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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-KSB
[ ] ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended: .
[ X ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM APRIL 1, 1996 TO DECEMBER 31, 1996
Commission File Number 0-22190
ELTRAX SYSTEMS, INC.
(Name of small business issuer as specified in its charter)
MINNESOTA 41-1484525
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
10901 RED CIRCLE DRIVE
SUITE 345
MINNETONKA, MINNESOTA 55343
(Address of principal executive offices) (Zip Code)
Issuer's telephone number: (612) 945-0833
Securities registered pursuant to Section 12(b) of the Exchange Act: NONE
Securities registered pursuant to Section 12(g) of the Exchange Act:
COMMON STOCK, $0.01 PAR VALUE
---------------------------
Check whether the issuer (1) filed all reports required to be filed
by Section 13 or 15(d) of the Exchange Act during the preceding 12 months (or
for such shorter period that the registrant was required to file such
reports), and (2) has been subject to such filing requirements for the past
90 days. Yes X No .
Check if there is no disclosure of delinquent filers in response to
Item 405 of Regulation S-B is not 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]
The registrant's revenues for the nine month transition period
ended December 31, 1996: $28,121,355.
As of FEBRUARY 1, 1997, 7,582,063 shares of Common Stock of the
registrant were outstanding, and the aggregate market value of the Common
Stock of the registrant's as of that date (based upon the last reported sale
price of the Common Stock reported on that date by the Nasdaq Small Cap
Market), excluding outstanding shares beneficially owned by directors and
officers, was approximately $27,927,806.
---------------------------
DOCUMENTS INCORPORATED BY REFERENCE
Part III of this Transition Report on Form 10-KSB incorporates by
reference information (to the extent specific sections are referred to
herein) from the Company's Proxy Statement for its Annual Meeting of
Shareholders to be held May 15, 1997 (the "1997 Proxy Statement").
Transitional Small Business Disclosure Format (check one): yes
no X
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PART I
ITEM 1. DESCRIPTION OF BUSINESS
(a) GENERAL DEVELOPMENT OF BUSINESS
INTRODUCTION
Eltrax Systems, Inc. (the "Company" or "Eltrax"), through its
wholly owned subsidiaries, Nordata, Inc. (dba "Datatech") and Atlantic
Network Systems, Inc. ("ANS"), is a value-added reseller of data
communications networking products and services. Eltrax designs and
installs, and in some cases maintains, wide-area-networking systems for
end-user corporate and government customers, and is a distributor of data
communications equipment to other value-added resellers. The Company's
products and services include data communications equipment used in remote
access and enterprise-wide communications networks and the installation and
maintenance of that equipment.
The Company headquarters is located at 10901 Red Circle Drive,
Suite 345, Minnetonka, MN 55343 and its telephone number is (612) 945-0833.
The Company maintains a worldwide web address at www.eltrax.com.
HISTORY
The Company was incorporated in Minnesota on March 20, 1984. In
September 1985, the Company acquired the exclusive rights to the rapid admit
card system by Medes, Inc. of Torrance, CA which specially formats high
density magnetic stripe plastic cards to store 800 to 900 characters of
information used in patient admissions to health care facilities (the "Health
Card Business").
In April 1991, the Company acquired, through a merger, the Mindax
Corporation ("Mindax"), a company in the digital image archiving business,
specializing in digitizing and archiving X-ray film and other medical
information images (the "Imaging Business").
The Company completed its initial public offering on December 8,
1992 by issuing 1,552,500 shares of common stock at $3.00 share, with
proceeds to the Company from the offering of $3,858,396, net of offering
costs.
During the fiscal years ended March 31, 1994 and 1995, the Company
incurred aggregate net losses of approximately $2.26 million due primarily to
expenditures on infrastructure, sales and marketing, and research and
development which far exceeded the Company's revenues. The other primary
cause for these losses was the Company's investments in certain short-term
mutual funds, the value of which decreased by approximately $600,000 over
this time period.
During the fiscal year ended March 31, 1996, several significant
changes took place at the Company. Additional equity was raised through a
private placement of stock and warrants in June 1995, which enabled the
Company to exceed requirements to maintain the Company's Nasdaq SmallCap
Market listing. A new management team was engaged in August, 1995 to
formulate a plan and strategy to enter the data communications business. In
February 1996, the Company sold the Imaging Business assets.
During the transition period ended December 31, 1996, several
additional significant changes took place at the Company. In May 1996, the
Company acquired Datatech. Datatech markets data networking systems,
primarily in the Western half of the United States, with 1996 annual sales of
approximately $24 million. In October 1996, ANS, a data networking products
and services provider with offices located throughout the Southeastern United
States, and with 1996 annual sales of approximately $18 million, became a
wholly owned subsidiary of Eltrax. In November 1996, Eltrax sold the Health
Card Business assets, thereby discontinuing all of its pre-1996 business
operations.
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Subsequent to the Company's transition period, in January 1997,
Eltrax continued its data communications network business expansions through
the purchase of the MST Distribution division of MRK Technologies, LTD. MST
is a distributor of data networking equipment with fiscal year 1996 sales,
throughout the United States, of approximately $9.6 million.
Finally, in October 1996, the Company changed its fiscal year-end
to a calendar year, effective on December 31, 1996.
(b) NARRATIVE DESCRIPTION OF BUSINESS
INDUSTRY OVERVIEW
Businesses have a seemingly endless need to exchange information,
both internally and externally, in a variety of increasingly complex
fashions. To exchange information, businesses are using methods such as
client/server, remote access, intranets, the internet, e-mail, video
conferencing and standard voice applications. The amount of data required to
complete these information exchanges has increased traffic and placed
significant demand on corporate networks. Furthermore, the technology
employed on corporate networks has become increasingly complex as large
multivendor heterogeneous networks have proliferated. The options available
to businesses seeking to build and manage networks to facilitate these
information exchanges include many rapidly developing, highly sophisticated,
new technologies such as switches, routers, hubs, inverse multiplexers, ATM,
frame relay and VLANS. Amid this complex, rapidly changing technological
environment, companies are increasingly focused on their core competencies
and relying to a greater degree on network professionals to help them manage
their information exchange requirements.
The ability to design, install and maintain networks which meet the
business requirements of customers, within this complex, constantly changing
environment, is the key strength of Eltrax.
STRATEGY
The Company's objective is to become the premier provider of data
communication network services and products for enterprise wide communication
networks serving private, public and government customers. To achieve its
objective, the Company is pursuing the following strategies:
STRATEGIC ACQUISITIONS. The Company intends to continue to pursue
acquisitions to expand within its existing markets, enter new markets,
increase the Company's range of services and to add technical expertise to
the Company.
BUILD AND STRENGTHEN EXISTING CLIENT RELATIONSHIPS. The Company
currently sells its equipment and services to over 2,000 end user customers
nationwide. The Company believes that by delivering dependable, high-quality
network services, it will strengthen its relationship with this existing
customer base, thus leading to increased repeat business.
FOCUS ON FULFILLMENT SERVICES. The Company currently provides
value-added fulfillment services to over 4,000 value-added resellers
nationwide. This distribution channel allows the Company to reach
approximately 10,000 additional end-user customers nationwide. Each of these
end-user customers represents an opportunity to provide network service
offerings which the Company expects to provide through its reseller
customers. Further, these fulfillment services increase the volume of
purchases that the Company makes from strategic vendors, thus garnering
preferential terms from these vendors.
FOCUS ON STRATEGIC VENDORS. With the consolidation of the present
acquisitions and mergers the Company has made, a critical mass has been
achieved in its purchasing volumes with four (4) key vendors. The Company
intends to pursue a consolidation of the purchasing commitments it makes with
these vendors and expects to achieve better gross profit margins from this
effort.
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PRODUCTS AND SERVICES
The Company designs, markets, installs and maintains wide area
communications networks. Equipment central to these operations includes
modems, routers, channel service units, digital service units, switches, hubs
and multiplexers used in communications networks. This type of equipment is
used by customers who need to (i) build and operate networks for remote
access computing; (ii) link local area networks together to form wide area
networks; (iii) provide secure and efficient access to the internet; (iv)
operate as an internet service provider; and (v) build and operate corporate
intranets.
An example of the Company's end-user customers are corporate and
governmental users who need to develop greater efficiencies by providing
telecommuting options to their employees. In addition, the Company's
end-user customers include corporate and governmental users with multiple
locations who require connections to those locations to share voice and
data. Further, the Company's customers include internet service providers
and corporate and government users seeking secure and efficient access to the
internet.
Eltrax also sells its products at wholesale price levels to other
value-added resellers who in turn resell to end-users.
Eltrax derives service revenue by installing and maintaining
certain equipment it sells directly to end-users. Currently, Eltrax
purchases equipment directly from certain manufacturers including Adtran,
Ascend, Cisco, Micom and Motorola. These manufacturers are constantly
changing their distribution policies and practices and there can be no
assurance that these relationships will continue. If these relationships are
not continued, Eltrax's business could be materially adversely affected.
SALES AND MARKETING
Eltrax sales activities are directed by the President of Datatech
and the Vice President of ANS and consist of a direct sales force of
approximately 20 independent sales executives and 15 direct sales employees
who sell to end-users and a sales staff of approximately 15 inside sales
professionals who sell to other value-added resellers. The direct sales
personnel are located in approximately 15 states and concentrate their
efforts in close proximity to their home locations. Sales directly to
end-users account for approximately 45% of Eltrax's revenue. The inside
sales professionals cover the entire United States selling to other
value-added resellers and account for approximately 55% of Eltrax's revenue.
No single customer accounted for ten percent or more of Eltrax's gross
revenue during the last two fiscal periods.
The Company uses a variety of sales and marketing techniques
including hosting technical seminars, attending trade shows, publishing
catalogs and newsletters and direct mailings. The majority of these marketing
efforts are reimbursed by manufacturers through co-op funding programs.
Additionally, the Company relies upon referrals from these manufacturers and
from telecommunication carriers for sales leads.
COMPETITION
Eltrax focuses on the products of leading edge manufacturers to
sell and distribute. Eltrax is not limited to any single technology,
manufacturer or product line. The volume of purchasing that Eltrax has been
able to achieve from these leading edge manufacturers has allowed it to
achieve favorable price discounts from its key manufacturer suppliers.
Additionally, the Eltrax strategy is to provide greater value in the form of
technical services and support to the reseller channel. These strengths and
strategies have allowed Eltrax to compete with much larger distributors like
Ingram Micro, Tech Data and Merisel, which have more significant resources
than the Company.
Competition for these products and services is intense. As
technology evolves, the historic products that Eltrax sells require a lower
level of technical expertise to sell and support. This leads manufacturers
to sell their products through large distributors who sell based upon price
and availability. A good example of this phenomenon is with modems.
Historically, modems commanded high margins and required technical support to
configure and install
4
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correctly. Currently modems are a commodity product which can be installed
correctly by virtually anyone. The challenge for Eltrax is to continue to
maintain a high degree of technical expertise to provide to its customers as
technology evolves.
At the end-user level, Eltrax competes with large systems
integrators like IBM and EDS by focusing on the communications aspect of the
customer requirements. Eltrax does not provide services related to the
applications of the devices operating on the networks, only on the
communications networks required to make the applications operate
effectively. The competition for end-user customers is intense. The options
available to customers are many. Eltrax competes by building client
relationships whereby the customer relies upon Eltrax to be its key source of
information regarding new technologies and products.
MANUFACTURER RELATIONSHIPS
Eltrax currently purchases equipment directly from Adtran, Ascend,
Cisco, Micom and Motorola on a purchase order basis. Eltrax has cultivated
relationships with these manufacturers and they have become an essential
ingredient in the Eltrax business plan. Because these are not based on
long-term contracts, the purchases and sale terms (and prices) are constantly
changing. Any modification to the discounts offered by the manufacturers or
changes in their distribution plans could have a material adverse effect on
Eltrax's results of operations. There can be no assurances that these
relationships will be maintained or the discount levels currently offered by
the manufacturers will remain constant.
GOVERNMENT REGULATIONS
Prior to the divestiture of the Imaging Business, it was necessary
for Eltrax to maintain FDA approval for these products and services.
Currently, there are no such requirements for Eltrax.
The Telecommunications Reform Act of 1996 is expected to result in
greater competition throughout the telecommunications industry. Greater
competition is expected to create more opportunities for corporate and
government end-users to utilize communication facilities, thus generating
increasing needs for the equipment and services that Eltrax provides. This
greater competition also creates uncertainties for the Company, in that
competitors with far greater resources could take market share away from the
Company.
RESEARCH AND DEVELOPMENT
The Company intends to do no research and development. During the
nine months ended December 31, 1996 and the fiscal year ended March 31, 1996,
all research and development costs have been included in discontinued
operations. During such transition period and fiscal year, no material
amounts were incurred for customer-sponsored research and development.
EMPLOYEES
As of March, 1997, the Company employed approximately 70 persons on
a full-time basis, and 8 persons on a part-time basis. In addition, Datatech
engages the services of approximately 20 independent sales executives acting
as its direct sales force. The Company's employees are not covered by any
collective bargaining agreements and management believes its employee
relationships are good. The Company's ability to successfully offer
commercially marketable products and to establish a market position in view of
continuing technological developments will depend in part upon its ability to
attract and retain qualified technical personnel. Competition for such
personnel is intense.
5
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ITEM 2 DESCRIPTION OF PROPERTY
FACILITIES
The Company's corporate headquarters is located at 10901 Red Circle
Drive, Suite 345, Minnetonka, MN, and consist of approximately 1,500 square
feet of office space. The lease on this space currently provides for rent
of $2,407 per month, including base rent and a pro rata share of operating
expenses and real estate taxes. This lease terminates on November 30, 2001,
unless the Company exercises its right to extend the term of the lease for
one additional period of five years.
The Company also leases approximately 1,000 square feet of office
space for its Chief Executive Officer and Chairman of the Board and Chief
Financial Officer in Southfield, MI at 2000 Town Center, Suite 690,
Southfield, MI. The lease on this space currently provides for monthly rent
of $1,549 per month, including base rent and a pro rata share of operating
expenses and real estate taxes. This lease terminates on May 31, 2001. The
Company intends to move its corporate headquarters to Southfield, MI during
the second quarter of 1997. To accommodate this initial increase in activity
in Southfield, the Company has committed to approximately 1,000 square feet
of additional space, adjacent to its existing space. The base rent and pro
rata share of operating expenses and real estate taxes for this additional
space will commence in June, 1997, with a lease term expiring on May 31, 2001.
The Company's Datatech facilities are located at 27126 A Paseo
Espada, San Juan Capistrano, CA, and consist of 6,750 square feet.
Approximately 3,450 square feet of this space is used for office space, 3,300
square feet is used for warehouse space. The lease on this space currently
provides for rent of $6,552 per month, including base rent and a pro rata
share of operating expenses and real estate taxes. This lease terminates on
June 30, 1997.
The Company's ANS facilities are located at 8205 Brownleigh Drive,
Raleigh, NC, and consist of approximately 14,000 square feet. Approximately
4,000 square feet of this space is used for office space, 2,000 square feet
is used for technical operations and 8,000 square feet is used for warehouse
space. The lease on this space currently provides for rent of $7,500 per
month, including base rent and a pro rata share of operating expenses. This
lease terminates on May 31, 2001. The lessors of this space include two
shareholders of the Company who have non-controlling interests in the lease.
ANS also has seven additional sales offices located throughout Southeastern
United States, of which six are leased and one is the residence of a local
salesperson. These leases vary in size and duration and currently carry a
monthly lease total of $5,000.
ITEM 3. LEGAL PROCEEDINGS
There are no material pending legal, governmental, administrative
or other proceedings to which the Company is a party or of which any of its
property is the subject.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matter was submitted to a vote of the Company's security holders
during the last quarter of the nine month period ended December 31, 1996.
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ITEM 4a. EXECUTIVE OFFICERS OF THE COMPANY
The executive officers of the Company, their ages and the offices
held, as of March 1, 1997, are as follows:
NAME AGE POSITION
-------------------- ---- --------------------------------------
William P. O'Reilly 51 Chief Executive Officer of the Company
Mack V. Traynor, III 38 President of the Company
Clunet R. Lewis 50 Acting Chief Financial Officer of the
Company
Howard B. Norton 45 President of Datatech
Douglas L. Roberson 35 President of Atlantic Network Systems,
Inc.
Walter C. Lovett 51 Vice President and Treasurer of Atlantic
Network Systems, Inc.
Information regarding the business experience of the executive
officers is set forth below.
WILLIAM P. O'REILLY has been Chief Executive Officer of the Company
since January 1997, Chairman of the Board of Directors since August 1995 and
a director of the Company since July 1995. For the past 15 years, Mr.
O'Reilly has been a private investor and entrepreneur who has managed several
different successful business ventures. In 1989, Mr. O'Reilly formed a group
of investors to acquire Military Communications Center, Inc., where he served
as Chairman of the Board and Chief Executive Officer from 1989 to 1994. In
1986, Mr. O'Reilly founded Digital Signal, Inc., a provider of fiber optic
capacity to long distance carriers in the telecommunications industry, where
he served as Chief Executive Officer from 1986 to 1989. In 1981, Mr.
O'Reilly founded Lexitel Corporation, a long distance carrier (which was
subsequently acquired by ALC Communications, Inc.), where he served as
Chairman of the Board and Chief Executive Officer from 1980 to 1984. Mr.
O'Reilly is also currently a director of Charter Communications, Inc., a
builder and operator of international communication networks which provides
voice, video and data services, and World Access, Inc., a value added
reseller of telecommunications equipment.
MACK V. TRAYNOR, III has been the President of the Company since
August 1995. From August 1995 to January 1997, Mr. Traynor served as Chief
Executive Officer of the Company, and from September 1995 to May 1996, Mr.
Traynor was the Company's Chief Financial Officer. From June 1988 to July
1995, Mr. Traynor was the President and Chief Operating Officer of Military
Communications, Inc., a company which provided telecommunications services to
U.S. military personnel and which was acquired by LDDS Communications in
October 1994. From July 1980 to May 1988, Mr. Traynor was employed by US
West, most recently as President of the US West Enterprises Technologies
Division, which was responsible for designing, developing and marketing new
products for the telecommunications industry.
CLUNET R. LEWIS has served as a director of the Company since
August 1995. From September 1996 to the present, Mr. Lewis has served as
Acting Chief Financial Officer of the Company. Mr. Lewis was a member of the
law firm of Jaffe, Raitt, Heuer & Weiss, P.C. for 20 years, ending in 1993.
From 1989 to 1994, Mr. Lewis acted as Secretary, General Counsel and director
of Military Communications Center, Inc. Since 1993, Mr. Lewis has also
served on the Board of Directors and the audit committee of Sun Communities,
Inc., a New York Stock Exchange real estate investment trust.
HOWARD B. NORTON has served as a Director of the Company since May
17, 1996. From 1986 to the present, Mr. Norton has served as President of
Datatech which was acquired by the Company on May 17, 1996. Mr. Norton is
also the founder of Datatech. Prior to founding Datatech Mr. Norton held
sales positions with Republic Telcom, Racal Datacom and Codex, all companies
in the wide area networking business.
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DOUGLAS L. ROBERSON has been the President of ANS, Inc since
February 1987. Prior to becoming President of ANS, Mr. Roberson held sales
management positions with Penril Datacom, Datec and Anacom, all companies in
the data communications business.
WALTER C. LOVETT has been the Vice President of ANS, Inc. since
February 1987 and the Treasurer of ANS, Inc. since November 1996. Mr. Lovett
has also served as director of the Company since November 1996. Prior to
becoming Vice President of ANS, Inc., Mr. Lovett was a National Account
Manager with Litton Industries a data communications company. Mr. Lovett has
also held senior management positions with Datec, Inc., a modem manufacturer,
and with GTE-Supply, a telecommunications equipment distributor.
PART II
ITEM 5. MARKET FOR COMPANY'S COMMON EQUITY AND RELATED STOCK HOLDER MATTERS
The Company's Common Stock is traded in the national over-the-counter
market on the Nasdaq Small Cap Market under the symbol "ELTX". The following
table sets forth the quarterly high and low bid prices for the Company's Common
Stock for the nine month transition period ended December 31, 1996 and the
fiscal years ended March 31, 1996 and 1995 as reported by The Nasdaq SmallCap
Market. The prices set forth below do not include adjustments for retail mark-
ups, mark-downs or commissions and represent inter-dealer and do not necessarily
represent actual transactions.
HIGH LOW
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NINE MONTH TRANSITION PERIOD ENDED
DECEMBER 31, 1996:
First Quarter ....................... $8.13 $3.00
Second Quarter....................... $7.25 $4.75
Third Quarter........................ $6.25 $5.00
FISCAL YEAR ENDED MARCH 31, 1996:
First Quarter........................ $0.56 $0.31
Second Quarter....................... $1.69 $0.31
Third Quarter........................ $2.31 $1.38
Fourth Quarter....................... $4.75 $1.44
FISCAL YEAR ENDED MARCH 31, 1995:
First Quarter........................ $1.50 $1.13
Second Quarter....................... $1.69 $0.63
Third Quarter........................ $0.63 $0.50
Fourth Quarter....................... $0.47 $0.38
As of December 31, 1996, there were approximately 240 shareholders
of record. The Company estimates that an additional 2,000 shareholders own
stock held for their accounts at brokerage firms and financial institutions.
The Company has never paid cash dividends on any of its securities. The
Company currently intends to retain any earnings for use in its operations
and does not anticipate paying cash dividends in the foreseeable future.
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The following chart sets forth the information regarding all securities sold by
the Company during the nine month period ended December 31, 1996 which were not
registered under the Securities Act:
<TABLE>
<CAPTION>
DATE OF EXEMPTION CONVERSION/EXERCISE
SECURITIES ISSUED (1) ISSUANCE PURCHASER CONSIDERATION CLAIMED PRICE
- --------------------- -------- --------- ------------- ------- -----
<S> <C> <C> <C> <C> <C>
1,883,000 shares 5/17/96 Howard B. and Common Stock of 4(2) and 4(6) of N/A
Common Stock Ruby L. Norton Rudata, Inc. and Securities Act
Nordata, Inc. (2)
85,000 shares 5/17/96 Harvey Garte, Broker services. 4(2) and 4(6) of N/A
Common Stock Richard M. Torre Securities Act
and Steve Holmes
25,000 shares 9/9/96 Richard W. $75,000 4(2) and 4(6) of Exercised warrant at
Common Stock Perkins, trustee Securities Act $3.00 per share.
Warrant to purchase 9/27/96 Timothy J. Amidon Consulting services. 4(2) and 4(6) of Exercisable at $5.375
25,000 shares Securities Act per share.
Common Stock
403,750 shares 10/31/96 Walter C. Lovett Common Stock of 4(2) and 4(6) of N/A
Common Stock Atlantic Network Securities Act
Systems, Inc. (3)
403,750 shares 10/31/96 Douglas L. Common Stock of 4(2) and 4(6) of N/A
Common Stock Roberson Atlantic Network Securities Act
Systems, Inc. (3)
142,500 shares 10/31/96 B. Taylor Koonce Common Stock of 4(2) and 4(6) of N/A
Common Stock Atlantic Network Securities Act
Systems, Inc. (3)
Warrant to purchase 10/31/96 Walter C. Lovett Common Stock of 4(2) and 4(6) of Exercisable at $6.00
106,250 shares Atlantic Network Securities Act per share
Common Stock Systems, Inc. (3)
Warrant to purchase 10/31/96 Douglas L. Common Stock of 4(2) and 4(6) of Exercisable at $6.00
106,250 shares Roberson Atlantic Network Securities Act per share
Common Stock Systems, Inc. (3)
Warrant to purchase 10/31/96 B. Taylor Koonce Common Stock of 4(2) and 4(6) of Exercisable at $6.00
37,500 shares Atlantic Network Securities Act per share
Common Stock Systems, Inc. (3)
</TABLE>
(1) An aggregate of 78,000 shares of Common Stock were issued during the nine
month period ended December 31, 1996 to individuals pursuant to the exercise
of stock options granted under the Company's 1992 Stock Incentive Plan. The
weighted average exercise price per share was $1.70. In issuing such shares,
the Company relied upon Rule 701 and Section 4(2) of the Securities Act.
(2) For description of transaction, see the Company's Current Report on Form
8-K filed June 3, 1996 (File no. 0-22190). Initially, 1,983,000 shares of
Eltrax Common Stock were issued in connection with the transaction (before a
post-closing adjustment to the number of shares issued in the merger).
(3) For description of transaction, see the Company's Current Report on Form
8-K filed November 12, 1996 (File no. 0-22190).
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ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
THIS FORM 10-KSB CONTAINS CERTAIN FORWARD-LOOKING STATEMENTS. FOR
THIS PURPOSE, ANY STATEMENTS CONTAINED IN THIS FORM 10-KSB THAT ARE NOT
STATEMENTS OF HISTORICAL FACT MAY BE DEEMED TO BE FORWARD-LOOKING STATEMENTS.
WITHOUT LIMITING THE FOREGOING, WORDS SUCH AS "MAY," "WILL," "EXPECT,"
"BELIEVE," "ANTICIPATE," "ESTIMATE" OR "CONTINUE" OR COMPARABLE TERMINOLOGY ARE
INTENDED TO IDENTIFY FORWARD-LOOKING STATEMENTS. THESE STATEMENTS BY THEIR
NATURE INVOLVE SUBSTANTIAL RISKS AND UNCERTAINTIES, AND ACTUAL RESULTS MAY
DIFFER MATERIALLY DEPENDING ON A VARIETY OF FACTORS, INCLUDING THOSE SET FORTH
IN THE SECTION BELOW ENTITLED "CERTAIN IMPORTANT FACTORS."
CHANGE IN FISCAL YEAR-END
In October 1996, the Company changed its fiscal year-end from March 31
to December 31, which resulted in a nine month transition period ended
December 31, 1996. The decision to change the fiscal year-end was made for
more convenience in both internal and external communications. Additionally,
during 1996, the Company consummated a merger with ANS accounted for as a
pooling-of-interests. To facilitate comparative analysis, the Company has
elected to present the results of operations for the nine months ended
December 31, 1996, and December 31, 1995, unaudited, along with the results
of operations for the fiscal year ended March 31, 1996, restated for the
effects of the pooling-of-interests transaction with ANS.
RESULTS OF OPERATIONS
SELECTED FINANCIAL DATA
The following selected financial data should be read in conjunction
with the Company's financial statements and related notes thereto and
"Management's Discussion and Analysis or Plan of Operation". The statement
of operations data and the balance sheet data have been derived from the
consolidated financial statements of the Company audited by Coopers &
Lybrand, L.L.P., independent accountants, (unless otherwise indicated). The
historical results are not necessarily indicative of future results.
STATEMENT OF OPERATIONS DATA:
<TABLE>
<CAPTION>
NINE MONTHS ENDED
------------------------------------- FISCAL
DECEMBER 31, 1996 DECEMBER 31, 1995 YEAR ENDED
(UNAUDITED) MARCH 31, 1996
----------------- ----------------- --------------
<S> <C> <C> <C>
Revenue $28,121,355 $11,007,334 $15,235,250
Cost of Revenue 23,746,297 9,372,474 12,793,198
Gross Profit 4,375,058 1,634,860 2,442,052
Operating Expenses 5,370,543 1,978,144 2,799,509
Operating Income(loss) (995,485) (343,284) (357,457)
Interest and Other(net) (7,909) 192,258 235,838
Loss from Continuing Operations (1,003,394) (151,026) (121,619)
Discontinued Operations(net) (140,555) 168,729 432,681
Income Taxes 0 0 0
Net Income(loss) $(1,143,949) $ 17,703 $ 311,062
</TABLE>
10
<PAGE>
In March 1996, the Company sold its Imaging Business. In November
1996, the Company sold its Health Card Business. All financial information
has been reclassified to separately report the operating results, net
assets and cash flows of the discontinued Imaging Business and Health Card
Business. For the year ended March 31, 1996, income from discontinued
operations included a $133,000 gain on the sale of the Company's investment
in the Imaging Business. For the nine months ended December 31, 1996 income
from discontinued operations included a $57,000 gain on the sale of the
Company's investment in the Health Card Business. All financial information
and related Management's Discussion and Analysis or Plan of Operation
("MD&A") discussed herein excludes the Imaging Business and Health Card
Business.
On May 17, 1996, the Company acquired its Datatech subsidiary in a
transaction accounted for as a purchase. Therefore, the Company's financial
information and the related MD&A include Datatech results for the period May
17, 1996 through December 31, 1996. In connection with the Company's
acquisition of Datatech it was determined that Datatech's history of
profitability, which would now be included in the Company's consolidated
income tax returns, supported the conclusion that it was more likely than not
that the deferred tax assets would be realized in a future period.
Accordingly, the Company's deferred tax valuation allowance was reduced.
On October 31, 1996, ANS became a wholly owned subsidiary in a
transaction accounted for as a pooling-of-interests. Therefore, ANS results
are included in the Company's financial information and the related MD&A for
the entire nine month period ended December 31, 1996 and for the year ended
March 31, 1996.
Subsequent to year-end, on January 31, 1997, Eltrax, through its
ANS subsidiary, acquired certain assets of the MST Distribution business of
MRK Technologies, LTD. The discussion herein excludes the MST Distribution
business as this acquisition occurred following the nine-months ended
December 31, 1996.
The Company's merger and acquisition activity was significant in
1996. In addition to the completed acquisition of Datatech and the merger
with ANS, management spent considerable resources and energy investigating
other transactions which did not result in completed transactions.
Management estimates the total expenditures for these activities, including
transactions which were consummated and those which were not consummated,
approximated $1.2 million for the transition period ending December 31, 1996.
Of this amount, approximately $800,000 was capitalized and will be expensed
during the amortization of intangible assets associated with the Datatech
transaction, and approximately $400,000 was expensed during the transition
period including costs associated with the ANS merger.
As a result of the merger and acquisition activity throughout the
transition period, the Company has initiated a consolidation effort to
integrate sales and marketing functions, consolidate inventory and
purchasing, integrate billing and collection systems, and integrate
accounting systems. The management infrastructure has been retained to
direct the integration efforts and management believes that it has the
executive level managers in place to integrate future acquisitions to meet
the Company's goals.
COMPARISON OF NINE-MONTHS ENDED DECEMBER 31, 1996 AND 1995
Total revenue for the nine months ended December 31, 1996 increased
by 156 percent to $28.1 million when compared to total revenue of $11.0
million for the nine months ended December 31, 1995. This increase is due
to the inclusion of Datatech from May 17, 1996 through December 31, 1996.
Management expects sales to increase during calendar year 1997.
The gross margin percentage increased to 15.6 percent in the nine
months ended December 31, 1996 from 14.8 percent in the nine months ended
December 31, 1995. This increase is due to the addition of Datatech from
May 17, 1996 through December 31, 1996. Management anticipates that the
gross margin will be approximately the same or slightly lower in future
periods.
Operating expenses increased 171 percent to $5.37 million, or 19.1%
of revenue, in the nine months ended December 31, 1996, compared to $1.98
million, or 17.9% of revenue, in the nine months ended December 31, 1995.
This increase is primarily due to selling, general and administrative expense
increases of $3.2 million, or 162 percent compared to the previous nine month
period, due
11
<PAGE>
to the expenses incurred by the Company to perform its acquisition activities
of approximately $400,000, and is also attributable to amortization of
approximately $208,000 related to intangible assets associated with the
Datatech acquisition. The aggregated expenses associated with acquisition
activities approximated $608,000, or 2.2% of revenue for the nine months
ended December 31, 1996. Accordingly, operating expenses before acquisition
activities as a percent of revenue, was 17.9% of revenue in the nine months
ended December 31, 1995 compared to 16.9% of revenue in the nine months ended
December 31, 1996.
Loss from continuing operations increased from $151,000 for the
nine months ended December 31, 1995 to $1.0 million in the nine months ended
December 31, 1996. This increase was primarily due to additional operating
expenses associated with its acquisition activities.
COMPARISON OF NINE MONTHS ENDED DECEMBER 31, 1996 AND YEAR-ENDED MARCH 31, 1996
Total revenue for the nine months ended December 31, 1996 increased
by 84.6 percent to $28.1 million when compared to total revenue of $15.2
million for the year ended March 31, 1996. This increase is due to the
inclusion of Datatech for the period from May 17, 1996 through December 31,
1996.
The gross margin percentage decreased to 15.6 percent in the nine
months ended December 31, 1996 from 16.0 percent in the year ended March 31,
1996.
Operating expenses increased 91.8 percent to $5.37 million in the
nine months ended December 31, 1996, compared to $2.8 million in the year
ended March 31, 1996. This increase is primarily due to selling, general and
administrative expense increases of $2.36 million, or 84 percent versus the
year ended March 31, 1996, due to the expenses incurred by the Company to
perform its acquisition activities and is also attributable to amortization of
approximately $208,000 related to intangible assets associated with the
Datatech acquisition.
The aggregated expenses associated with acquisition activities approximated
$608,000 or 2.2% of revenue for the nine months ended December 31, 1996.
Accordingly, operating expenses before acquisition activities as a percent
of revenue, decreased from 18.4% of revenue in the year ended March 31, 1996
to 16.9% of revenue in the nine months ended December 31, 1996.
Loss from continuing operations increased from $121,000 in the year
ended March 31, 1996 to $1.0 million in the nine months ended December 31,
1996. This increase was primarily due to additional operating expenses
associated with its acquisition activities.
PRO FORMA FINANCIAL RESULTS
SELECTED PRO FORMA FINANCIAL DATA
The following selected unaudited pro forma financial data should be
read in conjunction with the Company's financial statements and related notes
thereto and "Management's Discussion and Analysis or Plan of Operation." The
unaudited pro forma statement of operations data derived from unaudited
financial statements of the Company that are not included herein. The pro
forma results are not necessarily indicative of future results.
PRO FORMA STATEMENT OF OPERATIONS DATA (unaudited):
NINE MONTHS ENDED
-------------------------------------
DECEMBER 31, 1996 DECEMBER 31, 1995
----------------- -----------------
Revenue $31,131,076 $24,237,388
Cost of Revenue 26,241,355 19,916,825
Gross Profit 4,889,721 4,320,563
Operating Expenses 5,919,797 4,276,639
Operating Income(loss) (1,030,076) 43,924
Interest and Other(net) (5,717) 222,335
Income(loss) from Continuing
Operations (1,035,793) 266,259
Discontinued Operations(net) (140,555) 358,973
Income Taxes 0 312,538
Net Income(loss) (1,176,348) 312,694
12
<PAGE>
COMPARISON OF PRO FORMA NINE MONTHS ENDED DECEMBER 31, 1996 AND 1995.
The following discussion describes the Company results, including
the effects of the ANS merger as if the Datatech and ANS acquisitions had
taken place as of the beginning of the nine month periods ending December 31,
1995 and 1996. These results also exclude the divested Imaging Business
assets and the Health Card Business assets during the same periods.
The pro forma revenue for the nine month period ending December 31,
1996 increased by 28.4 percent to $31.1 million when compared to the pro
forma revenue of $24.2 million for the nine months ended December 31, 1995.
This increase is primarily due to increased sales activity at Datatech which
increased pro forma revenue from $13.2 million in the nine months ended
December 31, 1995 to $17.8 million in the same period in 1996, and due to
increased sales activity at ANS which increased pro forma revenue from $11.0
million in the nine months ended December 31, 1995 to $13.3 million in the
same period in 1996. Management expects revenue to increase during the
calendar year 1997.
The pro forma gross margin percentage decreased to 15.7 percent
during the nine months ended December 31, 1996 from 17.8 percent in the nine
months ended December 31, 1995. This decrease is a result of competitive
pressures on margins of products sold by the Company. Management anticipates
that the gross margin will be the same or slightly lower in future periods.
The pro forma operating expenses of the Company increased 37
percent to $5.9 million in the nine months ended December 31, 1996, compared
to $4.3 million in the nine months ended December 31, 1995. This increase is
primarily due to increased selling, general and administrative expenses
incurred by the Company to perform its acquisition activities.
The pro forma operating income of the Company decreased to a loss
of $1.0 million in the nine months ended December 31, 1996, compared to
income of $44,000 in the nine months ended December 31, 1995. This decrease
is primarily due to higher operating expenses associated with the acquisition
activities of the Company.
LIQUIDITY AND CAPITAL RESOURCES
Cash, cash equivalents and short-term investments at December 31,
1996 totaled $501,200, compared to $480,500 at March 31, 1996.
Expenditures for furniture and equipment were $101,000 in the nine
month period ended December 31, 1996, mostly reflecting ongoing purchases to
support additional sales and technical employees.
In October 1996, the Company and its subsidiaries entered into a
Revolving Credit Agreement (the "Credit Agreement") with State Street Bank
and Trust Company (the "Bank"), pursuant to which the Bank extended to the
Company a $5 million revolving line of credit (the "Revolving Credit
Facility"). The Revolving Credit Facility expires October 31, 1998, bears
interest payable monthly at a rate of one-half of one percent above the
Bank's prime rate and bears a commitment fee of three-eighths of one percent
per annum of the unused balance. The Revolving Credit Facility provides
critical capital for the Company. If, for any reason, this or comparable
financing is not available to the Company, it would have an adverse effect on
the Company and its ability to conduct its operations as presently being
conducted. Under the terms of the Credit Agreement, the Company is required
to comply with certain financial covenants, including a minimum current
ratio, a maximum indebtedness to net worth, a positive EBITDA and maximum
capital expenditures, otherwise the lender may withdraw its commitment.
Under terms of the Credit Agreement, the amount of credit available to the
Company is based upon a percentage of current accounts receivable and
inventory of the Company (the "Borrowing Base"). As of March 15, 1997, the
Borrowing Base was in excess of the $5.0 million line. As of December 31,
1996, the Company had borrowed approximately $588,500 under the Revolving
Credit Facility.
13
<PAGE>
RECENT DEVELOPMENTS
On January 31, 1997, the Company, acquired the MST Distribution
division ("MST") from MRK Technologies, LTD.
On March 26, 1997, the Company announced the signing of a letter of
intent to merge with Hi-Tech Connections, Inc. of Reading, PA in a
transaction expected to be treated as a pooling-of-interests. Hi-Tech has
disclosed to Eltrax that revenue for its most recent fiscal year ended
September 30, 1996 was approximately $9.2 million. Hi-Tech is a data network
systems integration and network management company.
IMPORTANT FACTORS TO CONSIDER
The following factors are important and should be considered
carefully in connection with any evaluation of the Company's business,
financial condition, results of operations and prospects.
HISTORY OF LOSSES; UNCERTAIN PROFITABILITY PROSPECTS. The Company
has a history of net losses. As of December 31, 1996, the Company had an
accumulated deficit of approximately $5,851,000. The ability of the Company
to achieve sustained profitability will depend upon, among other things, the
assimilation of the products and services of the recently acquired businesses
and to achieve sufficient levels of product sales and profit margins and to
control operating costs and other expenses. There can be no assurance that
the Company will achieve profitability for the fiscal year ended December 31,
1997, or at any time in the near future.
FLUCTUATIONS IN QUARTERLY RESULTS OF OPERATIONS. The Company's
operating results fluctuate substantially from quarter to quarter due to
various factors including among others: the size and timing of customer
orders, new product announcements by manufacturers, and normal budgeting
considerations by customers. There can be no assurance that results of
operations will be consistent in future quarters.
INTEGRATION OF ACQUISITIONS; MANAGEMENT OF EXPANDING OPERATIONS.
During the last year, the Company has changed entirely its business focus and
has increased its revenues from approximately $2.0 million to $45 million
through the acquisitions of Datatech, ANS and certain assets of MST. Due to
these acquisitions, the Company has experienced rapid growth and expansion
which has placed, and will continue to place, a significant strain on its
administrative, operational and financial resources and increased demands on
its systems and controls. Management has expended, and expects to continue
to expend, significant time and effort in integrating Datatech's, ANS's and
MST's operations into the Company. There can be no assurance that the
Company's current systems, procedures and controls will be adequate to
support the Company's operations as they expand. In addition, there can be
no assurance that the Company's acquisitions will be accretive to earnings or
that the companies acquired will continue to perform at their historical
levels. Any future growth will impose significant added responsibilities on
members of senior management, including the need to identify, recruit and
integrate new senior level managers and executives. There can be no
assurance that such additional management will be identified and retained by
the Company. The Company's ability to manage such future growth will also be
dependent on its success in assimilating its recent and any future
acquisitions. If the Company is unable to manage growth effectively,
customer confidence could erode and demand for the Company's products could
deteriorate, which could materially and adversely affect the Company's
business and operating results.
FUTURE ACQUISITIONS. The Company continues to pursue acquisitions
of complementary businesses. Future acquisitions by the Company could result
in dilutive issuances of equity securities, and the incurrence of additional
debt and amortization expenses related to goodwill and intangible assets that
could adversely affect the Company's profitability. Acquisitions also may
involve numerous other risks, including difficulties in the assimilation of
the operations and products of the acquired business, dependence on new
products and services, the diversion of management's attention from other
business concerns, risks of entering markets in which the Company has no or
limited direct prior experience, the potential loss of key employees of the
acquired business and difficulties in attracting additional key employees
necessary to absorb added management responsibilities.
14
<PAGE>
No assurance can be given as to the effect of any future acquisition on the
Company's business or operating results.
DEPENDENCE UPON CERTAIN MANUFACTURERS. The Company currently
purchases equipment directly from certain manufacturers including Adtran,
Ascend, Cisco, Micom and Motorola. There can be no assurance that these
relationships will continue or that the discounts received from such
manufacturers will be maintained. Due to the Company's dependence on these
certain manufacturers, the Company believes its long-term success depends, in
large part, on the overall success of such manufacturers and the continuing
manufacture and delivery of competitively-priced, high quality equipment in
quantities sufficient to meet the requirements of the Company's customers on
a timely basis.
