IN WITNESS WHEREOF, the parties hereto have caused these presents to be
executed as of the day and year first above written.
LANDLORD:
NINIGRET PARK DEVELOPMENT, L.C.
BY: THE NINIGRET GROUP, L.C.
Its Manager
By: <signature here-Randolph G. Abood, Manager>
TENANT:
EFI ELECTRONICS CORPORATION
By: <signature here-Richard D. Clasen>
Attest: <signature here-David G. Bevan>
<PAGE>
EXHIBIT D
PRO RATA SHARE
Tenant's pro rata share is 26.73%.
<PAGE>
[TYPE] EX 10.3
EXHIBIT 10.3
Disclosure Regarding Confidential Information: Portions of page 2 of
and Schedules A, B, C, D, E, F, G and H to this Exhibit 10.3 to the Amendment
No. 2 to Annual Report on Form 10-KSB/A (consisting of portions of 13 multiple
pages) have been omitted from this exhibit filed with the Securities and
Exchange Commission (the "Commission") by EFI Electronics Corporation. The
omitted portions, which are the subject of an application for confidential
treatment and have been filed separately with the Commission, are identified in
this exhibit by the placement of the following symbol: +.
SUPPLY AGREEMENT
THIS AGREEMENT made and entered into this 26 day of August, 1997, by and
between EFI Electronics Corporation, having its principal place of business at
2415 South 2300 West, Salt Lake City, Utah 84119 (hereinafter referred to as
"EFI"); and Hubbell Incorporated (Delaware), a Delaware Corporation, having its
principal place of business at 185 Plains Road, Milford, Connecticut 06460
(hereinafter referred to as "Hubbell").
WITNESSETH:
WHEREAS, EFI is engaged in the business of the manufacture and sale of transient
voltage surge suppression ("TVSS") devices (hereinafter referred to as
"Products") used in the manufacture of a variety of applications; and
WHEREAS, Hubbell is also engaged in the business of the manufacture and sale of
various types of wiring devices including TVSS devices; and
WHEREAS, Hubbell is desirous of purchasing from EFI for sale under the
trademarks) of Hubbell or its affiliated entities the Products which are
manufactured by EFI.
NOW THEREFORE, in consideration of the premises and the mutual covenants and
agreements contained herein, the parties hereto agree as follows:
Article I - Definition
1.1 As used herein, "Products" means all the Products currently manufactured by
EFI and set forth on Schedule A attached hereto and made a part hereof (together
with any enhancements or modifications thereto), and all new Products developed
by EFI in accordance with the specifications confirmed and agreed upon by EFI
and Hubbell. Such specifications are set forth in Schedule B attached hereto and
made a part hereof.
Article 2 - Supply and Purchase.
2.1 Subject to the terms and conditions of this Agreement, EFI agrees to
manufacture and supply the Products to Hubbell and Hubbell agrees to purchase,
promote and sell such Products to its customers as follows:
(a) EFI grants to Hubbell the right to sell the Products on an exclusive
basis in the United States and Canada to all electrical distributors, industrial
distributors, electronics distributors, and data/com distributors (collectively
"Electrical Industry") as set forth by example on Schedule C attached hereto and
made a part hereof, beginning on January 1, 1998.
(b) EFI grants to Hubbell the right to sell the Products to any other
customers on a non-exclusive, worldwide basis.
(c) During the term of this agreement or any renewal period thereof, EFI
will not enter into any OEM or private label agreements relating to any of the
Products for sales to the Electrical Industry in the United States and Canada
with any of the entities listed on Schedule D attached hereto and made a part
hereof EFI may, however, manufacture such products if (i) such products are
substantially specified or designed by the OEM or private label customer and are
not intended for resale in the Electrical Industry markets or (ii) the product
supplied to the OEM or private label customer becomes a part of that customer's
product which function is not primarily TVSS.
(d) EFI shall retain existing business at (i) Worldspan plugstrip sales
through GE Supply, (ii) Lucent iAR sales through Graybar (the Lucent business
may be transferred to Hubbell if a mutual agreement can be met on pricing and
sales coverage); and (iii) the State of Utah contract business thru Codale
Electric (provided each party uses its reasonable best efforts to have this
business transferred to Hubbell).
2.2 Subject to the terms and conditions of this Agreement, Hubbell agrees to
purchase the Products from EFT by issuing Purchase Orders ("P.O. ") from time to
time to EFI, the terms and conditions of which will control if there is a
conflict with the terms and conditions of EFI's order acknowledgment.
2.3 Hubbell agrees to purchase from EFI the minimum amounts of its TVSS
requirements per calendar year as set forth on Schedule E attached hereto and
made a part hereof, commencing on January 1, 1998. If Hubbell does not commence
purchase of those minimum requirements and announce the launch of the Product @
to the Electrical Industry with the logistics support to provide immediate
availability by January 1, 1998, then the exclusivity set forth in Section 2. I
(a) above will be postponed on a day-to-day basis until Hubbell commences its
purchases.
Hubbell shall place minimum stocking orders with EFI, and EFI shall meet the
delivery schedule as follows:
Delivery by December 31, 1997 ------ + Delivery by March 31, 1998 ------ +
Delivery by June 30, 1998 ------ +
In order for Hubbell to meet its inventory requirements for launch, additional
inventory will be shipped by EFI on January 2, 1998, as required by Hubbell.
Consequently, EFI will begin building stocking orders for Hubbell by November 1,
1997.
If any of these commitments as set forth in this paragraph are delayed for
longer than three (3) months, then the party not responsible for the delay may
invoke the provisions of paragraph 8.1 hereinafter.
2.4 If this Agreement is renewed in accordance with Paragraph 7.2 hereof, the
annual quantity of the Products to be purchased by Hubbell during the renewal
period shall be mutually agreed upon by Hubbell and EFI on a one (1) year basis
at least one hundred eighty (180) days prior to the beginning of each renewal
period.
<PAGE>
2.5 Hubbell will provide to EFI a unit forecast on a twelve (12) month rolling
basis with a three (3) month commitment, and EFI will provide to Hubbell a three
(3) month advance written notification of any capacity restraints.
2.6 In the event Hubbell requires a change in a delivery schedule on any order
placed by Hubbell and accepted by EFI, Hubbell shall inform EFI of such change
not later than ninety (90) days prior to the originally scheduled delivery date.
If such advance notice is given, EFI will be bound by such revised date, subject
to the written consent of EFI which consent shall not be unreasonably withheld.
If such notice is not given on a timely basis, EFI may reject or accept such
delivery schedule change, at its option.