DEPENDENCE ON SENIOR MANAGEMENT AND KEY EMPLOYEES. The Company is
highly dependent on the performance of its executive officers and other key
personnel. The loss of the services of any of its executive officers or
other key employees could have a material adverse effect on the Company. The
Company's future success will also depend in part upon its ability to attract
and retain highly skilled and qualified technical, managerial and marketing
personnel. Competition for such personnel in the data communications
industry is intense, and there can be no assurance that the Company will be
successful in attracting and retaining such personnel. The loss of any of
the Company's key management or the inability to hire or retain qualified
personnel could have a material adverse effect on the Company. The Company
has purchased key person life insurance on certain of its executive officers.
The Company has entered into employment agreements with certain of its key
executive officers which are described in the exhibits attached hereto.
DEPENDENCE UPON INDEPENDENT CONTRACTORS. Other than Howard B.
Norton, President of Datatech, Datatech's direct sales force is comprised of
independent contractors who are not employees and who do not perform services
under contract. There is no assurance that such individuals will continue to
work as sales agents on behalf of the Company. Although Eltrax management is
seeking to enter into written compensation arrangements with such
individuals, there can be no assurance that management will be successful in
negotiating and entering into such written compensation arrangements with
these individuals.
COMPETITION. Competition in the data communications industry is
intense and is expected to increase. The Company's current competitors
include IBM, EDS, AT&T, Ingram Micro, Tech Data, INS and other providers of
data and voice communications equipment and services. Many of the Company's
competitors have longer operating histories and significantly greater
financial, technical, research, marketing, sales, distribution and other
resources, as well as greater name recognition and a larger customer base,
than the Company. As a result, they may be able to respond more quickly to
new or emerging technologies and changes in customer requirements or may be
able to devote greater resources to the development, promotion, sale and
support of their products than the Company. Many also have long-standing
customer relationships with large enterprises that are part of the Company's
target market and these relationships may make it more difficult to complete
sales of the Company's products to these enterprises. The Company expects
increased competition, particularly in the wide area networking market.
Increased competition could result in significant price competition, reduced
profit margins or loss of market share, any of which could have a material
adverse effect on the Company's business, operating results and financial
condition. There can be no assurance that the Company will be able to
compete successfully in the future.
TECHNICAL CHANGES. The data communications industry is subject to
rapid technological innovation, evolving industry standards and frequent new
product introductions and enhancements. This tends to shorten the life cycle
of particular products that the Company sells and services, which in turn may
affect the ability of the Company to provide the most current technology, and
to provide services related to it, on a timely basis. The greater financial
and other resources of many of the Company's competitors may permit such
competition to respond more rapidly than the Company to technological changes.
UNCERTAINTY OF MARKET ACCEPTANCE. The Company's products are based
on new technology that has not previously been available. The Company's
marketing strategy will have to overcome the difficulties inherent in the
introduction of new technology to the communications industry. Market
acceptance of the Company's products will depend in large part on the ability
of the Company and its sales personnel to demonstrate to customers the technical
15
<PAGE>
capabilities of the Company's products. There can be no assurance that the
Company's products will be accepted in the market in preference to competing
products presently available or products that may be developed in the future.
Lack of market acceptance of the Company's products would jeopardize the
viability of the Company.
GENERAL ECONOMIC CONDITIONS. Demand for the Company's products
depends in large part on the overall demand for communications and networking
products, which has in the past and may in the future fluctuate significantly
based on numerous factors, including capital spending levels and general
economic conditions, including interest rate fluctuations, economic
recessions and customer business cycles. There can be no assurance that the
Company will not experience a decline in demand for its products due to
general economic conditions. Any such decline could have a material adverse
effect on the Company's business, operating results and financial condition.
NEED FOR ADDITIONAL CAPITAL. The Company has developed a strategy
to grow through additional acquisitions. While the Company believes it will
continue to structure the payment of the purchase price of the majority of
its acquisitions with stock, the possibility exists that greater cash may be
required to achieve this goal. The Company believes it has adequate access
to funding sources for its future acquisitions, however there can be no
assurances that the cash will be available at acceptable levels when required.
16
<PAGE>
ITEM 7. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
INDEX TO FINANCIAL STATEMENTS
The following Consolidated Financial Statements and Independent
Accountants' Report are included herein on the pages indicated:
PAGE
----
Independent Accountants' Report on Consolidated
Financial Statements......................................... 18
Consolidated Balance Sheets as of December 31, 1996 and
March 31, 1996............................................... 19
Consolidated Statements of Operations for the nine months
ended December 31, 1996 and the fiscal year ended
March 31, 1996............................................... 20
Consolidated Statements of Cash Flows for the nine months
ended December 31, 1996 and the fiscal year ended
March 31, 1996............................................... 21
Consolidated Statements of Shareholders' Equity for the
nine months ended December 31, 1996 and the fiscal year
ended March 31, 1996......................................... 22
Notes to Consolidated Financial Statements for the nine
months ended December 31, 1996 and the year ended
March 31, 1996............................................... 23
17
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Shareholders and Board of Directors of Eltrax Systems, Inc.:
We have audited the accompanying consolidated balance sheets of
Eltrax Systems, Inc. and subsidiaries as of December 31, 1996 and March 31,
1996, and the related consolidated statements of operations, shareholders'
equity, and cash flows for the nine months ended December 31, 1996 and the
year ended March 31, 1996. These financial statements are the responsibility
of the Company's management. Our responsibility is to express an opinion on
these financial statements based on our audits.
We conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and perform the
audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used
and significant estimates made by management, as well as evaluating the
overall financial statement presentation. We believe that our audits provide
a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to
above present fairly, in all material respects, the consolidated financial
position of Eltrax Systems, Inc. and subsidiaries as of December 31, 1996 and
March 31, 1996, and the consolidated results of their operations and their cash
flows for the nine months ended December 31, 1996 and the year ended March 31,
1996, in conformity with generally accepted accounting principles.
March 28, 1997 Coopers & Lybrand L.L.P.
Minneapolis, Minnesota
18
<PAGE>
ELTRAX SYSTEMS, INC.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
December 31, March 31,
1996 1996(1)
------------ -----------
<S> <C> <C>
ASSETS:
Current assets:
Cash and cash equivalents $ 501,199 $ 480,523
Short-term investments -- 1,384,886
Accounts receivable, net of allowance for doubtful
accounts of $677,000 and $10,000 6,049,966 1,738,751
Inventories 3,081,643 2,178,431
Other current assets 131,849 108,342
Net assets related to discontinued operations -- 160,552
------------ -----------
Total current assets 9,764,657 6,051,485
Furniture and equipment, net of accumulated
depreciation of $237,259 and $257,132 196,069 98,366
Intangible assets, net of amortization of
$208,330 4,641,044 --
Deferred income taxes 1,315,970 --
Other assets 151,312 226,157
------------ -----------
Total assets $ 16,069,052 $ 6,376,008
------------ -----------
------------ -----------
LIABILITIES AND SHAREHOLDERS' EQUITY:
Current liabilities:
Accounts payable 6,453,992 1,423,481
Accrued expenses 936,555 17,987
Credit line bank debt 588,539 1,687,675
Other current liabilities 506,485 131,028
------------ -----------
Total current liabilities 8,485,571 3,260,171
------------ -----------
Commitments
Shareholders' Equity:
Series A convertible preferred stock,
no par, $7.50 per share liquidation preference;
0 and 4,000 shares issued and outstanding -- 29,163
Common stock, $.01 par value, 50,000,000 shares
authorized; 7,558,063 and 5,447,063 shares issued
and outstanding 75,581 54,471
Additional paid-in capital 13,359,053 7,639,407
Accumulated deficit (5,851,153) (4,607,204)
------------ -----------
Total shareholders' equity 7,583,481 3,115,837
------------ -----------
Total liabilities and shareholders' equity $ 16,069,052 $ 6,376,008
------------ -----------
------------ -----------
</TABLE>
(1) Amounts have been restated to reflect pooling-of-interests transaction, see
Note 2.
The accompanying notes are an integral part of these consolidated financial
statements.
19
<PAGE>
ELTRAX SYSTEMS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
For the nine months For the year
ended December 31, ended March 31,
1996 1996(1)
------------------- ---------------
<S> <C> <C>
REVENUE $ 28,121,355 $ 15,235,250
COST OF REVENUE 23,746,297 12,793,198
-------------- --------------
Gross Profit 4,375,058 2,442,052
-------------- --------------
OPERATING EXPENSES:
Selling, general and administrative 5,162,213 2,799,509
Amortization of intangible assets 208,330 --
-------------- --------------
Total operating expenses 5,370,543 2,799,509
-------------- --------------
Operating loss (995,485) (357,457)
INVESTMENT INCOME (LOSS), NET (7,909) 135,838
GAIN ON SETTLEMENT RELATED TO PAST
INVESTMENT LOSSES -- 100,000
-------------- --------------
Loss from continuing operations (1,003,394) (121,619)
-------------- --------------
DISCONTINUED OPERATIONS:
INCOME (LOSS) FROM DISCONTINUED OPERATIONS (197,585) 299,467
GAIN ON DISPOSAL OF DISCONTINUED OPERATIONS 57,030 133,214
-------------- --------------
Income (loss) from discontinued operations (140,555) 432,681
-------------- --------------
INCOME TAXES -- --
Net income (loss) $ (1,143,949) $ 311,062
-------------- --------------
-------------- --------------
INCOME (LOSS) PER COMMON SHARE AND
COMMON SHARE EQUIVALENT:
CONTINUING OPERATIONS ($0.14) ($0.02)
-------------- --------------
-------------- --------------
DISCONTINUED OPERATIONS ($0.02) $0.08
-------------- --------------
-------------- --------------
NET INCOME (LOSS) PER SHARE ($0.16) $0.06
-------------- --------------
-------------- --------------
WEIGHTED AVERAGE SHARES OUTSTANDING 7,205,311 5,603,473
-------------- --------------
-------------- --------------
</TABLE>
(1) Amounts have been restated to reflect pooling-of-interests transaction, see
Note 2.
The accompanying notes are an integral part of these consolidated financial
statements.
20
<PAGE>
ELTRAX SYSTEMS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
For the nine months For the year
ended December 31, ended March 31,
1996 1996(1)
------------- -----------
<S> <C> <C>
OPERATING ACTIVITIES
Net income (loss) $ (1,143,949) $ 311,062
Adjustments to reconcile net income (loss) to net
cash provided by (used for) operating activities:
Amortization of intangible 208,330 --
Depreciation 32,055 130,496
Gain on sale of digital imaging archiving business -- (133,214)
Gain on sale of the health card business (57,030) --
Gains and losses on marketable securities, net 1,262 (100,000)
Deferred income taxes (275,000) --
Warrants issued for services 10,000 --
Bad debt expense 230,000 --
Changes in current operating items: -- --
Accounts receivable (1,203,436) 103,358
Inventories 1,435,341 (159,805)
Other current assets (38,218) (16,618)
Accounts payable 588,426 (360,974)
Accrued expenses 599,594 32,326
Other current liabilities (97,947) (23,073)
Other assets (7,647) --
------------- -----------
Net cash provided by (used for)
operating activities: 281,781 (216,442)
------------- -----------
INVESTING ACTIVITIES
Cash paid in connection with acquisition
of Datatech, net of cash acquired of $750,490 (695,549) --
Purchases of short-term investments -- (1,319,979)
Proceeds from sales of short-term investments 1,383,624 1,110,915
Proceeds from settlements related to
short-term investments -- 26,040
Purchases of furniture and equipment (101,074) (90,311)
Proceeds from notes receivable 111,139 36,658
Proceeds from sale of health card business 32,000 --
Proceeds from sale of digital imaging
archiving business -- 100,000
------------- -----------
Net cash provided by (used for)
investing activities: 730,140 (136,677)
------------- -----------
FINANCING ACTIVITIES
Distributions to ANS shareholders (100,000) (458,650)
Proceeds (payments) on credit line, net (1,099,136) 619,675
Proceeds from issuances of common stock 207,891 379,533
------------- -----------
Increase in cash and cash equivalents 20,676 187,439
CASH AND CASH EQUIVALENTS
Beginning of period 480,523 293,084
------------- ------------
End of period $ 501,199 $ 480,523
-------------- ------------
-------------- ------------
NON CASH INVESTING AND FINANCING ACTIVITIES:
Common Stock Consideration for
Datatech Acquisition
Original issuance of 2,068,000 shares $ 5,955,840
Return of 100,000 shares resulting
from settlement of escrowed shares (462,138)
------------
$ 5,493,702
------------
------------
</TABLE>
(1) Amounts have been restated to reflect pooling-of-interests transaction, see
Note 2.
The accompanying notes are an integral part of these consolidated financial
statements.
21
<PAGE>
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
FOR THE NINE MONTHS ENDED DECEMBER 31,
1996 AND THE YEAR ENDED MARCH 31, 1996
<TABLE>
<CAPTION>
Convertible
Preferred Stock Common Stock Additional
--------------------------------------------------- Paid-in Accumulated
Shares Amount Shares Amount Capital Deficit Total
- -----------------------------------------------------------------------------------------------------------------------------------
BALANCE, <C> <C> <C> <C> <C> <C> <C>
<S>
Balance as of
March 31, 1995, as
previously reported 7,175 $ 52,312 3,678,268 $ 36,783 $ 7,227,606 $ (5,515,707) $ 1,800,994
Effect of pooling-of-
interests transaction - - 950,000 9,500 17,307 1,056,091 1,082,898
Balance as of
March 31, 1995, as
restated 7,175 52,312 4,628,268 46,283 7,244,913 (4,459,616) 2,883,892
Net income - - - - - 311,062 311,062
Conversion of
preferred shares
to common shares (3,175) (23,149) 31,750 317 22,832 - -
Distributions to ANS
shareholders - - - - - (458,650) (458,650)
Exercise of stock
options - - 26,173 262 29,270 - 29,532
Private Placement - - 760,872 7,609 342,392 - 350,001
- -----------------------------------------------------------------------------------------------------------------------------------
BALANCE,
March 31, 1996 4,000 $ 29,163 5,447,063 $ 54,471 $ 7,639,407 $ (4,607,204) $ 3,115,837
Net loss - - - - - (1,143,949) (1,143,949)
Conversion of
preferred shares
to common shares (4,000) (29,163) 40,000 400 28,763 - -
Distributions to ANS
shareholders - - - - - (100,000) (100,000)
Exercise of stock
options & warrants - - 103,000 1,030 206,861 - 207,891
Warrant charge (1) - - - - 10,000 - 10,000
Datatech acquisition - - 1,968,000 19,680 5,474,022 - 5,493,702
- -----------------------------------------------------------------------------------------------------------------------------------
BALANCE,
March 31, 1996 0 $ 0 7,558,063 $ 75,581 $ 13,359,053 $ (5,851,153) $ 7,583,481
- -----------------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Compensation related to the issuance of warrants in exchange for services.
The accompanying notes are an integral part of these consolidated financial
statements.
22
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Organization and Operations:
Eltrax Systems, Inc. (the "Company" or "Eltrax"), through its wholly
owned subsidiaries, Nordata, Inc. (dba "Datatech") and Atlantic Network
Systems, Inc. ("ANS"), is a national value-added reseller of data
communications networking products and services. Eltrax designs and
installs, and in some cases maintains, wide-area-networking systems for
end-user corporate and government customers, and is a distributor of data
communications equipment to other value-added resellers. The Company's
products and services include data communications equipment used in remote
access and enterprise-wide communications networks and the installation and
maintenance of that equipment.
Prior to fiscal year ended March 31, 1996 the Company developed and
marketed a patient card system which expedites patient admission and
registration at hospitals, clinics and other health care facilities and
enhances a patient's sense of membership and affiliation with a specific
health care provider.
The Company sold its Health Card Business and its Imaging Business in
November and March 1996, respectively, see Note 4.
In October 1996, the Company changed its fiscal year-end from March 31
to December 31. Accordingly, the statement of operations, cash flows and
changes in stockholders' equity are for the nine months ended December 31,
1996.
2. Mergers and Acquisitions
On May 17, 1996, the Company acquired 100% of the outstanding shares of
Nordata, Inc. and Rudata, Inc. doing business as Datatech, which configures,
markets, installs and maintains data communications equipment for its
customers' computer and telecommunications systems over enterprise wide local
area networks and wide area networks. Consideration paid to the sellers
included 1,883,000 unregistered shares of the Company's common stock and cash
of $1,016,000. In addition, the Company paid broker fees consisting of
85,000 unregistered shares of the Company's common stock and cash of
$160,000. Other acquisition expenses approximated $450,000.
Unaudited pro forma financial information as though the
Datatech acquisition had been effective as of April 1, 1995, is as
follows:
FOR THE NINE MONTHS FOR THE YEAR ENDED
ENDED DECEMBER 31, 1996 MARCH 31, 1996
----------------------- ------------------
Revenue $ 31,131,000 $ 33,197,000
Operating Income(loss) $ (1,030,000) $ (112,000)
Net Income(loss) $ (1,176,000) $ 212,000
The Datatech acquisition was accounted for as a purchase and,
accordingly, the results of Datatech's operations are included in the
Company's consolidated financial statements for the nine months ended
December 31, 1996 from the date of acquisition. The Company recorded
goodwill of $4,849,000 in connection with the acquisition, which is being
amortized over fifteen years.
23
<PAGE>
On October 31, 1996, the Company issued 950,000 shares of its common stock
in exchange for all of the outstanding common stock of Atlantic Network Systems,
Inc. (ANS). ANS provides data networking products and services. The merger has
been accounted for as a pooling-of-interests and, accordingly, the Company's
consolidated financial statements have been restated to include the accounts and
operations of ANS for all periods prior to the merger.
Separate results of operations of the merged entities are presented in
the following table:
FOR THE NINE MONTH
PERIOD ENDED FOR THE YEAR ENDED
DECEMBER 31, 1996 MARCH 31, 1996
------------------ ------------------
Revenue from Continuing
Operations:
Eltrax $14,786,174 $ 0
ANS 13,335,181 15,235,250
----------- -----------
Total Revenue from
Continuing Operations $28,121,355 $15,235,250
----------- -----------
----------- -----------
Net Income (loss):
Eltrax $(1,096,261) $ 104,935
ANS (47,688) 206,127
----------- -----------
Total Net Income (loss) $(1,143,949) $ 311,062
----------- -----------
----------- -----------
In January 1997, the Company purchased the MST Distribution division of
MRK Technologies, LTD. MST is a distributor of data networking equipment
with 1996 sales, throughout the United States, of approximately $9.6 million.
The Company paid approximately $2.0 million of cash for the assets of MST.
On March 26, 1997, the Company announced the signing of a letter of
intent to merge with Hi-Tech Connection Inc. of Reading, PA. Hi-Tech, a data
network systems integration and network management company, has disclosed to
Eltrax that revenue for its most recent fiscal year ended September 30, 1996
was approximately $19.2 million.
3. Summary of Significant Accounting Policies:
USE OF ESTIMATES
The preparation of the Company's financial statements requires
management to make estimates and assumptions that affect the reported amounts
of assets and liabilities as of the date of the financial statements and the
reported amounts of revenues and expenses during the reporting period.
Actual results may differ from these estimates. The most significant areas
which require management's estimates relate to the determination of the
allowance for obsolete inventory and uncollectable accounts.
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of the
Company and its wholly owned subsidiaries. All significant intercompany
accounts and transactions have been eliminated in consolidation.
24
<PAGE>
CASH EQUIVALENTS
The Company considers all investments purchased with an original
maturity of three months or less to be cash equivalents. Cash equivalents
consist primarily of short-term money market instruments that are recorded at
cost, which approximates market.
SHORT-TERM INVESTMENTS
Short-term investments consist primarily of high-grade, fixed income
securities with original maturities beyond three months. At March 31, 1996,
the fair value of the Company's short-term investments approximated cost.
There were no short-term investments as of December 31, 1996.
INVENTORIES
Inventories are stated at the lower of cost or market. Cost is
determined using the first-in, first-out method.
FURNITURE AND EQUIPMENT
Furniture and equipment are stated at cost. Depreciation is computed
using the straight-line method over estimated useful lives of two to seven
years. Leasehold improvements are amortized on a straight-line basis over
the lesser of the term of the related lease or its estimated useful life.
INTANGIBLE ASSETS
Goodwill represents the excess of cost over the fair value of assets
acquired and is being amortized on a straight-line basis over its estimated
useful life of 15 years.
REVENUE RECOGNITION
Revenue from system sales is recognized upon shipment.
NET INCOME (LOSS) PER COMMON SHARE AND COMMON SHARE EQUIVALENT
Income per share data is determined by dividing income by the weighted
average number of common and common equivalent shares outstanding. Loss per
share data is determined by dividing the loss by the weighted average number
of common shares outstanding. Common stock equivalents represent shares
issuable upon the assumed exercise of dilutive stock options and warrants.
In March 1997, the Financial Accounting Standards Board issued Statement
No. 128, "Earnings per Share". This statement modifies the methodology for
calculating earnings per share, and will be adopted by the Company effective
December 31, 1997. The Company has not determined the impact of this
statement, if any.
4. Discontinued Operations
On March 1, 1996, the Company sold its Imaging Business for $100,000 in
cash and a $180,000 non-interest bearing note receivable due and payable over
a five year period. This note was recorded at a discounted amount assuming
an effective interest rate of twelve percent. On November 22, 1996, the
Company sold its Health Card Business for $32,000 in cash. The financial
statements have been reclassified to present the results of the Imaging and
Health Card Businesses as discontinued operations. Revenue from discontinued
operations was as follows:
25
<PAGE>
FOR THE NINE MONTHS FOR THE YEAR
ENDED DECEMBER 31, ENDED MARCH 31,
1996 1996
------------------- ---------------
Revenue $471,869 $1,453,824
-------- ----------
-------- ----------
5. Shareholders' Equity:
PREFERRED STOCK
The Company originally authorized 1,000,000 shares of preferred stock,
30,000 of which were designated as Series A convertible preferred stock (the
"Preferred Stock"). All 30,000 shares of the Preferred Stock have been
converted into 300,000 shares of Eltrax Common Stock. There were no
outstanding shares of Preferred Stock at December 31, 1996. Currently there
are 970,000 shares of undesignated preferred stock which are authorized but
unissued.
26
<PAGE>
STOCK WARRANTS
In connection with various financing and acquisition transactions,
related services provided to the Company, the Company has issued warrants to
purchase common stock of the Company. A summary of warrants outstanding at
December 31, 1996, is as follows:
Number Exercise
Year Issued of Warrants Price Expiration
- ----------- ----------- ----------- -------------
Year ended March 31, 1988 1,785 $5.60 November 1998
Year ended March 31, 1994 135,000 $3.60 December 1997
Year ended March 31, 1995 500,000 $0.75-$1.00 June 2002
Year ended March 31, 1996 166,667 $2.25 February 2003
Nine months ended
December 31, 1996 275,000 $5.38-$6.00 October 2006
---------
Total warrants
outstanding 1,078,452
---------
---------
All of the above warrants are vested as of December 31, 1996, except for
229,171 warrants, which vest periodically through October 1999 and 55,556
warrants which will vest upon the completion of a successful future equity
offering.
27
<PAGE>
STOCK PURCHASE RIGHTS
The Company has agreements with all shareholders of record prior to May
19, 1986 (other than the incorporators) which restrict the sale or transfer
of common stock. If such restricted shareholders are interested in selling
their shares, they must first offer such shares to the Company. If the
Company does not exercise its option to purchase such shares within a
specified number of days, the incorporating shareholders will have the same
number of days to purchase the shares. Upon the expiration of the time
period for both rights, the shareholders would be free to sell the shares to
outside parties. The method of determining the purchase price, if the stock
purchase rights are exercised, is designated in each of the agreements.
6. Stock Options
On May 31, 1995, the Company's Board of Directors adopted the 1995 Stock
Incentive Plan (the "1995 Plan"), which was approved by the Company's
shareholders. The 1995 Plan, under which a minimum of 450,000 shares of
Common Stock of the Company are available for various stock incentive awards,
replaced the Company's 1992 Stock Incentive Plan (the "1992 Plan"), which was
approved by the shareholders of the Company and implemented on July 30, 1992.
The 1992 Plan will continue to exist until the stated termination date of
such plan, or May 29, 2002. Any shares of the Company's Common Stock
available for issuance under the 1992 Plan which have either not been issued
or have been issued but were forfeited, or which become available for
issuance due to forfeiture or expiration, will become available for issuance
under the 1995 Plan, in addition to the base number of 450,000 shares of
Common Stock available under the 1995 Plan. The 1995 Plan provides that
certain eligible individuals, including salaried officers, Company employees,
nonemployee directors, agents and consultants, may be granted options for
providing services to the Company. The 1992 Plan and the 1995 Plan are
administered by a compensation committee (the Committee) consisting of two
members of the board of directors. Options are granted at per share amounts
as determined by the Committee, but not less than the fair market value, as
defined in the 1995 Plan, at the date of the grant. All outstanding options
vest at various times, not to exceed 10 years, through 2006.
A summary of changes in options outstanding under the 1995 and 1992
Plans during the nine months ended December 31, 1996 and the year ended March
31, 1996 are as follows:
NINE MONTHS YEAR ENDED
ENDED DECEMBER 31, 1996 MARCH 31, 1996
----------------------- -----------------------
WEIGHTED WEIGHTED
AVERAGE AVERAGE
EXERCISE EXERCISE
SHARES PRICE SHARES PRICE
- ------------------------------------------------------------------------------
Outstanding at beginning
of year 497,590 $1.15 374,322 $ 1.47
Granted 149,500 4.71 294,500 .84
Exercised (78,000) 1.70 -- --
Expired (22,406) 3.35 (171,232) 1.31
-------- ---------
Outstanding at end of year 546,684 1.95 497,590 1.15
-------- ---------
-------- ---------
Options exercisable at
year-end 469,559 1.50 381,461 1.19
-------- ---------
-------- ---------
The following table contains information about stock options outstanding at
December 31, 1996 under the 1995 and 1992 plans:
REMAINING
EXERCISE CONTRACTUAL NUMBER NUMBER
PRICE LIFE (YEARS) OUTSTANDING EXERCISABLE
-------- ------------ ----------- -----------
$ .38-1.00 8.1 302,219 299,719
1.38-2.56 5.7 107,090 105,590
3.19-4.25 7.1 92,375 49,250
5.72-6.88 9.5 45,000 15,000
------- -------
546,684 469,559
------- -------
------- -------
In addition to the 1995 Plan, the Company has granted 45,000
nonqualified options at prices from $.72 to $1.75 prior to April 1, 1996
which are fully vested and exercisable at December 31, 1996.
In October 1995, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 123, a new standard of
accounting and reporting for stock-based compensation plans. The Company
adopted the disclosure provisions of this new standard in 1996. The Company
has continued to measure compensation cost for its stock incentive and option
plans using the intrinsic value-based method of accounting it has
historically used and, therefore, the new standard has no effect on the
Company's operating results.
Had the Company used the fair value-based method of accounting for its
stock option and incentive plans beginning in 1995 and charged compensation
cost against income, over the vesting period, based on the fair value of
options at the date of grant, net income (loss) and net income (loss) per
common share for the transition period ending December 31, 1996 and the
fiscal year ended March 31, 1996 would have been increased to the following
pro forma amounts:
NINE MONTHS ENDED YEAR ENDED
DECEMBER 31, 1996 MARCH 31, 1996
----------------- --------------
Net Income (Loss)
As reported $1,143,949 $311,062
Pro forma 1,329,949 227,062
Net Income (Loss) per
common share
As reported $ (.16) $ .06
Pro forma (.18) .04
The pro forma information above only includes stock options granted in
the fiscal year ended March 31, 1996 and the nine month transition period
ended December 31, 1996. Compensation expense under the fair value-based
method of accounting will increase over the next few years as additional
stock option grants are considered.
The weighted average grant date fair value of options granted was $2.98
per option for the nine months transition period ended December 31, 1996 and
$.33 per option for the year ended March 31, 1996. The weighted average
grant date fair value of options was determined using the fair value of each
option grant on the date of grant, utilizing the Black-Scholes option-pricing
model concepts and the following key assumptions:
28
<PAGE>
NINE MONTHS ENDED YEAR ENDED
DECEMBER 31, 1996 MARCH 31, 1996
----------------- --------------
Risk-free interest rate 6.5% 5.8%
Expected life 5 years 5 years
Expected volatility 70% 70%
7. Operating Leases:
The Company leases office space and certain equipment under operating
leases which expire at various dates through 2001 with some leases containing
options for renewal. Rent expense under these leases was $261,988 in the
nine months ended December 31, 1996 and $152,464 in the year ended March 31,
1996. The Company leases space from a lessor of which two shareholders of
the Company have non-controlling interest. The lease expense for this facility
was approximately $55,000 for the nine months ended December 31, 1996. As of
December 31, 1996, approximate future commitments under these operating
leases, are as follows:
1997 $331,663
1998 281,964
1999 253,808
2000 257,446
2001 90,684
thereafter 0
Total $1,215,565
----------
----------
8. Income Taxes:
The significant components of income taxes are as follows:
NINE MONTHS ENDED YEAR ENDED
DECEMBER 31, 1996 MARCH 31, 1996
----------------- --------------
Income Taxes
Currently Payable $275,000 $ -
Deferred Tax Benefit (275,000) -
--------- --------
Income Taxes $ 0 $ -
--------- --------
--------- --------
A reconciliation of the statutory U.S federal income tax rate to the
company's effective tax rate for the nine months ended December 31, 1996 was:
Nine Months Ended
December 31, 1996
------------------
Statutory U.S. rate (34.0)
State income taxes,
net of federal benefit 8.8
Non-deductible goodwill 7.2
Non-deductible merger costs 5.9
Non-deductible business meals and
entertainment 4.4
ANS deferred tax asset recognized
at date of merger (6.1)
Provision for tax contingencies 13.8
-----
-0-
-----
-----
For the year ended March 31, 1996, the Company's effective tax rate
varied from the Statutory U.S federal income tax rate primarily due to the
subchapter S status of ANS.
Deferred income taxes are recognized to reflect the net tax effects of
temporary differences between the carrying amounts of assets and liabilities
for financial reporting purposes and the amounts used for income tax
purposes. Significant components of the Company's deferred tax assets are as
follows:
December 31, March 31,
1996 1996
- -------------------------------------------------------------------------
Deferred tax assets and
(liabilities):
Net operating loss
carryforwards $ 1,207,300 $1,293,200
Capital loss
carryforwards 205,100 260,800
Unearned revenue 54,600 18,000
Reserves not deductible 348,300 12,500
General business credits 20,000 15,900
Other assets 74,000 9,200
Section 481 adjustment (388,200)
Other liabilities (29,900)
Valuation allowance (205,100) (1,579,700)
------------------------------------
$ 1,316,000 $ --
------------------------------------
------------------------------------
29
<PAGE>
At March 31, 1996, the Company had established a full valuation
allowance due to uncertainty as to the likelihood and timing of future
taxable income. This valuation allowance was reversed in connection with
the Company's acquisition of Datatech when it was determined that it was more
likely than not that the deferred tax assets would be realized in a future
period. At December 31, 1996, the Company had net operating loss
carryforwards of approximately $3,451,000 expiring at various dates through
2010. In addition, the Company has capital loss carryforwards of
approximately $659,000.
9. Line of Credit:
During October of 1996, the Company negotiated a $5,000,000 line of
credit with its bank to be used for working capital purposes. The agreement
is effective until October 31, 1998. The interest rate is at one half of one
percent above the Bank's prime rate and varies depending on the "prime" rate
established by the bank. As of December 31, 1996, $589,000 was outstanding
on the line. The line of credit agreement contains restrictive covenants,
which include, maintaining a current ratio of 1:1, maintaining an
indebtedness ratio of 1.5:1, and having positive monthly earnings after
taxes, interest, and depreciation. It is also a requirement that financial
statements will be given to the bank with a certain amount of days after each
month end. As of December 31, 1996, the Company was in violation of the
monthly positive earnings covenant. Subsequent to year end, the Company
violated the timely financial statement covenant. The Company, however, has
obtained a waiver from the bank related to these violations.
10. Savings and Retirement Plan:
The Company sponsors a 401(k) savings and retirement plan which is
available to all eligible employees. Under the plan, the Company may make a
discretionary matching contribution equal to a percentage, as determined by
the Company, of employee contributions. Discretionary matching contributions
were approximately $9,700 in the nine months ended December 31, 1996 and
$7,400 in the year ended March 31, 1996.
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
PART III
- ----------------------------------------------------------
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS;
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
DIRECTORS OF THE COMPANY
The information under the captions "Election of Directors Nomination",
"--Information About Nominees" and "-- Other Information About Nominees" in
the Company's 1997 Proxy Statement is incorporated herein by reference.
(1) EXECUTIVE OFFICERS OF THE COMPANY
The information concerning executive officers of the Company is included
in this Report under Item 4a, "Executive Officers of the Company".
COMPLIANCE WITH SECTION 16(A)
The information under the caption "Section 16(a) Beneficial Ownership
Reporting Compliance" in the Company's 1997 Proxy Statement is incorporated
herein by reference.
30
<PAGE>
ITEM 10. EXECUTIVE COMPENSATION
The information under the captions "Election of Directors -- Director
Compensation" and "Executive Compensation and Other Benefits" in the
Company's 1997 Proxy Statement is incorporated herein by reference.
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information under the caption "Principal Shareholders and Beneficial
Ownership of Management" in the Company's 1997 Proxy Statement is
incorporated herein by reference.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information under the caption "Election of Directors - Information
about Nominees" and "Certain Transactions" in the Company's 1997 Proxy
Statement is incorporated herein by reference.
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K.
(a) 1. EXHIBITS
The exhibits to this Report are listed in the Exhibit Index on
pages E-1 to E-3 below.
A copy of any of the exhibits listed or referred to above will be
furnished at a reasonable cost to any person who was a
shareholder of the Company as of April 2, 1997, upon receipt from
any such person of a written request for any such exhibit. Such
request should be sent to Eltrax Systems, Inc., 10901 Red Circle
Drive, Suite 345, Minnetonka, MN; Attn.: Shareholder Relations.
2. MANAGEMENT CONTRACTS
The following is a list of each management contract or
compensatory plan or arrangement required to be filed as an
exhibit to this Transition Report on Form 10-KSB pursuant to Item
13(a):
A. Form of Incentive Stock Option Agreement (incorporated by
reference to Exhibit 10.6 to the Company's Registration
Statement on Form S-18 (File No. 33-51456)).
B. Form of Non-Statutory Stock Option Agreement (incorporated
by reference to Exhibit 10.7 to the Company's Registration
Statement on Form S-18 (File No. 33-51456)).
C. 1992 Stock Incentive Plan (incorporated by reference to
Exhibit 10.4 to the Company's Registration Statement on Form
S-18 (File No. 33-51456)).
D. 1995 Stock Incentive Plan (incorporated by reference to
Exhibit 10.12 to the Company's Annual Report on Form 10-KSB
for the year ended March 31, 1995 (File No. 0-22190)).
E. Employment and Noncompetition Agreement dated as of May 17,
1996 by and between Nordata, Inc. and Howard B. Norton
(incorporated by reference to Exhibit 2.5 to the Company's
Current Report on Form 8-K filed June 3, 1996 (File No. 0-
22190)).
31
<PAGE>
F. Agreement dated as of May 17, 1996 by and among the Company,
William P. O'Reilly, Clunet R. Lewis, Mack V. Traynor, III
and Howard B. and Ruby Lee Norton (incorporated by reference
to Exhibit 99.1 to the Company's Current Report on Form 8-K
filed June 3, 1996 (File No. 0-22190)).
G. Consulting Agreement dated as of June 1, 1996 by and between
the Company and William P. O'Reilly (filed herewith).
H. Consulting Agreement dated as of June 1, 1996 by and between
the Company and Clunet R. Lewis (filed herewith).
I. Employment and Noncompetition Agreement dated as of October
31, 1996 by and between Atlantic Network Systems, Inc. and
Walter C. Lovett (incorporated by reference to Exhibit 10.1
to the Company's Current Report on Form 8-K filed November
12, 1996 (File No. 0-22190)).
J. Employment and Noncompetition Agreement dated as of October
31, 1996 by and between Atlantic Network Systems, Inc. and
Douglas L. Roberson (incorporated by reference to Exhibit
10.2 to the Company's Current Report on Form 8-K filed
November 12, 1996 (File No. 0-22190)).
K. Warrant, dated as of October 31, 1996, to purchase 106,250
shares of Common Stock of the company granted to Walter C.
Lovett (incorporated by reference to Exhibit 10.4 to the
Company's Current Report on Form 8-K filed November 12, 1996
(File No. 0-22190)).
L. Warrant, dated as of October 31, 1996, to purchase 106,250
shares of Common Stock of the Company granted to Douglas L.
Roberson (incorporated by reference to Exhibit 10.5 to the
Company's Current Report on Form 8-K filed November 12, 1996
(File No. 0-22190)).
M. Agreement dated as of October 31, 1996 by and among the
Company, William P. O'Reilly, Clunet R. Lewis, Mack V.
Traynor, III and Walter C. Lovett, Douglas L. Roberson and
B. Taylor Koonce (incorporated by reference to Exhibit 10.7
to the Company's Current Report on Form 8-K filed November
12, 1996 (File No. 0-22190)).
N. 1997 Stock Incentive Plan (filed herewith).
O. Promissory Note dated January 21, 1997 by Gene A. Bier in
favor of the Company in the principal amount of $38,227
(filed herewith).
P. Consulting Agreement dated January 21, 1997 by and
between the Company and Gene A. Bier (filed herewith).
(B) REPORTS ON FORM 8-K
The Company filed a Current Report on Form 8-K on October 25, 1996
reporting the Board of Director's determination on October 11, 1996 to change
the Company's fiscal year end from March 31 to December 31.
The Company filed a Current Report on Form 8-K on November 12, 1996
reporting the merger of ANS Acquisition Corporation, a wholly owned
subsidiary of the Company, with and into Atlantic Network Systems, Inc.
32
<PAGE>
SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act, the
Registrant caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
ELTRAX SYSTEMS, INC.
By: /s/ William P. O'Reilly
----------------------------------
William P. O'Reilly
Chief Executive Officer, Chairman of
the Board
and Director
(principal executive officer)
March 28, 1997
In accordance with the Exchange Act, this report has been signed below
by the following persons on behalf of the Registrant and in the capacities
and on the dates indicated.
NAME TITLE DATE
- ---- ----- ----
/s/ William P. O'Reilly Chief Executive Officer, March 28, 1997
- ----------------------- Chairman of the
William P. O'Reilly Board and Director
(principal executive officer)
/s/ Mack V. Traynor, III President and Director March 28, 1997
- ------------------------
Mack V. Traynor, III
/s/ Patrick J. Dirk Director March 28, 1997
- ------------------------
Patrick J. Dirk
/s/ Clunet R. Lewis Director March 28, 1997
- ------------------------ Acting Chief Financial Officer
Clunet R. Lewis (Principal Financial Officer)
(Principal Accounting Officer)
/s/ Thomas F. Madison Director March 28, 1997
- ------------------------
Thomas F. Madison
/s/ Howard B. Norton Director March 28, 1997
- ------------------------ President of Datatech subsidiary
Howard B. Norton
/s/ Walter C. Lovett Director March 28, 1997
- ------------------------ Vice-President of ANS subsidiary
Walter C. Lovett
33
<PAGE>
ELTRAX SYSTEMS, INC.
EXHIBIT INDEX TO TRANSITION REPORT ON
FORM 10-KSB
FOR THE NINE MONTH TRANSITION PERIOD ENDED DECEMBER 31, 1996
<TABLE>
<CAPTION>
ITEM ITEM METHOD OF FILING
- ---- ---- -----------------
<S> <C> <C>
2.1 Agreement and Plan of Merger dated as Incorporated by reference
of May 14, 1996 by and among Eltrax to Exhibit
Systems, Inc., Rudata Acquisition 2.1 to the Company's
Corporation, Nordata Acquisition Current Report
Corporation, Rudata, Inc., Nordata, Inc. on Form 8-K filed June 3,
and Howard B. and Ruby Lee Norton, 1996 (File
as amended pursuant to that First No. 0-22190).
Amendment to Agreement and Plan of
Merger dated as of May 17, 1996 by
and among the same parties.
2.2 Agreement and Plan of Merger dated as Incorporated by reference
of October 31, 1996 by and among to Exhibit
Eltrax Systems, Inc., ANS Acquisition 2.1 to the Company's
Corporation, Atlantic Network Current Report
Systems, Inc. and Walter C. Lovett, on Form 8-K filed
Douglas L. Roberson and B. Taylor November 12, 1996
Koonce. (1) (File No. 0-22190).
3.1 Amended and Restated Articles of Incorporated by reference
Incorporation of the Company, as to Exhibit
amended. 3.1 to the Company's
Registration
Statement on Form S-18
(File No. 33-51456).
3.2 Bylaws of the Company, as amended. Incorporated by reference
to Exhibit 3.2 to the
Company's Quarterly Report
on Form 10-QSB for the
quarter ended
September 30, 1996
(File No. 0-22190).
4.1 Specimen Form of the Company's Incorporated by reference
Common Stock Certificate. to Exhibit
4.1 to the Company's
Registration
Statement on Form S-18
(File No. 33-51456).
4.2 Warrant, dated as of October 31, 1996, Incorporated by reference
to purchase 106,250 shares of Common to Exhibit
Stock of the Company granted to 10.4 to the Company's
Walter C. Lovett. Current Report
on Form 8-K filed
November 12, 1996
(File No. 0-22190).
34
<PAGE>
4.3 Warrant, dated as of October 31, 1996, Incorporated by reference
to purchase 106,250 shares of Common to Exhibit
Stock of the Company granted to 10.5 to the Company's
Douglas L. Roberson. Current Report
on Form 8-K filed
November 12, 1996
(File No. 0-22190).
10.1 1992 Stock Incentive Plan. Incorporated by reference
to Exhibit 10.4 to the
Company's Registration
Statement on Form S-18
(File No. 33-51456).
10.2 Form of Incentive Stock Option Incorporated by reference
Agreement. to Exhibit 10.6 to the
Company's Registration
Statement on Form S-18
(File No. 33-51456).
10.3 Form of Non-Statutory Option Incorporated by reference
Agreement. to Exhibit 10.7 to the
Company's Registration
Statement on Form S-18
(File No. 33-51456).