2.7 EFI will place, at Hubbell's request, the brand name or trademark(s) of
Hubbell or any of its affiliates on all Products, and EFI will cease such use
immediately upon termination of this Agreement.
2.8 Hubbell will require from EFI technical support including test data,
specifications, and competitive evaluations. Hubbell will also require
assistance from EFI relating to user demonstrations and collateral materials.
EFI, in support of Hubbell, will provide, at no cost to Hubbell, up to two(2)man
days per month of technical support for the duration of this Agreement.
2.9 To the extent EFI cannot supply any one of the Products in sufficient
quantities to meet the forecasted demands of Hubbell as described in paragraph
2.5 herein, EFI will cooperate fully with Hubbell so as to enable Hubbell to
meet Hubbell's supply requirements of such Product(s) to its customers,
including, but not limited to, granting Hubbell a non-exclusive license to any
patents, patent applications or other intellectual property rights covering the
Products in accordance with Schedule D. In addition, EFI will allow Hubbell use
of the molds, tools, dies, technical information, documentation, 'LJL listings,
etc. necessary to allow the manufacture and production of the Product(s) by
Hubbell. The consideration for this assignment will be the payment by Hubbell to
EFI of a five percent (5 %) royalty.
2.10 Hubbell and EFI intend to increase the channels, markets and Products to
which Hubbell has exclusive rights over the term of this Agreement. Such
channels may include, but are not limited to, utility distribution and
Do-It-Yourself markets and will be determined after a mutually agreed upon
business plan for new channels and markets is developed and volume commitments
are made. Accordingly, Hubbell and EFI agree as follows:
(a) Hubbell will use its reasonable best efforts to work with EFI to
identify all opportunities that now exist or may exist in the future for
promotion and sales of TVSS devices in every platform, group or division of
Hubbell.
(b) Any current or future TVSS requirements identified by Hubbell will be
brought to the attention of EFI for the opportunity to quote, develop, design,
manufacture and fulfill such requirements under substantially equal or similar
terms as any other competitor, excluding Hubbell affiliated operations. If
agreeable to both parties, terms covering these requirements will be added to
this Supply Agreement.
(c) In the event that additional opportunities are identified and Hubbell
and EFI agree to terms and annual commitment amounts, such opportunities will be
incorporated into this Agreement by amending Schedules A, B, C, E, F of this
Agreement.
<PAGE>
Article 3 -- Order, Price and Payment
3.1 All P.O.'s for the Products placed by Hubbell shall be acknowledged by EFI
in writing within seventy-two (72) hours of receipt of the P.O.
3.2 Prices for the Product to be purchased by Hubbell shall be F. O.B. EFI, Salt
Lake City, Utah and shall be in accordance with the price lists set forth in
Schedule F attached hereto and made a part hereof These prices shall not be
changed during the one year period following the initial shipment of the initial
Products. Thereafter, EFI may change prices once a year, but only upon six (6)
months prior written notice to Hubbell and in accordance with the pricing
formula for each Product as set forth on Schedule G attached hereto and made a
part hereof. It is the intention that the prices will allow Hubbell to be
competitive in its distribution channels, and notwithstanding anything herein to
the contrary, Hubbell will receive "most favored nations" pricing with similar
quantity commitments and terms and conditions.
In the event of a price increase, the total minimum quantity of the Product(s)
effected by the price increase, to be supplied under this Agreement shall not be
binding, but may be changed as mutually agreed upon between the parties.
3.3 Hubbell shall make the payment to EFI for each shipment of the Products by
check in U.S. currency at I % 10 Net 30 unless the Products covered by such
invoice have been rejected under the terms of paragraph 5.3 hereof.
In the event of any conflict between the terms and conditions of any P.O. or
order acknowledgment of EFI and those of this Agreement, the terms and
conditions of this Agreement shall control.
Article 4 -- Patents and Other-Industrial Property Rights
4.1 All intellectual property rights, including patent, patent applications and
trademarks related to the Products are and shall remain the property of EFI. In
the event any claim of infringement or alleged infringement of patents or any
other intellectual property rights is brought to the attention of Hubbell by a
third party with respect to the manufacture, use, sale or distribution of the
Products under this Agreement, Hubbell shall promptly notify EFI of such claim,
and Hubbell shall use its reasonable best efforts to assist EFI, at EFI's
request, in taking steps to defend such rights, all at EFI's expense. Hubbell
shall also use its reasonable best efforts to assist EFI in connection with any
prosecution by EFI with claims of infringement against third parties, all at
EFI's costs and expense.
EFI shall be liable for and shall indemnify and hold Hubbell, its customers and
end users harmless against any claim or risk of patents or design infringement
or other intellectual property rights by reason of the manufacture, use, sale or
distribution of the Products under this Agreement.
Article 5 - Inspection and Warranty
5.1 EFI warrants the Products at the time of shipment thereof by EFI to Hubbell
to be free from any defect in material or workmanship and further warrants the
Products to be in conformity with the specifications and/or any applicable
warranty set forth in Schedule B.
<PAGE>
5.2 EFI shall inspect each shipment lot of Products before the shipment from
EFI's factory in accordance with EFI's Shipment Quality Inspection Standard. EFI
shall only ship Products which have satisfied the Acceptance Quality Level which
is confirmed and agreed upon by the parties hereto and is specified in Schedule
H attached hereto and made a part hereof (hereinafter refer-red to as " A. Q. L.
").
5.3 Hubbell shall perform an acceptance inspection of the Products in accordance
with the A. Q. L. at its inspection facility within thirty (30) days after
receipt of the Products. EFI shall have the right to be present at such
inspection. In the event that the Products fail to meet the A. Q. L. , Hubbell
shall notify EFI to that effect with supporting documents, not later than
fourteen (14) working days after the inspection. EFI shall dispose of the
Products which fail to meet the A. Q. L. in the following manner at the option
of EFI: (a) to request Hubbell to re- inspect the total quantities of the
shipment lot of the Products at the expense of EFI, or (b) to request Hubbell to
return to EFI for scrapping or other disposition the total quantities of the
shipment lot of the Products, at the expense of EFI.
5.4 Except as set forth in paragraph 5.7 hereof, in the event that EFI elects to
request Hubbell to re-inspect the total quantities of the shipment lot of the
Products, EFI's liability for all the defective Products discovered in such
re-inspection shall be limited to paying the direct cost and expense incurred in
such re-inspection and to supplying Hubbell with replacement Products equal to
the number of defective Products free of charge.
5.5 Except as set forth in paragraph 5.7 hereof, in the event that FFI elects to
request Hubbell to return to EFI for scrapping or other disposition the total
quantities of the shipment lot of the Products, EFI's liability for such
defective Products shall be limited to paying direct cost and expense arising
from such scrapping, other disposition or returning and to supplying Hubbell
with the replacement Products equal to the number of defective Products free of
charge.
5.6 In the event that Hubbell does not make any claim against EFI within the
time period specified in paragraph 5.3 hereof, Hubbell shall be deemed to have
completed the inspection, accepted the Product and, except for Warranty(ies)
Claim(s) and Latent Defects, waived any claim arising out of the Products
delivered.
5.7 Notwithstanding the foregoing, EFI shall supply and adhere to any and all
applicable Product warranty, and be responsible for any defect in the Products
of such nature as would not be reasonably found upon the acceptance inspection
made under Paragraphs 5.2 and 5.3 above (hereinafter referred to as a
"Latent Defect"), for a period of twenty-four months after receipt of the
Products by Hubbell or for the applicable warranty period as set forth in EFI's
warranty, whichever is longer. In the event such Latent Defect is found, Hubbell
may submit claims for such defective Products in writing to EFI with supporting
documents after the discovery of the Latent Defect. Furthermore, EFI agrees to
protect, defend, indemnify and save harmless Hubbell from and against any and
all liability, loss, damage, expense, claims and demands of every kind and
character including, reasonable attomey's fees, (hereinafter referred to as
"damage claims"), for damages, based on arising out of personal injury or
property damage to any person or entity whomsoever or whatsoever arising out of
claims made by customers or users of the Product. Hubbell shall, in cooperation
with EFI investigate all damage claims. EFI shall defend any and all such
actions based thereon and shall reimburse Hubbell, from the date of notification
to EFI, for all costs, damages, awards and expenses of whatever nature,
including
<PAGE>
attorney's fees, in connection therewith or resulting therefrom. Hubbell shall
notify EFI within thirty (30) days of any claim under the provisions of
paragraph 5.7 and EFI shall assume the defense of any and all actions and shall
reimburse Hubbell, from the date of notification to EFI, for costs or expenses
of defense of the specific claim. For any Latent Defect, EFI will provide a plan
for correction within 30 days of notification of such claim. Failure to provide
the corrective plan within the 30 days or failure of the corrective plan to cure
the Latent Defect shall constitute a material breach of EFI's obligations under
this Agreement.
Article 6 - Changes in Design and Specification
6.1 EFI shall not make any modifications to the form, fit or function of the
designs or specifications of the Products unless and until such modifications
are agreed to by Hubbell in writing. In the event of such modification, Schedule
B attached hereto, shall be revised accordingly or replaced with a new Schedule.
6.2 In the event any Product malfunction occurs in the usual and intended use of
the Product, EFI will consult with Hubbell in an attempt to remedy the
malfunction, as soon as EFI is made aware of the malfunction and, with the
consent and technical support of Hubbell, EFI shall endeavor to correct the
cause of such malfunction.
Article 7 - Term
7.1 This Agreement shall become effective on August 26, 1997, and shall continue
in full force and effect until August 26, 2002, unless earlier terminated
pursuant to any of the provisions set forth herein.
7.2 This Agreement shall be automatically extended for successive one (1) year
periods unless either party gives at least six (6) months' written notice to the
other party prior to the expiration date of the term of this Agreement or any
extended term thereof.
7.3 Except with respect to the provisions of Paragraph 5.7 hereof, upon
expiration of this Agreement in accordance with this Article, neither party
shall have the right to demand compensation from the other party for any damage
incurred, directly or indirectly, by the expiration of this Agreement.
Article 8 - Termination
8.1 If either party breaches any of the provisions of this Agreement, the other
party may give written notice of such breach to the party in breach. If such
breach is not cured within three (3) months after the dispatch of such notice,
the complaining party shall be at liberty, by notice in writing to the party in
breach, to terminate this Agreement forthwith without prejudice to any other
remedies which the terminating party may have against the breaching party.
8.2 If either party hereto shall be dissolved, liquidated, declared bankrupt or
become insolvent or has commenced proceedings relating to bankruptcy or creditor
composition, either voluntary or otherwise, or because of adverse change in its
structure or financial situation shall become unable to continue to fully or
effectively perform its obligations hereunder, or become a non-surviving party
to a merger or amalgamation, or be substantially acquired, the other party
hereto may, at its option and without prejudice to any other remedies the
terminating party may have, terminate this Agreement immediately upon giving
written notice to the other party hereto stating the cause of such termination.
<PAGE>
8.3 The termination or expiration of this Agreement shall not affect in any way
the rights and obligations of either party under any other contract between the
parties regarding the Products, nor relieve any party of any obligation or
liability accrued hereunder prior to such termination or expiration.
Article 9 - Notices
Any notice required or permitted to be given under this Agreement shall be in
writing and shall be valid and sufficient if dispatched by certified mail,
return receipt requested to the address of the party herein first above written
or by an acknowledged, facsimile at the following fax numbers: if to Hubbell
(203) 799-4333, Attention: R. W. Davies or if to EFI (801) 977-3467,
Attention: R. Clasen. Any notice so given shall be deemed as having been
properly given on the date of mailing or date of the facsimile.
Article 10 - Assignment
Neither this Agreement nor any of the rights or interests of either party
hereunder may be assigned, transferred or conveyed without prior written consent
of the other party hereto.
Article 11 - Observance of Laws
Anything to the contrary in this Agreement notwithstanding, the parties agree to
abide by the laws of the United States of America and any other law or laws
applicable to this Agreement and the transactions contemplated herein. This
Agreement shall be governed, construed, and enforced by, and in accordance with,
the Laws of the State of Delaware, U.S.A.
Article 12 - Non-Waiver
No waiver of any provision, default or breach of this Agreement by either party
hereto shall constitute a continuing waiver or a waiver of any subsequent breach
of default whether or not similar, unless expressly so stated in writing by the
waiving party.
Article 13 - Force Majeure
Neither EFI or Hubbell shall be liable for delay or failure in the performance
of this Agreement arising from any of the following matters: (a) acts of God,
public enemy or war (declared or undeclared);
(b) acts of governmental authorities of the U.S.A., or any political subdivision
thereof, or of any department or agency thereof, or regulations or restrictions
imposed by law or by court action;
(c) acts of persons engaged in subversive activities or sabotage;
(d) fires, floods, expositions or other catastrophes;
(e) epidemics or quarantine restriction;
(f) strikes, slowdowns, lockouts or labor stoppages or disputes of any similar
kind;
(g) freight embargoes, or interruption of transportation;
(h) unusually severe weather; or
<PAGE>
(i) any other causes, similar or dissimilar, beyond the control of the party
concerned; and the time for performance by such party shall be extended for the
period of any such delay as caused by any of the circumstances mentioned above,
except if such delay was foreseen and could have been negated.