10.4 Form of Non-Employees Director Stock Incorporated by reference
Option Agreement. to Exhibit 10.10 to the
Company's Annual Report
on Form 10-KSB for the
year ended March 31, 1993
(File No. 0-22190).
10.5 1995 Stock Incentive Plan. Incorporated by reference
to Exhibit 10.12 to the
Company's Annual Report
on Form 10-KSB for the
year ended March 31, 1995
(File No. 0-22190).
10.6 Employment and Noncompetition Incorporated by reference
Agreement dated as of May 17, 1996 to Exhibit 2.5 to the
by and between Nordata, Inc. and Company's Current Report
Howard B. Norton. on Form 8-K filed June 3,
1996 (File No. 0-22190).
10.7 Office Space Lease dated May 20, 1996 Filed herewith electronically.
by and between PMTC Limited Partnership
and the Company.
10.8 Standard Industrial Lease dated January Filed herewith electronically.
1, 1996 by and between Capistrano
Enterprises and Nordata, Inc.
10.9 Consulting Agreement dated as of June Filed herewith electronically.
1, 1996 by and between the Company
and Clunet R. Lewis.
35
<PAGE>
10.10 Consulting Agreement dated as of June Filed herewith electronically.
1, 1996 by and between the Company
and William P. O'Reilly.
10.11 Real Estate Lease dated June 1, 1996 Filed herewith electronically.
between Walt Lovett, Doug and Lisa
Roberson and Atlantic Network
Systems, Inc.
10.12 Employment and Noncompetition Incorporated by reference to Exhibit
Agreement dated as of October 31, 1996 10.1 to the Company's Current Report
by and between Atlantic Network on Form 8-K filed November 12, 1996
Systems, Inc. and Walter C. Lovett. (File No. 0-22190).
10.13 Employment and Noncompetition Incorporated by reference to Exhibit
Agreement dated as of October 31, 1996 10.2 to the Company's Current Report
by and between Atlantic Network on Form 8-K filed November 12, 1996
Systems, Inc. and Douglas L. Roberson. (File No. 0-22190).
10.14 Agreement dated as of October 31, Incorporated by reference to Exhibit
1996 by and among the Company 10.7 to the Company's Current Report
William P. O'Reilly, Clunet R. Lewis, on Form 8-K filed November 12, 1996
Mack V. Traynor, III and Walter C. (File No. 0-22190).
Lovett, Douglas L. Roberson and B.
Taylor Koonce.
10.15 Revolving Credit Agreement dated Incorporated by reference to Exhibit 10.9
October 31, 1996 between the to the Company's Quarterly Report on Form
Company, it subsidiaries and State 10-QSB for the quarter ended September 30,
Street Bank and Trust Company. (1) 1996 (File No. 0-22190)
10.16 Security Agreement dated October 31, Filed herewith electronically.
1996 between the Company and State
Street Bank and Trust Company, as
amended.(2)
10.17 Asset Purchase Agreement effective Filed herewith electronically.
November 22, 1996 among Eltrax
Health Card Solutions, LLC, EMX,
LLC, Americas Tower Partners and the
Company (1).
10.18 Standard Office Lease Agreement Filed herewith electronically.
(NET) dated November 27, 1996
between Security Life Insurance
Company of America and Eltrax
Systems, Inc.
36
<PAGE>
10.19 Amendment No. 1 to Standard Industrial Filed herewith electronically.
Lease dated January 1, 1997 between
Nordata, Inc., the Company and Seligman
Real Estate Services, Inc.
10.20 Promissory Note dated January 21, 1997 Filed herewith electronically.
by Gene A. Bier in favor of the Company
in the principal amount of $38,227.
10.21 Consulting Agreement dated January 21, Filed herewith electronically.
1997 by and between the Company and
Gene A. Bier.
10.22 Asset Purchase Agreement dated as of Incorporated by reference to Exhibit
January 29, 1997 between Atlantic 99.1 to the Company's Current Report
Network Systems, Inc. and MRK on Form 8-K filed February 12, 1997
Technologies, LTD. (File No. 0-22190).
10.23 Lease Amendment One to Office Space Filed herewith electronically.
Lease dated May 20, 1996 by and between
Town Center Delaware, Inc. and the
Company.
10.24 1997 Stock Incentive Plan. Filed herewith electronically.
21.1 Subsidiaries of the Registrant. Filed herewith electronically.
27.1 Financial Data Schedule. Filed herewith electronically.
</TABLE>
- --------------------------
(1) Exhibits to these exhibits will be furnished upon request.
(2) Nordata, Inc. and Atlantic Network Systems, Inc. entered into identical
Security Agreements, which will be furnished upon request.
37
<PAGE>
2000 TOWN CENTER
SOUTHFIELD, MICHIGAN 48075
OFFICE SPACE
LEASE
BETWEEN
PMTC LIMITED PARTNERSHIP
LANDLORD
AND
ELTRAX SYSTEMS, INC.
TENANT
<PAGE>
TABLE OF CONTENTS
SCHEDULE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
1. DEMISING CLAUSE . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
2. RENT. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
A. Definitions. . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
B. Components of Rent . . . . . . . . . . . . . . . . . . . . . . . . 3
C. Payment of Rent. . . . . . . . . . . . . . . . . . . . . . . . . . 4
D. Allocation of Rent Abatement for Tax Purposes. . . . . . . . . . . 4
3. USE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
4. CONDITION OF PREMISES . . . . . . . . . . . . . . . . . . . . . . . . . 5
5. BUILDING SERVICES . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
A. Basic Services . . . . . . . . . . . . . . . . . . . . . . . . . . 5
B. Utilities and Services.. . . . . . . . . . . . . . . . . . . . . . 5
C. Telephones . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
D. Additional Services. . . . . . . . . . . . . . . . . . . . . . . . 6
E. Failure or Delay in Furnishing Services. . . . . . . . . . . . . . 6
6. RULES AND REGULATIONS . . . . . . . . . . . . . . . . . . . . . . . . . 6
7. CERTAIN RIGHTS RESERVED TO LANDLORD . . . . . . . . . . . . . . . . . . 6
8. MAINTENANCE AND REPAIRS . . . . . . . . . . . . . . . . . . . . . . . . 7
9. ALTERATIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
A. Requirements.. . . . . . . . . . . . . . . . . . . . . . . . . . . 7
B. Liens. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
C. Americans With Disabilities Act. . . . . . . . . . . . . . . . . . 8
10. INSURANCE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
A. Tenant's Insurance . . . . . . . . . . . . . . . . . . . . . . . . 8
B. Landlord's Insurance . . . . . . . . . . . . . . . . . . . . . . . 8
C. Risk of Loss . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
D. Indemnification of Landlord. . . . . . . . . . . . . . . . . . . . 9
E. Indemnification of Tenant. . . . . . . . . . . . . . . . . . . . . 9
11. TENANT'S AND LANDLORD'S RESPONSIBILITIES. . . . . . . . . . . . . . . . 9
<PAGE>
12. FIRE OR OTHER CASUALTY. . . . . . . . . . . . . . . . . . . . . . . . . 10
A. Destruction of the Building. . . . . . . . . . . . . . . . . . . . 10
B. Destruction of the Premises. . . . . . . . . . . . . . . . . . . . 10
13. CONDEMNATION. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
14. ASSIGNMENT AND SUBLETTING . . . . . . . . . . . . . . . . . . . . . . . 11
A. Landlord's Consent . . . . . . . . . . . . . . . . . . . . . . . . 11
B. Standards for Consent. . . . . . . . . . . . . . . . . . . . . . . 11
C. Recapture. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
15. SURRENDER . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
16. DEFAULTS AND REMEDIES . . . . . . . . . . . . . . . . . . . . . . . . . 12
A. Default. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
B. Right of Re-Entry. . . . . . . . . . . . . . . . . . . . . . . . . 12
C. Termination of Right to Possession . . . . . . . . . . . . . . . . 13
D. Termination of Lease . . . . . . . . . . . . . . . . . . . . . . . 13
E. Other Remedies . . . . . . . . . . . . . . . . . . . . . . . . . . 13
F. Bankruptcy . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
G. Waiver of Trial by Jury. . . . . . . . . . . . . . . . . . . . . . 13
H. Counterclaims. . . . . . . . . . . . . . . . . . . . . . . . . . . 13
I. Venue. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
17. HOLDING OVER. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
18. SECURITY DEPOSIT. . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
19. RELOCATION OF TENANT. . . . . . . . . . . . . . . . . . . . . . . . . . 14
20. ESTOPPEL CERTIFICATE. . . . . . . . . . . . . . . . . . . . . . . . . . 15
21. SUBORDINATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
22. QUIET ENJOYMENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
23. BROKER. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
24. NOTICES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
<PAGE>
25. MISCELLANEOUS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
A. Successors and Assigns . . . . . . . . . . . . . . . . . . . . . . 16
B. Entire Agreement . . . . . . . . . . . . . . . . . . . . . . . . . 16
C. Time of Essence. . . . . . . . . . . . . . . . . . . . . . . . . . 16
D. Execution and Delivery . . . . . . . . . . . . . . . . . . . . . . 16
E. Severability . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
F. Governing Law. . . . . . . . . . . . . . . . . . . . . . . . . . . 17
G. Attorneys' Fees. . . . . . . . . . . . . . . . . . . . . . . . . . 17
H. Delay in Possession. . . . . . . . . . . . . . . . . . . . . . . . 17
I. Joint and Several Liability. . . . . . . . . . . . . . . . . . . . 17
J. Force Majeure. . . . . . . . . . . . . . . . . . . . . . . . . . . 17
K. Captions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
L. No Waiver. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
M. Limitation of Liability. . . . . . . . . . . . . . . . . . . . . . 17
<PAGE>
TOWN CENTER OFFICE LEASE
THIS LEASE is made as of the 20th day of May, 1997, between PMTC LIMITED
PARTNERSHIP, a Michigan Limited Partnership ("Landlord"), and ELTRAX SYSTEMS,
INC., a Minnesota Corporation ("Tenant"), for space in the building located
at 2000 Town Center, Southfield, Michigan 48075 (such building, together
with the land upon which it is situated, being herein referred to as the
"Building"). The Building is one of a group of five buildings commonly known
as 1000 Town Center, 2000 Town Center, 3000 Town Center, 4000 Town Center and
4400 Town Center located in an office building complex (the "Complex")
commonly known as Prudential Town Center. The following schedule (the
"Schedule") sets forth certain basic terms of this Lease:
SCHEDULE
1. Premises - Suite Number 690
2. Rentable Square Feet of Premises: 1,095
3. Rentable Square Feet of Building: 519,745
4. Base Rent:
PERIOD FROM / TO MONTHLY ANNUALLY
06/01/96 to 05/31/97 $798.44 $9,581.28
06/01/97 to 05/31/98 $821.25 $9,855.00
06/01/98 to 05/31/99 $844.06 $10,128.72
06/01/99 to 05/31/00 $866.06 $10,403.76
06/01/00 to 05/31/01 $889.69 $10,676.28
5. Tenant's Share: 0.21%
6. Security Deposit: $1,551.25
7. Broker(s): Premisys Real Estate Services, Inc.
8. Commencement Date: June 1, 1996
9. Expiration Date: May 31, 2001
<PAGE>
10. Guarantor(s): NONE
11. Landlord's Notice Address: PMTC Limited Partnership
c/o Premisys Real Estate Services, Inc.
2000 Town Center
Suite 2100
Southfield, Michigan 48075
12. Tenant's Notice Address: Eltrax Systems, Inc.
1775 Old Highway 8
St. Paul, MN 55112
Attn.: Mack Traynor
13. Exhibits: A. Floor Plan
B. Workletter
C. Cleaning Specifications
D. Rules and Regulations
2
<PAGE>
1. DEMISING CLAUSE
Landlord leases to Tenant and Tenant leases from Landlord the premises (the
"Premises") described in Item 1 of the Schedule and shown on the plan
attached hereto as Exhibit A subject to the covenants and conditions set
forth in this Lease, for a term (the "Term") commencing on the date described
in Item 8 of the Schedule (the "Commencement Date") and expiring on the date
described in Item 9 of the Schedule (the "Expiration Date"), unless
terminated earlier as otherwise provided in this Lease.
2. RENT
A. DEFINITIONS. For purposes of this Lease, the following terms shall have
the following meanings:
(i) "Expenses" shall mean all expenses, costs and disbursements (other than
Taxes) paid or incurred by Landlord in connection with the ownership,
management, maintenance, operation, replacement and repair of the Building.
Expenses shall not include: (a) costs of tenant alterations; (b) costs of
capital improvements (except for costs of any capital improvements (1) made
or installed (or service agreements or leases entered into) for the purpose
of reducing Expenses or improving the operating efficiency of any system
within the Building or (2) made or installed pursuant to governmental or
insurance requirements, which costs shall be amortized by Landlord over their
estimated useful life; (c) interest and principal payments on mortgages
(except interest on the cost of any capital improvements for which
amortization may be included in the definition of Expenses) or any rental
payments on any ground leases (except for rental payments which constitute
reimbursement for Taxes and Expenses); (d) advertising expenses and leasing
commissions; (e) any cost or expenditure for which Landlord is reimbursed,
whether by insurance proceeds or otherwise, except through Adjustment Rent
(hereinafter defined); (f) the cost of any kind of service furnished to any
other tenant in the Building which Landlord does not generally make available
to all tenants in the Building; (g) legal expenses of negotiating leases; (h)
salaries and fringe benefits of employees above the grade of general manager;
or (i) depreciation expenses on any fixed assets. Expenses shall be
determined on an accrual basis based on generally accepted accounting
principles, consistently applied.
(ii) "Rent" shall mean Base Rent, Adjustment Rent, and any other sums or
charges due from Tenant hereunder.
(iii) "Taxes" shall mean all taxes, assessments and fees levied upon the
Building, the property of Landlord located therein or the rents collected
therefrom, by any governmental entity based upon the ownership, leasing,
renting or operation of the Building, including all costs and expenses of
protesting any such taxes, assessments or fees. Taxes shall not include any
net income, capital stock, succession, transfer, franchise, gift, estate or
inheritance taxes; provided, however, if at any
3
<PAGE>
time during the Term, a tax or excise on income is levied or assessed by any
governmental entity, in lieu of or as a substitute for, in whole or in part,
real estate taxes or other AD VALOREM taxes, such tax shall constitute and be
included in Taxes. For the purpose of determining Taxes for any given year,
the amount to be included for such year (a) from special assessments payable
in installments shall be the amount of the installments (and any interest)
due and payable during such year, and (b) from all other Taxes shall be the
amount due and payable in such year.
(iv) "Tenant's Share" shall mean the percentage set forth in Item 5 of the
Schedule.
B. COMPONENTS OF RENT. Tenant agrees to pay the following amounts to
Landlord at the office of the Building or at such other place as Landlord
designates:
(i) Base rent ("Base Rent") to be paid in monthly installments in the
amounts set forth in Item 4 of the Schedule, in advance on or before the
first day of each month of the Term, without demand, except that Tenant shall
pay the first month's Base Rent upon execution of this Lease.
(ii) Adjustment rent ("Adjustment Rent") in an amount equal to Tenant's Share
of Expenses and Taxes for any calendar year. Prior to each calendar year, or
as soon as reasonably possible, Landlord shall estimate and notify Tenant of
the amount of Adjustment Rent due for such year, and Tenant shall pay
Landlord one-twelfth of such estimate on the first day of each month during
such year. Such estimate may be revised by Landlord whenever it obtains
information relevant to making such estimate more accurate. After the end of
each calendar year, Landlord shall deliver to Tenant a statement setting
forth the actual Expenses and Taxes for such calendar year and a statement of
the amount of Adjustment Rent that Tenant has paid and is payable for such
year. Within thirty (30) days after receipt of such statement, Tenant shall
pay to Landlord the amount of Adjustment Rent due for such calendar year
minus any payments of estimated Adjustment Rent made by Tenant for such year.
If Tenant's estimated payments of Adjustment Rent exceed the amount due
Landlord for such calendar year, Landlord shall apply such excess as a credit
against Tenant's other obligations under this Lease or promptly refund such
excess to Tenant if the Term has already expired, provided Tenant is not then
in default hereunder, in either case without interest to Tenant.
C. PAYMENT OF RENT. The following provisions shall govern the payment of
Rent: (i) if this Lease commences or ends on a day other than the first day
or last day of a calendar month, respectively, the Rent for such month shall
be prorated accordingly; (ii) all Rent shall be paid to Landlord without
offset or deduction, and the covenant to pay Rent shall be independent of
every other covenant in this Lease; (iii) any sum due from Tenant to Landlord
which is not paid within thirty (30) days of the date due shall bear interest
from the date due until the date paid at the annual rate of six percent (6%)
over the prime rate as quoted in the Wall Street Journal on the date the
payment was due (or the first business day thereafter), which rate shall not
exceed the maximum rate permitted by law (the "Default Rate"); and, in
addition, Tenant shall pay Landlord a late charge for any Rent payment which
is paid more than five (5) days after its due date equal to five percent
4
<PAGE>
(5%) of such payment; (iv) Tenant shall have the right to inspect Landlord's
accounting records relative to Expenses and Taxes during normal business
hours at any time within thirty (30) days following the furnishing to Tenant
of the annual statement of Adjustment Rent; and, unless Tenant shall take
written exception to any item in any such statement within such thirty (30)
day period, such statement shall be considered as final and accepted by
Tenant; (v) in the event of the termination of this Lease prior to the
determination of any Adjustment Rent, Tenant's agreement to pay any such sums
and Landlord's obligation to refund any such sums (provided Tenant is not in
default hereunder) shall survive the termination of this Lease; (vi) no
adjustment to the Rent by virtue of the operation of the rent adjustment
provisions in this Lease shall result in the payment by Tenant in any year of
less than the Base Rent shown on the Schedule; (vii) Landlord may at any time
change the fiscal year of the Building; (viii) each amount owed to Landlord
under this Lease for which the date of payment is not expressly fixed shall
be due on the same date as the Rent listed on the statement showing such
amount is due; and (ix) if Landlord fails to give Tenant an estimate of
Adjustment Rent prior to the beginning of any calendar year, Tenant shall
continue to pay Adjustment Rent at the rate for the previous calendar year
until Landlord delivers such estimate, at which time Tenant shall pay
retroactively the increased amount for all previous months of such calendar
year.
D. ALLOCATION OF RENT ABATEMENT FOR TAX PURPOSES. Landlord and Tenant agree
that no portion of the Base Rent paid by Tenant during the portion of the
term of this Lease occurring after the expiration of any period during which
such rent was abated shall be allocated, for income tax purposes, nor is such
rent intended by the parties to be allocable, for income tax purposes, to any
abatement period.
3. USE
Tenant agrees that it shall occupy and use the Premises only as business
offices and for no other purposes. Tenant shall comply with all present and
future federal, state and municipal laws, ordinances and regulations and all
covenants, conditions and restrictions of record applicable to Tenant's use
or occupancy of the Premises. Without limiting the foregoing, Tenant shall
not cause, nor permit, any hazardous or toxic substances to be brought upon,
produced, stored, used, discharged or disposed of in, on or about the
Premises without the prior written consent of Landlord and then only in
compliance with all applicable environmental laws. If as a result of
Tenant's use of the Premises (a) the amount of insurance premiums payable by
Landlord for insurance maintained for or in respect to the Building is
increased, (b) any such insurance coverage is decreased, or (c) cancellation
or refusal to renew any such insurance policy is threatened, Landlord shall
so notify Tenant, whereupon Tenant shall immediately pay any such increased
premium or cease any such use, failing which (or in the event of a threatened
cancellation or refusal to renew any such insurance policy which may not be
cured by the payment of an additional premium) Landlord shall have the right,
in addition to Landlord's other rights and remedies hereunder, to terminate
this Lease upon written notice to Tenant, effective on the date set forth in
such notice.
5
<PAGE>
4. CONDITION OF PREMISES
Tenant's taking possession of the Premises shall be conclusive evidence that
the Premises were in good order and satisfactory condition when Tenant took
possession. No agreement of Landlord to alter, remodel, decorate, clean or
improve the Premises or the Building (or to provide Tenant with any credit or
allowance for the same), and no representation regarding the condition of the
Premises or the Building, have been made by or on behalf of Landlord or
relied upon by Tenant, except as stated in the Workletter attached hereto as
Exhibit "B".
5. BUILDING SERVICES
A. BASIC SERVICES. So long as Tenant is not in default hereunder, Landlord
shall furnish the following services: (i) heating, ventilating and air
conditioning to provide a temperature condition required, in Landlord's
reasonable judgment, for comfortable occupancy of the Premises under normal
business operations, daily from 7:00 A.M. to 6:00 P.M. (Saturday from 8:00
A.M. to 2:00 P.M.), Sundays and holidays excepted; (ii) water for drinking,
and, subject to Landlord's approval, water at Tenant's expense for any
private restrooms and office kitchen requested by Tenant; (iii) men's and
women's restrooms at locations designated by Landlord, in common with other
tenants of the Building; (iv) daily janitor service in the Premises and
common areas of the Building, as set forth in the Cleaning Specifications
attached hereto as Exhibit "C", weekends and holidays excepted, including
periodic outside window washing of the perimeter windows in the Premises not
less than twice per year, weather permitting; (v) passenger elevator service
in common with Landlord and other tenants of the Building, 24 hours a day, 7
days a week; and freight elevator service daily, weekends and holidays
excepted, upon request of Tenant and subject to scheduling and reasonable
charges by Landlord; and (vi) such electricity as is customarily required for
the use of office lighting and electrical outlets.
B. UTILITIES AND SERVICES. Landlord may impose a reasonable charge for any
utilities and services, including, without limitation, air conditioning,
electricity, and water, provided by Landlord by reason of: (i) any use of
the Premises at any time other than the hours set forth above; (ii) any
utilities or services beyond what Landlord agrees herein to furnish; or (iii)
special electrical, cooling and ventilating needs created by Tenant's
telephone equipment, computer, electronic data processing equipment, copying
equipment and other such equipment or uses. Landlord, at its option, may
require installation of metering devices at Tenant's expense for the purpose
of metering Tenant's utility consumption.
C. TELEPHONES. Tenant shall arrange for telephone service directly with
one or more of the public telephone companies servicing the Building and
shall be solely responsible for paying for such telephone service. If
Landlord acquires ownership of the telephone cables in the Building at
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any time, Landlord shall permit Tenant to connect to such cables on such
terms and conditions as Landlord may prescribe. In no event does Landlord
make any representation or warranty with respect to telephone service in the
Building, and Landlord shall have no liability with respect thereto.
D. ADDITIONAL SERVICES. Landlord shall not be obligated to furnish any
services other than those stated above. If Landlord elects to furnish
services requested by Tenant in addition to those stated above (including
services at times other than those stated above), Tenant shall pay Landlord's
reasonable fee to furnish such services. If Tenant shall fail to make any
such payment, Landlord may, without notice to Tenant and in addition to all
other remedies available to Landlord, discontinue any additional services. No
discontinuance of any such service shall result in any liability of Landlord
to Tenant or be considered as an eviction or a disturbance of Tenant's use of
the Premises.
E. FAILURE OR DELAY IN FURNISHING SERVICES. Tenant agrees that Landlord
shall not be liable for damages for failure or delay in furnishing any
service stated above if such failure or delay is caused, in whole or in part,
by any one or more of the events stated in Section 25(j) below, nor shall any
such failure or delay be considered to be an eviction or disturbance of
Tenant's use of the Premises, or relieve Tenant from its obligation to pay
any Rent when due or from any other obligations of Tenant under this Lease.
6. RULES AND REGULATIONS
Tenant shall observe and comply, and shall cause its subtenants, assignees,
invitees, employees, contractors and agents to observe and comply, with the
Rules and Regulations listed on Exhibit "D" attached hereto and with such
reasonable modifications and additions thereto as Landlord may make from time
to time. Landlord shall not be liable for failure of any person to obey the
Rules and Regulations. Landlord shall not be obligated to enforce the Rules
and Regulations against any person, and the failure of Landlord to enforce
any such Rules and Regulations shall not constitute a waiver thereof or
relieve Tenant from compliance therewith, provided, however, that Landlord
shall not enforce such Rules and Regulations in a manner which unreasonably
interferes with Tenant's use of the Premises.
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7. CERTAIN RIGHTS RESERVED TO LANDLORD
Landlord reserves the following rights, each of which Landlord may exercise
without notice to Tenant and without liability to Tenant, and the exercise of
any such rights shall not be deemed to constitute an eviction or disturbance
of Tenant's use or possession of the Premises and shall not give rise to any
claim for set-off or abatement of rent or any other claim: (a) to change the
name or street address of the Building or the Complex; (b) to install, affix
and maintain any and all signs on the exterior or interior of the Building;
(c) to make repairs, decorations, alterations, additions, or improvements,
whether structural or otherwise, in and about the Building and/or the parking
areas of the Complex, and for such purposes to enter upon the Premises,
temporarily close doors, corridors and other areas in the Building or the
Complex and interrupt or temporarily suspend services or use of common areas,
and Tenant agrees to pay Landlord for overtime and similar expenses incurred
if such work is done other than during ordinary business hours at Tenant's
request; (d) to retain at all times, and to use in appropriate instances,
keys to all doors within and into the Premises; (e) to grant to any person or
to reserve unto itself the exclusive right to conduct any business or render
any service in the Building or the Complex; (f) to show or inspect the
Premises at reasonable times and, if vacated, to prepare the Premises for
reoccupancy; (g) to install, use and maintain in and through the Premises
pipes, conduits, wires and ducts serving the Building, provided that such
installation, use and maintenance does not unreasonably interfere with
Tenant's use of the Premises; (h) to take any other action which Landlord
deems reasonable in connection with the operation, maintenance, marketing, or
preservation of the Building or the Complex; (i) to sell one or more or all
of the buildings in the Complex; and (j) to approve the weight, size, and
location of safes or other heavy equipment or articles, which articles may be
moved in, about, or out of the Building or Premises only at such times and in
such manner as Landlord shall direct, at Tenant's sole risk and
responsibility.
8. MAINTENANCE AND REPAIRS
Tenant, at its expense, shall maintain and keep the Premises in good order
and repair at all times during the Term. Landlord shall perform any
maintenance or make any repairs to the Building or Premises as Landlord shall
desire or deem necessary for the safety, operation or preservation of the
Building, or as Landlord may be required or requested to do by the order or
decree of any court or by any other proper authority. Tenant shall reimburse
Landlord for any such maintenance or repairs of the Premises.
9. ALTERATIONS
A. REQUIREMENTS. Tenant shall not make any replacement, alteration,
improvement or addition to or removal from the Premises (collectively an
"Alteration") without the prior written consent of Landlord, which consent
shall not be unreasonably withheld unless such Alteration affects the
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structure or systems of the Building or affects any other tenant's premises.
In the event Tenant proposes to make any Alteration, Tenant shall, prior to
commencing such Alteration, submit to Landlord for prior written approval:
(i) detailed plans and specifications; (ii) the names, addresses and copies
of contracts for all contractors; (iii) all necessary permits evidencing
compliance with all applicable governmental rules, regulations and
requirements; (iv) certificates of insurance in form and amounts required by
Landlord, naming Landlord, its managing agent, and any other parties
designated by Landlord as additional insureds; and (v) all other documents
and information as Landlord may reasonably request in connection with such
Alteration. Tenant agrees to pay Landlord's reasonable charges for review of
all such items and supervision of the Alteration. Neither approval of the
plans and specifications nor supervision of the Alteration by Landlord shall
constitute a representation or warranty by Landlord as to the accuracy,
adequacy, sufficiency or propriety of such plans and specifications or the
quality of workmanship or the compliance of such Alteration with applicable
law. Tenant shall pay the entire cost of the Alteration and, if requested by
Landlord, shall deposit with Landlord, prior to the commencement of the
Alteration, security for the payment and completion of the Alteration in form
and amount required by Landlord. Each Alteration shall be performed in a
good and workmanlike manner, in accordance with the plans and specifications
approved by Landlord, and shall meet or exceed the standards for construction
and quality of materials established by Landlord for the Building. In
addition, each Alteration shall be performed in compliance with all
applicable governmental laws and regulations and insurance company
requirements. Each Alteration shall be performed by Landlord or under
Landlord's supervision, and in harmony with Landlord's employees, contractors
and other tenants. Each Alteration, whether temporary or permanent in
character, made by Landlord or Tenant in or upon the Premises (excepting only
Tenant's furniture, equipment and trade fixtures) shall become Landlord's
property and shall remain upon the Premises at the expiration or termination
of this Lease without compensation to Tenant; provided, however, that
Landlord shall have the right to require Tenant to remove such Alteration at
Tenant's sole cost and expense in accordance with the provisions of Section
15 of this Lease, which required removal shall be specified by Landlord when
Landlord consents to Tenant's requested Alterations.
B. LIENS. Upon completion of any Alteration, Tenant shall promptly furnish
Landlord with sworn owner's and contractors' statements and full and final
waivers of lien covering all labor and materials included in such Alteration.
Tenant shall not permit any mechanic's lien to be filed against the Building,
or any part thereof, arising out of any Alteration performed, or alleged to
have been performed, by or on behalf of Tenant. If any such lien is filed,
Tenant shall within ten (10) days thereafter have such lien released of
record or diligently contest and deliver to Landlord a bond in form, amount,
and issued by a surety satisfactory to Landlord, indemnifying Landlord
against all costs and liabilities resulting from such lien and the
foreclosure or attempted foreclosure thereof. If Tenant fails to have such
lien so released or to contest and deliver such bond to Landlord, Landlord,
without investigating the validity of such lien, may pay or discharge the
same; and Tenant shall reimburse Landlord upon demand for the amount so paid
by Landlord, including Landlord's expenses and attorneys' fees.
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C. AMERICANS WITH DISABILITIES ACT. Replacements, alterations,
improvements or additions to or removals from the Premises required to
achieve compliance with the Americans With Disabilities Act ("ADA") shall be
completed at Tenant's expense in accordance with the procedures set forth in
paragraphs 9 A. and B. of this Lease.
10. INSURANCE AND INDEMNIFICATION
In consideration of the leasing of the Premises at the Rent stated herein,
Landlord and Tenant agree to provide insurance and allocate the risks of loss
as follows:
A. TENANT'S INSURANCE. Tenant, at its sole cost and expense but for the
mutual benefit of itself and Landlord, agrees to purchase and keep in force
and effect during the Term hereof, insurance which is available at
commercially reasonable rates and otherwise commonly carried by tenants in
the area, under policies issued by insurers licensed to do business in the
state in which the Building is located with a Best's rating of A-, class VIII
or higher on all alterations, additions, and improvements owned by Tenant,
and on all personal property located in the Premises, protecting Landlord and
Tenant from damage or other loss caused by perils covered under an All Risk
Property Policy, and Boiler and Machinery Policy, in amounts not less than
the full insurable replacement value of such property. Such insurance shall
provide that it is specific and not contributory and shall name the Landlord
and its management agent as additional insureds and shall contain an agreed
amount endorsement. Such insurance shall also contain a clause pursuant to
which the insurance carriers waive all rights of subrogation against the
Landlord with respect to losses payable under such policies.
Tenant also agrees to maintain commercial general liability insurance
covering Tenant as the insured party, and naming Landlord and its managing
agent as an additional insured, against claims for bodily injury and death
and property damage occurring in or about the Premises, with limits of not
less then One Million Dollars ($1,000,000.00) per occurrence, Three Million
Dollars ($3,000,000.00) products and completed operations aggregate, and
Three Million Dollars ($3,000,000.00) general aggregate.
Tenant shall, prior to commencement of the Term, furnish to Landlord
certificates evidencing such coverage, which certificates shall state that
such insurance coverage may not be changed or canceled without at least
thirty (30) days prior written notice to Landlord and Tenant. In the event
Tenant shall fail to procure such insurance, Landlord may at its option,
after giving Tenant no less than fourteen (14) days prior written notice of
its election to do so, procure the same for the account of Tenant and the
cost thereof shall be paid to Landlord as additional Rent upon receipt by
Tenant of bills therefor. When used in this Section 10. A the term
"Landlord" shall include Landlord's partners, beneficiaries, officers,
agents, servants and employees and the term "Tenant" shall include Tenant's
partners, beneficiaries, officers, agents, servants and employees.
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B. LANDLORD'S INSURANCE. Landlord agrees to purchase and keep in force and
effect commercial general liability insurance in an amount not less than
Three Million Dollars ($3,000,000.00) per occurrence and Three Million
Dollars ($3,000,000.00) general aggregate, and All Risk property insurance
with an agreed amount endorsement, and Boiler and Machinery insurance on the
Building. Such insurance shall provide that it is specific and not
contributory and shall contain a clause pursuant to which the insurance
carriers waive all rights of subrogation against the Tenant with respect to
losses payable under such policies.
C. RISK OF LOSS. By this Section 10, Landlord and Tenant intend that the
risk of loss or damage as described above be borne by responsible insurance
carriers to the extent above provided, and Landlord and Tenant hereby agree
to look solely to, and to seek recovery only from, their respective insurance
carriers in the event of a loss of a type described above to the extent that
such coverage is agreed to be provided hereunder. For this purpose, any
applicable deductible amount shall be treated as though it were recoverable
under such policies. Landlord and Tenant agree that applicable portions of
all monies collected from such insurance shall be used toward the full
compliance with the obligations of Landlord and Tenant under this Lease in
connection with damage resulting from fire or other casualty.
D. INDEMNIFICATION OF LANDLORD. Tenant shall indemnify and defend
Landlord, its employees and agents and save them harmless from and against
any and all loss and against all claims, actions, damages, liability and
expenses, in connection with loss of life, bodily and personal injury, or
property damage arising from any occurrence in, upon or at the Premises or
any part thereof, or occasioned wholly or in part by any act or omission of
Tenant, its agents, contractors, employees or invitees or by anyone permitted
to be on the Premises by Tenant, except to the extent caused by the sole
negligence or willful misconduct of Landlord, its employees or agents. In
case Landlord, its employees or agents shall be made a party to any
litigation commenced by or against Tenant, then Tenant shall indemnify,
defend and hold them harmless and shall pay all costs, expenses, and
reasonable attorneys' fees incurred or paid by them in connection with such
litigation. The obligations assumed herein shall survive the expiration or
sooner termination of this Lease.
E. INDEMNIFICATION OF TENANT. Landlord shall indemnify and defend Tenant,
its employees and agents and save them harmless from and against any and all
loss and against all claims, actions, damages, liability and expenses, in
connection with loss of life, bodily and personal injury, or property damage
arising from any occurrence in, upon or at those portions of the Building
outside the Premises occasioned wholly or in part by any act or omission of
Landlord, its agents, contractors, employees or invitees except to the extent
caused by the sole negligence or willful misconduct of Tenant, its employees
or agents.
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11. TENANT'S AND LANDLORD'S RESPONSIBILITIES
To the extent permitted by law, Tenant shall assume the risk of responsibility
for, have the obligation to insure against, and indemnify Landlord and hold it
harmless from, any and all liability for any loss of or damage or injury to any
person (including death resulting therefrom) or property occurring in or on the
Premises, regardless of cause, except for any loss or damage caused by the gross
negligence or willful misconduct of Landlord, and its employees and agents, and
Tenant hereby releases Landlord from any and all liability for same. Tenant's
obligation to indemnify Landlord hereunder shall include the duty to defend
against any claims asserted by reason of such loss, damage or injury and to pay
any Judgments, settlements, costs, fees and expenses, including attorneys' fees,
incurred in connection therewith.
To the extent permitted by law, Landlord shall assume the risk of responsibility
for, have the obligation to insure against, and indemnify Tenant and hold it
harmless from, any and all liability for any loss of or damage or injury to any
person (including death resulting therefrom) or property occurring in, on or
about the Building excluding Premises, regardless of cause, except for any loss
or damage caused by the gross negligence or willful misconduct of Tenant, and
its employees and agents, and Landlord hereby releases Tenant from any and all
liability for same. Landlord's obligation to indemnify Tenant hereunder shall
include the duty to defend against any claims asserted by reason of such loss,
damage or injury and to pay any Judgments, settlements, costs, fees and
expenses, including attorneys' fees, incurred in connection herewith.
12. FIRE OR OTHER CASUALTY
A. DESTRUCTION OF THE BUILDING. If fifty percent (50%) of the area of the
Building should be substantially destroyed by fire or other casualty, either
party hereto may, at its option, terminate this Lease by giving written notice
thereof to the other party within thirty (30) days of such casualty. In such
event, Rent shall be apportioned to and shall cease as of the date of such
casualty. In the event neither party exercises this option, then the Premises
shall be reconstructed and restored as set forth below.
B. DESTRUCTION OF THE PREMISES. If the Premises should be rendered
untenantable for the purpose for which they were leased, by fire or other
casualty, but the Building is not substantially destroyed as provided above,
then the parties hereto shall have the following options:
i) If, in Landlord's reasonable judgment, the Premises cannot be
reconstructed or restored within one hundred eighty (180) days of such casualty
to substantially the same condition as they were prior to such casualty,
Landlord shall so notify Tenant within thirty (30) days of the casualty and
either Landlord or Tenant may elect, within fifteen (15) days thereafter, to
terminate this Lease. If Tenant makes no election within such fifteen (15) day
period, Landlord shall then have the right, to be exercised within fifteen (15)
days following the expiration of Tenant's election period, by giving
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written notice to Tenant, to reconstruct and restore the Premises to
substantially the same condition as they were prior to the casualty. In such
event this Lease shall continue in full force and effect to the balance of
the term, upon the same terms, conditions and covenants as are contained
herein; provided, however, that the Rent shall be abated in the proportion
which the approximate area of the damaged portion bears to the total area in
the Premises from the date of the casualty until substantial completion of
the reconstruction of the Premises. If Landlord fails to exercise such
right, this Lease shall be terminated as of the date of the casualty, to
which date Rent shall be apportioned and shall thereafter cease.
Notwithstanding the above, if the casualty occurs during the last twelve (12)
months of the Term of this Lease, either party hereto shall have the right to
terminate this Lease as of the date of the casualty, which right shall be
exercised by written notice to be given by either party to the other party
within thirty (30) days therefrom. If this right is exercised, Rent shall be
apportioned to and shall cease as of the date of the casualty. If a casualty
occurs during the last twelve (12) months of the term of the Lease, Tenant may
not exercise any extension options without first obtaining Landlord's written
consent.
(ii) If, in Landlord's reasonable judgment, the Premises are able to be
restored within one hundred eighty (180) days to substantially the same
condition as they were prior to such casualty, Landlord shall so notify Tenant
within fifteen (15) days of the casualty, and Landlord shall then proceed to
reconstruct and restore the damaged portion of the Premises, at Landlord's
expense, to substantially the same condition as it was prior to the casualty;
Rent shall be abated in the proportion which the approximate area of the damaged
portion bears to the total area in the Premises from the date of the casualty
until substantial completion of the reconstruction repairs, and this Lease shall
continue in full force and effect for the balance of the Term.
(iii) In the event Landlord undertakes reconstruction or restoration of the
Premises pursuant to subparagraph (i) or (ii) above, Landlord shall use
reasonable diligence in completing such reconstruction repairs, but in the event
Landlord fails to substantially complete the same within two hundred forty (240)
days from the date of the casualty, except as a result of any of the occurrences
set forth in subparagraph 25 (j) below, Tenant may, at its option, terminate
this Lease upon giving Landlord written notice to that effect, whereupon both
parties shall be released from all further obligations and liability hereunder.
13. CONDEMNATION
If the Premises or the Building is rendered untenantable by reason of a
condemnation (or by a deed given in lieu thereof), then either party may
terminate this Lease by giving written notice of termination to the other party
within thirty (30) days after such condemnation, in which event this Lease shall
terminate effective as of the date that possession of such property is required
to be delivered to the condemning authority. If this Lease so terminates, Rent
shall be paid through and
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apportioned as of the date of such condemnation. If such condemnation does
not render the Premises or the Building untenantable, this Lease shall
continue in effect and Landlord shall promptly restore the portion not
condemned to the extent reasonably possible to the condition existing prior
to the condemnation. In such event, however, Landlord shall not be required
to expend an amount in excess of the proceeds received by Landlord from the
condemning authority. Landlord reserves all rights to compensation for any
condemnation. Tenant hereby assigns to Landlord any right Tenant may have to
such compensation, and Tenant shall make no claim against Landlord or the
condemning authority for compensation for termination of Tenant's leasehold
interest under this Lease or interference with Tenant's business.
14. ASSIGNMENT AND SUBLETTING
A. LANDLORD'S CONSENT. Tenant shall not, without the prior written consent of
Landlord: (i) assign, convey, mortgage or otherwise transfer this Lease or any
interest hereunder, or sublease the Premises, or any part thereof, whether
voluntarily or by operation of law; or (ii) permit the use of the Premises by
any person other than Tenant and its employees. Any such transfer, sublease or
use described in the preceding sentence (a "Transfer") occurring without the
prior written consent of Landlord shall be void and of no effect. Landlord's
consent to any Transfer shall not constitute a waiver of Landlord's right to
withhold its consent to any future Transfer. Landlord's consent to any Transfer
or acceptance of rent from any party other than Tenant shall not release Tenant
from any covenant or obligation under this Lease. Landlord may require as a
condition to its consent to any assignment of this Lease that the assignee
execute an instrument in which such assignee assumes the obligations of Tenant
hereunder. For the purposes of this paragraph, the transfer (whether direct or
indirect) of all or a majority of the capital stock in a corporate Tenant (other
than the shares of the capital stock of a corporate Tenant whose stock is
publicly traded) or the merger, consolidation or reorganization of such Tenant
and the transfer of all or any general partnership interest in any partnership
Tenant shall be considered a Transfer.