Article 14 - Arbitration of Dispute
A. All claims or disputes between the parties arising out of or related to the
Agreement or the breach thereof, shall be decided by arbitration in accordance
with the rules of the American Arbitration Association. Notice of the demand for
arbitration shall be filed in writing with the other party and with the American
Arbitration Association. The award rendered by the arbitrator or arbitrators
shall be final, and judgment may be entered upon it in accordance with
applicable law in any court having jurisdiction. Any arbitration proceeding
shall be held in Chicago, Illinois.
B. If the award is reduced to a judgment, then, in that event, EFI hereby
irrevocably and unconditionally:
(i) submits in any legal action or proceeding relating to this Agreement and the
Schedules hereto to the non-exclusive general jurisdiction of the Courts of the
State of Delaware, the courts of the United States of America for the
District of Delaware, and appellate courts from any thereof; and
(ii) consents that any such action or proceeding may be brought in such courts
and waives any objection that it may now or hereafter have to the venue of any
such action or proceeding in any such court or that such action or proceeding
was brought in an inconvenient court and agrees not to plead or claim the same.
Article 15 - Entire Agreement and Amendment
15.1 This Agreement and its Schedules set forth the entire understanding and
agreement between the parties hereto with respect to the subject matter hereof
and all prior agreements, understandings, discussions and writings concerning
the subject matter hereof are superseded hereby and merged herein.
15.2 Any modification or amendment of this Agreement shall be valid and take
effect only if reduced to writing and signed by a duly authorized officer of
each of the parties hereto.
Article 16 - Severability
Should any part or provision of this Agreement be held unenforceable or in
conflict with the law of any jurisdiction, the validity of the remaining parts
or provisions shall not be affected by such holding. The parties hereto
undertake to replace such invalidated part, if necessary, by a replacement and
non-conflicting term in the same spirit as the original.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed
in triplicate by their duly authorized representatives.
HUBBELL INCORPORATED (DELAWARE)
By: <signature here-James H. Biggart>
Title: Treasure
On: August 22, 1997
EFI ELECTRONICS CORPORATION
By: <signature here-R. D. Clasen>
Title: President and CEO
On: August 25, 1997
<PAGE>
SCHEDULE A
PRODUCTS
HARDWIRE INDUSTRIAL PRODUCTS
Part Number Description
+ +
<PAGE>
SCHEDULE A
PRODUCTS
(continued)
PLUGSTRIP PRODUCTS
Part Number Description
+ +
<PAGE>
SCHEDULE B
SPECIFICATIONS AND WARRANTIES
(Specifications and Warranties to be supplied by EFI)
<PAGE>
SCHEDULE B
SPECIFICATIONS AND WARRANTIES
(continued)
Hubbell
Plug-In TVSS Product Specification Summary
DEVICE
P-50ES
P-50ET
P-150ES
P-150ET
P-1500ES
P-1500ET+
+
+
+
+
+
+PACKAGING
+
+
+
+
+
+
+TERMS
+
**See attached warranties
+
<PAGE>
SCHEDULE B
SPECIFICATIONS AND WARRANTIES
(continued)
Hubbell
Hardwired TVSS Product Specification Summary
DEVICE
Din Guard
Titan 65W
Titan 65T
Titan 65F
Titan 100W
Titan 100P
Titan 160P
Panel
Master
Titan 320P+
+
+
+
+
+
+
+
+
+PACKAGING
+
+
+
+
+
+
+
+
+
+TERMS
+
**See attached warranties
+
<PAGE>
SCHEDULE B
SPECIFICATIONS AND WARRANTIES
(continued)
Hubbell
HomeGuard TVSS Product Specification Summary
DEVICE
HomeGuard+
+PACKAGING
+
+TERMS
+
**See attached warranties
+
<PAGE>
SCHEDULE B
SPECIFICATIONS AND WARRANTIES
(continued)
EFI Electronics Corporation 5 Year Limited Warranty
EFI will, at its option, repair or replace any EFI product that is defective or
is damaged by an electrical surge (including those caused by lightning) for a
period of five (5) years from date of purchase.
The above coverage applies to the original end user purchaser only and is the
exclusive remedy under this warranty, whether based on contract, tort, including
negligence, or otherwise. This coverage is secondary to any applicable
warranties, service contracts and all other insurance. EFI reserves the right to
audit damage, site and/or cost of repairs and may require a notarized proof of
loss. Claims must be made within 30 days of damage. This warranty does not cover
damage associated with sustained overvoltages, vandalism, theft, normal wear and
tear, obsolescence, abuse, nonauthorized modification or alteration, misuse,
improper installation or catastrophic events.Except as expressly provided by
this warranty, EFI disclaims liability for any incidental, indirect, special or
consequential damages arising out of the sale or use of any EFI product
(including without limitation lost business profits, loss of data and all
freight, mileage, travel time and insurance charges associated with warranty
coverage claims). Some states do not allow the exclusion or limitation of
incidental or consequential damages, so the above limitation or exclusion may
apply to you. This warranty gives you specific legal rights and you may have
other rights which vary from state to state. This warranty is valid in the
United States and Canada only.
Claim Procedure:
Contact EFI at the number below to obtain a return authorization number. Return
EFI device to EFI, freight prepaid.
EFI returns working device, freight prepaid.
CAUTION:
Effective surge suppression requires correct wiring.
<PAGE>
SCHEDULE B
SPECIFICATIONS AND WARRANTIES
(continued)
Limited Lifetime Warranty Information
Surges often enter and damage equipment through phone, cable TV, TV antenna, and
data communication lines. To properly protect your connected equipment, install
EFI surge suppression products on all incoming lines.
Lifetime Product Coverage
EFI will repair or replace any EFI product that is defective or is damaged by an
electrical surge (including those caused by lightning).
Lifetime Connected Equipment Coverage
EFI will pay up to the amount stated on the box of the specific EFI surge
protector you purchased to repair or replace (whichever is less), with like kind
or quality, properly connected to equipment that is damaged by an electrical
surge provided the EFI product (1) was plugged into a grounded, three-prong
outlet and (2) was also damaged from the same electrical surge.
The above coverage applies to the original purchase only and is the exclusive
remedy under this warranty, whether based on contract, tort, including
negligence, or otherwise. This coverage is secondary to any applicable
warranties, service contracts and all other insurance. EFI reserves the right to
audit damage, site and/or cost of repairs and may require a notarized proof of
loss. Claims must be made within 30 days of damage. This warranty does not cover
damage associated with sustained overvoltages, vandalism, theft, normal wear and
tear, obsolescence, abuse, nonauthorized modification or alteration, or
catastrophic events. Except as expressly provided by this warranty, EFI
disclaims liability for any incidental, indirect, special or consequential
damages arising out of the sale or use of any EFI product (including without
limitation all freight, mileage, travel time and insurance charges associated
with warranty coverage claims). Some states do not allow the exclusion or
limitation of incidental or consequential damages, so the above limitation or
exclusion may not apply to you. This warranty gives you specific legal rights
and you may have other rights which vary from state to state. This warranty is
valid in the United States and Canada only.
For warranty customer assistance or to file a claim, call: 1-800-877-1174
Indicator Lights Information
All PowerTracker devices use two indicator display lights to alert you to Power
Tracker system effectiveness.
Protected Indicator:
Shows green light "ON" when surge protection device circuitry is functioning
properly.
Wiring Indicator:
Shows green light "ON" when the wall outlet is wired properly. If the indicator
is "OFF," this means that the wall outlet receptacle is not grounded properly
or the hot and neutral wires are reversed. You are advised to have a licensed
electrician inspect and correct your outlet wiring.
CAUTION: Effective surge suppression requires correct wiring.
<PAGE>
SCHEDULE C
DISTRIBUTORS CHANNELS
+
Electrical
+
Industrial
+
Electronic
+
Data/Com
+
<PAGE>
SCHEDULE D
OEM/PRIVATE LABEL ENTITIES
+
<PAGE>
SCHEDULE E
ANNUAL VOLUME
1998 +
1999 +
2000 +
2001 +
2002 +
<PAGE>
SCHEDULE F
EFI PRICING
EFI Cat# Hubbell Cost
+ +
<PAGE>
SCHEDULE G
PRICING FORMULA
Ananual Purchases* Pricing
+ Same as Schedule F**
+ Schedule F**+
+ Schedule F**+
*based on purchases of Products for the previous twelve (12) months,
each calendar year
**as current or subsequently modified in the future
<PAGE>
SCHEDULE H
ACCEPTANCE QUALITY LEVEL ("A.Q.L.")
+
<PAGE>
[TYPE] EX 10.4
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT ("Agreement') is made and entered into effective
as of the 12th day of September, 1994, by and between EFI Electronics
Corporation, a corporation existing under the laws of the State of Delaware
(hereinafter referred to as "EFI") and Richard B. Clasen (hereinafter referred
to as "Executive").
RECITALS:
A. EFI desires to employ Executive as the President of EFI and
as its Chief Executive Officer on the terms and conditions set
forth herein;
B. EFI provided a letter to Executive dated September 9, 1994,
summarizing the proposed terms of Executive's employment with EFI;
and
C. Executive desires to be employed with EFI on the terms and conditions
set forth therein and herein.
AGREEMENT:
NOW, THEREFORE, in consideration of the foregoing premises and the mutual
covenants set forth below, EFI and Executive hereby agree as follows:
1. Term and Duties. EFI hereby offers and Executive hereby accepts
employment with EFI for a term of one (1) year beginning September 12, 1994 and
ending September 11, 1995 as President and Chief Executive Officer of EFI or
such other comparable positions(s) with such other comparable duties as may be
specifically designated for him from time to time by the Board of Directors of
EFI in the exercise of its discretion; provided, however, at no time during the
term of this Agreement shall Executive's title be less than that herein before
described.
Executive shall also be appointed to the Board of Directors and the
Executive Committee of the Board as of September 12, 1994. Executive shall at
all times during his employment under this Agreement, to the best of his
ability, energy and skill, faithfully perform all of the duties that may be
required of him from time to time by the Board of Directors of EFI. During the
period of his employment by EFI, Executive shall not, directly or indirectly,
further the affairs of any other corporation, partnership or of any business
enterprise by employment of any kind, investment therein, counseling or
otherwise. Provided, however, that nothing contained in this Agreement or any
extension hereof shall prohibit Executive from (i) holding investments in
companies which do not compete with EFI and which are fully disclosed to the
Board of Directors of EFI (in the case of such investments existing prior to
employment of Executive) or which are disclosed by Executive in advance of
making such investments (in the case of investments proposed to be made
hereafter) or, (ii) serving as a member of the board of directors of other
companies which do not compete with EFI, provided that the written consent of
the Board of Directors of EFI must be obtained with respect to the holding of
existing or proposed investments and/or with respect to service by a Executive
as a member of the board of directors of a noncompeting company. Provided,
further, that nothing herein shall be construed to prohibit Executive from
acquiring, in open market transactions, investments in equity stock or evidences
of indebtedness of a corporation if such stock or such evidence of indebtedness
is traded on a national securities exchange or NASDAQ and the investment therein
represents no more than five percent (5%) of the outstanding securities of the
issue being acquired.
2. Renewal. This Agreement shall automatically renew on September 12, 1995
for a one (1) year period and on September 12 of every year thereafter ("Renewal
Date") for a one (1) year period, unless either party hereto provides written
notice of intent not to renew this Agreement on or before ninety (90) days prior
to the next Renewal Date.
3. Compensation.
A. Base Salary. As compensation during the term of this Agreement,
Executive shall receive a base salary of $12,500 per month to be paid consistent
with EFI's payroll schedule and procedures. Executive's base salary shall be
reviewed annually by the Compensation Committee to EFI's Board of Directors. The
Compensation Committee shall make annual recommendations to EFI's Board of
Directors regarding Executive's compensation package.
B. Bonus and Incentive Plans. Executive shall have the opportunity
to participate in all bonus, stock and option award programs which are available
to other officers of EFI. Such participation is subject to the terms and
conditions of such programs. During fiscal 1995, Executive will participate in
the Executive Bonus Incentive Program and the Incentive Stock Option Plan and
any other bonus or incentive plans approved by the Board.
C. Automobile Allowance. During the term of this
Agreement, EFI will pay Executive $700 per month as an automobile
allowance.