B. STANDARDS FOR CONSENT. If Tenant desires the consent of Landlord to a
Transfer, Tenant shall submit to Landlord, at least forty-five (45) days prior
to the proposed effective date of the Transfer, a written notice which includes
such information as Landlord may reasonably require about the proposed Transfer
and the transferee, together with a non-refundable processing fee in the amount
of five hundred dollars ($500.00). Tenant shall also pay all reasonable
attorneys' or other fees and expenses incurred by Landlord in connection with
any proposed Transfer, whether or not Landlord consents to such Transfer. If
Landlord does not terminate this Lease, in whole or in part, pursuant to Section
14C, Landlord shall not unreasonably withhold its consent to any assignment or
sublease, which consent or lack thereof shall be provided within thirty (30)
days of receipt of Tenant's notice. Landlord shall not be deemed to have
unreasonably withheld its consent if, in the judgment of Landlord: (i) the
transferee is of a character or engaged in a business which is not in keeping
with the standards or criteria used by Landlord in leasing the Building; (ii)
the financial condition of the transferee is such that it may not be able to
perform its obligations in connection
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with this Lease; (iii) the transferee is a tenant of or negotiating for space
in the Building; (iv) the transferee is a governmental unit; (v) Tenant is in
Default under this Lease; (vi) in the judgment of Landlord, such a Transfer
would violate any term, condition, covenant, or agreement of the Landlord
involving the Building or any other tenant's lease within it; or (vii) any
other basis which Landlord reasonably deems appropriate. If Landlord
wrongfully withholds its consent to any Transfer, Tenant's sole and exclusive
remedy therefor shall be to seek specific performance of Landlord's
obligation to consent to such Transfer.
C. RECAPTURE. Landlord shall have the right to terminate this Lease as to
that portion of the Premises covered by a Transfer. Landlord may exercise such
right to terminate by giving notice to Tenant at any time within thirty (30)
days after the date on which Tenant has furnished to Landlord all of the items
required under Section 14B above. If Landlord exercises such right to terminate,
Landlord shall be entitled to recover possession of, and Tenant shall surrender
such portion of, the Premises (with appropriate demising partitions erected at
the expense of Tenant) on the later of (i) the effective date of the proposed
Transfer, or (ii) sixty (60) days after the date of Landlord's notice of
termination. In the event Landlord exercises such right to terminate, Landlord
shall have the right to enter into a lease with the proposed transferee without
incurring any liability to Tenant on account thereof. If Landlord consents to
any Transfer, Tenant shall pay to Landlord 75% of all rent and other
consideration received by Tenant in excess of the Rent paid by Tenant hereunder
for the portion of the Premises so transferred. Such rent shall be paid as and
when received by Tenant. Tenant shall have the right to deduct from such excess
rent, on a pro-rata basis, Tenant's reasonable costs and expenses directly
related to the Transfer including, but not limited to, broker's commissions,
tenant improvements, and legal fees.
15. SURRENDER
Upon expiration or sooner termination of the Term or Tenant's right to
possession of the Premises, Tenant shall return the Premises to Landlord in good
order and condition, ordinary wear and damage by fire or other casualty covered
by applicable policies of insurance excepted. If Landlord requires Tenant to
remove any alterations pursuant to Section 9, then such removal shall be done in
a good and workmanlike manner; and upon such removal Tenant shall restore the
Premises to its condition prior to the installation of such alterations. If
Tenant does not remove such alterations after request to do so by Landlord,
Landlord may remove the same and restore the Premises; and Tenant shall pay the
cost of such removal and restoration to Landlord upon demand. Tenant shall also
remove its furniture, equipment, trade fixtures and all other items of personal
property from the Premises prior to termination of the Term or Tenant's right to
possession of the Premises. If Tenant does not remove such items, Tenant shall
be conclusively presumed to have conveyed the same to Landlord without further
payment or credit by Landlord to Tenant; or at Landlord's sole option such items
shall be deemed abandoned, in which event Landlord may cause such items to be
removed and disposed of at Tenant's expense, which shall be 115% of Landlord's
actual cost of removal, without notice to Tenant and without obligation to
compensate Tenant.
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16. DEFAULTS AND REMEDIES
A. DEFAULT. The occurrence of any of the following shall constitute a default
(a "Default") by Tenant under this Lease: (i) Tenant fails to pay any Rent when
due and such failure is not cured within five (5) days after notice from
Landlord (which notice may be in the form of a Landlord statutory five (5) day
notice); (ii) Tenant fails to perform any other provision of this Lease and such
failure is not cured within thirty (30) days (or immediately if the failure
involves a hazardous condition) after notice from Landlord; (iii) the leasehold
interest of Tenant is levied upon or attached under process of law; (iv) Tenant
vacates the Premises without notice to Landlord; or (v) any voluntary or
involuntary proceedings are filed by or against Tenant or any guarantor of this
Lease under any bankruptcy, insolvency or similar laws and, in the case of any
involuntary proceedings, are not dismissed within thirty (30) days after filing.
B. RIGHT OF RE-ENTRY. Upon the occurrence of a Default, Landlord may elect to
terminate this Lease or, without terminating this Lease, terminate Tenant's
right to possession of the Premises. Upon any such termination, Tenant shall
immediately surrender and vacate the Premises and deliver possession thereof to
Landlord. Tenant grants to Landlord the right to enter and repossess the
Premises and to expel Tenant and any others who may be occupying the Premises
and to remove any and all property therefrom, without being deemed in any manner
guilty of trespass and without relinquishing Landlord's rights to Rent or any
other right given to Landlord hereunder or by operation of law.
C. TERMINATION OF RIGHT TO POSSESSION. If Landlord terminates Tenant's right
to possession of the Premises without terminating this Lease, Landlord may relet
the Premises or any part thereof alone or in conjunction with other parts of the
Building for a term longer or shorter than the term of this Lease. In such
case, Landlord shall use reasonable efforts to relet the Premises on such terms
as Landlord shall reasonably deem appropriate; provided, however, Landlord may
first lease Landlord's other available space and shall not be required to accept
any tenant offered by Tenant or to observe any instructions given by Tenant
about such reletting. Tenant shall reimburse Landlord for the costs and
expenses of reletting the Premises including, but not limited to, all costs of
recovering possession, brokerage, advertising, legal, alteration, redecorating,
repairs, and other expenses incurred to secure a new tenant for the Premises.
In addition, if the consideration collected by Landlord upon any such reletting,
after payment of the expenses of reletting the Premises which have not been
reimbursed by Tenant, is insufficient to pay monthly the full amount of the
Rent, Tenant shall pay to Landlord the amount of each monthly deficiency as it
becomes due. If such consideration is greater than the amount necessary to pay
the full amount of the Rent, the full amount of such excess shall be retained by
Landlord and shall in no event be payable to Tenant.
D. TERMINATION OF LEASE. If Landlord terminates this Lease, Landlord may
recover from Tenant and Tenant shall pay to Landlord, on demand, as and for
liquidated and final damages, an
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accelerated lump sum amount equal to the amount by which Landlord's estimate
of the aggregate amount of Rent owing from the date of such termination
through the Expiration Date plus Landlord's estimate of the aggregate
expenses of reletting the Premises, exceeds Landlord's estimate of the fair
rental value of the Premises for the same period (after deducting from such
fair rental value the rent for the time needed to relet the Premises and the
amount of concessions which would normally be given to a new tenant) both
discounted to present value at the rate of five percent (5%) per annum.
E. OTHER REMEDIES. Landlord may but shall not be obligated to perform any
obligation of Tenant under this Lease and if Landlord so elects, all costs and
expenses paid by Landlord in performing such obligation, together with interest
at the Default Rate, shall be reimbursed by Tenant to Landlord on demand. Any
and all remedies set forth in this Lease: (i) shall be in addition to any and
all other remedies Landlord may have at law or in equity, (ii) shall be
cumulative, and (iii) may be pursued successively or concurrently as Landlord
may elect. The exercise of any remedy by Landlord shall not be deemed an
election of remedies or preclude Landlord from exercising any other remedies in
the future.
F. BANKRUPTCY. If Tenant becomes bankrupt, the bankruptcy trustee shall not
have the right to assume or assign this Lease unless, (i) the trustee complies
with all requirements of the United States Bankruptcy Code; and (ii) Landlord
expressly reserves all of its rights, claims, and remedies thereunder.
G. WAIVER OF TRIAL BY JURY. Landlord and Tenant waive trial by jury in the
event of any action, proceeding or counterclaim brought by either Landlord or
Tenant against the other in connection with this Lease.
H. COUNTERCLAIMS. Tenant hereby waives the right to interpose any
counterclaim in any proceeding instituted by Landlord against Tenant to
terminate the Lease, to obtain possession of the Premises, or to recover Rent.
I. VENUE. If either Landlord or Tenant desires to bring an action against the
other in connection with this Lease, such action shall be brought in the federal
or state courts located in the state in which the Building in located. Landlord
and Tenant consent to the jurisdiction of such courts and waive any right to
have such action transferred from such courts on the grounds of improper venue
or inconvenient forum.
17. HOLDING OVER
If Tenant retains possession of the Premises after the expiration or termination
of the Term or Tenant's right to possession of the Premises, Tenant shall pay
Rent during such holding over at double the rate in effect immediately preceding
such holding over computed on a monthly basis for
17
<PAGE>
each month or partial month that Tenant remains in possession. Tenant shall
also pay, indemnify and defend Landlord from and against all claims and
damages, consequential as well as direct, sustained by reason of Tenant's
holding over. In addition, at any time while Tenant remains in possession,
Landlord may elect instead, by written notice to Tenant and not otherwise, to
have such retention of possession constitute an extension of this Lease for
one (1) year at the Rent payable immediately prior to such holding over. The
provisions of this Section do not waive Landlord's right of re-entry or right
to regain possession by actions at law or in equity or any other rights
hereunder, and any receipt of payment by Landlord shall not be deemed a
consent by Landlord to Tenant's remaining in possession or be construed as
creating or renewing any lease or right of tenancy between Landlord and
Tenant.
18. SECURITY DEPOSIT
Upon execution of this Lease, Tenant shall deposit the security deposit set
forth in Item 6 of the Schedule (the "Security Deposit") with Landlord as
security for the performance of Tenant's obligations under this Lease. Upon
the occurrence of a Default, Landlord may use all or any part of the Security
Deposit for the payment of any Rent or for the payment of any amount which
Landlord may pay or become obligated to pay by reason of such Default, or to
compensate Landlord for any loss or damage which Landlord may suffer by
reason of such Default. If any portion of the Security Deposit is used,
Tenant shall within five (5) days after written demand therefor deposit cash
with Landlord in an amount sufficient to restore the Security Deposit to its
original amount. Landlord shall not be required to keep the Security Deposit
separate from its general funds, and Tenant shall not be entitled to interest
on the Security Deposit, except to the extent required by law. In no event
shall the Security Deposit be considered an advanced payment of Rent, and in
no event shall Tenant be entitled to use the Security Deposit for the payment
of Rent. If no default by Tenant exists hereunder, the Security Deposit or
any balance thereof shall be returned to Tenant within thirty (30) days after
the expiration of the Term and vacation of the Premises by Tenant. Landlord
shall have the right to transfer the Security Deposit to any purchaser of the
Building. Upon such transfer, Tenant shall look solely to such purchaser for
return of the Security Deposit; and Landlord shall be relieved of any
liability with respect to the Security Deposit.
19. RELOCATION OF TENANT
Landlord shall have the right, upon not less than sixty (60) days' written
notice to Tenant, to relocate Tenant to another location (the "Relocation
Premises") in the Complex. The Relocation Premises shall have a rentable
area equal to or greater than the Rentable Square Feet of the Premises and
have a reasonably similar configuration. Additionally, the Relocation
Premises shall be improved with tenant improvements which are reasonably
similar to the tenant improvements within the Premises. Such relocation
shall be performed through Landlord's personnel or contractors and Tenant
shall cooperate with Landlord in connection with the relocation, including,
18
<PAGE>
without limitation, timely responding to any requests for review and approval
of proposed plans for tenant improvements for the Relocation Premises.
Landlord shall reimburse Tenant for, and only for, Tenant's reasonable
out-of-pocket moving expenses paid to third parties for moving and
reinstalling Tenant's equipment, furniture, trade fixtures, telephones and
other personal property to the Relocation Premises and for replacing
stationery and business cards rendered unusable by such relocation. Tenant
waives any claim for damages, abatement of Rent or loss of profits due to
such relocation. Upon the date of such relocation, the Relocation Premises
shall become and be deemed the Premises hereunder and all the terms and
conditions of this Lease shall be applicable to the new Premises, including,
without limitation, the right of Landlord to again relocate Tenant pursuant
to this Section 19. Landlord and Tenant agree that, notwithstanding such
relocation, the Rent hereunder shall not be adjusted. After such relocation,
Landlord and Tenant, within thirty (30) days after the written request of
either Landlord or Tenant, shall execute a written amendment to this Lease
confirming the foregoing relocation.
20. ESTOPPEL CERTIFICATE
Tenant agrees that, from time to time upon not less than ten (10) business
days' prior request by Landlord, Tenant shall execute and deliver to Landlord
a written certificate certifying: (i) that this Lease is unmodified and in
full force and effect (or if there have been modifications, a description of
such modifications and that this Lease as modified is in full force and
effect); (ii) the dates to which Rent has been paid; (iii) that Tenant is in
possession of the Premises, if that is the case; (iv) that Landlord is not in
default under this Lease, or, if Tenant believes Landlord is in default, the
nature thereof in detail; (v) that Tenant has no off-sets or defenses to the
performance of its obligations under this Lease (or if Tenant believes there
are any off-sets or defenses, a full and complete explanation thereof); (vi)
that the Premises have been completed in accordance with the terms and
provisions hereof or the Workletter, that Tenant has accepted the Premises
and the condition thereof and of all improvements thereto and has no claims
against Landlord or any other party with respect thereto; and (vii) such
additional matters as may reasonably be requested by Landlord, it being
agreed that such certificate may be relied upon by any prospective purchaser,
mortgagee, or other person having or acquiring an interest in the Building.
If Tenant fails to execute and deliver any such certificate within ten (10)
business days after request, Tenant shall be deemed to have irrevocably
appointed Landlord and Landlord's beneficiaries as Tenant's attorneys-in-fact
to execute and deliver such certificate in Tenant's name.
19
<PAGE>
21. SUBORDINATION
This Lease is and shall be expressly subject and subordinate at all times to
(i) any ground or underlying lease of the Building, now or hereafter
existing, and all amendments, renewals and modifications to any such lease,
and (ii) the lien of any mortgage or trust deed now or hereafter encumbering
fee title to the Building and/or the leasehold estate thereunder, and all
amendments, renewals, modifications and extensions thereof, unless such
ground lease or ground lessor, mortgage or mortgagee, or trust deed or
trustee, expressly provides or elects that the Lease shall be superior to
such lease, mortgage, or trust deed. If any such mortgage or trust deed is
foreclosed, or if any such lease is terminated, upon request of the
mortgagee, holder or lessor, as the case may be, Tenant will attorn to the
purchaser at the foreclosure sale or to the lessor under such lease, as the
case may be. The foregoing provisions are declared to be self-operative and
no further instruments shall be required to effect such subordination and/or
attornment; provided, however, that Tenant agrees upon request by any such
mortgagee, holder, lessor or purchaser at foreclosure, to execute and deliver
such subordination and/or attornment instruments as may be required by such
person to confirm such subordination and/or attornment, or any other
documents required to evidence superiority of the ground lease or mortgage,
should ground lessor or mortgagee elect such superiority. If Tenant fails to
execute and deliver any such instrument or document within ten (10) days
after request, Tenant shall be deemed to have irrevocably appointed Landlord
and Landlord's beneficiaries as Tenant's attorneys-in-fact to execute and
deliver such instrument or document in Tenant's name.
22. QUIET ENJOYMENT
Landlord represents that it has the authority to enter into this Lease. As
long as no Default exists, Tenant shall peacefully and quietly have and enjoy
the Premises for the Term, free from interference by Landlord, subject,
however, to the provisions of this Lease. The loss or reduction of Tenant's
light, air or view will not be deemed a disturbance of Tenant's occupancy of
the Premises nor will it affect Tenant's obligations under this Lease or
create any liability of Landlord to Tenant.
20
<PAGE>
23. BROKER
Tenant represents to Landlord that Tenant has dealt only with the broker(s)
set forth in Item 7 of the Schedule (collectively, the "Broker") in
connection with this Lease and that, insofar as Tenant knows, no other broker
negotiated this Lease or is entitled to any commission in connection
herewith. Tenant agrees to indemnify, defend and hold Landlord and Landlord's
beneficiaries and agents harmless from and against any claims for a fee or
commission made by any broker, other than the Broker, claiming to have acted
on behalf of Tenant in connection with this Lease. Landlord agrees to pay the
Broker a commission in accordance with a separate agreement between Landlord
and the Broker.
24. NOTICES
All notices and demands to be given by one party to the other party under this
Lease shall be given in writing, mailed or delivered to Landlord or Tenant, as
the case may be, at the address set forth in the Schedule or at such other
address as either party may hereafter designate. Notices shall be delivered by
hand or by United States certified or registered mail, postage prepaid, return
receipt requested, or by a nationally recognized overnight air courier service.
Notices shall be considered to have been given upon the earlier to occur of
actual receipt or two (2) business days after posting in the United States mail.
25. MISCELLANEOUS
A. SUCCESSORS AND ASSIGNS. Subject to Section 14 of this Lease, each provision
of this Lease shall extend to, bind and inure to the benefit of Landlord and
Tenant and their respective legal representatives, successors and assigns; and
all references herein to Landlord and Tenant shall be deemed to include all such
parties. The term "Landlord" as used in this Lease, so far as covenants or
obligations on the part of Landlord are concerned, shall be limited to mean only
the owner or owners of the Building at the time in question.
B. ENTIRE AGREEMENT. This Lease, and the riders and exhibits, if any,
attached hereto which are hereby made a part of this Lease, represent the
complete agreement between Landlord and Tenant; and Landlord has made no
representations or warranties except as expressly set forth in this Lease. No
modification or amendment of or waiver under this Lease shall be binding upon
Landlord or Tenant unless in writing signed by Landlord and Tenant.
C. TIME OF ESSENCE. Time is of the essence of this Lease and each and all of
its provisions.
D. EXECUTION AND DELIVERY. Submission of this instrument for examination or
signature by Tenant does not constitute a reservation of space or an option for
lease, and it is not effective until
21
<PAGE>
execution and delivery by both Landlord and Tenant. Execution and delivery of
this Lease by Tenant to Landlord shall constitute an irrevocable offer by
Tenant to lease the Premises on the terms and conditions set forth herein,
which offer may not be revoked for fifteen (15) days after such delivery.
E. SEVERABILITY. The invalidity or unenforceability of any provision of this
Lease shall not affect or impair any other provisions.
F. GOVERNING LAW. This Lease shall be governed by and construed in accordance
with the laws of the state in which the Building is located.
G. ATTORNEYS' FEES. Tenant shall pay to Landlord all costs and expenses,
including reasonable attorneys' fees, incurred by Landlord in enforcing this
Lease or incurred by Landlord as a result of any litigation to which Landlord
becomes a party as a result of this Lease.
H. DELAY IN POSSESSION. In no event shall Landlord be liable to Tenant if
Landlord is unable to deliver possession of the Premises to Tenant on the
Commencement Date for causes outside Landlord's reasonable control. If
Landlord is unable to deliver possession of the Premises to Tenant by the
Commencement Date, the Commencement Date shall be deferred until Landlord can
deliver possession to Tenant. If the Commencement Date is so delayed and as a
result would occur on a day other than the first day of the month; (i) the
Commencement Date shall be further delayed until the first day of the following
month, (ii) Tenant shall be allowed to take occupancy of the Premises prior to
the Commencement Date, subject to all of the terms and conditions of this Lease
and shall pay the pro-rata Rent for such partial month, and (iii) the
Expiration Date shall be extended so that the Term will continue for the full
period contemplated in the Schedule.
I. JOINT AND SEVERAL LIABILITY. If Tenant is comprised of more than one
party, each such party shall be jointly and severally liable for Tenant's
obligations under this Lease.
J. FORCE MAJEURE. Landlord shall not be in default hereunder and Tenant shall
not be excused from performing any of its obligations hereunder if Landlord is
prevented from performing any of its obligations hereunder due to any accident,
breakage, strike, shortage of materials, acts of God or other causes beyond
Landlord's reasonable control ("Force Majeure").
K. CAPTIONS. The headings and titles in this Lease are for convenience only
and shall have no effect upon the construction or interpretation of this Lease.
L. NO WAIVER. No receipt of money by Landlord from Tenant after termination
of this Lease or after the service of any notice or after the commencing of any
suit or after final judgment for possession of the Premises shall renew,
reinstate, continue or extend the Term or affect any such notice or suit. No
waiver of any default of Tenant shall be implied from any omission by Landlord
to take any action on account of such default if such default persists or is
repeated, and no express
22
<PAGE>
waiver shall affect any default other than the default specified in the express
waiver and then only for the time and to the extent therein stated.
M. LIMITATION OF LIABILITY. Any liability of Landlord under this Lease shall
be limited solely to its interest in the Building, and in no event shall any
personal liability be asserted against Landlord in connection with this Lease
nor shall any recourse be had to any other property or assets of Landlord.
23
<PAGE>
26. ADDITIONAL PROVISIONS
Additional provisions to this Lease if any, are set forth in Sections 27
through 28 of the Rider to Lease attached hereto and made a part hereof.
IN WITNESS WHEREOF, the parties hereto have executed this Lease in manner
sufficient to bind them as of the day and year first above written.
LANDLORD:
--------
PMTC LIMITED PARTNERSHIP
BY ITS MANAGING AGENT
PREMISYS REAL ESTATE SERVICES, INC.,
a Pennsylvania corporation
By: /s/ Michael Scadron
---------------------------------
Title: Vice President
------------------------------
TENANT:
-------
ELTRAX SYSTEMS, INC.
a Minnesota Corporation
By: /s/ Mack V. Traynor, III
---------------------------------
Title: President and CEO
------------------------------
24
<PAGE>
LANDLORD'S ACKNOWLEDGMENT
STATE OF _______________ )
) SS:
COUNTY OF ______________ )
The foregoing instrument was acknowledged before me this _____ day of
______________, 199__, by ___________________________________________, the
________________________________ of Premisys Real Estate Services, Inc., a
Pennsylvania corporation, on behalf of the Landlord.
-------------------------------------
NOTARY PUBLIC
TENANT'S ACKNOWLEDGMENT
STATE OF _______________ )
) SS:
COUNTY OF ______________ )
The foregoing instrument was acknowledged before me this ________ day of
_______________, 199__, by _________________________________________, the
__________________________________________ of
____________________________________ a ________________________, on behalf of
the Tenant.
----------------------------------------
NOTARY PUBLIC
25
<PAGE>
EXHIBIT B
CONSTRUCTION WORKLETTER
In connection with the Lease to which this Exhibit B is attached and in
consideration of the mutual covenants hereinafter contained, Landlord and
Tenant agree as follows:
1. With regard to space plans and working drawings;
a. Tenant and Landlord have hereby approved those space plans prepared by
Landlord dated April 17, 1996, which are made part of the Lease.
b. Based on the approved space plans of the Premises, Landlord shall
prepare final working drawings ("Working Drawing") for the Tenant
Improvements (as hereinafter defined). Landlord shall submit such
Working Drawings to Tenant for review, and Tenant shall approve or
disapprove the Working Drawings within five (5) business days after
receipt thereof. The Working Drawings shall include architectural
drawings, and information necessary to prepare mechanical and electrical
drawings. If Tenant shall fail to approve or disapprove the Working
Drawings within five (5) business days then Tenant shall be deemed to
have approved the Working Drawings
c. Based on the approval of the Working Drawings by Tenant, Landlord shall
solicit specific trade costs and provide to Tenant an estimate of cost
to complete the Tenant Improvements ("Cost"). This Cost shall include
all items necessary to be expended to perform the Tenant Improvements.
This Cost may include (however is not limited to) general contractor
costs, overhead and profit, general conditions, sales tax, permit fees,
electrical engineering, mechanical engineering, space planning,
architecture and construction management. If Tenant shall fail to
approve or disapprove the Cost, as it may be modified after discussions
between Landlord and Tenant, within five (5) business days after the
date such Cost is first received by Tenant, then Tenant shall be deemed
to have approved such Cost.
2. Landlord shall provide a tenant improvement allowance (the "Tenant
Improvement Allowance") in the amount of $0.00 ($0.00 per square foot) to
be applied towards the Cost identified in paragraph 1.c. above and the cost
of preparing of the Working Drawings and space plan. Tenant shall be
solely responsible for all costs for the Tenant Improvements which exceed
the Tenant Improvement Allowance. In the event the Cost is expected to
exceed the Tenant Improvement Allowance, Tenant shall remit to Landlord 75%
of any excess such cost within fifteen (15) days of approval or deemed
approval by Tenant of the Cost (as provided in paragraph 1.c. above), with
the remaining excess cost
Exhibit B, 1 of 2
<PAGE>
due to Landlord after determination of the actual final cost as
described in paragraph 6 of this Exhibit B. A failure by Tenant to
remit such excess cost to Landlord within the defined time period
shall constitute an immediate event of default pursuant to this
Lease which shall entitle Landlord to exercise any and all rights
available to Landlord under the Lease.
3. Within two (2) business days of Tenant's approval of the Cost Landlord
shall deliver to Tenant, for Tenant's review and approval, a schedule (the
"Work Schedule") setting forth a timetable for the planning and completion
of the installation of Tenant Improvements to be constructed in the
Premises (the "Tenant Improvements"). The Work Schedule shall set forth
each of the significant items of work to be done by or approval to be given
by Landlord and Tenant in connection with the completion of the Tenant
Improvements. The Work Schedule shall be submitted to Tenant for its
approval and, upon approval by both Landlord and Tenant, such schedule
shall become the basis for completing the Tenant Improvements. If Tenant
should fail to approve or disapprove the Work Schedule within two (2)
business days after the date such Work Schedule is first received by
Tenant, the Tenant shall be deemed to have approved the Work Schedule.
4. After approval of the Work Schedule contained in paragraph 3 above,
Landlord shall diligently commence the completion of the Tenant
Improvements.
5. Both Landlord and Tenant shall each identify to the other in writing two
individuals who have the responsibility to make changes or decisions as it
relates to all items contained in the Work Schedule including without
limitation any changes which may cause an increase in Cost of Tenant
Improvements or a delay in occupancy. Tenant shall be responsible for
delays and additional costs in completion of the Tenant Improvements work
caused by changes made to the Working Drawings after Tenant's approval or
deemed approval of the Working Drawings.
6. Upon completion by Landlord of Tenant Improvements, Landlord shall
determine the actual final cost thereof and shall submit a written
statement of such amount to Tenant. If the actual final cost exceeds the
Tenant Improvement Allowance plus any amounts previously remitted by Tenant
to Landlord pursuant to the provisions of paragraph 2 of this Exhibit B,
Tenant shall pay such amount to Landlord in full within thirty (30) days of
Landlord's invoice thereof. If the actual final cost is less than the
Tenant Improvement Allowance plus any amounts previously remitted by Tenant
to Landlord pursuant to the provisions of paragraph 2 of this Exhibit B,
Landlord shall refund to Tenant the lesser of: (a) the difference between
the Tenant Improvement Allowance plus any amount previously remitted by
Tenant to Landlord pursuant to the provisions of paragraph 2 of
Exhibit B, 2 of 2
<PAGE>
this Exhibit B and the actual final cost, and (b) any amounts previously
remitted by Tenant to Landlord pursuant to the provisions of paragraph 2 of
this Exhibit B.
7. Tenant acknowledges and agrees that Tenant at its sole cost shall be
responsible for obtaining, delivering and installing in the Premises all
necessary and desired furniture, telephone equipment, computer cabling,
telephone cabling, telephone service, business equipment, art work and
other similar items, and that Landlord shall have not responsibility
whatsoever with regard thereto. Tenant further acknowledges and agrees
that neither the Commencement Date of the lease nor the payment of Rent
shall be delayed for any period of time whatsoever due to any delay in the
furnishing of the Premises with such items.
Exhibit B, 3 of 2
<PAGE>
EXHIBIT C
CLEANING SPECIFICATIONS
SERVICES TO BE PERFORMED ON NORMAL BUSINESS DAYS AS DETERMINED BY LANDLORD, BUT
NOT EXCEEDING FIVE TIMES PER WEEK.
1. Empty all waste baskets.
2. Empty and clean ash trays.
3. Dust desk tops that are clear of working paper.
4. Vacuum carpeted areas and dust mop resilient floors.
5. Restrooms:
(a) Empty all waste receptacles.
(b) Dust mop and wet mop floors.
(c) Clean and disinfect all fixtures.
(d) Clean mirrors and shelves.
(e) Refill towel and soap dispensers.
6. Clean and disinfect drinking fountains and water coolers.
7. Clean lobby floor and all lobby door glass.
WEEKLY SERVICES:
1. Dust top of file cabinets, ledges and baseboards.
2. Clean and disinfect all ceramic tile, partitioning and waste
receptacles in restrooms.
3. Remove smudges and scuff marks from walls.
4. Remove spots from partition glass.
5. Damp mop stairways as required.
Exhibit C, 1 of 1
<PAGE>
MISCELLANEOUS SERVICES:
1. Wash exterior windows as needed; however the number of washings will
not be less than two times per year, weather permitting.
SEASONAL SERVICES:
1. Snow removal from concrete walks as necessary.
Tenant understands that Landlord may substitute for any of the methods or
devices set forth in this Exhibit "C", other methods or devices which will
achieve substantially the same results.
Exhibit C, 2 of 1
<PAGE>
EXHIBIT D
RULES AND REGULATIONS
1. Tenant shall not make any room-to-room canvas to solicit business from
other tenants in the Building or the Complex and shall not exhibit, sell or
offer to sell, use, rent or exchange any item or services in or from the
Premises unless ordinarily included within Tenant's use of the Premises as
specified in the Lease.
2. Tenant shall not make any use of the Premises which may be dangerous to
person or property or which shall increase the cost of insurance or require
additional insurance coverage.
3. Tenant shall not paint, display, inscribe or affix any sign, picture,
advertisement, notice, lettering or direction or install any lights on any part
of the outside or inside of the Building, other than the Premises, and on any
part of the inside of the Premises which can be seen from outside the Premises,
except as approved by Landlord in writing.
4. Tenant shall not use the name of the Building or the Complex in advertising
or other publicity, except as the address of its business, and shall not use
pictures of the Building or the Complex in advertising or publicity.
5. Tenant shall not obstruct or place objects on or in sidewalks, entrances,
passages, courts, corridors, vestibules, halls, elevators and stairways in and
about the Building. Tenant shall not place objects against glass partitions or
doors or windows or adjacent to any open common space which would be unsightly
from the Building corridors or from the exterior of the Building.
6. Bicycles shall not be permitted in the Building or the Complex other than
in locations designated by Landlord.
7. Tenant shall not allow any animals, other than seeing eye dogs, in the
Premises or the Building.
8. Tenant shall not disturb other tenants or make excessive noises, cause
disturbances, create excessive vibrations, odors or noxious fumes or use or
operate any electrical or electronic devices or other devices that emit
excessive sound waves or are dangerous to other tenants of the Building or that
would interfere with the operation of any device or equipment or radio or
television broadcasting or reception from or within the Building or elsewhere,
and shall not place or install any projections, antennae, aerials or similar
devices outside of the Building or the Premises.
Exhibit D, 1 of 3
<PAGE>
9. Tenant shall not waste electricity or water and shall cooperate fully
with Landlord to assure the most effective operation of the Building's
heating and air conditioning and shall refrain from attempting to adjust any
controls except for the thermostats within the Premises. Tenant shall keep
all doors to the Premises closed.
10. Unless Tenant installs new doors to the Premises, Landlord shall furnish
two sets of keys for all doors to the Premises at the commencement of the
Term. All locks must be on building master key system. When the Lease is
terminated, Tenant shall deliver all keys to Landlord and will provide to
Landlord the means of opening any safes, cabinets or vaults left in the
Premises.
11. Except as otherwise provided in the Lease, Tenant shall not install any
signal, communication, alarm or other utility or service system or equipment
without the prior written consent of Landlord.
12. Tenant shall not use any draperies or other window coverings instead of
or in addition to the Building standard window coverings designated and
approved by Landlord for exclusive use throughout the Building.
13. Landlord may require that all persons who enter or leave the Building
identify themselves to watchmen, by registration or otherwise. Landlord,
however, shall have no responsibility or liability for any theft, robbery or
other crime in the Building or the Complex. Tenant shall assume full
responsibility for protecting the Premises, including keeping all doors to
the Premises locked after the close of business.
14. Tenant shall not overload floors; and Tenant shall obtain Landlord's
prior written approval as to size, maximum weight, routing and location of
business machines, safes, and heavy objects. Tenant shall not install or
operate machinery or any mechanical devices of a nature not directly related
to Tenant's ordinary use of the Premises.
15. In no event shall Tenant bring into the Building or the Complex
inflammables such as gasoline, kerosene, naphtha and benzene, or explosives
or firearms or any other articles of an intrinsically dangerous nature.
16. Furniture, equipment and other large articles may be brought into the
Building only at the time and in the manner designated by Landlord. Tenant
shall furnish Landlord with a list of furniture, equipment and other large
articles which are to be removed from the Building, and Landlord may require
permits before allowing anything to be moved in or out of the Building.
Movements of Tenant's property into or out of the Building and within the
Building are entirely at the risk and responsibility of Tenant.
Exhibit D, 2 of 3
<PAGE>
17. No person or contractor, unless approved in advance by Landlord, shall
be employed to do janitorial work, interior window washing, cleaning,
decorating or similar services in the Premises.
18. Tenant shall not use the Premises for lodging, cooking (except for
microwave reheating and coffee makers) or manufacturing or selling any
alcoholic beverages or for any illegal purposes.
19. Tenant shall comply with all safety, fire protection and evacuation
procedures and regulations established by Landlord or any governmental agency.
20. Tenant shall cooperate and participate in all reasonable security and
safety programs affecting the Building or the Complex.
21. Tenant shall not loiter, eat, drink, sit or lie in the lobby or other
public areas in the Building or the Complex. Tenant shall not go onto the
roof of the Building or any other non-public areas of the Building (except
the Premises), and Landlord reserves all rights to control the public and
non-public areas of the Building or the Complex. In no event shall Tenant
have access to any electrical, telephone, plumbing or other mechanical
closets without Landlord's prior written consent.
22. Tenant shall not use the freight or passenger elevators, loading docks
or receiving areas of the Building or the Complex except in accordance with
regulations for their use established by Landlord.
23. Tenant shall not dispose of any foreign substances in the toilets,
urinals, sinks or other washroom facilities, nor shall Tenant permit such
items to be used other than for their intended purposes; and Tenant shall be
liable for all damage as a result of a violation of this rule.
24. In no event shall Tenant allow its employees to use the public areas of
the Building or the Complex as smoking areas. Washrooms are considered to be
public areas.
25. Tenant shall not install any equipment in the Premises which uses a
substantial amount of electricity without the consent of Landlord. Tenant
shall ascertain from Landlord the maximum amount of electrical current which
can be safely be used in the Premises, taking into account the capacity of
the electric wiring in the Building and the Premises and the needs of other
Tenants in the Building and shall not use more than such safe capacity. The
consent of Landlord to the installation of electric equipment shall not
relieve Tenant from the obligation not to use more electricity than such safe
capacity.
26. Tenant shall not install carpet padding or carpet by means of a mastic,
glue or cement without the consent of Landlord.
Exhibit D, 3 of 3
<PAGE>
27. Tenant shall endeavor to lower and adjust the venetian blinds of the
windows in the Premises if such lowering and adjustment reduces the sun load
on the heating, ventilating and air conditioning system.
Exhibit D, 4 of 3
<PAGE>
RIDER TO LEASE
BETWEEN
PMTC LIMITED PARTNERSHIP
BY ITS GENERAL PARTNER
THE PRUDENTIAL INSURANCE COMPANY OF AMERICA
A NEW JERSEY CORPORATION
BY ITS MANAGING AGENT
PREMISYS REAL ESTATE SERVICES, INC.
A PENNSYLVANIA CORPORATION
AND
ELTRAX SYSTEMS, INC.
A MINNESOTA CORPORATION
BUILDING: 2000 SUITE: 690
27. PARKING
During the initial Term of the Lease, Tenant shall receive two
(2) parking spaces chosen from what is available, in the reserved parking
area in 2000 Town Center, at $65.00 per month, per space.
28. TERMINATION OPTION
Provided Tenant is not in default and has performed all of its
obligations hereunder, Tenant shall have a one time right to terminate the
Lease with termination to occur upon the third (3rd) year anniversary of
the Commencement Date. Tenant shall notify Landlord in writing of its
decision to exercise the Termination Option six (6) months in advance of
such date. Tenant's failure to provide timely notice or to pay the
termination fee shall be deemed a waiver of its Termination Option. In the
event Tenant exercises its right to terminate, Tenant will pay to Landlord
$3.00 per rentable square foot of area leased which shall be due and
payable at the time Tenant exercises its Termination Option.
R1
<PAGE>
IN WITNESS WHEREOF, the respective parties have hereunto affixed their
hands and seals they day and year first and above written.
WITNESS: LANDLORD:
PMTC LIMITED PARTNERSHIP:
BY ITS GENERAL PARTNER
THE PRUDENTIAL INSURANCE
COMPANY OF AMERICA,
a New Jersey corporation
BY ITS MANAGING AGENT:
PREMISYS REAL ESTATE
SERVICES, INC.
a Pennsylvania corporation
By: /s/ Michael R. Scadron
------------------------ ----------------------------
Michael R. Scadron
------------------------ ---------------------------------
(Typed Name)
Its Vice President/General Manager
------------------------------
WITNESS: TENANT:
ELTRAX SYSTEMS, INC.
a Minnesota Corporation
By: /s/ Mack V. Traynor
------------------------ ----------------------------
Mack V. Traynor
------------------------ ---------------------------------
(Typed Name) (Typed Name)
Its: President and CEO
----------------------------
R2
<PAGE>
STANDARD INDUSTRIAL LEASE -- MULTI-TENANT
1. Parties. This Lease, dated, for reference purposes only, January 1, 1996,
is made by and between CAPISTRANO ENTERPRISES (hereincalled "Lessor") and
NORDATA, INC. dba DATATECH, Howard Norton, President and Ruby Norton, Vice
President (hereincalled "Lessee").
2. Premises, Parking and Common Areas.
2.1. Premises. Lessor hereby leases to Lessee and Lessee leases from
Lessor for the term, at the rental, and upon all of the conditions set forth
herein, real property situated in the County of Orange, State of California
commonly known as 27126 A Paseo Espada, Suite 1602 and 1603, San Juan
Capistrano, CA 92675 and described as Office/Warehouse herein referred to as the
"Premises," as may be outlined on an Exhibit attached hereto, including rights
to the Common areas as hereinafter specified but not including any rights to the
roof of the Premises or to any Building in the Industrial Center. The Premises
are a portion of a building, herein referred to as the "Building." The
Premises, the Building, the Common Areas, the land upon which the same are
located, along with all other buildings and improvements thereon, are herein
collectively referred to as the "Industrial Center."
2.2. Vehicle Parking. Lessee shall be entitled to (6) Six vehicle parking
spaces, unreserved and unassigned, on those portions of the Common Areas
designated by Lessor for parking. Lessee shall not use more parking spaces than
said number. Said parking spaces shall be used only for parking by vehicles no
larger than full size passenger automobiles or pick-up trucks, herein called
"Permitted Size Vehicles." Vehicles other than Permitted Size Vehicles are
herein referred to as "Oversized Vehicles."
2.2.1 Lessee shall not permit or allow any vehicles that
belong to or are controlled by Lessee or Lessee's employees, suppliers,
shippers, customers, or invitees to be loaded, unloaded, or parked in areas
other than those designated by Lessor for such activities.
2.2.2 If Lessee permits or allows any of the prohibited
activities described in paragraph 2.2 of this Lease, then Lessor shall have the
right, without notice, in addition to such other rights and remedies that it may
have, to remove or tow away the vehicle involved and charge the cost to Lessee,
which cost shall be immediately payable upon demand by Lessor.
2.3. Common Areas - Definition. The term "Common Areas" is defined as all
areas and facilities outside the Premises and within the exterior boundary line
of the Industrial Center that are provided and designated by the Lessor from
time to time for the general non-exclusive use of Lessor, Lessee and of other
lessees of the Industrial Center and their respective employees, suppliers,
shippers, customers and invitees, including parking areas, loading and unloading
areas, trash areas, roadways, sidewalks, walkways, parkways, driveways and
landscaped areas.
2.4. Common Areas - Lessee's Rights. Lessor hereby grants to Lessee, for
the benefit of Lessee and its employees, suppliers, shippers, customers and
invitees, during the term of this Lease, the non-exclusive right to use, in
common with others entitled to such use, the Common Areas as they exist from
time to time, subject to any rights, powers, and privileges reserved by Lessor
under the terms hereof or under the terms of any rules and regulations or
restrictions governing the use of the Industrial Center. Under no circumstances
shall the right herein granted to use the Common Areas be deemed to include the
right to store any property, temporarily or permanently, in the Common Areas.
Any such storage shall be permitted only by the prior written consent of Lessor
or Lessor's designated agent, which
<PAGE>
consent may be revoked at any time. In the event that any unauthorized
storage shall occur then Lessor shall have the right, without notice, in
addition to such other rights and remedies that it may have, to remove the
property and charge the cost to Lessee, which cost shall be immediately
payable upon demand by Lessor.
2.5. Common Areas - Rules and Regulations. Lessor or such other person(s)
as Lessor may appoint shall have the exclusive control and management of the
Common Areas and shall have the right, from time to time, to establish, modify,
amend and enforce reasonable rules and regulations with respect thereto. Lessee
agrees to abide by and conform to all such rules and regulations, and to cause
its employees, suppliers, shippers, customers, and invitees to so abide and
conform. Lessor shall not be responsible to Lessee for the non-compliance with
said rules and regulations by other lessees of the Industrial Center.