D. Stock Options. EFI will grant to Executive options to purchase
100,000 shares under the Incentive Stock Option provision of EFI's Nonqualified
Stock Option Plan and Incentive Stock Option Plan. These options will be granted
as of September 12, 1994 and will be exercisable at $1.50 per share, the closing
price of EFI's stock on that date. The options are subject to the terms of the
Plan, a copy of which has been provided to Executive.
E. Stock Purchase/Loan. EFI will make Executive a loan in the
amount of $150,000 which Executive shall use to purchase 100,000 shares of the
Common Stock of EFI. The loan shall bear interest at the prime rate quoted on
September 12, 1994, by Key Bank, Salt Lake City, Utah, plus one percent (I %),
and shall be due and payable on the earlier of, sixty (60) days after
termination of Executive's employment for any reason or, September 12, 2000.
Executive's obligation to repay the loan will be secured solely by the shares
purchased plus a right to offset any amounts then due to Executive pursuant to
any payments for Performance Units described in subparagraph F below. Executive
shall deliver to EFI the certificate evidencing the shares endorsed or
accompanied by an executed stock power to perfect EFI's security interest in the
shares. In the event of default by Executive of payment of the obligation when
due, Executive shall not be liable for any deficiency remaining after
disposition of the shares and application of the proceeds. In addition to any
remedies upon default which EFI may have as a secured creditor under the Utah
Uniform Commercial Code, Executive hereby grants to EFI a right of offset with
respect to the shares pledged as security for repayment of the obligation.
F. Performance Units. Effective as of September 12, 1994, Executive
is hereby awarded 100,000 Performance Units having a base value of $1.50 per
unit. If Executive is employed by EFI on September 12, 1996, EFI will pay to
Executive in cash or in not more than four annual installments with interest at
8% per annum, the difference between the base value of a Performance Unit and
the value of a share of Common Stock of EFI which shall be the average closing
sale price per share reported on the NASDAQ/NMS Stock Market for the twenty (20)
trading days preceding September 12, 1996. If the Common Stock of EFI is not
traded on the NASDAQ/NMS Stock Market, then the value shall be determined by
reference to the average closing sale price or the average median of the bid and
asked price for EFI Common Stock on the exchange or quotation service where such
common stock is listed or quoted for the twenty (20) trading days prior to
September 12, 1996. If EFI Common Stock is not then listed or quoted on any
exchange or quotation service, the Board of Directors of EFI shall make a good
faith valuation of such shares which shall be binding on Executive. If Executive
is not employed by EFI on September 12, 1996, Executive shall not be entitled to
any payment for Performance Units; provided, however, if Executive's employment
is involuntarily terminated prior to September 12, 1996 by reason of a change in
control (as hereinafter defined), Executive shall be entitled to payment for
Performance Units calculated as hereinabove set forth as of the date of such
termination. Executive shall be responsible for all federal and state taxes due
in connection with payments for Performance Units.
G. Moving and Transition Expenses. EFI will reimburse Executive for
the expenses of airfare for two (2) trips per month from Dallas to Salt Lake
City and the reasonable cost of an apartment during the time required to
relocate Executive's family to Salt Lake City.
EFI will pay all reasonable and customary moving expenses actually
incurred by Executive for office, household and family relocation from Dallas to
Salt Lake City. Additionally, EFI will issue shares of EFI Common Stock valued
at $1.50 per share in an amount equal to the brokerage commission payable by
Executive in connection with sale of Executive's Dallas home. The expenses shall
be paid upon receipt by EFI of appropriate documentation of such expenses.
Executive shall be responsible for any federal and state income taxes resulting
from reimbursement of such expenses. In the event Executive voluntarily
terminates employment with EFI prior to September 12, 1995, Executive shall
repay all expenses reimbursed and return all shares of EFI Common Stock issued
for reimbursement of brokerage commissions.
H. Business Expenses. During the term of this Agreement, Executive
shall be reimbursed for his reasonable business-related expenses incurred for
the benefit of EFI in accordance with EFI's policies governing such
reimbursement in effect from time to time. With respect to any expense which are
reimbursed by EFI to Executive, Executive shall account to EFI in sufficient
detail to entitle EFI to a federal income tax deduction for such reimbursed
item.
4. Employment Benefits. Executive shall be entitled to participate in any
plans maintained by EFI relating to retirement, health, disability, life
insurance and other employee benefits in accordance with their terms; provided,
however, that this provision shall not be construed to require EFI to establish
or maintain any such plans. Vacation time shall be granted to Executive in
accordance with EFI's established policies in effect from time to time with
respect to its executives and shall be taken by Executive at such time or times
as are mutually satisfactory to the parties. Pursuant to such policies,
Executive will be eligible for seven (7) vacation days during the 1994 calendar
year, 15 days during calendar 1995 and one (1) additional day in each calendar
year thereafter to a maximum of 20 days per calendar year. Executive shall not
receive additional compensation for vacation time. Executive acknowledges that
unused vacation time in any calendar year shall be forfeited.
5. Termination. This Agreement shall terminate upon the
happening of any of the following events:
(a) Executive's disability as determined under EFI's
disability insurance plan;
(b) Executive's death;
(c) notice of non-renewal given pursuant to Section 2 hereof in which event
the Agreement will terminate on the September 11th following the notice of
non-renewal;
(d) at EFI's option, in the event of any act by Executive as defined in
Section 6 hereof as "discharge for cause;"
(e) at EFI's option other than under Items (a)-(d) above;
or
(f) at Executive's option, other than under Items (a)-(d) above.
Upon termination pursuant to Items (a), (b), (d) or (f), Executive shall be
entitled to receive only the compensation accrued but unpaid and accrued
vacation days of the date of termination, and he shall not be entitled to
additional compensation or benefits hereunder, except as expressly provided in
this Agreement.
6. Severance. If this Agreement is terminated by EFI pursuant to Item (c)
or (e) of Section 5 hereof, EFI shall pay to Executive (i) if termination occurs
during the initial one (1) year of Executive's employment, an amount equal to
Executive's base salary for one (1) year, or (ii) if termination occurs at any
time after one (1) year of employment, an amount equal to six (6) months of
Executive's base salary immediately following his termination plus one-half (1h)
of the amount of any bonus earned during the twelve-month period prior to such
termination, under the Executive Bonus Incentive Program or under any other
applicable bonus program. Such payments will be made in installments pursuant to
EFI's regular payroll schedule and procedures. EFI will make the payments under
this section regardless of Executive's re-employment with another entity.
Executive's compliance with the terms of this Agreement, including but not
limited to the confidentiality provision and noncompetition provision, is a
condition precedent to EFI's obligation to make any payments provided under this
Section.
Discharge "For Cause" shall be construed to have occurred whenever
occasioned by reason of:
(1) unlawful acts on the part of Executive;
(2) actions by Executive involving serious moral
turpitude;
(3) Executive's material violation of Company policy;
(4) Executive's misconduct that brings substantial
and
material discredit or harm upon EFI;
(5) Executive's material breach of this Agreement; or
(6) Executive's gross negligence in the performance of his duties.
In establishing whether a discharge For Cause shall have occurred, the
standard for judgment shall be the level of conduct by other comparably situated
executive officers of EFI prior to the alleged improper activity of Executive.
7. Confidentiality . From and after the date of execution of this Agreement,
and continuing after the expiration or termination of this Agreement for any
reason whatsoever, Executive shall keep secret and inviolate all knowledge or
information of confidential nature, including all unpublished matter relating
to, without limitation thereof, business, properties, accounts, books and
records, processes, procedures, products, market plans, research and development
matters, know-how, trade secrets, memoranda, devices, suppliers and customers of
EFI which he may now know or hereafter come to know as a result of affiliation
in business with EFI. Any violation of this covenant may be enforced by specific
performance and injunctive relief in any court of competent jurisdiction.
8. Restrictive Covenants.
(a) From the date hereof until the date that Executive's employment
with EFI is terminated and for two (2) years thereafter if Executive is
terminated For Cause and for one year thereafter if the Executive is terminated
for any other reason, Executive will not knowingly, directly or indirectly,
individually or as an employee, partner, officer, director or stockholder or in
any other capacity whatsoever of any person, firm, partnership or corporation:
(i) recruit, hire, assist others in recruiting or hiring, discuss employment
with or refer to others any person who is, or within the preceding 12 months
was, an employee of EFI or any subsidiary thereof or of any present, prospective
or former customer of EFI or any subsidiary thereof, (ii) compete with EFI or
any subsidiary thereof, (iii) call upon, solicit, sell or endeavor to sell to,
any customer, prospective customer or former customer of EFI or any subsidiary
thereof; or (iv) engage in or participate in, directly or indirectly, any
business conducted under any name that shall be the same or as or similar to the
name of EFT or any trade name used by it.
(b) Executive will promptly disclose to EFI all processes,
trademarks, inventions, improvements, discoveries and other information related
to the business of EFI (collectively, "developments") conceived, developed or
acquired by him alone or with others during Executive's employment with EFI
hereunder, whether or not during regular working hours or through the use of
material or facilities of EFI. All such developments shall be the sole and
exclusive property of EFI, and, upon request, Executive shall deliver to EFI all
drawings, sketches, models and other data and records relating to such
developments. In any event any such development shall be deemed by EFI to be
patentable, Executive shall, at the expense of EFI, assist EFI in obtaining a
patent or patents thereto and executive all documents and all other things
necessary or proper to obtain letters patent and invest EFI with full title
thereto; provided, however, that no such assistance shall be required after
Executive has been terminated for any reason other than For Cause.
(c) Executive will not at any time after the date hereof knowingly
divulge, furnish or make accessible to anyone (otherwise than in the regular
course of business of EFI) any knowledge or information with respect to
confidential or secret processes, inventions, discoveries, improvements,
formulae, plans, material devices or ideas or other know-how, whether patentable
or not, with respect to any confidential or secret engineering, development or
research work or with respect to any other confidential or secret engineering,
development or research work or with respect to any other confidential or secret
aspects of EFI's business (including, without limitation, customer lists,
instruction manuals, supplier lists and pricing arrangements with customers or
suppliers).
(d) If any provision of this Section 8 should be found by any court
of competent jurisdiction to be unreasonable by reason of its being too broad as
to the period of time, territory, aspects of business or customers covered or
otherwise, then, and in that event, such provision shall nevertheless remain
valid and fully effective, but shall be considered to be amended so that the
period of time, territory, aspects of business or customers covered or otherwise
set forth shall be changed to be the maximum period of time, the largest
territory, the most aspects of business and customers covered and/or the
broadest other limitations, as the case may be, which would be found reasonable
and enforceable by such court and similarly, if any remedy is found to be
unenforceable in whole or in part, or to any extent, such provision shall remain
in effect only to the extent the remedy or remedies would be enforceable by such
court. The provisions of this Section 8 shall not limit or restrict in any
manner any rights or remedies which EFI may have under any separate agreement
with Executive or otherwise with respect to competition by Executive.
(e) The parties to this Agreement hereby acknowledge that the
failure of Executive to perform any of his obligations under this Section 8 will
cause irreparable damage to EFI and that in the event of such failure to perform
EFI shall have, in addition to any and all remedies of law, the right to an
injunction, specific performance or other equitable relief to prevent the
violation of the Executive's obligations under this Section 8.
(f) Notwithstanding anything to the contrary in this Section 8, the
parties agree that any activity, other than actions taken in bad faith or that
constitute gross negligence, undertaken in connection with Executive's efforts
to carry out the responsibilities of his employment with EFI, including but not
limited to Executive's dealings with past, present, or potential future
customers, shall not constitute a breach of Sections 8(a)(i) or 8(a)(iii).
9. Unfunded Agreement. EFI's obligations under this Agreement are unfunded,
but EFI reserves the right to provide for its liability under this Agreement in
any manner it deems advisable, including the purchasing of such assets as it may
deem necessary or proper. Any asset so purchased by EFI shall be the sole
property of EFI and shall not be deemed to provide funding of EFI's obligations
under this Agreement. In the event EFI determines to purchase any insurance
policy or policies with respect to Executive, Executive agrees to submit to such
examination and to supply such information as may be required by the insurer.
Any policy so purchased by EFI shall be issued so that EFI is the sole, full and
complete owner of policy or policies, with the right and power to exercise any
and all privileges and options thereof or available under the rules of the
issuing insurer without the consent of any persons. Executive and his designated
beneficiaries shall be only unsecured general creditors of EFI with respect to
all payments to be made under the terms of this Agreement and shall have no
claim, equity, interest, or right in or to any specific assets or funds of EFI
as security for said payments.
10. Non-Assignable Rights. Executive and his designated beneficiaries shall
not have the right to anticipate or commute with any third party, or to sell,
assign, transfer, or otherwise alienate or convey the right to receive any
payments hereunder, whether by his or her voluntary or involuntary act, or by
operation of law and, in particular, that any payments due hereunder shall not
be subject to attachment to garnishment or any other legal proceedings by any
creditor, or be in any way responsible for the debts or liabilities of Executive
or his designated beneficiaries. Should Executive, or his designated
beneficiaries, voluntarily attempt to breach this Section of this Agreement,
EFI's liability to make payment hereunder from and after the date of said
attempt shall be extinguished; and should any attempt be made to reach the
payments by other than Executive or his designated beneficiaries, EFI shall make
each payment as it becomes due to such person or persons, for the sole benefit
of Executive or his designated beneficiaries, as the case may be, as EFI may
deem expedient.