2.6. Common Areas - Changes. Lessor shall have the right, in Lessor's sole
discretion, from time to time:
(a) To make changes to the Common Areas, including, without
limitation, changes in the location, size, shape and number of driveways,
entrances, parking spaces, parking areas, loading and unloading areas, ingress,
egress, direction of traffic, landscaped areas and walkways; (b) To close
temporarily any of the Common Areas for Maintenance purposes so long as
reasonable access to the Premises remains available; (c) To designate other land
outside the boundaries of the Industrial Center to be a part of the Common
Areas; (d) To add additional buildings and improvements to the Common Areas; (e)
to use the Common Areas while engaged in making additional improvements, repairs
or alterations to the Industrial Center, or any portion thereof; (f) To do and
perform such other acts and make such other changes in, to or with respect to
the Common Areas and Industrial Center as Lessor may, in the exercise of sound
business judgment, deem to be appropriate.
2.6.1 Lessor shall at all times provide the parking
facilities required by applicable law and in no event shall the number of
parking spaces that Lessee is entitled to under paragraph 2.2. be reduced.
3. Term.
3.1. Term. The term of this Lease shall be for (1) One years(s) with a N/A
annual increase on the anniversary date, commencing on January 1, 1996 and
ending on December 31, 1996 unless sooner terminated pursuant to any provision
hereof.
3.2. Delay in Possession. Notwithstanding said commencement date, if for
any reason Lessor cannot deliver possession of the Premises to Lessee on said
date, Lessor shall not be subject to any liability therefor, nor shall such
failure affect the validity of this Lease or the obligations of Lessee hereunder
or extend the term hereof, but in such case, Lessee shall not be obligated to
pay rent or perform any other obligation of Lessee under the terms of this
Lease, except as may be otherwise provided in this Lease, until possession of
the Premises is tendered to Lessee; provided, however, that if Lessor shall not
have delivered possession of the Premises within sixty (60) days from said
commencement date, Lessee may, at Lessee's option, by notice in writing to
Lessor within ten (10) days thereafter, cancel this Lease, in which event the
parties shall be discharged from all obligations hereunder; provided further,
however, that if such written notice of Lessee is not received by Lessor within
said ten (10) day period, Lessee's right to cancel this Lease hereunder shall
terminate and be of no further force or effect.
<PAGE>
3.3. Early Possession. If Lessee occupies the Premises prior to said
commencement date, such occupancy shall be subject to all provisions of this
Lease, such occupancy shall not advance the termination date, and Lessee shall
pay rent for such period at the initial monthly rates set forth below.
4. Rent.
4.1. Base Rent. Lessee shall pay to Lessor, as Base Rent and Non-exclusive
license fee of the Premises, without any offset or deduction, except as may be
otherwise expressly provided in this Lease, on the First day of each month of
the term hereof, monthly payments in advance of $1955.00 as Rent. Rent is
rounded to the nearest dollar.
$1955.00 First Months rent
0 Last Months rent
$2500.00 Security deposit (Currently on Deposit)
0 Sign Fee
$ 50.00 First months Operating Expenses. (Total monthly expenses except
for increase in Taxes and Insurance.)
$ 50.00 Last months Operating Expenses. (Total monthly expenses except
for increases in Taxes and insurance.) (Currently on Dep.)
Total amount Lessee shall pay Lessor UPON EXECUTION of this lease $2005.00
Total amount Lessee shall pay Lessor at the FIRST of every month $2005.00
Rent for any period during the term hereof which is for less than one month
shall be a pro rata portion of the Base Rent. Rent shall be payable in lawful
money of the United States to Lessor at the address stated herein or to such
other person or at such other place as Lessor may designate in writing.
4.2. Operating Expenses. Lessee shall pay to Lessor during the term
hereof, in addition to the Base Rent, Lessee's Share, as hereinafter defined, of
all Operating Expenses, as hereinafter defined, during each calendar year of the
term of this Lease, in accordance with the following provisions:
(a) "Lessee's Share" is defined, for purposes of this Lease, as 1.20
percent.
(b) "Operating Expenses" is defined, for purposes of this Lease, as all
costs incurred by Lessor, if any, for:
(I) The operation, repair and maintenance, in neat, clean, good order
and condition, of the following:
(aa) The Common Areas, including parking areas, loading and
unloading areas, trash areas, roadways, sidewalks, walkways,
parkways, driveways, landscaped areas, striping bumpers,
irrigation systems, Common Area lighting facilities and
fences and gates;
(bb) Trash disposal services;
(cc) Tenant directories;
(dd) Fire detection systems including sprinkler system
maintenance and repair;
(ee) Security service;
(ff) Any other service to be provided by Lessor that is elsewhere
in this Lease stated to be an "Operating Expense;"
<PAGE>
(II) The cost of water, gas and electricity to service the Common
Areas.
(c) The inclusion of the improvements, facilities and services set forth
in paragraph 4.2(b)(I) of the definition of Operating Expenses shall not be
deemed to impose an obligation upon Lessor to either have said improvements or
facilities or to provide those services unless the Industrial Center already has
the same, Lessor already provides the services, or Lessor has agreed elsewhere
in this Lease to provide the same or some of them.
(d) Lessee's Share of Operating Expenses shall be payable by Lessee within
ten (10) days after a reasonable detailed statement of actual expenses is
presented to Lessee by Lessor. At Lessor's option, however, an amount may be
estimated by Lessor from time to time of Lessee's Share of annual Operating
Expenses and the same shall be payable monthly or quarterly, as Lessor shall
designate, during each twelve-month period of Expenses as aforesaid, Lessor
shall deliver to Lessee within sixty (60) days after the expiration of each
calendar year a reasonably detailed statement showing Lessee's Share of the
actual Operating Expenses incurred during the preceding year. If Lessee's
payments under this paragraph 4.2(d) during said preceding year exceed Lessee's
Share as indicated on said statement, Lessee shall be entitled to credit the
amount of such overpayment against Lessee's Share of Operating Expenses next
falling due. If Lessee's payments under this paragraph during said preceding
year were less than Lessee's Share as indicated on said statement, Lessee shall
pay to Lessor the amount of the deficiency within ten (10) days after delivery
by Lessor to Lessee of said statement.
(e) Lessee acknowledges that neither Lessor nor its agent have made any
representation or warranty as to the square footage of the Premises. Any
reference to square footage is an approximation only and may include measurement
from the exteriors of outside walls and/or measurement from the drip-line of the
roof and includes all inside walls and service areas. In no event shall the
rent be adjusted based on square footage of the Premises.
5. Security Deposit. Lessee shall deposit with Lessor upon execution hereof
$2500.00 (Currently on Deposit) as security for Lessee's faithful performance of
Lessee's obligations hereunder. If Lessee fails to pay rent or other charges
due hereunder, or otherwise defaults with respect to any provision of this
Lease, Lessor may use, apply or retain all or any portion of said deposit for
the payment of any rent or other charge in default or for the payment of any
other sum to which Lessor may become obligated by reason of Lessee's default, or
to compensate Lessor for any loss or damage which Lessor may suffer thereby. If
Lessor so uses or applies all or any portion of said deposit, Lessee shall
within ten (10) days after written demand therefor deposit cash with Lessor in
an amount sufficient to restore said deposit to the full amount then required of
Lessee. If the monthly rent shall, from time to time, increase during the term
of this Lease, Lessee shall, at the time of such increase, deposit with lessor
additional money as a security deposit so that the total amount of the security
deposit held by Lessor shall at all times bear the same proportion to the then
current Base Rent as the initial security deposit bears to the Initial Base Rent
set forth in paragraph 4. Lessor shall not be required to keep said security
deposit separate from its general accounts. If Lessee performs all of Lessee's
obligations hereunder, said deposit, or so much thereof as has not heretofore
been applied by Lessor, shall be returned, without payment of interest or other
increment for its use, to Lessee (or, at Lessor's option, to the last assignee,
if any, of Lessee's interest hereunder) at the expiration of the term hereof,
and after Lessee has vacated the Premises. No trust relationship is created
herein between Lessor and Lessee with respect to said security Deposit.
<PAGE>
6. Use.
6.1. Use. The Premises shall be used and occupied only for General Office
Purposes & Distribution of Computer Hardware & Related Business or any other use
which is reasonably comparable and for no other purpose.
(a) Lessee will conduct its business and control its employees, agents,
invitees, and visitors in such manner as not to create any nuisance, or
interfere with, annoy, or disturb any other tenant or occupant of the building
or Lessor in its operation of the building. Lessee will not do anything which
is prohibited by the standard form of extended coverage fire policy, or will
increase the existing rate of such insurance, or otherwise affect any other
insurance affecting the building, or cause a cancellation of any such insurance.
6.2. Compliance with Law.
(a) Lessor warrants to Lessee that the Premises, in the state existing on
the date that the Lease term commences, but without regard to the use for which
Lessee will occupy the Premises, does not violate any covenants or restrictions
of record, or any applicable building code, regulation or ordinance in effect on
such Lease term commencement date. In the event it is determined that this
warranty has been violated, then it shall be the obligation of the Lessor, after
written notice from Lessee, to promptly, at Lessor's sole costs and expense,
rectify any such violation. In the event Lessee does not give to Lessor written
notice of the violation of this warranty within six months from the date that
the Lease term commences, the correction of same shall be the obligation of the
lessee at Lessee's sole cost. The warranty contained in this paragraph 6.2(a)
shall be of no force or effect if, prior to the date of this Lease, Lessee was
an owner or occupant of the Premises and, in such event, Lessee shall correct
any such violation at Lessee's sole cost.
(b) Except as provided in paragraph 6.2(a) Lessee shall, at Lessee's
expense, promptly comply with all applicable statutes, ordinances, rules,
regulations, orders, covenants and restrictions of record, and requirements of
any fire insurance underwriters or rating bureaus, now in effect or which may
hereafter come into effect, whether or not they reflect a change in policy from
that now existing, during the term or any part of the term hereof, relating in
any manner to the Premises and the occupation and use by lessee of the premises
and of the Common Areas, Lessee shall not use nor permit the use of the Premises
or the Common Areas in any manner that will tend to create waste or a nuisance
or shall tend to disturb other occupants of the Industrial Center.
(c) Lessee shall not grant any concessions, licenses or permission for the
sale or taking of orders for food or beverages in the Premises, nor install or
permit the installation or use of any machine or equipment for dispensing foods
or beverages in the Industrial Center, nor permit the preparation, serving,
distribution or delivery of food or beverages in the Premises without written
approval of Lessor and in compliance with arrangements prescribed by Lessor,
except that Lessee may install coffee makers, refrigerator and microwave oven in
the Premises for ordinary use by Lessee's employees. Only persons approved by
Lessor shall be permitted to serve, distribute, or deliver food and beverages
within the Industrial Center, or to use the elevators or the public areas of the
Industrial Center for that purpose.
(d) The Premises shall not be used or permitted to be used for
residential, lodging or sleeping purposes.
<PAGE>
6.3. Condition of Premises.
(a) Lessor shall deliver the Premises to Lessee clean and free of debris
on the Lease commencement date (unless Lessee is already in possession) and
Lessor warrants to Lessee that the plumbing, lighting, air conditioning,
heating, and loading doors in the Premises shall be in good operating condition
on the Lease commencement date. In the event that it is determined that this
warranty has been violated, then it shall be the obligation of Lessor, after
receipt of written notice from Lessee setting forth with specificity the nature
of the violation, to promptly, at Lessor's sole cost, rectify such violation,
Lessee's failure to give such written notice to Lessor within thirty (30) days
after the Lease commencement date shall cause the conclusive presumption that
Lessor has complied with all of Lessor's obligations hereunder. The warranty
contained in this paragraph 6.3(a) shall be of no force or effect if prior to
the date of this Lease, Lessee was an owner or occupant of the Premises.
(b) Except as otherwise provided in this Lease, Lessee hereby accepts the
Premises in their condition existing as of the Lease commencement date or the
date that Lessee takes possession of the Premises, whichever is earlier, subject
to all applicable zoning, municipal, county and state laws, ordinances and
regulations governing and regulating the use of the Premises, and any covenants
or restrictions of record, and accepts this Lease subject thereto and to all
matters disclosed thereby and by any exhibits attached hereto. Lessee
acknowledges that neither Lessor nor Lessor's agent has made any representation
or warranty as to the present or future suitability of the Premises for the
conduct of Lessee's business.
7. Maintenance, Repairs, Alterations and Common Area Services.
7.1. Lessor's Obligations. Subject to the provisions of paragraphs 4.2
(Operating Expenses), 6 (Use), 7.2 (Lessee's Obligations) and 9 (Damage or
Destruction) and except for damage caused by any negligent or intentional act or
omission of Lessee, Lessee's employees, suppliers, shippers, customers or
invitees, in which event Lessee shall repair the damage, Lessor, at Lessor's
expense, subject to reimbursement pursuant to paragraph 4.2, shall keep in good
condition and repair the foundations, exterior walls, structural condition of
interior bearing walls, and roof of the Premises, as well as the parking lots,
walkways, driveways, landscaping, fences, signs, and utility installations of
the Common Areas and all parts thereof, as well as providing the services for
which there is an Operating Expense pursuant to paragraph 4.2. Lessor shall
not, however, be obligated to paint the exterior or interior surface of exterior
walls, nor shall Lessor be required to maintain, repair or replace windows,
doors or plate glass of the Premises. Lessor shall have no obligation to make
repairs under this paragraph 7.1 until a reasonable time after receipt of
written notice from Lessee of the need for such repairs. Lessee expressly
waives the benefits of any statute now or hereafter in effect which would
otherwise afford Lessee the right to make repairs at Lessor's expense or to
terminate this Lease because of the Lessor's failure to keep the Premises in
good order, condition and repair. Lessor shall not be liable for damages or
loss of any kind or nature by reason of Lessor's failure to furnish any Common
Area Services when such failure is caused by accident, breakage, repairs,
strikes, lockout, or other labor disturbances or disputes of any character, or
by any other cause beyond the reasonable control of Lessor.
7.2. Lessee's Obligations.
(a) Subject to the provisions of paragraphs 6 (Use), 7.1 (Lessor's
Obligations), and 9 (Damage or Destruction), Lessee, at Lessee's expense, shall
keep in good order, condition and repair the Premises and every part thereof
(whether or not the damaged portion of the Premises or the means of repairing
the same are reasonably or readily accessible to Lessee) including, without
limiting the
<PAGE>
generality of the foregoing, all plumbing, heating, ventilating and
air conditioning systems (Lessee shall procure and maintain, at Lessee's
expense, a ventilating and air conditioning system maintenance contract),
electrical and lighting facilities and equipment within the Premises, fixtures,
interior walls and interior surfaces of exterior walls, ceilings, windows,
doors, plate glass, and skylights located within the Premises, Lessor reserves
the right to procure and maintain the ventilating and air conditioning system
maintenance contract and if Lessor so elects, Lessee shall reimburse Lessor,
upon demand, for the cost thereof.
(b) If Lessee fails to perform Lessee's obligations under this paragraph
7.2 or under any other paragraph of this Lease, Lessor may enter upon the
Premises after ten (10) days' prior written notice to Lessee (except in the case
of emergency, in which no notice shall be required), perform such obligations on
Lessee's behalf and put the premises in good order, condition and repair, and
the cost thereof together with interest thereon at the maximum rate then
allowable by law shall be due and payable as additional rent to Lessor together
with Lessee's next Base Rent installment.
(c) On the last day of the term hereof, or on any sooner termination,
Lessee shall surrender the Premises to Lessor in the same condition as
received, ordinary wear and tear excepted, clean and free of debris. Any
damage or deterioration of the Premises shall not be deemed ordinary wear and
tear if the same could have been prevented by good maintenance practices,
Lessee shall repair any damage to the Premises occasioned by the installation
or removal of Lessee's trade fixtures, alternations, furnishings and
equipment. Notwithstanding anything to the contrary otherwise stated in this
Lease, Lessee shall leave the air lines, power panels, electrical
distribution systems, lighting fixtures, space heaters, air conditioning,
plumbing and fencing on the Premises in good operating condition.
7.3. Alternations and Additions.
(a) Lessee shall not, without Lessor's prior written consent make any
alternations, improvements, additions or Utility installations in, on or about
the Premises, or the Industrial Center, except for nonstructural alterations to
the Premises not exceeding $2,500 in cumulative costs, during the term of this
Lease. In any event, whether or not in excess of $2,500 in cumulative cost,
Lessee shall make no change or alteration to the exterior of the Premises nor
the exterior of the Building nor the Industrial Center without Lessor's prior
written consent. As used in this paragraph 7.3 the term "Utility Installation"
shall mean carpeting, window coverings, air lines, power panels, electrical
distribution systems, lighting fixtures, space heaters, air conditioning,
plumbing and fencing. Lessor may require that Lessee remove any or all of said
alterations, improvements, additions or Utility Installations at the expiration
of the term, and restore the Premises and the Industrial Center to their prior
condition. Lessor may require Lessee to provide Lessor, at Lessee's sole cost
and expense, a lien and completion bond in an amount equal to one and one-half
times the estimated cost of such improvements, to insure Lessor against any
liability for mechanic's and materialmen's liens and to insure completion of the
work. Should Lessee make any alterations, improvements, additions or Utility
installations without the prior approval of Lessor, Lessor may, at any time
during the term of this Lease, require that Lessee remove any or all of the
same.
(b) Any alterations, improvements, additions or Utility installations in
or about the Premises or the Industrial Center that Lessee shall desire to make
and which requires the consent of the Lessor shall be presented to Lessor in
written form, with proposed detailed plans. If Lessor shall give its consent,
the consent shall be deemed conditional upon Lessee acquiring a permit to do so
from appropriate governmental agencies, the furnishing of a copy thereof to
Lessor prior to the
<PAGE>
commencement of the work and the compliance by lessee of all conditions of
said permit in a prompt and expeditious manner.
(c) Lessee shall pay, when due, all claims for labor or materials
furnished or alleged to have been furnished to or for Lessee at or for use in
the Premises, which claims are or may be secured by any mechanic's or
materialmen's lien against the Premises, or the Industrial Center, or any
interest therein, Lessee shall give Lessor not less than ten (10) days'
notice prior to the commencement of any work in the Premises, and Lessor
shall have the right to post notices of non-responsibility in or on the
Premises or the Building as provided by law. If Lessee shall, in good faith,
contest the validity of any such lien, claim or demand, then Lessee shall, at
its sole expense defend itself and Lessor against the same and shall pay and
satisfy any such adverse judgment that may be rendered thereon before the
enforcement thereof against the Lessor or the Premises or the Industrial
Center, upon the condition that if Lessor shall require Lessee shall furnish
to Lessor a surety bond satisfactory to Lessor in an amount equal to such
contested lien claim or demand indemnifying Lessor against liability for the
same and holding the Premises and the Industrial Center free from the effect
of such Lien or claim. In addition, Lessor may require Lessee to pay Lessor's
attorneys fees and costs in participating in such action if Lessor shall
decide it is to Lessor's best interest to do so.
(d) All alterations, improvements, additions and Utility Installations
(whether or not such Utility Installations constitute trade fixtures of
Lessee), which may be made on the Premises, shall be the property of Lessor
and shall remain upon and be surrendered with the Premises at the expiration
of the Lease term, unless Lessor requires their removal pursuant to paragraph
7.3(a). Notwithstanding the provisions of this paragraph 7.3(d), Lessee's
machinery and equipment, other than that which is affixed to the Premises so
that it cannot be removed without material damage to the Premises, and other
than Utility Installations, shall remain the property of Lessee and may be
removed by Lessee subject to the provisions of paragraph 7.2.
7.4. Utility Additions. Lessor reserves the right to install new or
additional utility facilities throughout the Building and the Common Areas
for the benefit of Lessor or Lessee, or any other lessee of the Industrial
Center, including, but not by way of limitation, such utilities as plumbing,
electrical systems, security systems, communication systems, and fire
protection and detection systems, so long as such installations do not
unreasonably interfere with Lessee's use of the Premises.
8. Insurance; Indemnity.
8.1. Liability Insurance - Lessee. Lessee shall, at Lessee's expense,
obtain and keep in force during the term of this Lease a policy of Combined
Single Limit Bodily Injury and Property Damage Insurance insuring Lessee and
Lessor against any liability arising out of the use, occupancy or maintenance
of the Premises and the Industrial Center. Such insurance shall be in an
amount not less than $500,000.00 per occurrence. The policy shall insure
performance by Lessee of the indemnity provisions of this paragraph 8. The
limits of said insurance shall not, however, limit the liability of Lessee
hereunder.
8.2. Liability Insurance - Lessor. Lessor shall obtain and keep in
force during the term of this Lease a policy of Combined Single Limit Bodily
Injury and Property Damage Insurance, insuring Lessor, but not Lessee,
against any liability arising out of the ownership, use, occupancy or
maintenance of the Industrial Center in an amount not less than $500,000.00
per occurrence.
<PAGE>
8.3. Property Insurance. lessor shall obtain and keep in force during
the term of this Lease a policy or policies of insurance covering loss or
damage to the Industrial Center improvements, but not Lessee's personal
property, fixtures, equipment or tenant improvements, in an amount not to
exceed the full replacement value thereof, as the same may exist from time to
time, providing protection against all perils included within the
classification of fire, extended coverage, vandalism, malicious mischief,
flood (in the event same is required by the lender having a lien on the
Premises) special extended perils ("all risk," as such term is used in the
insurance industry), plate glass insurance and such other insurance as Lessor
deems advisable. In addition, Lessor shall obtain and keep in force, during
the term of this Lease, a policy of rental value insurance covering a period
of one year, with loss payable to Lessor, which insurance shall also cover
all Operating Expenses for said period.
8.4. Payment of Premium Increase.
(a) After the term of this Lease has commenced, Lessee shall not be
responsible for paying Lessee's Share of any increase in the property
insurance premium for the Industrial Center specified by Lessor's insurance
carrier as being caused by the use, acts or omissions of any other lessee of
the Industrial Center, or by the nature of such other lessee's occupancy
which create an extraordinary or unusual risk.
(b) Lessee, however, shall pay the entirety of any increase in the
property insurance premium for the Industrial Center over what it was
immediately prior to the commencement of the term of this Lease if the
increase is specified by Lessor's insurance carrier as being caused by the
nature of Lessee's occupancy or any act or omission of Lessee.
(c) Lessee shall pay to Lessor, during the term hereof, in addition to
the rent, Lessee's Share (as defined in paragraph 4.2(a)) of the amount of
any increase in premiums for the insurance required under Paragraphs 8.2 and
8.3 over and above such premiums paid during the Base Period, as hereinafter
defined, whether such premiums increase shall be the result of the nature of
Lessee's occupancy, any act or omission of the Lessee, requirements of the
holder of a mortgage or deed of trust covering the Premises, increased
valuation of the Premises, or general rate increases. In the event that the
Premises have never been occupied previously, the premiums during the "Base
Period" shall mean the last twelve months of the prior occupancy. In the
event that the Premises have never been occupied previously, the premiums
during the "Base Period" shall be deemed to be the lowest premiums reasonably
obtainable for said insurance assuming the most nominal use of the Premises.
Provided, however, in lieu of the Base Period, the parties may insert a
dollar amount at the end of this sentence which figure shall be considered as
the insurance premium for the Base Period: $1996. In no event, however,
shall Lessee be responsible for any portion of the premium cost attributable
to liability insurance coverage in excess of $500,000 procured under
paragraph 8.2
(d) Lessee shall pay any such premium increases to Lessor within 30
days after receipt by Lessee of a copy of the premium statement or other
satisfactory evidence of the amount due. If the insurance policies
maintained hereunder cover other improvements in addition to the Premises,
Lessor shall also deliver to Lessee a statement of the amount of such
increase attributable to the Premises and showing in reasonable detail, the
manner in which such amount was computed. If the term of this Lease shall
not expire concurrently with the expiration of the period covered by such
insurance, Lessee's ability for premium increases shall be prorated on an
annual basis.
8.5. Insurance Policies. Insurance required hereunder shall be in
companies holding a "General Policyholders Rating" of at least B plus, or
such other rating as may be required by a lender
<PAGE>
having a lien on the Premises, as set forth in the most current issue of
"Best's Insurance Guide." Lessee shall not do or permit to be done anything
which shall invalidate the insurance policies carried by Lessor. Lessee
shall deliver to Lessor copies of liability insurance policies required under
paragraph 8.1 or certificates evidencing the existence and amounts of such
insurance within seven (7) days after the commencement date of this Lease.
No such policy shall be cancelable or subject to reduction of coverage or
other modification except after thirty (30) days prior written notice to
Lessor. Lessee shall, at least thirty (30) days prior to the expiration of
such policies, furnish Lessor with renewals or "binders" thereof.
8.6. Waiver of Subrogation. Lessee and Lessor each hereby release and
relieve the other, and waive their entire right of recovery against the other
for loss or damage arising out of or incident to the perils insured against
which perils occur in, on or about the Premises, whether due to the
negligence of Lessor or Lessee or their agents, employees, contractors and/or
invitees. Lessee and Lessor shall, upon obtaining the policies of insurance
required hereunder, give notice to the insurance carrier or carriers that the
foregoing mutual waiver of subrogation is contained in this Lease.
8.7. Indemnity. Lessee shall indemnify and hold harmless Lessor from
and against any and all claims arising from Lessee's use of the Industrial
Center, or from the conduct of Lessee's business or from any activity, work
or things done, permitted or suffered by Lessee in or about the Premises or
elsewhere and shall further indemnify and hold harmless Lessor from and
against any and all claims arising from any breach or default in the
performance of any obligation on Lessee's part to be performed under the
terms of this Lease, or arising from any act or omission of Lessee, or any of
Lessee's agents, contractors, or employees, and from and against all costs,
attorney's fees, expenses and liabilities incurred in the defense of any such
claim or any action or proceeding brought thereon, and in case any action or
proceeding be brought against Lessor by reason of any such claim, Lessee upon
notice from Lessor shall defend the same at Lessee's expense by counsel
reasonably satisfactory to lessor and Lessor shall cooperate with Lessee in
such defense. Lessor, as a material part of the consideration to lessor,
hereby assumes all risk of damage to property of Lessee or injury to persons,
in, upon or about the Industrial Center arising from any cause and Lessee
hereby waives all claims in respect thereof against Lessor.
8.8. Exemption of Lessor from Liability. lessee hereby agrees that
Lessor shall not be liable for injury to Lessee's business or any loss of
income therefrom or for damage to the goods, wares, merchandise or other
property of Lessee, Lessee's employees, invitees, customers, or any other
person in or about the Premises or the Industrial Center, nor shall Lessor be
liable for injury to the person of Lessee, Lessee's employees, agents or
contractors, whether such damage or injury is caused by or results from fire,
steam, electricity, gas, water or rain, or from the breakage, leakage,
obstruction or other defects of pipes, sprinklers, wires, appliances,
plumbing, air conditioning or lighting fixtures, or from any other cause,
whether said damage or injury results from conditions arising upon the
Premises or upon other portions of the Industrial Center, or from other
sources or places and regardless of whether the cause of such damage or
injury or the means of repairing the same is inaccessible to Lessee. lessor
shall not be liable for any damages arising from any act or neglect of any
other lessee, occupant or user of the Industrial Center, nor from the failure
of Lessor to enforce the provisions of any other lease of the Industrial
Center.
<PAGE>
9. Damage or Destruction.
9.1. Definitions.
(a) "Premises Partial Damage" shall mean if the Premises are damaged or
destroyed to the extent that the cost of repair is less than fifty percent of
the then replacement cost of the Premises.
(b) "Premises Total Destruction" shall mean if the Premises are damaged
or destroyed to the extent that the cost of repair is fifty percent or more
of the then replacement cost of the Premises.
(c) "Premises Building Partial Damage" shall mean if the Building of
which the Premises are a part is damaged or destroyed to the extent that the
cost to repair is less than fifty percent of the then replacement cost of the
Building.
(d) "Premises Building Total Destruction" shall mean if the Building of
which the Premises are a part is damaged or destroyed to the extent that the
cost to repair is fifty percent or more of the then replacement cost of the
Building.
(e) "Industrial Center Buildings" shall mean all of the buildings on
the Industrial Center site.
(f) "Industrial Center Buildings Total Destruction" shall mean if the
Industrial Center Buildings are damaged or destroyed to the extent that the
cost of repair is fifty percent or more of the then replacement cost of the
Industrial Center Buildings.
(g) "Insured Loss" shall mean damage or destruction which was caused by
an event required to be covered by the insurance described in paragraph 8.
The fact that an insured Loss has a deductible amount shall not make the loss
an uninsured loss.
(h) "Replacement Cost" shall mean the amount of money necessary to be
spent in order to repair or rebuild the damaged area to the condition that
existed immediately prior to the damage occurring excluding all improvements
made by lessees.
9.2. Premises Partial Damage; Premises Building Partial Damage.
(a) Insured Loss: Subject to the provisions of paragraphs 9.4 and 9.5,
if at any time during the term of this Lease there is damage which is not an
Insured Loss and which falls within the classification of Premises Partial
Damage or Premises Building Partial Damage, then Lessor shall, at Lessor's
expense, repair such damage to the Premises, but not Lessee's fixtures,
equipment or tenant improvements, as soon as reasonably possible and this
Lease shall continue in full force and effect.
(b) Uninsured Loss: Subject to the provisions of paragraphs 9.4 and
9.5, if at any time during the term of this Lease there is damage which is
not an Insured Loss and which falls within the classification of Premises
Partial Damage or Premises Building Partial Damage, unless caused by a
negligent or willful act of Lessee (in which event Lessee shall make the
repairs at Lessee's expense), which damage prevents Lessee from using the
Premises, Lessor may at Lessor's option either (I) repair such damage as soon
as reasonably possible at Lessor's expense, in which event this Lease shall
continue in full force and effect, or (II) give written notice to Lessee
within thirty (30) days after the date of the occurrence of such damage of
Lessor's intention to cancel and terminate this Lease as of the date of the
occurrence of such damage. In the event Lessor elects to give such notice of
Lessor's intention to cancel
<PAGE>
and terminate this Lease, Lessee shall have the right within ten (10) days
after the receipt of such notice to give written notice to Lessor of Lessee's
intention to repair such damage at Lessee's expense, without reimbursement
from Lessor, in which event this Lease shall continue in full force and
effect, and Lessee shall proceed to make such repairs as soon as reasonably
possible if Lessee does not give such notice within such 10-day period this
Lease shall be canceled and terminated as of the date of the occurrence of
such damage.
9.3. Premises Total Destruction; Premises Building Total Destruction;
Industrial Center Buildings Total destruction.
(a) Subject to the provisions of paragraph 9.4 and 9.5, if at any time
during the term of this Lease there is damage, whether or not it is an
Insured Loss, and which falls into the classifications of either (I) Premises
Total Destruction, or (II) Premises Building Total Destruction, or (III)
Industrial Center Buildings Total Destruction, then Lessor may at Lessor's
option either (I) repair such damage or destruction, but not Lessee's
fixtures, equipment or tenant improvements, as soon as reasonably possible at
Lessor's expense, and this Lease shall continue in full force and effect, or
(II) give written notice to Lessee within thirty (30) days after the date of
occurrence of such damage of Lessor's intention to cancel and terminate this
Lease, in which case this Lease shall be canceled and terminated as of the
date of the occurrence of such damage.
9.4. Damage Near End of Term.
(a) Subject to paragraph 9.4(b), if at any time during the last six
months of the term of this Lease there is substantial damage, whether or not
an Insured Loss, which falls within the classification of Premises Partial
Damage, Lessor may at Lessor's option cancel and terminate this Lease as of
the date of occurrence of such damage by giving written notice to Lessee of
Lessor's election to do so within 30 days after the date of occurrence of
such damage.
(b) Notwithstanding paragraph 9.4(a), in the event that Lessee has an
option to extend or renew this Lease, and the time within which said option
may be exercised has not yet expired, Lessee shall exercise such option, if
it is to be exercised at all, no later than twenty (20) days after the
occurrence of any Insured Loss falling within the classification of Premises
Partial Damage during the last six months of the term of this Lease. If
Lessee duly exercises such option during said twenty (20) day period, Lessor
shall, at Lessor's expense, repair such damage, but not Lessee's fixtures,
equipment or tenant improvements, as soon as reasonably possible and this
Lease shall continue in full force and effect. If Lessee fails to exercise
such option during said twenty (20) day period, then Lessor may at Lessor's
option terminate and cancel this Lease as of the expiration of said twenty
(20) day period by giving written notice to Lessee of Lessor's election to do
so within ten (10) days after the expiration of said twenty (20) day period,
notwithstanding any term or provision in the grant of option to the contrary.
9.5. Abatement of Rent; Lessee's Remedies.
(a) In the event Lessor repairs or restores the Premises pursuant to
the provisions of this paragraph 9, the rent payable hereunder for the period
during which such damage, repair or restoration continues shall be abated in
proportion to the degree to which Lessee's use of the Premises is impaired.
Except for abatement of rent, if any, Lessee shall have no claim against
Lessor for any damage suffered by reason of any such damage, destruction,
repair or restoration.
<PAGE>
(b) If Lessor shall be obligated to repair or restore the Premises
under the provisions of this paragraph 9 and shall not commence such repair
or restorations within ninety (90) days after such obligation shall accrue,
Lessee may at Lessee's option cancel and terminate this Lease by giving
Lessor written notice of Lessee's election to do so at any time prior to the
commencement of such repair or restoration. In such event this Lease shall
terminate as of the date of such notice.
9.6. Termination - Advance Payments. Upon termination of this Lease
pursuant to this paragraph 9, an equitable adjustment shall be made
concerning advance rent and advance payments made by Lessee to Lessor.
Lessor shall, in addition, return to Lessee so much of Lessee's security
deposit as has not theretofore been applied by Lessor.
9.7. Waiver. Lessor and Lessee waive the provisions of any statute
which relates to termination of leases when Leased property is destroyed and
agree that such event shall be governed by the terms of this Lease.
10. Real Property Taxes.
10.1. Payment of Tax Increase. Lessor shall pay the real property
tax, as defined in paragraph 10.3, applicable to the Industrial Center,
provided, however, that Lessee shall pay, in addition to rent, Lessee's Share
(as defined in paragraph 4.2 (all of the amount, if any, by which real
property taxes applicable to the Premises increase over the fiscal real
estate tax year 19___ -19___. Such payment shall be made by Lessee within
thirty (30) days after receipt of Lessor's written statement setting forth
the amount of such increase and the computation thereof. If the term of this
Lease shall not expire concurrently with the expiration of the tax fiscal
year, Lessee's liability for increased taxes for the last partial lease year
shall be prorated on an annual basis.
10.2. Additional Improvements. Lessee shall not be responsible for
paying Lessee's Share of any increase in real property tax specified in the
tax assessor's records and work sheets as being caused by additional
improvements placed upon the Industrial Center by other lessees or by Lessor
for the exclusive enjoyment of such other lessees. Lessee shall, however,
pay to Lessor at the time that Operating Expenses are payable under paragraph
4.2(___) the entirety of any increase in real property tax if assessed solely
by reason of additional improvements placed upon the Premises by Lessee or at
Lessee's request.
10.3. Definition of "Real Property Tax." As used herein, the term
"real property tax" shall include any form of real estate tax or assessment,
general, special, ordinary or extraordinary, and any license fee, commercial
rental tax, improvement bonds, bonds, levy or tax (other than inheritance,
personal income or estate taxes) imposed on the Industrial Center or any
portion thereof by any authority having the direct or indirect power to tax,
including any city, county, state or federal government, or any school,
agricultural, sanitary, fire, street, drainage or other improvement district
thereof, as against any legal or equitable interest of Lessor in the
Industrial Center or in any portion thereof, as against Lessor's right to
rent or other income therefrom, and as against Lessor's business of leasing
the Industrial Center. The term "real property tax" shall also include any
tax, fee, levy, assessment or charge (I) in substitution of, partially or
totally, any tax, fee, levy, assessment or charge hereinabove included within
the definition of "real property tax," or (II) the nature of which was
hereinbefore included within the definition of "real property tax," or (III)
which is imposed for a service or right not charged prior to June 1, 1978,
or, if previously charged, has been increased since June 1, 1978, or (iv)
which is imposed as a result of a transfer, either partial or total, of
Lessor's interest in the Industrial Center or which is added to a tax or
charge hereinbefore included within the definition of real property tax by
reason of such transfer, or (v)
<PAGE>
which is imposed by reason of this transaction, any modifications or changes
hereto, or any transfers hereof.
10.4. Joint Assessment. If the Industrial Center is not separately
assessed, Lessee's Share of the real property tax liability shall be an
equitable proportion of the real property taxes for all of the land and
improvements included within the tax parcel assessed such proportion to be
determined by Lessor from the respective valuations assigned in the
assessor's work sheets or such other information as may be reasonably
available. Lessor's reasonable determination thereof, in good faith, shall
be conclusive.
10.5. Personal Property Taxes.
(a) Lessee shall pay prior to delinquency all taxes assessed against
and levied upon trade fixtures, furnishings, equipment and all other personal
property of Lessee contained in the Premises or elsewhere. When possible,
Lessee shall cause said trade fixtures, furnishings, equipment and all other
personal property to be assessed and billed separately from the real property
of Lessor.
(b) If any of Lessee's said personal property shall be assessed with
Lessor's real property, Lessee shall pay to Lessor the taxes attributable to
Lessee within ten (10) days after receipt of a written statement setting
forth the taxes applicable to Lessee's property.
11. Utilities. Lessee shall pay for all water, gas, heat, light, power,
telephone and other utilities and services supplied to the Premises, together
with any taxes thereon. If any such services are not separately metered to
the Premises, Lessee shall pay at Lessor's option, either Lessee's Share or a
reasonable proportion to be determined by Lessor of all charges jointly
metered with other premises in the building.
12. Assignment and Subletting.
12.1. Lessor's Consent Required. Lessee shall not voluntarily or by
operation of law assign, transfer, mortgage, sublet, or otherwise transfer or
encumber all or any part of Lessee's interest in the Lease or in the
Premises, without Lessor's prior written consent, which Lessor shall not
unreasonably withhold. Lessor shall respond to Lessee's request for consent
hereunder in a timely manner and any attempted assignment, transfer,
mortgage, encumbrance or subletting without such consent shall be void, and
shall constitute a breach of this Lease without the need for notice to Lessee
under paragraph 13.1.
12.2. Lessee Affiliate. Notwithstanding the provisions of paragraph
12.1 hereof, Lessee may assign or sublet the Premises, or any portion
thereof, without Lessor's consent, to any corporation which controls, is
controlled by or is under common control with Lessee, or to any corporation
resulting from the merger or consolidation with Lessee, or to any person or
entity which acquires all the assets of Lessee as a going concern of the
business that is being conducted on the Premises, all of which are referred
to as "Lease Affiliate," provided that before such assignment shall be
effective said assignees shall assume, in full, the obligations of Lessee
under this Lease. Any such assignment shall not, in any way, affect or limit
the liability of Lessee under the terms of this Lease even if after such
assignment or subletting the terms of this Lease are materially changed or
altered without the consent of Lessee, the consent of whom shall not be
necessary.
12.3. Terms and Conditions of Assignment. Regardless of Lessor's
consent, no assignment shall release Lesee of Lessee's obligations hereunder
or alter the primary liability of Lessee to pay the Base Rent and Lessee's
Share of Operating Expenses, and to perform all other obligations to be
<PAGE>
performed by Lessee hereunder. Lessor may accept rent from any person other
than Lessee pending approval or disapproval of such assignment. Neither a
delay in the approval or disapproval of such assignment nor the acceptance of
rent shall constitute a waiver or estoppel of Lessor's right to exercise its
remedies for the breach of any of the terms or conditions of this paragraph
12 of this Lease. Consent to one assignment shall not be deemed consent to
any subsequent assignment. In the event of default by any assignee of Lessee
or any successor of Lessee, in the performance of any of the terms hereof,
Lessor may proceed directly against Lessee without the necessity of
exhausting remedies against said assignee. Lessor may consent to subsequent
assignments of this Lease or amendments or modifications to this Lease with
assignees of Lessee, without notifying Lessee, or any successor of Lessee,
and without obtaining its or their consent thereto and such action shall not
relieve Lessee of Liability under this Lease.
12.4. Terms and Conditions Applicable to Subletting. Regardless of
Lessor's consent, the following terms and conditions shall apply to any
subletting by Lessee of all or any part of the Premises and shall be included in
subleases:
(a) Lessee hereby assigns and transfers to Lessor all of Lessee's interest
in all rentals and income arising from any sublease heretofore or hereafter made
by Lessee, and Lessor may collect such rent and income and apply same toward
Lessee's obligations under this Lease; provided, however, that until a default
shall occur in the performance of Lessee's obligations under this Lease, Lessee
may receive, collect and enjoy the rents accruing under such sublease. Lessor
shall not, by reason of this or any other assignment of such sublease to Lessor
nor by reason of the collection of the rents from such a subleasee, be deemed
liable to the sublessee for any failure of Lessee to perform and comply with any
of Lessee's obligations to such sublessee under such sublease. Lessee hereby
irrevocably authorizes and directs any such sublessee, upon receipt of a written
notice from Lessor stating that a default exists in the performance of Lessee's
obligations under this Lease, to pay to Lessor the rents due and to become due
under the sublease. Lessee agrees that such sublessee shall have the right to
rely upon any such statement and request from Lessor, and that such sublessee
shall pay such rents to Lessor without any obligation or right to inquire as to
whether such default exists and notwithstanding any notice from or claim from
Lessee to the contrary, Lessee shall have no right or claim against such
sublessee or Lessor for any such rents so paid by said sublessee to Lessor.
(b) No sublease entered into by Lessee shall be effective unless and until
it has been approved in writing by Lessor. In entering into any sublease,
Lessee shall use only such form of sublease as is satisfactory to Lessor, and
once approved by Lessor, such sublease shall not be changed or modified without
Lessor's prior written consent. Any sublessee shall, by reason of entering into
a sublease under this Lease, be deemed, for the benefit of Lessor, to have
assumed and agreed to conform and comply with each and every obligation herein
to be performed by Lessee other than such obligations as are contrary to or
inconsistent with provisions contained in a sublease to which Lessor has
expressly consented in writing.
(c) If Lessee's obligations under this Lease have been guaranteed by third
parties, then a sublease, and Lessor's consent thereto, shall not be effective
unless said guarantors give their written consent to such sublease and the terms
thereof.
(d) The consent by Lessor to any subletting shall not release Lessee
from its obligations or alter the primary liability of Lessee to pay the rent
and perform and comply with all of the obligations of Lessee to be performed
under this Lease.