11. Change of Control. In the event Executive's employment with EFI is
terminated by reason of a Change in Control, EFI shall pay to Executive, in lieu
of the termination payments provided for in Section 6 of this Agreement, an
amount equal to Executive's base salary which shall be equal to Executive's
annual base salary at the time of the occurrence of the Change in Control plus
the amount of any bonuses earned during the twelve-month period prior to the
Change of Control, but shall exclude any other items of compensation not
expressly provided for herein. For purposes of this Section II, Change in
Control shall mean (i) any merger or consolidation of EFI with or into any other
corporation, or any merger, consolidation, sale of securities or other
transaction that results in any "person" (as such term is used in Sections 13(d)
and 14(d) of the Securities Exchange Act of 1934, as amended) (other than EFI,
an underwriter that has temporary ownership pursuant to an offering of EFI's
Common Stock or any trustee or other fiduciary holding securities under an
employee benefit plan of EFI), owning more than 50 percent (50%) of EFI's Common
Stock (on a fully-diluted basis) and (ii) any sale or transfer of all or
substantially all of the assets of EFI (or a series of sales or transfers with
such effect) to any "person" (as defined above). Notwithstanding anything to the
contrary in this Section I 1, in the event Executive shall violate Section 8(a)
of this Agreement during a period in which Executive is no longer employed by
EFI, Executive shall pay to EFI fifty percent (50%) of the cash compensation
that accrued to Executive, and was paid by EFI to Executive, pursuant to this
Section I 1. In the event of a termination which results from a Change in
Control, EFI and Executive agree to cooperate with each other to prevent the
application of Section 28OG and Section 4999 of the Internal Revenue Code of
1986, as amended (the "Code"), it being understood that Executive shall be
liable for the full amount of any excise tax imposed under Code Section 4999 or
any successor thereto on any payments or other compensation paid to Executive in
the case of a Change in Control. Executive agrees to indemnify and hold EFI
harmless against the application of Code Section 4999 on any payment or other
compensation paid to Executive in the case of a Change in Control.
12. Entire Agreement. This Agreement constitutes the entire agreement and
supersedes all prior agreements and understandings, oral and written, between
the parties hereto with respect to the subject matter hereof.
13. Representations from Executive. Executive represents that the execution
of this Agreement will not violate any provision of law or order of any court or
governmental agency, and will not result in the violation of any agreement to
which he is a party or by which he is bound. Executive represents that he is not
subject to any restrictions with respect to rendering service to EFI hereunder
as a result of or by virtue of any prior employment or any prior or present
agreement. Executive represents that he will not otherwise reveal to EFI, in
performing services for EFI, any confidential information of another person
which Executive is prohibited by contract or otherwise from divulging to EFI.
14. Facility of Payment. Nothing herein contained shall preclude Executive
from receiving his base salary and bonus, if any, in a manner which is
advantageous to him for tax planning, provided however, that he first obtains
EFI's consent, which consent shall not be unreasonably withheld.
15. Responsibility for Legal Effect; Tax Withholding. Neither party hereto
makes any representations or warranties, express or implied, or assumes any
responsibility concerning the legal, tax, or other implications or effects of
this Agreement. EFI may take all actions required by law with respect to any
payments due hereunder or other compensation or benefits due hereunder,
including, but not limited to, withholding of tax from such payments
compensation or benefits.
16. Action to Enforce. In any action for enforcement or any other remedy
arising out of breach of this Agreement, the prevailing party shall be entitled
to all costs, expenses and fees of such actions, including attorneys' fees. In
an action to enforce this Agreement either party may pursue money damages,
injunctive relief, specific performance, and/or any other relief available under
the applicable law.
17. Section Headings. The Section headings used in this
Agreement are for convenience of reference only and shall not be
considered in construing this Agreement.
18. Notices. Any notices required or permitted to be given under this
Agreement shall be sufficient if in writing and if personally delivered or sent
by certified or registered or overnight mail to his residence as last shown on
the employment records of EFI, in the case of Executive, or to the corporate
headquarters, in the care of EFI, to the attention of the Board of Directors
with a copy to the attention of the Secretary.
19. Integration. This Agreement constitutes the entire understanding between
the parties hereto with respect to the subject matter hereof and supersedes all
negotiations, representations, prior discussion and preliminary agreements
between the parties hereto relating to the subject matter hereof.
20. Non-Waiver. The waiver by EFI or Executive of a breach of any provision
of this Agreement by Executive or EFI shall not operate or be construed as a
waiver of any subsequent breach by Executive or EFI of the same or any other
provision hereof.
21. Binding Effect. This Agreement shall be binding upon Executive and his
designated beneficiaries and upon his or their heirs, executors, administrators,
and upon anyone claiming under him or his designated beneficiaries, and upon EFI
and its successors and assigns.
22. Governing Law. This Agreement shall be governed by and
construed in accordance with the laws of the State of Utah.
23. Effective Date. The obligations of the parties under
this Agreement are effective as of September 12, 1994.
IN WITNESS WHEREOF, the parties hereto have hereunto set their respective
hands and seals the year and date first hereinabove written.
EFI ELECTRONICS CORPORATION
By:signature here- Scott H.Nelson
Its: Chairman
EXECUTIVE
By:signature here-Richard D.Clasen
Richard D. Clasen
EFI Electronics
[TYPE] Ex-21
Exhibit 21
EFI Electronics Corporation Subsidiaries
Company Name Venue of Incorporation
EFI Electronics Europe S.L. Barcelona, Spain
[TYPE] EX-23.1
Independent Accountant's Consent-Grant Thornton LLP
We have issued our report dated May 15, 1998, accompanying the consolidated
financial statements of EFI Electronics Corporation and Subsidiary, incorporated
by reference or included in the Annual Report of EFI Electronics Corporation,
on Form 10-KSB/A for the year ended March 31, 1998. We hereby consent to the
incorporation by reference of said report in the Registration Statement of EFI
Electronics Corporation, on Form S-8 (File No. 33-41154 filed June 12, 1991)
/s/Grant Thornton LLP
Salt Lake City, Utah
June 2, 1999
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