<PAGE>
(e) The consent by Lessor to any subletting shall not constitute a consent
to any subsequent subletting by Lessee or to any assignment or subletting by the
sublessee. However, Lessor may consent to subsequent sublettings and
assignments of the sublease or any amendments or modifications hereto without
notifying Lessee or anyone else liable on the Lease or sublease and without
obtaining their consent and such action shall not relieve such persons from
liability.
(f) In the event of any default under this Lease, Lessor may proceed
directly against Lessee, any guarantors or any one else responsible for the
performance of this Lease, including the sublessee, without first exhausting
Lessor's remedies against any other person or entity responsible therefor ___
Lessor, or any security held by Lessor or Lessee.
(g) In the event Lessee shall default in the performance of its
obligations under this Lease, Lessor, at its option and without any obligation
to do so, may require any sublessee to attorn to Lessor, in which event Lessor
shall undertake the obligations of Lessee under such sublease from the time the
exercise of said option to the termination of such sublease; provided, however,
Lessor shall not be liable for any prepaid rents or security deposit paid by
such sublessee to Lessee or for any other prior defaults of Lessee under such
sublease.
(h) Each and every consent required of Lessee under a sublease shall also
require the consent of Lessor.
(i) No sublessee shall further assign or sublet all or any part of the
Premises without Lessor's prior written consent.
(j) Lessor's written consent to any subletting of the Premises by Lessee
shall not constitute an acknowledgement that no default then exists under this
Lease of the obligations to be performed by Lessee nor shall such consent be
deemed a waiver of any then existing default, except as may be otherwise stated
by Lessor at the time.
(k) With respect to any subletting to which Lessor has consented, Lessor
agrees to deliver a copy of any notice of default by Lessee to the sublessee.
Such sublessee shall have the right to cure a default of Lessee within ten (10)
days after service of said notice of default upon such sublessee, and the
sublessee shall have a right of reimbursement and offset from and against Lessee
for any such defaults cured by the sublessee.
12.5. Attorney's Fees. In the event Lessee shall assign or sublet the
Premises or request the consent of Lessor to any assignment or subletting if
Lessee shall request the consent of Lessor for any act Lessee proposes to do
then Lessee shall pay Lessor's reasonable attorneys fees incurred in connection
therewith, such attorneys fees not to exceed $350.00 for each such request.
13. Default; Remedies.
13.1. Default. The occurrence of any one or more of the following
events shall constitute a material default of this Lease by Lessee:
(a) The vacating or abandonment of the Premises by Lessee.
(b) The failure by Lessee to make any payment of rent or any other payment
required to be made by Lessee hereunder, when due, where such failure shall
continue for a period of three (3) days after written notice thereof from Lessor
to Lessee. In the event that Lessor serves Lessee with a Notice
<PAGE>
to Pay Rent or Quit pursuant to applicable Unlawful Detainer statutes such
Notice to Pay Rent or Quit shall also constitute the notice required by this
subparagraph.
(c) Except as otherwise provided in this Lease, the failure by Lessee to
observe or perform any of the covenants, conditions or provisions of this Lease
to be observed or performed by Lessee, other than described in paragraph (b)
above, where such failure shall continue for a period of thirty (30) days after
written notice thereof from Lessor to Lessee; provided, however, that if the
nature of Lessee's noncompliance is such that more than thirty (30) days are
reasonably required for its cure, then Lessee shall not be deemed to be in
default if Lessee commenced such cure within said thirty (30) day period and
thereafter diligently prosecutes such cure to completion. To the extent
permitted by law, such thirty (30) day notice shall constitute the sole and
exclusive notice required to be given to Lessee under applicable Unlawful
Detainer statutes.
(d) The making by Lessee of any general arrangement or general assignment
for the benefit of creditors; (ii) Lessee becomes a "debtor" as defined in 11
U.S.C. 101 or any successor statute thereto (unless, in the case of a petition
filed against Lessee, the same is dismissed within sixty (60) days; (iii) the
appointment of a trustee or receiver to take possession of substantially all of
Lessee's assets located at the Premises or of Lessee's interest in this Lease,
where possession is not restored to Lessee within thirty (30) days; or (iv) the
attachment, execution or other judicial seizure of substantially all of Lessee's
assets located at the Premises or of Lessee's interest in this Lease, where such
seizure is not discharged within thirty (30) days. In the event that any
provision of this paragraph 13.1(d) is contrary to any applicable law, such
provision shall be of no force or effect.
(e) The discovery by Lessor that any financial statement given to Lessor
by Lessee, any assignee of Lessee, any subtenant of Lessee, any successor in
interest of Lessee or any guarantor of Lessee's obligation hereunder, was
materially false.
13.2. Remedies. In the event of any such material default by Lessee,
Lessor may at any time thereafter, with or without notice or demand and without
limiting Lessor in the exercise of any right or remedy which Lessor may have by
reason of such default:
(a) Terminate Lessee's right to possession of the Premises by any lawful
means, in which case this Lease and the term hereof shall terminate and Lessee
shall immediately surrender possession of the Premises to Lessor. In such event
Lessor shall be entitled to recover from Lessee all damages incurred by Lessor
by reason of Lessee's default including, but not limited to, the cost of
recovering possession of the premises; expenses of reletting, including
necessary renovation and alteration of the Premises, reasonable attorney's fees,
and any real estate commission actually paid; the worth at the time of award by
the court having jurisdiction thereof of the amount by which the unpaid rent for
the balance of the term after the time of such award exceeds the amount of such
rental loss for the same period that Lessee proves could be reasonably avoided;
that portion of the leasing commission paid by Lessor pursuant to paragraph 15
applicable to the unexpired term of this Lease.
(b) Maintain Lessee's right to possession in which case this Lease shall
continue in effect whether or not Lessee shall have vacated or abandoned the
Premises. In such event Lessor shall be entitled to enforce all of Lessor's
rights and remedies under this Lease, including the right to recover the rent as
it becomes due hereunder.
(c) Pursue any other remedy now or hereafter available to Lessor under
the laws or judicial decisions of the state wherein the Premises are located.
Unpaid installments or rent and other unpaid
<PAGE>
monetary obligations of Lessee under the terms of this Lease shall bear
interest from the date due at the maximum rate then allowable by Law.
(d) Upon occurrence of any of the events of default listed in Section
13.1, Lessor shall have, in addition to any other remedy provided by law, the
option to enter upon and take possession of the demised premises, by force if
necessary, without terminating this lease and expel or remove Lessee and any
other persons who may be occupying such premises or any part thereof. Lessor
may relet the demised premises and receive the rent thereof. Lessee agrees to
pay Lessor monthly or on demand from time to time any deficiency that may arise
by reason of any such reletting.
13.3. Default by Lessor. Lessor shall not be in default unless Lessor
fails to perform obligations required of Lessor within a reasonable time, but in
no event later than thirty (30) days after written notice by Lessee to Lessor
and to the holder of any first mortgage or deed of trust covering the Premises
whose name and address shall have theretofore been furnished to lessee in
writing, specifying wherein Lessor has failed to perform such obligations
provided, however, that if the nature of Lessor's obligation is such that more
than thirty (30) days are required for performance then Lessor shall not be in
default if Lessor commences performance within such thirty (30) day period and
thereafter diligently prosecutes the same to completion.
13.4. Late Charges; Liquid Damages: Lessee hereby acknowledges that
late payment by Lessee of Base Rent, Lessee's Share of Operating Expenses or
other sums due hereunder will cause Lessor to incur costs not contemplated by
this Lease, the exact amount of which will be extremely difficult to ascertain.
Such costs include, but are not limited to, processing and accounting charges,
and late charges which may be imposed on Lessor by the terms of any mortgage or
trust deed covering the Industrial Center. Accordingly, if any Installment of
Base Rent, Operating Expenses, or any other sum due from Lessee shall not be
received by Lessor or Lessor's designee within five (5) days after such amount
shall be due, then, without any requirement of notice to Lessee, Lessee shall
pay to Lessor a late charge equal to 10% of such overdue amount. The parties
hereby agree that such late charge represents a fair and reasonable estimate of
the costs Lessor will incur by reason of late payment by Lessee. Acceptance of
such late charge by Lessor shall in no event constitute a waiver of Lessee's
default with respect to such overdue amount, nor prevent Lessor from exercising
any of the other rights and remedies granted hereunder. In the event that a
late charge is payable hereunder, whether or not collected, for three (3)
consecutive installments of any of the aforesaid monetary obligations of Lessee,
then Base rent and Operating Expense shall automatically become due and payable
quarterly in advance, rather than monthly, notwithstanding paragraph 4.1 or any
other provision of this Lease to the contrary. There will be a $50.00 charge
for all checks that are returned for insufficient funds. If it occurs two (2)
or more times during the term of the Lease, the Lessor shall have the option to
require Lessee to pay the monthly rent by cashiers check.
13.5. Payments After Termination. No payments of money by Lessee to
Lessor after the expiration or other termination of this Lease or after the
giving of any notice (other than a demand for payment of money) by Lessor to
Lessee, shall reinstate, continue or extend the Lease Term or make ineffective
any notice given to Lessee prior to the payment of such money. After the
service of notice or the commencement of a suit, or after final judgment
granting Lessor possession of the Premises, Lessor may receive and collect any
sums of Rent or other obligations of Lessee due under this Lease, and the
payment thereof shall not make ineffective any notice, or in any manner affect
any pending suit or any judgment theretofore obtained.
<PAGE>
14. Condemnation. If the premises or any portion thereof of the Industrial
Center are taken under the power of eminent domain, or sold under the threat
of the exercise of said power (all of which are herein called
"condemnation"), this Lease shall terminate at to the part so taken as of the
date the condemning authority takes title or possession, whichever first
occurs. If more than ten percent of the floor area of the Premises, or more
than twenty-five percent of that portion of the common areas designated as
parking for the Industrial Center is taken by condemnation, Lessee may, at
Lessee's option, such option to be exercised in writing only within ten (10)
days after Lessor shall have given Lessee written notice of such taking (or,
in the absence of such notice, within ten (10) days after the condemning
authority shall have taken possession) terminate this Lease as of the date
the condemning authority takes such possession. If Lessee does not terminate
this Lease in accordance with the foregoing, this Lease shall remain in full
force and effect as to the portion of the Premises remaining, except that the
rent shall be reduced in the proportion that the floor area of the Premises
taken bears to the total floor area of the Premises. No reduction of rent
shall occur if the only area taken is that which does not have the Premises
located thereon. Any award for the condemnation of all or any part of the
Premises under the power of eminent domain or any payment made under threat
of the exercise of such power shall be the property of Lessor, whether such
award shall be made as compensation for diminution in value of the leasehold
or for the taking of the fee, or as severance [damages]; provided, however,
that Lessee shall be entitled to any award for loss of or damage to Lessee's
trade fixtures and removable personal property. In the event that this Lease
is not terminated by reason of such condemnation, Lessor shall to the extent
of severance damages received by Lessor in connection with such condemnation,
repair any damage to the Premises caused by such condemnation except to the
extent that Lessee has been reimbursed therefor by the condemning authority.
Lessee shall pay any amount in excess of such severance damages required to
complete such repair.
15. Broker's fee. Lessee warrants that it has had no dealings with any other
real estate broker or agents in connection with the negotiation of this Lease
excepting only N/A Brokerage Company and that it knows of no
other Real Estate Broker or agent who is or might be entitled to a commission or
fee in connection with this Lease. Lessee shall indemnify and hold Lessor
harmless from any claims asserted by another Real Estate Broker or agent
claiming a commission or finder's fee in connection with this Lease as a result
of the acts or conduct of Lessee. Lessor shall be responsible for any brokerage
commission paid to N/A Brokerage Company pursuant to Lessor's agreement with
such company. This provision shall survive the termination of expiration of
this Lease.
16. Estoppel Certificate.
(a) Each party (as "responding party") shall at any time upon not less
than ten (10) days' prior written notice from the other party ( "requesting
party") execute, acknowledge and deliver to the requesting party a statement
in writing (I) certifying that this Lease is unmodified and in full force and
effect (or, if modified, stating the nature of such modification and
certifying that this Lease, as so modified, is in full force and effect) and
the date to which the rent and other charges are paid in advance, if any, and
(II) acknowledging that there are not, to the responding party's knowledge,
any uncured defaults on the part of the requesting party, or specifying such
defaults if any are claimed. Any such statement may be exclusively relied
upon by any prospective purchaser or encumbrancer of the Premises or of the
business of the requesting party.
(b) At the requesting party's option, the failure to deliver such
statement within such time shall be a material default of this Lease by the
party who is to respond, without any further notice to such party, or it shall
be conclusive upon such party that (I) this Lease is in full force and effect,
without
<PAGE>
modification except as may be represented by the requesting party, (II) there
are no uncured defaults in the requesting party's performance, and (III) if
Lessor is the requesting party, not more than one month's rent has been paid
in advance.
(c) If Lessor desires to finance, refinance, or sell the Industrial
Center, or any part thereof, Lessee hereby agrees to deliver to any lender or
purchaser designated by Lessor such financial statements of Lessee as may be
reasonably required by such lender or purchaser. Such statements shall include
the past three (3) years' financial statements of Lessee. All such financial
statements shall be received by Lessor and such Lender or purchaser in
confidence and shall be used only for the purposes herein set forth.
17. Lessor's Liability. The term "Lessor" as used herein shall mean only the
owner or owners, at the time in question, of the fee title or a lessee's
interest in a ground lease of the Industrial Center, and except as expressly
provided in paragraph 15, in the event of any transfer of such title or
interest, Lessor herein named (and in case of any subsequent transfers then the
grantor) shall be relieved from and after the date of such transfer of all or
any liability as respects Lessor's obligations thereafter to be performed,
provided that any funds in the hands of Lessor or the then grantor at the time
of such transfer, in which Lessee has an interest, shall be delivered to the
grantee. The obligations contained in this Lease to be performed by Lessor
shall, subject as aforesaid, be binding on Lessor's successors and assigns, only
during their respective periods of ownership.
18. Severability. The invalidity of any provisions of this Lease as determined
by a court of competent jurisdiction, shall in no way affect the validity of any
other provision hereof.
19. Interest on Past-due Obligations. Except as expressly herein provided, any
amount due to Lessor not paid when due shall bear interest at the maximum rate
then allowable by law from the date due. Payment of such interest shall not
excuse or cure any default by Lessee under this Lease; provided, however, that
interest shall not be payable on late charges incurred by Lessee nor on any
amounts upon which late charges are paid by Lessee.
20. Time of Essence. Time is of the essence with respect to the obligations to
be performed under this Lease.
21. Additional Rent. All monetary obligations of Lessee to Lessor under the
terms of this Lease, including but not limited to Lessee's Share of Operating
Expenses and Insurance and tax expenses payable shall be deemed to be rent.
22. Incorporation of Prior Agreements; Amendments. This Lease contains all
agreements of the parties with respect to any matter mentioned herein. No prior
or contemporaneous agreement or understanding pertaining to any such matter
shall be effective. This lease may be modified in writing only signed by the
parties in interest at the time of the modification. Except as otherwise stated
in this Lease, Lessee hereby acknowledges that neither the real estate broker
listed in paragraph 15 hereof nor any cooperating broker on this transaction nor
the Lessor or any employee or agents of any of said persons has made any oral or
written warranties or representations to Lessee relative to the condition or use
by Lessee of the Premises or the Industrial Center and Lessee acknowledges that
Lessee assumes all responsibility regarding the Occupational Safety Health Act,
the legal use and adaptability of the Premises and the compliance thereof with
all applicable laws and regulations in effect during the term of this Lease
except as otherwise specifically stated in this Lease.
<PAGE>
23. Notices. Any notice required or permitted to be given hereunder shall be
in writing and may be given by personal delivery or by certified mail, and if
given personally or by mail, shall be deemed sufficiently given if addressed to
Lessee or to Lessor at the address noted below the signature of the respective
parties, as the case may be. Either party may by notice to the other party
specify a different address for notice purposes except that upon Lessee's taking
possession of the Premises, the Premises shall constitute Lessee's address for
notice purposes. A copy of all notices required or permitted to be given to
Lessor hereunder shall be concurrently transmitted to such party or parties at
such addresses as Lessor may from time to time hereafter designate by notice to
Lessee.
24. Waivers. No waiver by Lessor or any provision hereof shall be deemed a
waiver of any other provision hereof or of any subsequent breach by Lessee of
the same or any other provision. Lessor's consent to, or approval of, any act
shall not be deemed to render unnecessary the obtaining of Lessor's consent to
or approval of any subsequent act by Lessee. The acceptance of rent hereunder
by Lessor shall not be a waiver of any preceding breach by Lessee of any
provision hereof, other than the failure of Lessee to pay the particular rent so
accepted, regardless of Lessor's knowledge of such preceding breach at the time
of acceptance of such rent.
25. Recording. Either Lessor or Lessee shall, upon request of the other,
execute, acknowledge and deliver to the other a "short form" memorandum of this
Lease for recording purposes.
26. Holding Over.
26.1. Month-to-Month Tenancy. If Lessee, with Lessor's written
consent, remains in possession of the Premises or any part thereof after the
expiration or other termination of the term hereof, such occupancy shall be a
tenancy from month to month upon all the provisions of this Lease pertaining to
the obligations of Lessee, but all Options, if any, granted under the terms of
this Lease shall be deemed terminated and be of no further effect during said
month to month tenancy. Base Rent during such month to month tenancy shall be
110% of the amount paid in the last month prior to the date of expiration or
other termination of the Lease term hereof. Such month to month tenancy may be
terminated by Lessor or Lessee on the 1st day of any calendar month by delivery
of at least 30 days advance written notice of termination to the other.
26.2. Tenancy at Sufferance. If without Lessor's written consent in
Lessor's sole discretion, Lessee remains in possession of the Premises after the
expiration or other termination of the Lease term hereof, Lessee shall be deemed
to be occupying the Premises upon a tenancy at sufferance only, at a monthly
base rent equal to 150% of the amount paid in the last month prior to the date
of expiration or other termination of this Lease. Such tenancy at sufferance
may be terminated by Lessor at any time by notice of termination to Lessee, and
by Lessee on the last day of any calendar month by at least 30 days advance
written notice of termination to Lessor. Notwithstanding the foregoing, Lessor
shall be entitled to such other remedies and damages provided under this Lease
or at law.
26.3. General. Any month-to-month tenancy or tenancy at sufferance
hereunder shall be subject to all other terms and conditions of this Lease
except any right of renewal or option and nothing contained in this Paragraph 26
shall be construed to limit or impair any of Lessor's rights or re-entry or
eviction or constitute a waiver thereof.
27. Cumulative Remedies. No remedy or election hereunder shall be deemed
exclusive but shall, wherever possible, be cumulative with all other remedies at
law or in equity.
<PAGE>
28. Covenants and Conditions. Each provision of this Lease performable by
Lessee shall be deemed both a covenant and a condition.
29. Binding Effect; Choice of Law. Subject to any provisions hereof
restricting assignment or subletting by Lessee and subject to the provisions
of paragraph 17, this Lease shall bind the parties, their personal
representative, successors and assigns. This Lease shall be governed by the
laws of the State wherein the Industrial Center is located and any litigation
concerning this Lease between the parties hereto shall be initiated in the
county in which the Industrial Center is located.
30. Subordination.
(a) This Lease, and any Option granted hereby, at Lessor's option, shall
be subordinate to any ground lease, mortgage, deed of trust, or any other
hypothecation or security now or hereafter placed upon the Industrial Center and
to any and all advances made on the security thereof and to all renewals,
modifications, consolidations, replacements, and extensions thereof.
Notwithstanding such subordination, Lessee's right to quiet possession of the
Premises shall not be disturbed if Lessee is not in default and so long as
Lessee shall pay the rent and observe and perform all of the provisions of this
Lease, unless this Lease is otherwise terminated pursuant to its terms. If any
mortgagee, trustee or ground lessor shall elect to have this Lease and any
Options granted hereby prior to the lien of its mortgage, deed of trust or
ground lease, and shall give written notice thereof to Lessee, this Lease and
such Options shall be deemed prior to such mortgage, deed of trust or ground
lease, whether this Lease or such Options are dated prior or subsequent to the
date of said mortgage, deed of trust or ground lease or the date of recording
thereof.
(b) Lessee agrees to execute any documents required to effectuate an
attornment, a subordination or to make this Lease or any Option granted
herein prior to the lien of any mortgage, deed of trust or ground lease, as
the case may be, Lessee's failure to execute such documents within ten (10)
days after written demand shall constitute a material default by Lessee
hereunder without further notice to Lessee or, at Lessor's option, Lessor
shall execute such documents on behalf of Lessee as Lessee's
attorney-in-fact. Lessee does hereby make, constitute and irrevocable
appoint Lessor as Lessee's attorney-in-fact and in Lessee's name, place and
stead, to execute such documents in accordance with this paragraph 30(b).
31. Attorney's Fees. If either party or the broker(s) named herein bring an
action to enforce the terms hereof or declare rights hereunder, the
prevailing party in any such action, on trial or appeal, shall be entitled to
his reasonable attorney's fees to be paid by the losing party as fixed by the
court. The provisions of this paragraph shall inure to the benefit of the
broker named herein who seeks to enforce a right hereunder.
32. Lessor's Access. Lessor and Lessor's agents shall have the right to
enter the Premises at reasonable times for the purpose of inspecting the
same, showing the same to prospective purchasers, lenders, or lessees, and
making such alterations, repairs, improvements or additions to the Premises
or to the Industrial Center as Lessor may deem necessary or desirable.
Lessor may at any time place on or about the Premises or the Building any
ordinary "For Sale" signs and Lessor may at any time during the last 120 days
of the term hereof place on or about the Premises any ordinary "For Lease"
signs. All activities of Lessor pursuant to this paragraph shall be without
abatement of rent, nor shall Lessor have any liability to Lessee for the same.
<PAGE>
33. Auctions. Lessee shall not conduct, nor permit to be conducted, either
voluntarily or involuntarily, any auction upon the Premises or the Common
Areas without first having obtained Lessor's prior written consent.
Notwithstanding anything to the contrary in this Lease, Lessor shall not be
obligated to exercise any standard of reasonableness in determining whether
to grant such consent.
34. Signs. Lessee shall not place any sign upon the Premises or the
Industrial Center without Lessor's prior written consent. Under no
circumstances shall Lessee place a sign on any roof of the Industrial Center.
35. Merger. The voluntary or other surrender of this Lease by Lessee, or a
mutual cancellation thereof, or a termination by Lessor, shall not work a
merger, and shall, at the option of Lessor, terminate all or any existing
subtenancies or may, at the option of Lessor, operate as an assignment to
Lessor of any or all of such subtenancies.
36. Consents. Except for paragraph 33 hereof, wherever in this Lease the
consent of one party is required to an act of the other party such consent
shall not be unreasonably withheld or delayed.
37. Guarantor. In the event that there is a guarantor of this Lease, said
guarantor shall have the same obligations as Lessee under this Lease.
38. Quiet Enjoyment. Lessor warrants that it has full right and power to
execute and perform this lease and to grant the state demised herein and that
Lessee, on payment of rent and performing the covenants herein contained,
shall peaceable and quietly have, hold and enjoy the demised premises during
the full term of this Lease and any extension or renewal hereof; provided,
however, that Lessee accepts this lease and subject and subordinate to any
recorded mortgage, deed of trust or other lien presently existing upon the
demised premises. Lessor is hereby irrevocably vested with full power and
authority to subordinate Lessee's interest hereunder to any mortgage deed of
trust or other lien hereafter placed on the demised premises, and Lessee
agrees upon demand to execute such further instruments subordinating this
lease as Lessor may request, provided such further subordination shall be
upon the express condition that this Lease shall be recognized by the
mortgagee and the rights of Lessee shall remain in full force and effect
during the term of this Lease so long as Lessee shall continue to perform all
of the covenants of this lease.
39. Options.
39.1. Definition. As used in this paragraph the word "Option" has
the following meaning: (1) the right or option to extend the term of this
Lease or to renew this Lease or to extend or renew any lease that Lessee has
on other property of Lessor; (2) the option or right of first refusal to
lease the Premises or the right of first offer to lease the Premises or the
right of first refusal to lease other space within the Industrial Center or
other property of Lessor or the right of first offer to lease other space
within the Industrial Center or other property of Lessor; (3) the right or
option to purchase the Premises or the Industrial Center, or the right of
first refusal to purchase the Premises or the Industrial Center, or the right
of first offer to purchase the Premises or the Industrial Center, or the
right or option to purchase other property of Lessor, or the right of first
refusal to purchase other property of Lessor or the right of first offer to
purchase other property of Lessor.
39.2. Options Personal. Each Option granted to Lessee in this Lease
is personal to the original Lessee and may be exercised only by the original
Lessee while occupying the Premises who does so without the intent of
thereafter assigning this Lease or subletting the Premises or any portion
thereof, and
<PAGE>
may not be exercised or be exercised or be assigned, voluntarily or
involuntarily, by or to any person or entity other than Lessee, provided,
however that an option may be exercised by or assigned to any Lessee
Affiliate as defined in paragraph 12.2 of this Lease. The Option, if any,
herein granted to Lessee are not assignable separate and apart from this
Lease, nor may any Option be separated from this Lease in any manner, either
by reservation or otherwise.
39.3. Multiple Options. In the event that Lessee has any multiple
options to extend or renew this Lease a later option cannot be exercised
unless the prior option to extend or renew this Lease has been so exercised.
39.4. Effect of Default or Options.
(a) Lessee shall have no right to exercise an Option,
notwithstanding any provision in the grant of Option to the contrary, (i)
during the time commencing from the date Lessor gives to Lessee a notice of
default pursuant to paragraph 13.1(b) or 13.1(c) and continuing until the
noncompliance alleged in said notice of default is cured, or (ii) during the
period of time commencing on the date after a monetary obligation to Lessor
is due from Lessee and unpaid (without any necessity for notice thereof to
Lessee) and continuing until the obligation is paid, or (iii) at any time
after an event of default described in paragraphs 13.1(a), 13.1(d) or 13.1(e)
(without any necessity of Lessor to give notice of such default to Lessee) or
(iv) in the event that Lessor has given to Lessee three or more notices of
default under paragraph 13.1(b), or paragraph 13.1(c), whether or not the
defaults are cured, during the 12 month period of time immediately prior to
the time that Lessee attempts to exercise the subject Option.
(b) The period of time within which an Option may be exercised shall
not be extended or enlarged by reason of Lessee's inability to exercise an
Option because of the provision of paragraph 39.4(a).
(c) All rights of Lessee under the provisions of an Option shall
terminate and be of no further force or effect, notwithstanding Lessee's due
and timely exercise of the option, if, after such exercise and during the
term of this Lease, (i) Lessee fails to pay to Lessor a monetary obligation
of Lessee for a period of thirty (30) days after such obligation becomes due
(without any necessity of Lessor to give notice thereof to Lessee), or (ii)
Lessee fails to commence to cure a default specified in paragraph 13.1(c)
within thirty (30) days after the date that Lessor gives notice to Lessee of
such default and/or Lessee fails thereafter to diligently prosecute said cure
to completion, or (iii) Lessee commits a default described in paragraph
13.1(a), 13.1(d) or 13.1(e) (without any necessity of Lessor to give notice
of such default to Lessee), or (iv) Lessor gives to Lessee three or more
notices of default under paragraph 13.1(b), or paragraph 13.1(c), whether or
not the defaults are cured.
40. Security Measures. Lessee hereby acknowledges that Lessor shall have no
obligation whatsoever to provide guard service or other security measures for
the benefit of the Premises or the Industrial Center. Lessee assumes all
responsibility for the protection of Lessee, Lessee employees, its agents,
and invitees and the property of Lessee and of Lessee's agents and invitees
from acts of third parties. Nothing herein contained shall prevent Lessor,
at Lessor's sole option, from providing security protection for the
Industrial Center or any part thereof, in which event the cost thereof shall
be included within the definition of Operating Expenses, as set forth in
paragraph 4.2(b).
41. Hazardous Substance. Lessee covenants and agrees that during the term of
this Lease, or any extension thereof, as follows: (1 no "Hazardous Substance"
shall be allowed on the Premises, (2) Lessee shall comply in all material
respects with all applicable "Environmental Requirements" relating to the
<PAGE>
Premises and the property containing the same, (3) Lessee shall not engage in
any "Environmental Activity", or allow any "Environmental Activity" to occur
on the Premises in violation of any applicable Environmental Requirements,
and (4) Lessee shall not otherwise violate any applicable environmental
requirements. Lessee's violation of any of the above shall be deemed a
material default under this Lease and afford Lessor all of the rights and
remedies it has under Paragrpah 13 of the Lease, including but not limited
to, termination of the Lease.
As used above, the following terms shall have the following meaning:
"CERCLA" means the Comprehensive Environmental Response, Compensation,
and Liability Act of 1980, as amended from time to time (42 U.S.C. 9601 et
seq.).
"CODE" means the California Health and Safety Code, as amended from time
to time.
"ENVIRONMENTAL ACTIVITY" means any actual, proposed or threatened
storage, holding, existence, release, emission, discharge, generation,
processing, abatement, removal, disposition, handling or transportation of
any Hazardous Substance from, under, into or on the property or otherwise
relating to the property or the use of the property, or any other activity or
occurrence that causes or would cause any such event to exist.
"HAZARDOUS SUBSTANCES" means, at any time, (a) any "hazardous substance"
as defined in 101(14) of CERCLA (42 U.S.C. 9501(14) pr 25281(D) or 25316 of
the Code at such time; (b) any "hazardous waste" "infectious waste" or
"hazardous material" as defined in 25117, 25117.5 or 25501(j) of the code at
such time; (c) any additional substances or materials which at such time are
classified or considered to be hazardous or toxic under any Environmental
Requirements; (d) asbestos and asbestos-containing materials; and (e)
petroleum and petroleum products.
42. Sign Criteria. This criteria has been established for the mutual
benefit of all lessees and to maintain a professional business complex
appearance. Compliance will be strictly enforced. Any non-conforming or
unapproved signs must be brought into conformance with this criteria, at the
lessee's expense.
1. All costs incurred in making and installing Lessee's sign shall be at
Lessee's expense which is currently $100.00
2. No electrical or audible signs will be permitted.
3. Sign copy will be restricted to company name only.
4. The sign dimensions will be the same as current sign on building.
5. Sign color: Same as current colors on sign on building.
6. The sign blank which includes size, shape and composition will be
provided by the Lessor and is the property of Lessor.
7. Placement of the sign and method of attachment to the building will be
performed by the Lessor.
8. Upon removal of any sign, any damage to the building must be repaired
by the Lessee.
<PAGE>
9. Except as provided herein, no advertising placards, banners, pennants,
names, insignias or trademarks or other description material shall be
affixed or maintained upon the glass panes or exterior walls of the
building or in the landscaped areas, or affixed to automobiles, trucks
or trailers in the parking areas. The restriction pertaining to
automobiles does not apply to magnetic or painted identification sign
placed on company or private vehicles for use in the normal course of
business.
[ ]
Tenant sign copy
43. Outside storage. No storage will be allowed on the building nor on any
of the common areas as pertains to landscaping, driveways, parking lots,
fences and all sidewalks and parkways adjacent to the premises. This
includes, but is not limited to, supplies materials, goods, pallets, dunnage
and equipment. No vehicles including boats and trailers, may be parked or
stored outside the building overnight. No outside storage of metal stock or
fabricated metal parts, no outside work or assembly of fabricated metal
parts. Lessee agrees to pay for disposal of metal and other manufacturing
wastes. Lessor provides only the amount of trash disposal reasonable
expected for a unit of this size. Violation of this paragraph shall
constitute a material breach of this lease.
44. Trash. It is Lessee's responsibility that all trash must be placed in
trash receptacles. Trash receptacles are provided. Violations will be
remedied at Lessee's expense.
45. Outside Work. No work shall be permitted on the sidewalks, roofs,
streets, driveways, parking or landscape areas. This includes, but is not
limited to, assembly, construction, mechanical work, painting, drying,
layout, cleaning, or repair of goods or materials. Violation of this
paragraph shall constitute a material breach of this lease.
46. Fire regulation. Lessee hereby agrees to comply with all fire
regulations imposed by federal, state, and local authorities. Lessee shall
not store any flammable liquids in any unit.
47. Electrical. Lessee hereby agrees that all electrical wiring, conduit,
J-boxes, and outlets installed by Lessee shall comply with all building
codes, and shall become the property of Lessor and shall not be removed from
the premises at the termination of this Lease or any extensions thereof.
48. Service Contract. Lessor will assume the responsibility to acquire an
air-conditioned service contract. This contract will provide for the
periodic change of filters and lubrication of the air-conditioning equipment.
However, repair of the heating and air-conditioning equipment remains the
responsibility of the Lessee hereunder.
49. Locks. Lessee does not have permission to change locks or keys without
written permission of Lessor.
<PAGE>
50. Glass and Window Coverings.
50.1. You are not permitted to paste or stick any signs, numbers,
placards, trademarks, insignias, banners, pennants, names or other objects on
the glass. You will be held responsible for any damage to glass during the
term of the lease.
50.2. All window coverings must be approved in writing by Lessor prior
to installation and are to be at Lessee's expense. In addition,
notwithstanding anything to the contrary stated in paragraph 7.3, all window
coverings installed in the premises are to be considered a fixture and, as
such, are to remain in the Premises at the termination or expiration of this
Lease.
51. Easements. Lessors reserves to itself the right, from time to time, to
grant such easements, rights and dedications that Lessor deems necessary or
desirable, and to cause the recordation of Parcel Maps and restrictions, so
long as such easements, rights, dedications, Maps and restrictions do not
unreasonably interfere with the use of the Premises by Lessee. Lessee shall
sign any of the aforementioned documents upon request of Lessor and failure
to do so shall constitute a material default of this Lease by Lessee without
the need for further notice to Lessee.
52. Performance Under Protest. If at any time a dispute shall arise as to
any amount or sum of money to be paid by one party to the other under the
provisions hereof, the party against whom the obligation to pay the money is
asserted shall have the right to make payment "under protest" and such
payment shall not be regarded as a voluntary payment, and there shall survive
the right on the part of said party to institute suit for recovery of such
sum. If it shall be adjudged that there was no legal obligation on the part
of said party to pay such sum or any part thereof, said party shall be
entitled to recover such sum or so much thereof as it was not legally
required to pay under the provisions of this Lease.
53. Substituted Premises. Landlord reserves the right, without Tenant's
consent, on thirty (30) days' written notice to Tenant to substitute other
premises within the complex for the premises described above, provided that
the substituted premises: (i) contain at least the same square footage as the
Premises; (ii) contain comparable tenant improvements, and (iii) are made
available to Tenant at the then current rental rate for such space, in no
event to exceed the rental specified herein. Landlord shall pay all
reasonable moving expenses of Tenant incidental to such substitution of
premises.
54. Authority. If Lessee is a corporation, trust or general or limited
partnership, each individual executing this Lease on behalf of such entity
represents and warrants that he or she is duly authorized to execute and
deliver this Lease on behalf of said entity. If Lessee is a corporation,
trust or partnership, Lessee shall, within thirty (30) days after execution
of this Lease, deliver to Lessor evidence of such authority satisfactory to
Lessor.
55. Conflict. Any conflict between the printed provisions of this Lease and
the typewritten or handwritten provisions, if any, shall be controlled by the
typewritten or handwritten provisions.
56. Offer. Preparation of this Lease by Lessor or Lessor's agent and
submission of same to Lessee shall not be deemed an offer to lease. This
Lease shall become binding upon Lessor and Lessee only when fully executed by
Lessor and Lessee.
<PAGE>
57. Rent Increases are as follows:
Rent from N/A to N/A is $ N/A
---------------- ------------------- --------------------
Rent from to is $
---------------- ------------------- --------------------
Rent from to is $
---------------- ------------------- --------------------
Rent from to is $
---------------- ------------------- --------------------
58. Lessee acknowledges that the parties have taken into account a reduction
in the property taxes on the leased property in arriving at the rental rate
and other charges provided for hereunder. Lessee agrees to cooperate with
Lessor in the obtaining of an exemption from taxes for the leased premises in
the event that such exemption has not heretofore been obtained. In any
event, any reduction in property taxes attributable to the leased property
shall inure to the sole benefit of Lessor.
59. Addendum. Attached hereto is an addendum to addenda containing
paragraphs _________________ through _________________ which constitute a
part of this Lease.
LESSOR AND LESSEE HAVE CAREFULLY READ AND REVIEWED THIS LEASE AND EACH TERM AND
PROVISION CONTAINED HEREIN AND, BY EXECUTION OF THIS LEASE, SHOW THEIR INFORMED
AND VOLUNTARY CONSENT THERETO. THE PARTIES HEREBY AGREE THAT, AT THE TIME THIS
LEASE IS EXECUTED, THE TERMS OF THIS LEASE ARE COMMERCIALLY REASONABLE AND
EFFECTUATE THE INTENT AND PURPOSE OF LESSOR AND LESSEE WITH RESPECT TO THE
PREMISES.
THIS LEASE HAS BEEN PREPARED FOR SUBMISSION TO YOUR ATTORNEY FOR
APPROVAL. NO REPRESENTATION OR RECOMMENDATION IS MADE BY THE AMERICAN
INDUSTRIAL REAL ESTATE ASSOCIATION OR THE REAL ESTATE BROKER OR ITS
AGENTS OR EMPLOYEES AS TO THE LEGAL SUFFICIENCY, LEGAL EFFECT, OR TAX
CONSEQUENCES OF THIS LEASE OR THE TRANSACTION RELATING THERETO. THE
PARTIES SHALL RELY SOLELY UPON THE ADVICE OF THEIR OWN LEGAL COUNSEL
AS TO THE LEGAL AND TAX CONSEQUENCES OF THIS LEASE.
LESSOR LESSEE
NORDATA dba DATATECH
By: /s/ Mary Steiner By: /s/ H. Norton
------------------------------- ----------------------------
Mary Steiner By: Howard Norton, President
SELIGMAN REAL ESTATE SERVICES, INC. Ruby Norton, Vice President
Property Manager
I, the undersigned, hereby
ADDRESS FOR NOTICES personally and unconditionally
guarantee this lease and all terms
and conditions contained herein.
27130 "B" Paseo Espada #501 /s/ H. Norton
San Juan Capistrano CA 92675 -----------------------------------
Howard Norton, President
<PAGE>
CONSULTING AGREEMENT
THIS AGREEMENT is effective as of June 1, 1996 between ELTRAX SYSTEMS,
INC., a Minnesota corporation (the "COMPANY"), and CLUNET R. LEWIS (the
"CONSULTANT").
WHEREAS, the Consultant serves as a member of the Board of Directors of
the Company (the "BOARD"); and
WHEREAS, the Company desires to engage the Consultant to perform certain
consulting services in order to benefit from the Consultant's management
experience and abilities, and the Consultant desires to accept such
engagement, all upon the terms and conditions set forth in this Agreement.
NOW, THEREFORE, in consideration of the mutual promises contained
herein, the Company and the Consultant, each intending to be legally bound,
agree as follows:
1. ENGAGEMENT. Subject to all of the terms and conditions of this
Agreement, the Company agrees to engage the Consultant (i) to assist the
Company in seeking out and identifying various opportunities for the Company
to increase its operations and revenues including, but not limited to,
possible acquisitions, joint ventures, marketing agreements and other growth
opportunities; (ii) to serve as Chief Financial Officer of the Company; and
(iii) to perform various management and other duties as may be agreed to from
time to time between the Board and the Consultant, and the Consultant agrees
to accept such engagement.
2. DUTIES.
a. During the term of this Agreement, the Consultant agrees to consult
with the Board and the Company regarding such matters, and to provide such
services to the Board and the Company, as may reasonably be requested by
the Board consistent with the Consultant's expertise and experience and the
Consultant's position as Chief Financial Officer and a director of the
Company and agreed to by the Consultant.
b. The services to be rendered by the Consultant to the Company
pursuant to this Agreement will be as an independent contractor, and this
Agreement does not make the Consultant an employee, agent or legal
representative of the Company for any purpose whatsoever, including without
limitation participation in any benefits or privileges given or extended by
the Company to its employees. No right or authority is granted to the
Consultant to assume or create any obligation or responsibility, express
or implied, on behalf of or in the name of the Company. The Company will
not withhold from the amounts paid to the Consultant under this Agreement
for any federal or state taxes, and the Consultant agrees that he will pay
all taxes due on such amounts paid.
c. Notwithstanding anything to the contrary contained in this
Agreement other than in Section 7 hereof, nothing shall be construed to
limit the ability of the Consultant to consult for or serve on the Board of
Directors of such other corporations, trade associations, charitable
organizations or other entities as the Consultant shall from time to time
deem appropriate and to engage in such other activities as the Consultant
shall reasonably deem not to be in conflict with his duties to the Company.
<PAGE>
3. TERM. The term of this Agreement will commence on June 1, 1996 and,
subject to earlier termination in accordance with Section 4 below, will continue
for a period of one (1) year. The term of this Agreement will automatically
renew for an additional one(1) year term unless earlier terminated in accordance
with Section 4 below.
4. TERMINATION. Subject to the respective continuing obligations of the
Company and the Consultant under Sections 5(b), 6, 7 and 9 of this Agreement:
a. This Agreement may be terminated by the Company immediately upon
written notice to the Consultant "for cause," with the basis for
termination specified in such notice. For purposes of this Agreement,
"FOR CAUSE" will mean (i) dishonesty, fraud, gross misrepresentation,
embezzlement or material and deliberate injury or attempted injury, in
each case related to the Company or its business, (ii) any unlawful or
criminal activity of a serious nature, (iii) any willful breach of duty,
habitual neglect of duty or unreasonable job performance, or (iv) a
material breach of any provision of this Agreement.
b. This Agreement may be terminated by the Company or the Consultant
upon not less than thirty (30) days prior written notice without cause.
c. This Agreement may be terminated by the Company ninety (90) days
following the Consultant's Total Disability. For purposes of this
Agreement, "TOTAL DISABILITY" will be as defined in the long-term
disability plan of the Company then in effect for employees of the Company
(regardless of whether the Consultant is covered by such plan) or, if no
such plan exists, "Total Disability" will mean such disability that
prevents the Consultant from performing his duties under Section 2 of this
Agreement for a continuous period of ninety (90) days
d. This Agreement will be automatically terminated upon the death of
the Consultant.
5. COMPENSATION.
a. ANNUAL CONSULTING FEE. In consideration of the Consultant's services
under this Agreement, the Company will pay the Consultant a fee as
determined by the Company's Board of Directors or the Compensation
Committee of such Board, payable in accordance with the Company's normal
payroll practices commencing June 1, 1996.
b. EXPENSES. The Company will pay or reimburse the Consultant for
reasonable expenses that the Consultant incurs while performing his duties
under this Agreement, whether as a Consultant or as a director, provided
that such expenses are incurred and properly accounted for in accordance
with the Company's policies regarding reimbursement of business expenses as
may be in effect from time to time.
6. CONFIDENTIAL INFORMATION.
a. DEFINITION. "CONFIDENTIAL INFORMATION," as used in this Section 6,
means information that is not generally known and that is proprietary to
the Company or that the Company is obligated to treat as proprietary.
This information includes, without limitation:
(i) trade secret or other proprietary information about the
Company and its products; and
2
<PAGE>
(ii) proprietary information concerning any of the Company's
past, current, or possible future products, including (without
limitation) proprietary information about the Company's research,
development, engineering, purchasing, manufacturing, accounting,
marketing, selling or leasing.
Notwithstanding anything to the contrary contained herein, the term
"Confidential Information" does not include information which (i) is or becomes
available to the public other than as a result of a disclosure by the
Consultant, (ii) was within the Consultant's possession prior to its being
furnished to the Consultant by or on behalf of the Company pursuant to this
Agreement, or (iii) becomes available to the Consultant on a non-confidential
basis from a source other than the Company or its representatives.
b. NONDISCLOSURE. The Consultant will not, either during or after his
engagement by the Company, use or disclose Confidential Information to
any person not authorized by the Company to receive it, except (i) as
required in the performance of the Consultant's duties to the Company,
(ii) as required to enforce this Agreement, or (iii) as otherwise
required by law.
c. RETURN OF INFORMATION. When the Consultant's engagement with the
Company ends, he will, upon the Company's request, promptly turn over to
the Company all records and any compositions, articles, devices, apparatus
and other items that disclose, describe or embody Confidential Information,
including all copies, reproductions and specimens of the Confidential
Information in his possession, regardless of who prepared them.
7. COMPETITIVE ACTIVITIES. The Consultant agrees that during the term of
this Agreement and for a period of two (2) years after termination of this
Agreement, regardless of the reason for such termination:
a. He will not alone, or in any capacity with another firm:
(i) directly or indirectly compete with the Company's business, as
the Company has conducted it during the Consultant's engagement with
the Company, within any state in the United States or any country in
which state or country the Company directly or indirectly markets or
services products or provides services or reasonably plans or intends
during Consultant's engagement period to market or service products or
provide services;
(ii) solicit or encourage any Company customer or potential
customer to cease to do business with or to not do business with the
Company in such products; or
(iii) employ or attempt to employ any of the Company's then
employees on behalf of any other entity competing with the Company.
b. The Consultant may, however, accept employment or service with an
entity competing with the Company so long as the business of such entity
is diversified, and the employment or service by the Consultant is with
a separately managed and operated part of its business that does not
compete with the Company.
8. NO ADEQUATE REMEDY. The Consultant understands that if he fails to
fulfill his obligations under this Agreement, the damages to the Company
would be very difficult to determine. Therefore, in addition to any other
rights or remedies available to the Company at law, in equity or by statute, the
3
<PAGE>
Consultant hereby consents to the specific enforcement by the Company of
Sections 6 and 7 of this Agreement through an injunction or restraining order
issued by an appropriate court.
9. INDEMNIFICATION; DIRECTORS AND OFFICERS LIABILITY INSURANCE.
a. The Company shall pay or reimburse to the Consultant the fees and
expenses of personal counsel for their professional services rendered to
the Consultant in connection with this Agreement and any other agreement
or benefit plan entered into or adopted in connection herewith and
matters related hereto and thereto (PROVIDED; HOWEVER, that the fees and
expenses of such counsel in connection with the execution and delivery
of this Agreement shall not exceed $5,000), including in connection with
any enforcement hereof and thereof if the Consultant is the prevailing
party in any such dispute or enforcement action. Without limiting the
foregoing, in the event that the Company terminates, or seeks to
terminate this Agreement, alleging as justification for such termination
"for cause" as specified in Section 4 hereof and the Consultant in good
faith disputes such termination or attempted termination, and the
Company disputes its obligations pursuant to any provision of this
Agreement, the Company shall pay, or reimburse to the Consultant, all
reasonable costs incurred by the Consultant in such dispute, including
attorneys' fees and costs, if the Consultant is the prevailing party in
any such dispute or enforcement action.
b. The Company shall indemnify and hold the Consultant harmless
against all claims, damages, judgments, fines, amounts paid in
settlement and reasonable expenses, including attorneys' fees and
expenses, incurred by the Consultant: (i) for any breach of any
covenant of the Company contained herein, or in any agreement entered
into in connection herewith, or (ii) in connection with the defense of,
or as a result of any action or proceeding (or any appeal from any
action or proceeding) (x) brought by the Company or any third party
challenging the validity or enforceability of all or any portion of this
Agreement and any other agreement entered into or adopted in connection
herewith or (y) in which the Consultant is made or is threatened to be
made a party by reason of the fact that the Consultant is or was an
officer or director of the Company, regardless of when such action or
proceeding may be brought and regardless of whether such action or
proceeding is one brought by or in the right of the Company to procure a
judgment in its favor (or other than by or in the right of the Company).
The undertakings of subparagraph (a) are independent of and shall not be
limited or prejudiced by the undertakings of this subparagraph (b).
c. In addition to the foregoing (and not in limitation):
(i) the Consultant will at all times be entitled to
indemnification from the Company in accordance with Article V of the
Amended and Restated Bylaws of the Company as in effect on the date
hereof, the Consultant will be deemed to be an "Indemnified Person" as
defined therein for all purposes, and the Consultant's rights
thereunder will not be adversely affected by any subsequent amendment
thereof; and
(ii) the Company will maintain in full force and effect one or
more policies of directors and officers liability insurance providing
for such coverage (in amounts not less than present amounts) as may be
determined from time to time by the Board.
d. The provisions of this Section 9 shall survive the termination of
this Agreement.
4
<PAGE>
10. MISCELLANEOUS.
a. SUCCESSORS AND ASSIGNS. This Agreement may not be assigned by
either party without the other party's prior written consent.
b. MODIFICATION. This Agreement may be modified or amended only by a
writing signed by each of the parties hereto.
c. GOVERNING LAW. The laws of the State of Minnesota will govern the
validity, construction, and performance of this Agreement, without regard
to the conflict of laws provisions of any jurisdictions. Any legal
proceeding related to this Agreement will be brought in an appropriate
Minnesota court, and each of the parties hereto hereby consents to the
exclusive jurisdiction of such courts for this purpose.
d. CONSTRUCTION. Wherever possible, each provision of this Agreement
will be interpreted so that it is valid under applicable law. If any
provision of this Agreement is to any extent invalid under applicable law
in any jurisdiction, that provision will still be effective to the extent
it remains valid. The remainder of this Agreement also will continue to
be valid, and the entire Agreement will continue to be valid in other
jurisdictions.
e. NON-WAIVER. No failure or delay by either the Company or the
Consultant in exercising any right or remedy under this Agreement will
waive any provision of the Agreement. Nor will any single or partial
exercise by either the Company or the Consultant of any right or remedy
under this Agreement preclude either of them from otherwise or further
exercising these rights or remedies, or any other rights or remedies
granted by any law or any related document.
f. COUNTERPARTS. This Agreement may be executed in two or more
counterparts, each of which will constitute an original, but all of
which, when taken together, will constitute one and the same instrument.
g. ENTIRE AGREEMENT. This Agreement supersedes all previous and
contemporaneous oral negotiations, commitments, writings, and
understandings among the parties hereto concerning the matters in this
Agreement, including, without limitation, any policy or personnel manuals
of the Company or any of its subsidiaries or affiliates.
h. NOTICES. All notices and other communications required or permitted
under this Agreement will be in writing and hand delivered or sent by
registered first-class mail, postage prepaid, and will be effective upon
receipt, if sent to the following address or such other address as either
party will have notified the other party:
IF TO THE COMPANY: Eltrax Systems, Inc.
Rush Lake Business Park
1775 Old Highway 8
St. Paul, Minnesota 55112-1891
Attn: Chief Executive Officer
IF TO THE CONSULTANT: Clunet R. Lewis
5
<PAGE>
2000 Town Center, Suite 690
Southfield, MI 48075
IN WITNESS WHEREOF, the Company and the Consultant have executed this
Agreement as of the date first above written.
ELTRAX SYSTEMS, INC.
By
--------------------------------
Its
-----------------------------
CONSULTANT
----------------------------------
Clunet R. Lewis
6
<PAGE>
CONSULTING AGREEMENT
THIS AGREEMENT is effective as of June 1, 1996 between ELTRAX SYSTEMS,
INC., a Minnesota corporation (the "COMPANY"), and WILLIAM P. O'REILLY (the
"CONSULTANT").
WHEREAS, the Consultant serves as a member of, and as Chairman of, the
Board of Directors of the Company (the "BOARD"); and
WHEREAS, the Company desires to engage the Consultant to perform certain
consulting services in order to benefit from the Consultant's management
experience and abilities, and the Consultant desires to accept such engagement,
all upon the terms and conditions set forth in this Agreement.
NOW, THEREFORE, in consideration of the mutual promises contained herein,
the Company and the Consultant, each intending to be legally bound, agree as
follows:
1. ENGAGEMENT. Subject to all of the terms and conditions of this
Agreement, the Company agrees to engage the Consultant to assist the Company in
seeking out and identifying various opportunities for the Company to increase
its operations and revenues including, but not limited to, possible
acquisitions, joint ventures, marketing agreements and other growth
opportunities, as well as various management and other duties as may be agreed
to from time to time between the Board and the Consultant, and the Consultant
agrees to accept such engagement.
2. DUTIES.
a. During the term of this Agreement, the Consultant agrees to
consult with the Board and the Company regarding such matters, and to
provide such services to the Board and the Company, as may reasonably
be requested by the Board consistent with the Consultant's expertise and
experience and the Consultant's position as Chairman of the Board of
Directors of the Company and agreed to by the Consultant.
b. The services to be rendered by the Consultant to the Company
pursuant to this Agreement will be as an independent contractor, and this
Agreement does not make the Consultant an employee, agent or legal
representative of the Company for any purpose whatsoever, including without
limitation participation in any benefits or privileges given or extended
by the Company to its employees. No right or authority is granted to the
Consultant to assume or create any obligation or responsibility, express
or implied, on behalf of or in the name of the Company. The Company will
not withhold from the amounts paid to the Consultant under this Agreement
for any federal or state taxes, and the Consultant agrees that he will pay
all taxes due on such amounts paid.
c. Notwithstanding anything to the contrary contained in this
Agreement other than in Section 7 hereof, nothing shall be construed to
limit the ability of the Consultant to consult for or serve on the Board
of Directors of such other corporations, trade associations, charitable
organizations or other entities as the Consultant shall from time to time
deem appropriate and to engage in such other activities as the Consultant
shall reasonably deem not to be in conflict with his duties to the Company.
<PAGE>
3. TERM. The term of this Agreement will commence on June 1, 1996 and,
subject to earlier termination in accordance with Section 4 below, will continue
for a period of one (1) year. The term of this Agreement will automatically
renew for an additional one (1) year term unless earlier terminated in
accordance with Section 4 below.
4. TERMINATION. Subject to the respective continuing obligations of the
Company and the Consultant under Sections 5(b), 6, 7 and 9 of this Agreement:
a. This Agreement may be terminated by the Company immediately upon
written notice to the Consultant "for cause," with the basis for
termination specified in such notice. For purposes of this Agreement,
"FOR CAUSE" will mean (i) dishonesty, fraud, gross misrepresentation,
embezzlement or material and deliberate injury or attempted injury, in
each case related to the Company or its business, (ii) any unlawful or
criminal activity of a serious nature, (iii) any willful breach of duty,
habitual neglect of duty or unreasonable job performance, or (iv) a
material breach of any provision of this Agreement.
b. This Agreement may be terminated by the Company or the Consultant
upon not less than thirty (30) days prior written notice without cause.
c. This Agreement may be terminated by the Company ninety (90) days
following the Consultant's Total Disability. For purposes of this
Agreement, "TOTAL DISABILITY" will be as defined in the long-term
disability plan of the Company then in effect for employees of the Company
(regardless of whether the Consultant is covered by such plan) or, if no
such plan exists, "Total Disability" will mean such disability that
prevents the Consultant from performing his duties under Section 2 of this
Agreement for a continuous period of ninety (90) days
d. This Agreement will be automatically terminated upon the death of
the Consultant.
5. COMPENSATION.
a. ANNUAL CONSULTING FEE. In consideration of the Consultant's
services under this Agreement, the Company will pay the Consultant a fee
as determined by the Company's Board of Directors or the Compensation
Committee of such Board, payable in accordance with the Company's normal
payroll practices commencing June 1, 1996.
b. EXPENSES. The Company will pay or reimburse the Consultant for
reasonable expenses that the Consultant incurs while performing his duties
under this Agreement, whether as a Consultant, Chairman or a director,
provided that such expenses are incurred and properly accounted for in
accordance with the Company's policies regarding reimbursement of business
expenses as may be in effect from time to time.
6. CONFIDENTIAL INFORMATION.
a. DEFINITION. "CONFIDENTIAL INFORMATION," as used in this
Section 6, means information that is not generally known and that is
proprietary to the Company or that the Company is obligated to treat as
proprietary. This information includes, without limitation:
(i) trade secret or other proprietary information about the
Company and its products; and
2
<PAGE>
(ii) proprietary information concerning any of the Company's
past, current, or possible future products, including (without limitation)
proprietary information about the Company's research, development,
engineering, purchasing, manufacturing, accounting, marketing, selling or
leasing.
Notwithstanding anything to the contrary contained herein, the term
"Confidential Information" does not include information which (i) is or becomes
available to the public other than as a result of a disclosure by the
Consultant, (ii) was within the Consultant's possession prior to its being
furnished to the Consultant by or on behalf of the Company pursuant to this
Agreement, or (iii) becomes available to the Consultant on a non-confidential
basis from a source other than the Company or its representatives.
b. NONDISCLOSURE. The Consultant will not, either during or after
his engagement by the Company, use or disclose Confidential Information
to any person not authorized by the Company to receive it, except (i) as
required in the performance of the Consultant's duties to the Company,
(ii) as required to enforce this Agreement, or (iii) as otherwise required
by law.
c. RETURN OF INFORMATION. When the Consultant's engagement with
the Company ends, he will, upon the Company's request, promptly turn over
to the Company all records and any compositions, articles, devices,
apparatus and other items that disclose, describe or embody Confidential
Information, including all copies, reproductions and specimens of the
Confidential Information in his possession, regardless of who prepared
them.
7. COMPETITIVE ACTIVITIES. The Consultant agrees that during the term
of this Agreement and for a period of two (2) years after termination of this
Agreement, regardless of the reason for such termination:
a. He will not alone, or in any capacity with another firm:
(i) directly or indirectly compete with the Company's business,
as the Company has conducted it during the Consultant's engagement with
the Company, within any state in the United States or any country in
which state or country the Company directly or indirectly markets or
services products or provides services or reasonably plans or intends
during Consultant's engagement period to market or service products or
provide services;
(ii) solicit or encourage any Company customer or potential
customer to cease to do business with or to not do business with the
Company in such products; or
(iii) employ or attempt to employ any of the Company's then
employees on behalf of any other entity competing with the Company.
b. The Consultant may, however, accept employment or service with an
entity competing with the Company so long as the business of such entity
is diversified, and the employment or service by the Consultant is with a
separately managed and operated part of its business that does not compete
with the Company.
8. NO ADEQUATE REMEDY. The Consultant understands that if he fails to
fulfill his obligations under this Agreement, the damages to the Company would
be very difficult to determine. Therefore, in addition to any other rights or
remedies available to the Company at law, in equity or by statute, the
3
<PAGE>
Consultant hereby consents to the specific enforcement by the Company of
Sections 6 and 7 of this Agreement through an injunction or restraining order
issued by an appropriate court.
9. INDEMNIFICATION; DIRECTORS AND OFFICERS LIABILITY INSURANCE.
a. The Company shall pay or reimburse to the Consultant the fees
and expenses of personal counsel for their professional services rendered
to the Consultant in connection with this Agreement and any other agreement
or benefit plan entered into or adopted in connection herewith and matters
related hereto and thereto (PROVIDED; HOWEVER, that the fees and expenses
of such counsel in connection with the execution and delivery of this
Agreement shall not exceed $5,000), including in connection with any
enforcement hereof and thereof if the Consultant is the prevailing party in
any such dispute or enforcement action. Without limiting the foregoing, in
the event that the Company terminates, or seeks to terminate this
Agreement, alleging as justification for such termination "for cause" as
specified in Section 4 hereof and the Consultant in good faith disputes
such termination or attempted termination, and the Company disputes its
obligations pursuant to any provision of this Agreement, the Company shall
pay, or reimburse to the Consultant, all reasonable costs incurred by the
Consultant in such dispute, including attorneys' fees and costs, if the
Consultant is the prevailing party in any such dispute or enforcement
action.
b. The Company shall indemnify and hold the Consultant harmless
against all claims, damages, judgments, fines, amounts paid in settlement
and reasonable expenses, including attorneys' fees and expenses, incurred
by the Consultant: (i) for any breach of any covenant of the Company
contained herein, or in any agreement entered into in connection herewith,
or (ii) in connection with the defense of, or as a result of any action or
proceeding (or any appeal from any action or proceeding) (x) brought by the
Company or any third party challenging the validity or enforceability of
all or any portion of this Agreement and any other agreement entered into
or adopted in connection herewith or (y) in which the Consultant is made or
is threatened to be made a party by reason of the fact that the Consultant
is or was an officer or director of the Company, regardless of when such
action or proceeding may be brought and regardless of whether such action
or proceeding is one brought by or in the right of the Company to procure
a judgment in its favor (or other than by or in the right of the Company).
The undertakings of subparagraph (a) are independent of and shall not be
limited or prejudiced by the undertakings of this subparagraph (b).
c. In addition to the foregoing (and not in limitation):
(i) the Consultant will at all times be entitled to
indemnification from the Company in accordance with Article V of the
Amended and Restated Bylaws of the Company as in effect on the date
hereof, the Consultant will be deemed to be an "Indemnified Person"
as defined therein for all purposes, and the Consultant's rights
thereunder will not be adversely affected by any subsequent amendment
thereof; and
(ii) the Company will maintain in full force and effect one or
more policies of directors and officers liability insurance providing
for such coverage (in amounts not less than present amounts) as may be
determined from time to time by the Board.
d. The provisions of this Section 9 shall survive the termination
of this Agreement.
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<PAGE>
10. MISCELLANEOUS.
a. SUCCESSORS AND ASSIGNS. This Agreement may not be assigned by
either party without the other party's prior written consent.
b. MODIFICATION. This Agreement may be modified or amended only
by a writing signed by each of the parties hereto.
c. GOVERNING LAW. The laws of the State of Minnesota will govern
the validity, construction, and performance of this Agreement, without
regard to the conflict of laws provisions of any jurisdictions. Any legal
proceeding related to this Agreement will be brought in an appropriate
Minnesota court, and each of the parties hereto hereby consents to the
exclusive jurisdiction of such courts for this purpose.
d. CONSTRUCTION. Wherever possible, each provision of this
Agreement will be interpreted so that it is valid under applicable law.
If any provision of this Agreement is to any extent invalid under
applicable law in any jurisdiction, that provision will still be effective
to the extent it remains valid. The remainder of this Agreement also will
continue to be valid, and the entire Agreement will continue to be valid in
other jurisdictions.
e. NON-WAIVER. No failure or delay by either the Company or the
Consultant in exercising any right or remedy under this Agreement will
waive any provision of the Agreement. Nor will any single or partial
exercise by either the Company or the Consultant of any right or remedy
under this Agreement preclude either of them from otherwise or further
exercising these rights or remedies, or any other rights or remedies
granted by any law or any related document.
f. COUNTERPARTS. This Agreement may be executed in two or more
counterparts, each of which will constitute an original, but all of which,
when taken together, will constitute one and the same instrument.
g. ENTIRE AGREEMENT. This Agreement supersedes all previous and
contemporaneous oral negotiations, commitments, writings, and
understandings among the parties hereto concerning the matters in this
Agreement, including, without limitation, any policy or personnel manuals
of the Company or any of its subsidiaries or affiliates.
h. NOTICES. All notices and other communications required or
permitted under this Agreement will be in writing and hand delivered or
sent by registered first-class mail, postage prepaid, and will be
effective upon receipt, if sent to the following address or such other
address as either party will have notified the other party:
IF TO THE COMPANY: Eltrax Systems, Inc.
Rush Lake Business Park
1775 Old Highway 8
St. Paul, Minnesota 55112-1891
Attn: Chief Executive Officer
IF TO THE CONSULTANT: William P. O'Reilly
2000 Town Center, Suite 690
Southfield, MI 48075
5
<PAGE>
IN WITNESS WHEREOF, the Company and the Consultant have executed this
Agreement as of the date first above written.
ELTRAX SYSTEMS, INC.
By
--------------------------------------
Its
-----------------------------------
CONSULTANT
----------------------------------------
William P. O'Reilly
6
<PAGE>
REAL ESTATE LEASE
This Lease Agreement (this "Lease") is made effective as of June 1, 1996, by and
between Walt Lovett, Doug and Lisa Roberson ("Landlord"), and Atlantic Network
Systems, Inc. ("Tenant"). The parties agree as follows:
PREMISES. Landlord, in consideration of the lease payments provided in this
Lease, leases to Tenant a building with office space, warehouse and parking lot
(the "Premises") located at 8205 Brownleigh Drive, Raleigh, North Carolina
27612.
TERM. The lease term will begin on June 1, 1996 and will terminate on May 3l,
2001.
LEASE PAYMENTS. Tenant shall pay to Landlord monthly payments of $7,500.00 per
month, payable in advance on the tenth day of each month, for a total annual
lease payment of $90,000.00. Lease payments shall be made to the Landlord at
103 Bordeaux Lane, Cary, North Carolina 27511, as may be changed from time to
time by Landlord.
NON-SUFFICIENT FUNDS. Tenant shall be charged $20.00 for each check that is
returned to Landlord for lack of sufficient funds.
SECURITY DEPOSIT. At the time of the signing of this Lease, Tenant shall pay to
Landlord, in trust, a security deposit of $7,500.00 to be held and disbursed for
Tenant damages to the Premises (if any) as provided by law.
POSSESSION. Tenant shall be entitled to possession on the first day of the term
of this Lease, and shall yield possession to Landlord on the last day of the
term of this Lease, unless otherwise agreed by both parties in writing.
REMODELING OR STRUCTURAL IMPROVEMENTS. Tenant shall have the obligation to
conduct any construction or remodeling (at Tenant's expense) that may be
required to use the Premises as specified above. Tenant may also construct such
fixtures on the Premises (at Tenant's expense) that appropriately facilitate its
use for such purposes. Such construction shall be undertaken and such fixtures
may be erected only with the prior written consent of the Landlord which shall
not be unreasonably withheld. At the end of the lease term, Tenant shall be
entitled to remove (or at the request of Landlord shall remove) such fixtures,
and shall restore the Premises to substantially the same condition of the
Premises at the commencement of this Lease.
MAINTENANCE. Tenant shall have the responsibility to maintain the Premises in
good repair at all times.
ACCESS BY LANDLORD TO PREMISES. Subject to Tenant's consent (which shall not be
unreasonably withheld), Landlord shall have the right to enter the Premises to
make inspections, provide necessary services, or show the unit to prospective
buyers, mortgagees, tenants or
<PAGE>
workers. As provided by law, in the case of an emergency, Landlord may enter
the Premises without Tenant's consent.
UTILITIES AND SERVICES. Tenant shall be responsible for all utilities and
services in connection with the Premises.
PROPERTY INSURANCE. Landlord and Tenant shall each be responsible to maintain
appropriate insurance for their respective interests in the Premises and
property located on the Premises.
LIABILITY INSURANCE. Tenant shall maintain liability insurance in a total
aggregate sum of at least $1,000,000.00. Tenant shall deliver appropriate
evidence to Landlord as proof that adequate insurance is in force. Landlord
shall have the right to require that the Landlord receive notice of any
termination of such insurance policies.
INDEMNITY REGARDING USE OF PREMISES Tenant agrees to indemnify, hold harmless,
and defend Landlord from and against any and all losses, claims, liabilities,
and expenses, including reasonable attorney fees, if any, which Landlord may
suffer or incur in connection with Tenant's use or misuse of the Premises.
DANGEROUS MATERIALS. Tenant shall not keep or have on the Premises any article
or thing of a dangerous, inflammable, or explosive character that might
substantially increase the danger of fire on the Premises, or that might be
considered hazardous by a responsible insurance company, unless the prior
written consent of Landlord is obtained and proof of adequate insurance
protection is provided by Tenant to Landlord.
TAXES. Taxes attributable to the Premises or the use of the Premises shall be
allocated as follows:
PERSONAL TAXES. Tenant shall pay all personal taxes and any other charges
which may be levied against the Premises and which are attributable to
Tenant's use of the Premises.
DESTRUCTION OR CONDEMNATION OF PREMISES. If the Premises are partially
destroyed in a manner that prevents the conducting of Tenant's use of the
Premises in a normal manner, and if the damage is reasonably repairable within
sixty days after the occurrence of the destruction, and if the cost of repair is
less than $50,000.00, Landlord shall repair the Premises and lease payments
shall abate during the period of the repair. However, if the damage is not
repairable within sixty days, or if the cost of repair is $50,000.00 or more, or
if Landlord is prevented from repairing the damage by forces beyond Landlord's
control, or if the property is condemned, this Lease shall terminate upon twenty
days' written notice of such event or condition by either party.
MECHANICS LIENS. Neither the Tenant nor anyone claiming through the Tenant
shall have the right to file mechanics liens or any other kind of lien on the
Premises and the filing of this Lease constitutes notice that such liens are
invalid. Further, Tenant agrees to (1) give actual
2
<PAGE>
advance notice to any contractors, subcontractors or suppliers of goods, labor,
or services that such liens will not be valid, and (2) take whatever additional
steps that are necessary in order to keep the premises free of all liens
resulting from constructions done by or for the Tenant.
DEFAULTS. Tenant shall be in default of this Lease, if Tenant fails to fulfill
any lease obligation or term by which Tenant is bound. Subject to any governing
provisions of law to the contrary, if Tenant fails to cure any financial
obligation within 30 days (or any other obligation within 60 days) after written
notice of such default is provided by Landlord to Tenant, Landlord may take
possession of the Premises without further notice, and without prejudicing
Landlord's rights to damages. In the alternative, Landlord may elect to cure any
default and the cost of such action shall be added to Tenant's financial
obligations under this Lease. Tenant shall pay all costs, damages, and expenses
suffered by Landlord by reason of Tenant's defaults. all sums of money or
charges required to be paid by Tenant under this Lease shall be additional rent,
whether or not such sums or charges are designated as "additional rent."
ASSIGNABILITY/SUBLETTING. Tenant may not assign or sublease any interest in the
Premises, nor effect a change in the majority ownership of the Tenant (from the
ownership existing at the inception of this lease), without the prior written
consent of Landlord, which shall not be unreasonably withheld.
NOTICE. Notices under this Lease shall not be deemed valid unless given or
served in writing and forwarded by mail, postage prepaid, addressed as follows:
LANDLORD:
Name: Walt Lovett, Doug and Lisa Roberson
Address: 103 Bordeaux Lane
Cary, North Carolina 27511
TENANT:
Name: Atlantic Network Systems, Inc.
Address: 8205 Brownleigh Drive
Raleigh, North Carolina 27612
Such addresses may be changed from time to time by either party by providing
notice as set forth above.
ENTIRE AGREEMENT/AMENDMENT. This Lease Agreement contains the entire agreement
of the parties and there are no other promises or conditions in any other
agreement whether oral or written. This Lease may be modified or amended in
writing, if the writing is signed by the party obligated under the amendment.
SEVERABILITY. If any portion of this Lease shall be held to be invalid or
unenforceable for any reason, the remaining provisions shall continue to be
valid and enforceable. If a court finds
3
<PAGE>
that any provision of this Lease is invalid or unenforceable, but that by
limiting such Provision, it would become valid and enforceable, then such
provision shall be deemed to be written, construed, and enforced as so limited.
WAIVER. The failure of either party to enforce any provisions of this Lease
shall not be construed as a waiver or limitation of that party's right to
subsequently enforce and compel strict compliance with every provision of this
Lease.
CUMULATIVE RIGHTS. The rights of the parties under this Lease are cumulative,
and shall not be construed as exclusive unless otherwise required by law.
GOVERNING LAW. This Lease shall be construed in accordance with the laws of the
State of North Carolina.
SUBORDINATION OF LEASE. This Lease is subordinate to any mortgage that now
exists, or may be given later by Landlord, with respect to the Premises.
LANDLORD:
/s/ Walt Lovett Doug Roberson Lisa Roberson
- ---------------------------------------------
Walt Lovett, Doug Roberson, Lisa Roberson
TENANT:
Atlantic Network Systems, Inc.
/s/ Douglas L. Roberson
- ---------------------------------------------
Douglas L. Roberson
President, ANS, Inc.
4
<PAGE>
SECURITY AGREEMENT
SECURITY AGREEMENT (the "Agreement"), dated as of October 31, 1996, between
ELTRAX SYSTEMS, INC., a Minnesota corporation, having a principal place of
business at Rush Lake Business Park, 1775 Old Highway 8, St. Paul, MN 55112
(the "Company"), and STATE STREET BANK AND TRUST COMPANY, a Massachusetts
trust company having a principal place of business at 225 Franklin Street,
Boston, MA 02110 (hereinafter, the "Bank").
WHEREAS, the Company has entered into a Revolving Credit Agreement dated as
of October 31, 1996 (as amended and in effect from time to time, the "Credit
Agreement"), with the Bank, pursuant to which the Bank, subject to the terms and
conditions contained therein, is to make loans to the Company; and
WHEREAS, it is a condition precedent to the Bank's making any loans to the
Company under the Credit Agreement that the Company execute and deliver to the
Bank a security agreement in substantially the form hereof; and
WHEREAS, the Company wishes to grant security interests in favor of the
Bank as herein provided;
NOW, THEREFORE, in consideration of the premises contained herein and for
other good and valuable consideration, the receipt and sufficiency of which are
hereby acknowledged, the parties hereto agree as follows:
1. DEFINITIONS. All capitalized terms used herein without definition,
including but not limited to "Default" and "Event of Default", shall have the
respective meanings provided therefor in the Credit Agreement. All terms
defined in the Uniform Commercial Code of the Commonwealth of Massachusetts
and used herein shall have the same definitions herein as specified therein.
The term "Obligations", as used herein, means all of the indebtedness,
obligations and liabilities of the Company to the Bank, including, without
limitation, all indebtedness, obligations and liabilities of the Company
under or in respect of the Credit Agreement, any promissory notes or other
instruments or agreements executed and delivered pursuant thereto or in
connection therewith or this Agreement, in each case as such instrument is
originally executed on the date hereof or as modified, supplemented, amended,
restated or extended hereafter, whether such obligations are direct or
indirect, joint or several, absolute or contingent, due or to become due, now
existing or hereafter arising, matured or unmatured, liquidated or
unliquidated, arising by contract, operation of law or otherwise, and all
obligations of the Borrower to the Bank arising out of any extension,
refinancing or refunding of any of the foregoing obligations.
2. GRANT OF SECURITY INTEREST.
2.1. COLLATERAL GRANTED. The Company hereby grants to the Bank, to secure
the payment and performance in full of all of the Obligations, a security
interest in and so pledges and assigns to the Bank the following properties,
assets and rights of the Company, wherever located, whether now owned or
hereafter acquired or arising:
(a) All personal and fixture property of every kind and nature
including without limitation all furniture, fixtures, equipment,
including without limitation vending machines, motor vehicles, raw
materials, inventory, goods, accounts, contract rights,
<PAGE>
rights to the payment of money, insurance refund claims and all other
insurance claims and proceeds, tort claims, chattel paper,
documents, instruments (including certificated securities), deposit
accounts, cash, including without limitation coins and currency in
vending machines, and all general intangibles including, without
limitation, all uncertificated securities, tax refund claims,
license fees, patents, patent applications, trademarks, trademark
applications, trade names, copyrights, copyright applications,
rights to sue and recover for past infringement of patents,
trademarks and copyrights, computer programs, computer software,
engineering drawings, service marks, customer lists, goodwill, and
all licenses, permits, agreements of any kind or nature pursuant to
which the Company possesses, uses or has authority to possess or
use property (whether tangible or intangible) of others or others
possess, use or have authority to possess or use property (whether
tangible or intangible) of the Company, and all recorded data of
any kind or nature, regardless of the medium of recording
including, without limitation, all software, writings, plans,
specifications and schematics, and
(b) All proceeds of every kind and nature and in whatever form,
including, without limitation, both cash and non-cash proceeds
resulting or arising from the rendering of services by the Company or
the sale or other disposition of inventory or other collateral and all
products thereof.
All of the foregoing are hereinafter called the "Collateral".
2.2. DELIVERY OF INSTRUMENTS, ETC. Pursuant to the terms hereof, the
Company has endorsed, assigned and delivered to the Bank all negotiable or
non-negotiable instruments (including certificated securities) and chattel
paper pledged by it hereunder, together with instruments of transfer or
assignment duly executed in blank as the Bank may have specified. In the
event that the Company shall, after the date of this Agreement, acquire any
other negotiable or non-negotiable instruments (including certificated
securities) or chattel paper to be pledged by it hereunder, the Company shall
forthwith endorse, assign and deliver the same to the Bank, accompanied by
such instruments of transfer or assignment duly executed in blank as the Bank
may from time to time specify.
2.3. EXCLUDED COLLATERAL. Notwithstanding the foregoing provisions of this
Section 2, such grant of security interest shall not extend to, and the term
"Collateral" shall not include, any chattel paper and general intangibles
which are now or hereafter held by the Company as licensee, lessee or
otherwise, to the extent that (i) such chattel paper and general intangibles
are not assignable or capable of being encumbered as a matter of law or under
the terms of the license, lease or other agreement applicable thereto (but
solely to the extent that any such restriction shall be enforceable under
applicable law), without the consent of the licensor or lessor thereof or
other applicable party thereto and (ii) such consent has not been obtained;
PROVIDED, HOWEVER, that the foregoing grant of security interest shall extend
to, and the term "Collateral" shall include, (A) any and all proceeds of such
chattel paper and general intangibles to the extent that the assignment or
encumbering of such proceeds is not so restricted and (B) upon any such
licensor, lessor or other applicable party consent with respect to any such
otherwise excluded chattel paper or general intangibles being obtained,
thereafter such chattel paper or general intangibles as well as any and all
proceeds thereof that might have theretofore have been excluded from such
grant of a security interest and the term "Collateral".
-2-
<PAGE>
3. TITLE TO COLLATERAL, MOTOR VEHICLES.
3.1. TITLE TO COLLATERAL, ETC. The Company is the owner of the
Collateral free from any adverse lien, security interest or other
encumbrance, except for the security interest created by this Agreement and
other liens permitted by the Credit Agreement. None of the Collateral
constitutes, or is the proceeds of, "farm products" as defined in 9-109(3) of
the Uniform Commercial Code of the Commonwealth of Massachusetts. None of
the account debtors in respect of any accounts, chattel paper or general
intangibles and none of the obligors in respect of any instruments included
in the Collateral is a governmental authority subject to the Federal
Assignment of Claims Act. The Company hereby represents and warrants to the
Bank that it does not own any real property or uncertificated securities and
covenants and agrees with the Bank that it shall not acquire any real
property or uncertificated securities without providing at least fifteen (15)
days' prior written notice to the Bank.
3.2. MOTOR VEHICLES. The Company shall cause the Bank to be named as
first lienholder on all certificates of title for all motor vehicles included
in the Collateral as of the date hereof or hereafter acquired.
4. CONTINUOUS PERFECTION. The Company's place of business or, if more than
one, chief executive office is indicated on the Perfection Certificate
delivered to the Bank herewith (the "Perfection Certificate"). The Company
will not change the same, or the name, identity or corporate structure of the
Company in any manner, without providing at least thirty (30) days' prior
written notice to the Bank. Except for motor vehicles, inventory and
equipment installed or maintained at customer locations, the Collateral, to
the extent not delivered to the Bank pursuant to Section 2.2 and will be kept
at those locations listed on the Perfection Certificate and the Company will
not remove the Collateral from such locations, without providing at least
thirty (30) days' prior written notice to the Bank.
5. NO LIENS. Except for the security interest herein granted and liens
permitted by the Credit Agreement, the Company shall be the owner of the
Collateral free from any lien, security interest or other encumbrance, and
the Company shall defend the same against all claims and demands of all
persons at any time claiming the same or any interests therein adverse to the
Bank. The Company shall not pledge, mortgage or create, or suffer to exist a
security interest in the Collateral in favor of any person other than the
Bank except for liens permitted by the Credit Agreement.
6. NO TRANSFERS. The Company will not sell or offer to sell or otherwise
transfer the Collateral or any interest therein except for (a) sales of
inventory in the ordinary course of business, (b) sales or other dispositions
of obsolescent items of equipment in the ordinary course of business
consistent with past practices, or (c) transfers of Collateral otherwise
permitted by the Credit Agreement.
7. INSURANCE.
7.1. MAINTENANCE OF INSURANCE. The Company will maintain with
financially sound and reputable insurers insurance with respect to its
properties and business against such casualties and contingencies as shall be
in accordance with general practices of businesses engaged in similar
activities in similar geographic areas. All such insurance shall be in such
minimum amounts that the Company will not be deemed a co-insurer under
applicable insurance laws, regulations and policies and otherwise shall be in
such amounts, contain such terms, be in such forms and be for such periods as
may be reasonably satisfactory to the Bank. In addition, all such insurance
shall be payable to the Bank as loss
-3-
<PAGE>
payee under a "standard" or "New York" loss payee clause. Without limiting
the foregoing, the Company will (a) keep all of its physical property insured
with casualty or physical hazard insurance on an "all risks" basis, with
broad form flood and earthquake coverages and electronic data processing
coverage, with a full replacement cost endorsement and an "agreed amount"
clause in an amount equal to 100% of the full replacement cost of such
property, (b) maintain all such workers' compensation or similar insurance as
may be required by law and (c) maintain, in amounts and with deductibles
equal to those generally maintained by businesses engaged in similar
activities in similar geographic areas, general public liability insurance
against claims of bodily injury, death or property damage occurring, on, in
or about the properties of the Company; business interruption insurance;
marine insurance; and product liability insurance.
7.2. INSURANCE PROCEEDS. The proceeds of any casualty insurance in
respect of any casualty loss of any of the Collateral shall, subject to the
rights, if any, of other parties with a prior interest in the property
covered thereby, (a) so long as no Default or Event of Default has occurred
and is continuing and to the extent that the amount of such proceeds is less
than $10,000, be disbursed to the Company for direct application by the
Company solely to the repair or replacement of the Company's property so
damaged or destroyed and (b) in all other circumstances, be held by the Bank
as cash collateral for, or applied to repay, the Obligations. The Bank may,
at its sole option, disburse from time to time all or any part of such
proceeds so held as cash collateral, upon such terms and conditions as the
Bank may reasonably prescribe, for direct application by the Company solely
to the repair or replacement of the Company's property so damaged or
destroyed, or the Bank may apply all or any part of such proceeds to the
Obligations.
7.3. NOTICE OF CANCELLATION, ETC. All policies of insurance shall
provide for at least thirty (30) days' prior written cancellation notice to
the Bank. In the event of failure by the Company to provide and maintain
insurance as herein provided, the Bank may, at its option, provide such
insurance and charge the amount thereof to the Company. The Company shall
furnish the Bank with certificates of insurance and policies evidencing
compliance with the foregoing insurance provision.
8. MAINTENANCE OF COLLATERAL; COMPLIANCE WITH LAW. The Company will keep
the Collateral in good order and repair and will not use the same in material
violation of law or any policy of insurance thereon. The Bank, or its
designee, may inspect the Collateral at any reasonable time, wherever
located. The Company will pay promptly when due all taxes, assessments,
governmental charges and levies upon the Collateral or incurred in connection
with the use or operation of such Collateral or incurred in connection with
this Agreement. The Company has at all times operated, and the Company will
continue to operate, its business in compliance with all applicable
provisions of the federal Fair Labor Standards Act, as amended, and with all
applicable provisions of federal, state and local statutes and ordinances
dealing with the control, shipment, storage or disposal of hazardous
materials or substances. Within ten (10) days of the date hereof, and
thereafter from time to time upon request of the Bank (but no more often than
quarterly if no Event of Default has occurred and is continuing), the Company
will provide the Bank with a schedule identifying all customer locations at
which vending machines or other Collateral is located (which Schedule will
include the name and address of such customers and the vending machines and
other Collateral located thereat).
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<PAGE>
9. COLLATERAL PROTECTION EXPENSES; PRESERVATION OF COLLATERAL.
9.1. EXPENSES INCURRED BY THE BANK. In its discretion, the Bank may
discharge taxes and other encumbrances at any time levied or placed on any of
the Collateral, make repairs thereto and pay any necessary filing fees. The
Company agrees to reimburse the Bank on demand for any and all expenditures
so made. The Bank shall have no obligation to the Company to make any such
expenditures, nor shall the making thereof relieve the Company of any
default.
9.2. BANK'S OBLIGATIONS AND DUTIES. Anything herein to the contrary
notwithstanding, the Company shall remain liable under each contract or
agreement comprised in the Collateral to be observed or performed by the
Company thereunder. The Bank shall not have any obligation or liability
under any such contract or agreement by reason of or arising out of this
Agreement or the receipt by the Bank of any payment relating to any of the
Collateral, nor shall the Bank be obligated in any manner to perform any of
the obligations of the Company under or pursuant to any such contract or
agreement, to make inquiry as to the nature or sufficiency of any payment
received by the Bank in respect of the Collateral or as to the sufficiency of
any performance by any party under any such contract or agreement, to present
or file any claim, to take any action to enforce any performance or to
collect the payment of any amounts which may have been assigned to the Bank
or to which the Bank may be entitled at any time or times. The Bank's sole
duty with respect to the custody, safe keeping and physical preservation of
the Collateral in its possession, under 9-207 of the Uniform Commercial Code
of the Commonwealth of Massachusetts or otherwise, shall be to deal with such
Collateral in the same manner as the Bank deals with similar property for its
own account.
10. SECURITIES AND DEPOSITS. The Bank may at any time, at its option,
transfer to itself or any nominee any securities constituting Collateral.
After and during the continuance of an Event of Default, the Bank may, at its
option, (i) receive any income on any securities constituting Collateral and
hold such income as additional Collateral or apply it to the Obligations and
(ii) demand, sue for, collect, or make any settlement or compromise which it
deems desirable with respect to the Collateral. Regardless of the adequacy
of Collateral or any other security for the Obligations, any deposits or
other sums at any time credited by or due from the Bank to the Company may at
any time be applied to or set off against any of the Obligations.
11. NOTIFICATION TO ACCOUNT DEBTORS AND OTHER OBLIGORS. At any time after
an Event of Default has occurred and is continuing,
(a) The Bank may notify account debtors on accounts, chattel paper
and general intangibles of the Company and obligors on instruments for
which the Company is an obligee that payment thereof is to be made
directly to the Bank or such other address as may be specified by the
Bank, and may advise any other person of the Bank's security interest in
and to the Collateral, and may collect directly from the obligors
thereon, all amounts due on account of the Collateral;
(b) at the Bank's request, the Company will notify account debtors and
obligors that payment thereof is to be made directly to the Bank or such
other address as may be specified by the Bank;
-5-
<PAGE>
(c) the Company shall hold any proceeds of collection of accounts,
chattel paper, general intangibles, instruments and any other Collateral
received by the Company as trustee for the Bank without commingling the
same with other funds of the Company; and shall deliver each of the
following duly endorsed, assigned or otherwise made payable to the Bank:
(i) all such proceeds to the Bank immediately upon the receipt thereof by
the Company in the identical form received, and (ii) all security or
collateral for, guaranties of, letters of credit, trade and bankers'
acceptances, and similar letters and instruments in respect of any of the
Collateral.
The Bank shall apply the proceeds of collection of accounts, chattel paper,
general intangibles and instruments received by the Bank to the Obligations,
such proceeds to be immediately entered after final payment in cash or solvent
credits of the items giving rise to them.
12. FURTHER ASSURANCES.
(a) The Company, at its own expense, shall do, make, execute and
deliver all such additional and further acts, things, deeds, assurances
and instruments as the Bank may require more completely to vest in and
assure to the Bank its rights hereunder or in any of the Collateral,
including, without limitation, (a) executing, delivering and, where
appropriate, filing financing statements and continuation statements
under the Uniform Commercial Code, (b) obtaining governmental and other
third party consents and approvals, including without limitation any
consent of any licensor, Olessor or other applicable party referred to in
Section 2.3 hereof, (c) obtaining waivers from mortgagees and landlords and
(d) taking all actions required by Sections 8-313 and 8-321 of the Uniform
Commercial Code, as applicable in each relevant jurisdiction, with respect
to certificated and uncertificated securities.
(b) SPECIAL PROCEDURES FOR ACCOUNTS AND CERTAIN GENERAL INTANGIBLES. At
the request of the Bank, Borrower will do any one or more of the following:
(i) Give to the Bank assignments in form acceptable to the Bank
of specific accounts or groups of accounts and moneys due or to become
due under specific contracts and notify the account debtors liable on
or in respect of such accounts and contracts of such assignment and
instruct that payment thereof should be made to the Bank or its
nominee;
(ii) Furnish to the Bank a copy, with such duplicate copies as
the Bank may request, of the invoice applicable to each account
specifically assigned to the Bank or arising out of a general
intangible specifically assigned to the Bank, bearing a statement that
such account has been assigned to the Bank and such additional
statements as the Bank may require;
(iii) Inform the Bank immediately of the rejection of goods,
claims made or delay in delivery or performance in regard of any
account or general intangible specifically assigned to the Bank;
(iv) Make no change, except for changes made (A) in the ordinary
course of business and consistent with past practices and (B) prior to
the occurrence and continuance of an Event of Default, in any
specifically assigned account or in any
-6-
<PAGE>
account arising out of a contract or general intangible specifically
assigned to the Bank and make no material change in the terms of any
such contract;
(v) Furnish to the Bank all information received by Borrower
affecting the financial standing of any customer whose account or
contract has been specifically assigned to the Bank;
(vi) Receive as the sole property of the Bank and hold as
trustee for the Bank all items of payment which come into the
possession of Borrower and deposit with the Bank all such items of
payment immediately in the exact form received in one or more special
accounts of Borrower entitled "Cash Collateral Accounts" (the balances
of which accounts Borrower may use and apply for its corporate purposes
to the extent provided in this Agreement);
(vii) Immediately notify the Bank if any of its accounts arise
out of contracts with the United States of America or any department,
agency or instrumentality thereof ("Government") and execute any
instruments and take any steps required by the Bank in order that all
moneys due and to become due under any such contracts shall be
assigned to the Bank and notice thereof shall be given to the
Government under the Federal Assignment of Claims Act;
(viii) Deliver to the Bank with appropriate endorsement or
assignment any instrument or chattel paper representing proceeds of an
account or a contract which has been specifically assigned to the Bank;
(ix) Mark its records evidencing its accounts in a manner
reasonably satisfactory to the Bank so as to show that its accounts
have been assigned to the Bank; and
(x) Furnish to the Bank satisfactory evidence of the shipment
and receipt of any goods specified by the Bank and the performance of
any services or obligations covered by accounts or contracts in which
the Bank has a security interest.
13. POWER OF ATTORNEY.
13.1 APPOINTMENT AND POWERS OF BANK. The Company hereby irrevocably
constitutes and appoints the Bank and any officer or agent thereof, with full
power of substitution, as its true and lawful attorneys-in-fact with full
irrevocable power and authority in the place and stead of the Company or in the
Bank's own name, for the purpose of carrying out the terms of this Agreement,
to take any and all appropriate action and to execute any and all documents and
instruments that may be necessary or desirable to accomplish the purposes of
this Agreement and, without limiting the generality of the foregoing, hereby
gives said attorneys the power and right, on behalf of the Company, without
notice to or assent by the Company, to do the following:
(a) Upon the occurrence and during the continuance of an Event of
Default, generally to sell, transfer, pledge, make any agreement with
respect to or otherwise deal with any of the Collateral in such manner as
is consistent with the Uniform Commercial Code of the
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<PAGE>
Commonwealth of Massachusetts and as fully and completely as though the Bank
were the absolute owner thereof for all purposes, and to do at the Company's
expense, at any time, or from time to time, all acts and things which the
Bank deems necessary to protect, preserve or realize upon the Collateral and
the Bank's security interest therein, in order to effect the intent of this
Agreement, all as fully and effectively as the Company might do, including,
without limitation, (i) the filing and prosecuting of registration and
transfer applications with the appropriate federal or local agencies or
authorities with respect to trademarks, copyrights and patentable inventions
and processes, (ii) upon written notice to the Company, the exercise of
voting rights with respect to voting securities, which rights may be
exercised, if the Bank so elects, with a view to causing the liquidation in
a commercially reasonable manner of assets of the issuer of any such
securities and (iii) the execution, delivery and recording, in connection
with any sale or other disposition of any Collateral, of the endorsements,
assignments or other instruments of conveyance or transfer with respect to
such Collateral; and
(b) To file such financing statements with respect hereto, with or
without the Company's signature, or a photocopy of this Agreement in
substitution for a financing statement, as the Bank may deem appropriate
and to execute in the Company's name such financing statements and
amendments thereto and continuation statements which may require the
Company's signature.
13.2 RATIFICATION BY COMPANY. To the extent permitted by law, the Company
hereby ratifies all that said attorneys shall lawfully do or cause to be done by
virtue hereof. This power of attorney is a power coupled with an interest and
shall be irrevocable.
13.3 NO DUTY ON BANK. The powers conferred on the Bank hereunder are
solely to protect its interests in the Collateral and shall not impose
any duty upon it to exercise any such powers. The Bank shall be
accountable only for the amounts that it actually receives as a result of
the exercise of such powers and neither it nor any of its officers,
directors, employees or agents shall be responsible to the Company for
any act or failure to act, except for the Bank's own gross negligence or
willful misconduct.
14. REMEDIES. If an Event of Default shall have occurred and be continuing, the
Bank may, without notice to or demand upon the Company, declare this Agreement
to be in default, and the Bank shall thereafter have in any jurisdiction in
which enforcement hereof is sought, in addition to all other rights and
remedies, the rights and remedies of a secured party under the Uniform
Commercial Code, including, without limitation, the right to take possession of
the Collateral, and for that purpose the Bank may, so far as the Company can
give authority therefor, enter upon any premises on which the Collateral may be
situated and remove the same therefrom. The Bank may in its discretion require
the Company to assemble all or any part of the Collateral at such location or
locations within the state(s) of the Company's principal office(s) or at such
other locations as the Bank may designate. Unless the Collateral is perishable
or threatens to decline speedily in value or is of a type customarily sold on a
recognized market, the Bank shall give to the Company at least five Business
Days' prior written notice of the time and place of any public sale of
Collateral or of the time after which any private sale or any other intended
disposition is to be made. The Company hereby acknowledges that five business
Days' prior written notice of such sale or sales shall be reasonable notice.
If any of the Collateral which constitutes securities is not registered under
applicable state and federal securities laws, the Bank shall not be obligated
to register such Collateral and may, in effecting any sale thereof, impose such
conditions and limitations on the sale as the Bank deems appropriate to comply
with applicable securities laws,
-8-
<PAGE>
including but not limited to requiring an investment representation agreement
from any purchaser thereof and imposing restrictions as to the financial
sophistication and ability of any person permitted to bid or purchase at any
such sale, and such actions by the Bank shall be deemed commercially
reasonable. In addition, the Company waives any and all rights that it may
have to a judicial hearing in advance of the enforcement of any of the Bank's
rights hereunder, including, without limitation, its right following an Event
of Default to take immediate possession of the Collateral and to exercise its
rights with respect thereto. To the extent that any of the Obligations are to
be paid or performed by a person other than the Company, the Company waives and
agrees not to assert any rights or privileges which it may have under 9-112 of
the Uniform Commercial Code of the Commonwealth of Massachusetts.
15. NO WAIVER, ETC. The Company waives demand, notice, protest, notice of
acceptance of this Agreement, notice of loans made, credit extended, Collateral
received or delivered or other action taken in reliance hereon and all other
demands and notices of any description. With respect to both the Obligations
and the Collateral, the Company assents to any extension or postponement of the
time of payment or any other indulgence, to any substitution, exchange or
release of or failure to perfect any security interest in any Collateral, to
the addition or release of any party or person primarily or secondarily liable,
to the acceptance of partial payment thereon and the settlement, compromising
or adjusting of any thereof, all in such manner and at such time or times as
the Bank may deem advisable. The Bank shall have no duty as to the collection
or protection of the Collateral or any income thereon, nor as to the
preservation of rights against prior parties, nor as to the preservation of any
rights pertaining thereto beyond the safe custody thereof as set forth in 9.2
hereof. The Bank shall not be deemed to have waived any of its rights upon or
under the Obligations or the Collateral unless such waiver shall be in writing
and signed by the Bank. No delay or omission on the part of the Bank in
exercising any right shall operate as a waiver of such right or any other
right. A waiver on any one occasion shall not be construed as a bar to or
waiver of any right on any future occasion. All rights and remedies of the
Bank with respect to the Obligations or the Collateral, whether evidenced
hereby or by any other instrument or papers, shall be cumulative and may be
exercised singularly, alternatively, successively or concurrently at such time
or at such times as the Bank deems expedient.
16. MARSHALLING. The Bank shall not be required to marshal any present or
future collateral security (including but not limited to this Agreement and the
Collateral) for, or other assurances of payment of, the Obligations or any of
them or to resort to such collateral security or other assurances of payment in
any particular order, and all of its rights hereunder and in respect of such
collateral security and other assurances of payment shall be cumulative and in
addition to all other rights, however existing or arising. To the extent that
it lawfully may, the Company hereby agrees that it will not invoke any law
relating to the marshalling of collateral which might cause delay in or impede
the enforcement of the Bank's rights under this Agreement or under any other
instrument creating or evidencing any of the Obligations or under which any of
the Obligations is outstanding or by which any of the Obligations is secured or
payment thereof is otherwise assured, and, to the extent that it lawfully may,
the Company hereby irrevocably waives the benefits of all such laws.
17. PROCEEDS OF DISPOSITIONS; EXPENSES. The Company shall pay to the Bank on
demand any and all expenses, including reasonable attorneys' fees and
disbursements, incurred or paid by the Bank in protecting, preserving or
enforcing the Bank's rights under or in respect of any of the Obligations or
any of the Collateral. After deducting all of said expenses, the residue of any
proceeds of collection or sale of the Obligations or Collateral shall, to the
extent actually received in cash, be applied to the payment of the Obligations
in such order or preference as the Bank may determine, proper allowance and
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<PAGE>
provision being made for any Obligations not then due. Upon the final payment
and satisfaction in full of all of the Obligations and after making any
payments required by Section 9-504(1)(c) of the Uniform Commercial Code of the
Commonwealth of Massachusetts, any excess shall be returned to the Company, and
the Company shall remain liable for any deficiency in the payment of the
Obligations.
18. OVERDUE AMOUNTS. Until paid, all amounts due and payable by the Company
hereunder shall be a debt secured by the Collateral and shall bear, whether
before or after judgment, interest at the rate of interest for overdue
principal set forth in the Credit Agreement.
19. GOVERNING LAW; CONSENT TO JURISDICTION. THIS AGREEMENT IS INTENDED TO TAKE
EFFECT AS A SEALED INSTRUMENT AND SHALL BE GOVERNED BY, AND CONSTRUED IN
ACCORDANCE WITH, THE LAWS OF THE COMMONWEALTH OF MASSACHUSETTS. The Company
agrees that any suit for the enforcement of this Agreement may be brought in
the courts of the Commonwealth of Massachusetts or any federal court sitting
therein and consents to the non-exclusive jurisdiction of such court and to
service of process in any such suit being made upon the Company by mail at the
address specified in the Credit Agreement. The Company hereby waives any
objection that it may now or hereafter have to the venue of any such suit or
any such court or that such suit is brought in an inconvenient court.
20. WAIVER OF JURY TRIAL. THE COMPANY WAIVES ITS RIGHT TO A JURY TRIAL WITH
RESPECT TO ANY ACTION OR CLAIM ARISING OUT OF ANY DISPUTE IN CONNECTION WITH
THIS AGREEMENT, ANY RIGHTS OR OBLIGATIONS HEREUNDER OR THE PERFORMANCE OF ANY
SUCH RIGHTS OR OBLIGATIONS. Except as prohibited by law, the Company waives
any right which it may have to claim or recover in any litigation referred to
in the preceding sentence any special, exemplary, punitive or consequential
damages or any damages other than, or in addition to, actual damages. The
Company (a) certifies that neither the Bank nor any representative, agent or
attorney of the Bank has represented, expressly or otherwise, that the Bank
would not, in the event of litigation, seek to enforce the foregoing waivers
and (b) acknowledges that, in entering into the Credit Agreement and the other
Loan Documents to which the Bank is a party, the Bank is relying upon, among
other things, the waivers and certifications contained in this Section 20.
21. MISCELLANEOUS. This Agreement and any amendment hereof may be executed in
several counterparts and by each party on a separate counterpart, each of which
when so executed and delivered shall be an original, but all of which together
shall constitute one instrument. In proving this Agreement it shall not be
necessary to produce or account for more than one such counterpart signed by
the party against whom enforcement is sought. The headings of each section of
this Agreement are for convenience only and shall not define or limit the
provisions thereof. This Agreement and all rights and obligations hereunder
shall be binding upon the Company and its respective successors and assigns,
and shall inure to the benefit of the Bank and its successors and assigns. If
any term of this Agreement shall be held to be invalid, illegal or
unenforceable, the validity of all other terms hereof shall in no way be
affected thereby, and this Agreement shall be construed and be enforceable as
if such invalid, illegal or unenforceable term had not been included herein.
The Company acknowledges receipt of a copy of this Agreement.
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<PAGE>
IN WITNESS WHEREOF, intending to be legally bound, the Company has caused
this Agreement to be duly executed as of the date first above written.
ELTRAX SYSTEMS, INC.
By: /S/ MACK V. TRAYNOR, III
-----------------------------
Name: Mack V. Traynor, III
Title: President
Accepted:
STATE STREET BANK AND TRUST
COMPANY
By: /s/ Frederick Epstein
- --------------------------
Name: Frederick Epstein
Title: Vice President
NOTE: Nordata, Inc. and Atlantic Network Systems, Inc. entered into the same
form of Security Agreement as well.
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<PAGE>
_____________________________________________
ASSET PURCHASE AGREEMENT
Among
ELTRAX HEALTH CARD SOLUTIONS, LLC,
("Purchaser"),
EMX, LLC,
AMERICAS TOWER PARTNERS,
("Guarantors")
and
ELTRAX SYSTEMS, INC.
("Seller")
_____________________________________________
Effective November 22, 1996
_____________________________________________
<PAGE>
ASSET PURCHASE AGREEMENT
TABLE OF CONTENTS
SECTION PAGE
1. SALE AND PURCHASE OF ASSETS.. . . . . . . . . . . . . . . . . . . . . . . . 1
1.1. SALE AND PURCHASE OF ASSETS.. . . . . . . . . . . . . . . . . . . . . . . 1
1.2. EXCLUDED ASSETS.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
1.3. PURCHASE PRICE. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
2. ASSUMPTION OF OBLIGATIONS.. . . . . . . . . . . . . . . . . . . . . . . . . 2
2.1. OBLIGATIONS ASSUMED.. . . . . . . . . . . . . . . . . . . . . . . . . . . 2
3. REPRESENTATIONS AND WARRANTIES OF THE SELLER AND THE SHAREHOLDERS.. . . . . 3
3.1. ORGANIZATION. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
3.2. AUTHORITY RELATIVE TO THIS AGREEMENT. . . . . . . . . . . . . . . . . . . 3
3.3. CONSENTS AND APPROVALS. . . . . . . . . . . . . . . . . . . . . . . . . . 4
3.4. TITLE TO ASSETS.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
3.5. CONDITION OF ASSETS.. . . . . . . . . . . . . . . . . . . . . . . . . . . 4
3.6. BROKERS.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
3.7. ELTRAX EMPLOYEE MATTERS.. . . . . . . . . . . . . . . . . . . . . . . . . 4
4. REPRESENTATIONS AND WARRANTIES OF THE PURCHASER.. . . . . . . . . . . . . . 5
4.1. ORGANIZATION. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
4.2. AUTHORITY RELATIVE TO THIS AGREEMENT. . . . . . . . . . . . . . . . . . . 5
4.3. CONSENTS AND APPROVALS. . . . . . . . . . . . . . . . . . . . . . . . . . 5
4.4. BROKERS.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
4.5. ACCESS TO BUSINESS. . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
5. COVENANTS.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
5.1. RIGHT OF INSPECTION.. . . . . . . . . . . . . . . . . . . . . . . . . . . 6
5.2. TRANSACTIONAL TAX UNDERTAKINGS. . . . . . . . . . . . . . . . . . . . . . 6
5.3. ELTRAX EMPLOYEES. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
5.4. COLLECTION OF ACCOUNTS RECEIVABLE.. . . . . . . . . . . . . . . . . . . . 6
5.5. USE OF ELTRAX NAME. . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
5.6. DISCHARGE OF ASSUMED OBLIGATIONS. . . . . . . . . . . . . . . . . . . . . 7
5.7. GUARANTEE BY EMX, LLC AND AMERICAS TOWER PARTNERS.. . . . . . . . . . . . 7
5.8. MUTUAL ACCESS TO BUSINESS RECORDS.. . . . . . . . . . . . . . . . . . . . 7
6. SURVIVAL OF REPRESENTATIONS AND WARRANTIES AND INDEMNIFICATION. . . . . . . 8
6.1. SURVIVAL OF REPRESENTATIONS AND WARRANTIES. . . . . . . . . . . . . . . . 8
6.2. MUTUAL INDEMNITIES. . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
6.3. PROCEDURES FOR INDEMNIFICATION. . . . . . . . . . . . . . . . . . . . . . 8
7. MISCELLANEOUS.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
7.1. EXPENSES. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
7.2. FURTHER ASSURANCES. . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
7.3. NOTICES.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
7.4. ASSIGNMENT AND SUCCESSORS.. . . . . . . . . . . . . . . . . . . . . . . . 9
7.5. INFORMATION CONCERNING ELTRAX.. . . . . . . . . . . . . . . . . . . . . . 9
7.6. BINDING EFFECT. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .10
7.7. GOVERNING LAW.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .10
i
<PAGE>
7.8. COUNTERPARTS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .10
7.9. AMENDMENT OR MODIFICATION.. . . . . . . . . . . . . . . . . . . . . . . .10
7.10. ENTIRE AGREEMENT.. . . . . . . . . . . . . . . . . . . . . . . . . . . .10
7.11. NO THIRD PARTY BENEFICIARIES.. . . . . . . . . . . . . . . . . . . . . .10
7.12. SURVIVAL OF COVENANTS. . . . . . . . . . . . . . . . . . . . . . . . . .10
7.13. ARBITRATION. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .10
ii
<PAGE>
ASSET PURCHASE AGREEMENT
THIS AGREEMENT is entered into as of November 22, 1996, by and among
ELTRAX HEALTH CARD SOLUTIONS, LLC, a Delaware limited liability company (the
"Purchaser"), AMERICAS TOWER PARTNERS, a New York general partnership
("ATP"), EMX, LLC, a Delaware limited liability company ("EMX") and ELTRAX
SYSTEMS, INC., a Minnesota corporation ("Eltrax" or the "Seller").
WHEREAS, the Seller desires to sell to the Purchaser substantially all
the assets used by Seller in its health card systems business (the
"Business") pursuant to the terms and conditions of this Agreement and the
Purchaser desires to purchase such assets.
NOW, THEREFORE, in consideration of the premises and the respective
agreements hereinafter set forth, and for other good and valuable
consideration, the receipt and sufficiency of which is hereby acknowledged,
the parties agree as follows:
1. SALE AND PURCHASE OF ASSETS.
1.1. SALE AND PURCHASE OF ASSETS.
Subject to the terms and conditions of this Agreement, the Seller
hereby sells, conveys, assigns, transfers and delivers to the
Purchaser, and the Purchaser hereby purchases all of the assets used
by Seller in the Business as described in this Section 1.1, including
all of the following (which are collectively referred to as the
"ASSETS"):
(a) All right, title and interest in and to any and all inventory and
supplies of the Seller relating to the Business including work
in process located on or at the Seller's headquarters in St.
Paul, Minnesota (the "Facility") or elsewhere as more fully
described on Exhibit 1.1(a) hereto (the "INVENTORY");
(b) All right, title and interest in and to the Seller's furniture,
fixtures and equipment used in the Business (the "FURNITURE,
FIXTURES AND EQUIPMENT") as more fully described on
Exhibit 1.1(b) attached hereto, except any such items set forth
on Exhibit 1.2 ("EXCLUDED ASSETS") which are not included in the
Assets sold hereunder;
(c) All rights and interests of Seller, in and to Patent Number
4,645,916 (issued February 24, 1987) with respect to the coding
scheme and algorithm utilized in achieving the proprietary high
density recording of data on the Eltrax cards, and all rights
and interests of Seller in and to research, development and
commercially practiced processes, trade secrets, know-how,
inventions, drawings, specifications and manufacturing,
engineering and other technical information which are used in
connection with the Business;
(d) All right, title and interest to certain prepaid expenses set
forth on Exhibit 1.1(d);
(e) All goodwill associated with the Business, except with respect
to the use of the word "Eltrax" only to the extent provided in
this Agreement;
<PAGE>
(f) All customer, prospect and vendor lists relating to the Business,
and all files and documents (including credit information)
relating to such customers, purchase orders with customers,
prospects and vendors, contracts with third parties, and other
business and financial records, files, books and documents
relating to the Assets and the Business, including, but not
limited to, computer programs (including computer modeling
programs), manuals and data, sales, advertising and
promotional materials, sales, distribution and purchase
correspondence, and trade association memberships relating to
the Assets and the Business, except any such items set forth
on Exhibit 1.2, which are not included in the Assets sold
hereunder;
(g) All rights of Seller under the purchase orders related to the
Business as set forth on Exhibit 2.1(c);
(h) All rights of Seller under three Pitney Bowes equipment leases as
set forth on Exhibit 1.1(h) (the "Pitney Bowes Leases"); and
(i) Except as otherwise set forth in this Agreement, all other
tangible and intangible assets of the Seller used in the
Business.
1.2. EXCLUDED ASSETS.
The Seller and the Purchaser acknowledge and agree that the only assets
of the Seller to be sold are the Assets specifically identified in
Section 1.1 and that no other assets of the Seller are being sold
under this Agreement. Specifically, the parties acknowledge that
Seller is not transferring hereunder any accounts receivable or
cash of the Seller (whether or not relating to the Assets of the
Business) arising before the date hereof. Further, Seller is not
selling any of the items listed in Exhibit 1.2.
1.3. PURCHASE PRICE. The total purchase price of the Assets shall be
Thirty-Two Thousand Dollars ($32,000) (the "Purchase Price"). The
Purchaser will pay the Purchase Price by delivering a check or
sending such amount via federal wire transfer as of the date hereof
in immediately available funds to a bank account of the Seller
pursuant to written instructions of the Seller provided to
Purchaser at least twenty-four (24) hours prior to the date hereof.
2. ASSUMPTION OF OBLIGATIONS.
2.1. OBLIGATIONS ASSUMED.
Purchaser hereby assumes and agrees to perform, and agrees to indemnify
and hold Seller harmless from and against any and all liabilities,
losses and damages incurred by the Seller arising out of or related
to Purchaser's failure to assume and perform, each of the following
obligations and liabilities of the Seller:
(a) Seller's obligations under that certain Marketing Agreement dated
October 18, 1989 between Eltrax and Shared Medical Systems
Corporation ("SMS"), as amended June 29, 1992 and October 3,
1996 (the "SMS Agreement");
(b) Seller's obligations under purchase orders entered into in the
ordinary course of business with vendors, as set forth on Exhibit
2.1(b) attached hereto;
2
<PAGE>
(c) Seller's obligations under purchase orders entered into in the
ordinary course of business with customers, as set forth on
Exhibit 2.1(c) attached hereto;
(d) Seller's obligations under that certain lease dated February 25,
1993, including the attached addendum of even date, by and between
Eltrax and Skillman Corporation ("Skillman") for the offices
of Seller located at 1775 Old Highway 8, Suite 111, New
Brighton, MN 55112, as amended by the Addendum to Lease dated
January 26, 1996 between Eltrax and Skillman;
(e) Seller's obligations under maintenance agreements entered into by
Eltrax in the ordinary course of business with customers as set
forth on Schedule 2.1(e);
(f) Warranty or failed product claims received by Seller that have
not been fully resolved, as set forth on Schedule 3.5;
(g) Warranty or failed product claims that arise on or after the date
of this Agreement; and
(h) Seller's obligations under the Pitney Bowes Leases, as defined in
Section 1.1(h) of this Agreement.
All of the above are hereinafter referred to as "Assumed Obligations."
Except for the Assumed Obligations, all claims and liabilities
relating to events occurring or obligations related to the Business
arising before the date of this Agreement will be the
responsibility of the Seller, and Seller agrees to indemnify and
hold Purchaser harmless from and against such claims and
liabilities.
3. REPRESENTATIONS AND WARRANTIES OF THE SELLER AND THE SHAREHOLDERS.
The Seller represents and warrants to the Purchaser as follows:
3.1. ORGANIZATION.
The Seller is a corporation duly organized, validly existing and in
good standing under the laws of the State of Minnesota, and the Seller
has all requisite corporate power and authority to own the Assets.
3.2. AUTHORITY RELATIVE TO THIS AGREEMENT.
The Seller has full corporate power and authority to execute and
deliver this Agreement and to consummate the transactions contemplated
hereby. The execution and delivery of this Agreement and the
consummation of the transactions contemplated hereby have been duly
and validly authorized and approved, and no other corporate proceedings
on the part of the Seller are necessary to authorize this Agreement or
the consummation of the transactions contemplated hereby.
3
<PAGE>
3.3. CONSENTS AND APPROVALS.
The execution and delivery of this Agreement and the consummation of
the transactions contemplated hereby will not: (i) violate any
provision of the Articles of Incorporation or Bylaws of the Seller;
(ii) violate any statute, rule, regulation, order or decree of any
public body or authority by which the Seller or the Assets may be
bound; (iii) require any filing with, or permit, consent or approval
of, any public body or authority; or (iv) result in a violation or
breach of, or constitute (with or without due notice or lapse of
time or both) a default (or give rise to any right of termination,
cancellation or acceleration) under, any of the terms, conditions or
provisions of any contracts or any note, bond, mortgage, indenture,
license, franchise, permit, agreement or other instrument or
obligation to which the Seller is a party, or by which it or any of
the Assets may be bound.
3.4. TITLE TO ASSETS.
The Seller has good and marketable title to all of the Assets, whether
tangible or intangible, and all of the Assets are free and clear of
all restrictions on or conditions to transfer or assignment and free
and clear of any and all liens, claims, charges, encumbrances or
restrictions of any nature whatsoever.
3.5. CONDITION OF ASSETS.
All Assets hereunder are sold "as is, where is." To Seller's
knowledge, Seller has not received any notice of default or threatened
termination of the relationship with SMS or HBO & Company. To
Seller's knowledge, except as set forth on Schedule 3.5, Seller has
not received notice of any warranty or failed product claims that
have not been resolved.
3.6. BROKERS.
Seller has not employed any broker, finder or financial advisor, or
incurred any liability for any brokerage fee or commission, finder's
fee or financial advisory fee, in connection with the transactions
contemplated hereby, nor is there any basis known to Seller for any
such fee or commission to be claimed by any person or entity.
3.7. ELTRAX EMPLOYEE MATTERS.
To Seller's knowledge, none of its employees whose names are set forth
on Schedule 5.3 hereof have employment agreements with Seller, and
Schedule 5.3 sets forth a correct list of the salaries and benefits
of such employees while employed by Seller.
4
<PAGE>
4. REPRESENTATIONS AND WARRANTIES OF THE PURCHASER.
The Purchaser represents and warrants to the Seller as follows:
4.1. ORGANIZATION.
The Purchaser is a limited liability company duly organized,
validly existing and in good standing under the laws of the
state of Delaware, and the Purchaser has all requisite
corporate power and authority to acquire the Assets
hereunder. ATP is a validly existing general partnership in
good standing under the laws of the state of New York, and
ATP has all requisite power and authority to perform its
obligations hereunder. EMX is a Delaware limited liability
company duly organized, validly existing and in good standing
under the laws of the state of Delaware and EMX has all
requisite corporate power and authority to perform its
obligations hereunder.
4.2. AUTHORITY RELATIVE TO THIS AGREEMENT.
The Purchaser has full limited liability corporate power and
authority to execute and deliver this Agreement and to
consummate the transactions contemplated hereby. The
execution and delivery of this Agreement and the consummation
of the transactions contemplated hereby have been duly and
validly authorized and approved by the managing members of
Purchaser, and no other limited liability corporate
proceedings on the part of the Purchaser are necessary to
authorize this Agreement or the consummation of the
transactions contemplated hereby.
4.3. CONSENTS AND APPROVALS.
The execution and delivery of this Agreement and the
consummation of the transactions contemplated hereby will not:
(i) violate any provision of the Articles of Organization or
Operating Agreement of the Purchaser; (ii) violate any statute,
rule, regulation, order or decree of any public body or
authority by which the Purchaser or any of its properties or
assets may be bound; (iii) require any filing with, or permit,
consent or approval of, any public body or authority; (iv)
result in a violation or breach of, or constitute (with or
without due notice or lapse of time or both) a default (or give
rise to any right of termination, cancellation or acceleration)
under, any of the terms, conditions or provisions of any
note, bond, mortgage, indenture, license, franchise, permit,
agreement or other instrument or obligation to which the
Purchaser is a party or by which it or any of its properties
or assets may be bound.
4.4. BROKERS.
Purchaser has not employed any broker, finder or financial
advisor, or incurred any liability for any brokerage fee or
commission, finder's fee or financial advisory fee, in
connection with the transaction contemplated hereby, nor is
there any basis known to Purchaser for any such fee or
commission to be claimed by any person or entity.
4.5. ACCESS TO BUSINESS.
Purchaser has had full access to the facilities, properties,
books and records of the Business and has had appropriate
opportunity to make all reasonable investigations it may
<PAGE>
have desired with respect to the Business so as to be in a
position to make an informed decision as to the purchase of
the Business and Assets.
5. COVENANTS.
The Seller and the Purchaser by this Agreement covenant and agree that:
5.1. RIGHT OF INSPECTION.
The Purchaser has, prior to the date hereof, made or caused
to be made such investigation of the Assets as the Purchaser
has deemed necessary or advisable to familiarize itself with
the Assets. It is expressly understood that the Assets are
being conveyed "as is, where is," and, except as specifically
provided in this Agreement, Seller makes no representations
or warranties whatsoever with respect to the Assets.
5.2. TRANSACTIONAL TAX UNDERTAKINGS.
The parties hereto agree to cooperate to make any necessary
filings with state and local taxing authorities with respect
to the transactions contemplated herein. Purchaser agrees to
execute a resale exemption certificate in a form and
substance satisfactory to the Purchaser and Seller.
5.3. ELTRAX EMPLOYEES.
On the Closing Date, Seller will terminate its employment of
all eight employees whose names are set forth on Schedule 5.3
hereof (the "Terminated Employees"). Schedule 5.3 also sets
forth the salaries, medical and other benefits with respect
to the Terminated Employees, except Seller's 401(k) plan. On
the Closing Date, concurrently with such termination,
Purchaser agrees to hire the Terminated Employees on
substantially the same terms as set forth in Schedule 5.3
(including prior service credit).
Seller will continue to provide coverage of the Terminated
Employees under Seller's existing medical and dental
insurance only from the date hereof through December 31,
1996, and Purchaser will promptly reimburse Seller for
Seller's actual costs of such coverage for the month of
December 1996.
5.4. COLLECTION OF ACCOUNTS RECEIVABLE.
For a period of one (1) year after the date hereof, Purchaser
agrees to use its commercially reasonable efforts to collect,
on Seller's behalf, the accounts receivable as set forth in
Schedule 5.4 hereof (the "Accounts Receivable"). Purchaser
shall promptly remit all such collected amounts to Seller on
a "first-dollar-in" basis, unless the invoice is under
dispute, pursuant to Seller's written instructions. If
Purchaser receives checks payable to Eltrax Systems, Inc.,
Purchaser agrees to promptly forward such checks to Seller at
its new address. If Purchaser receives checks payable to
Eltrax Health Card Solutions, LLC, or EMX, LLC or any other
person or entity, which relate to the payment of the Accounts
Receivable, Purchaser will promptly remit such sums to the
Seller. Purchaser agrees to provide Seller with specific
information on the collection of the Accounts Receivable as
requested by Seller from time to time, and in any case not
less than once per month. Purchaser shall keep adequate
records with respect to the Accounts
<PAGE>
Receivable in order that Seller may verify and audit
Purchaser's activity with respect to such collection efforts.
5.5. USE OF ELTRAX NAME.
Seller hereby assigns, outright and forever, exclusively to
Purchaser, the right to use the name "Eltrax" only as part of
the marks "Eltrax Health Card(s)" and "Eltrax Health Care"
solely in the health care or health card issuance industry.
Such right to use the "Eltrax" name does not include the
right to license or assign this right to any other party, or
to file a trademark application, without the prior written
consent of the Seller, which consent cannot be unreasonably
withheld. Notwithstanding the prior sentence, Purchaser shall
have the right to assign its rights under this Section 5.5 to
(a) an affiliate, or (b) a purchaser of the Business so long
as Seller receives prior written notice of the intended
assignment and such purchaser of the Business assumes
Purchaser's obligations under this Section 5.5 in writing
before any such subsequent assignment. Purchaser may use the
existing promotional materials which are conveyed by Seller
to Purchaser hereunder as part of the Assets, which materials
contain the words "Eltrax" or "Eltrax Systems" provided,
however, that Purchaser may not use such names in any
promotional materials acquired after the closing of this
transaction. Purchaser agrees not to use the name "Eltrax"
or "Eltrax Systems" except as provided in this Section 5.5.
Purchaser agrees to indemnify and hold Seller harmless from
and against any and all liabilities, damages and expenses
related to or arising out of Purchaser's use of the
"Eltrax" name.
5.6. DISCHARGE OF ASSUMED OBLIGATIONS.
Purchaser will pay, perform or discharge, as and when due,
each of the Assumed Obligations pursuant to Section 2.1 of
this Agreement.
5.7. GUARANTEE BY EMX, LLC AND AMERICAS TOWER PARTNERS.
Each of EMX, LLC and Americas Tower Partners jointly and
severally hereby unconditionally and irrevocably guarantee to
Seller the prompt and full payment and other performance of
each and every obligation of the Purchaser under this
Agreement (whether current or future obligations), including
without limitation the Assumed Obligations, when each of such
obligations is due to be performed, including without
limitation Purchaser's indemnification obligations under this
Agreement.
5.8. MUTUAL ACCESS TO BUSINESS RECORDS.
Purchaser and Seller will provide each other with all
necessary access during reasonable business hours to the
historical accounting, corporate and financial records,
files, books and documents relating to the Assets and the
Business as the Purchaser or Seller may request from time to
time after the closing in order to allow such party to meet
its financial, tax, accounting and Securities and Exchange
Commission reporting requirements.
<PAGE>
6. SURVIVAL OF REPRESENTATIONS AND WARRANTIES AND INDEMNIFICATION.
6.1. SURVIVAL OF REPRESENTATIONS AND WARRANTIES.
All of the representations and warranties of the parties
hereto shall survive the closing of the transactions
contemplated hereby and shall expire one (1) year after the
effective date of this Agreement.
6.2. MUTUAL INDEMNITIES.
In addition to any of the specific indemnifications contained
herein, the Seller, on the one hand, and the Purchaser, on
the other hand, each agree as to their respective
representations, warranties and covenants set forth in this
Agreement to indemnify and hold harmless each other from and
against any and all losses, liabilities, expenses (including,
without limitation, fees and disbursements of counsel),
claims, liens, damages, or other obligations whatsoever which
are actually incurred by virtue of or result from the
material inaccuracy of any representation or the breach of
any warranty or agreement made in this Agreement or in any
certificate or other instrument delivered pursuant to this
Agreement for a period of one (1) year after the effective
date of this Agreement.
6.3. PROCEDURES FOR INDEMNIFICATION.
Each party agrees to give the other prompt written notice of
any event or assertion of which it has knowledge concerning
any such loss, liability, expense, claim, lien or other
obligation and as to which it may request indemnification
hereunder. Each party will cooperate with the other in
determining the validity of any such claim or assertion. The
indemnifying party hereunder shall have the right to defend
with counsel reasonably satisfactory to the indemnified
party, any such suits, claims or proceedings as to which the
indemnified party has requested indemnification hereunder.
Each party agrees not to settle or compromise any such suit,
claim or proceeding without the prior written consent of the
other party.
7. MISCELLANEOUS.
7.1. EXPENSES.
Each of the parties hereto shall bear its own costs, fees and
expenses in connection with the negotiation, preparation,
execution, delivery and performance of this Agreement and
the consummation of the transactions contemplated hereby,
including without limitation fees, commissions and
expenses payable to brokers, finders, investment bankers,
consultants, exchange or transfer agents, attorneys,
accountants and other professionals, whether or not the
transactions contemplated herein is consummated.
7.2. FURTHER ASSURANCES.
From and after the date of this Agreement, upon the reasonable
request of the Purchaser, the Seller shall execute,
acknowledge and deliver all such assurances, deeds,
assignments, transfers, conveyances, powers of attorney and
other instruments and documents reasonably necessary
to sell, assign, transfer, convey and deliver the Assets to
the Purchaser, to vest the Purchaser with valid legal
title to the Assets and to enable the Purchaser to protect
its right, title and interest in and enjoyment of all
of the Assets.
<PAGE>
7.3. NOTICES.
Any notice, demand, request or other communication under this
Agreement shall be in writing and shall be deemed to
have been given on the date of service if personally served
or on the fifth day after mailing if mailed by registered or
certified mail, return receipt requested, addressed as
follows (or to such other address of which either of the
parties hereto shall have notified the other party
hereto in accordance herewith):
To the Purchaser: Eltrax Health Care Solutions, LLC
c/o EMX, LLC
520 Madison Avenue
New York, NY 10022
Attn: Joseph Bernstein
To EMX, LLC: EMX, LLC
520 Madison Avenue
New York, NY 10022
Attn: Joseph Bernstein
To Americas
Tower Partners: Americas Tower Partners
520 Madison Avenue
New York, NY 10022
Attn: Joseph Bernstein
To the Seller: Eltrax Systems, Inc.
c/o Oppenheimer Wolff & Donnelly
45 South 7th Street, Suite 3400
Minneapolis, MN 55402
Attn: Thomas R. Marek
7.4. ASSIGNMENT AND SUCCESSORS.
This Agreement may not be assigned by either party without
the prior written consent of the other party which consent
will not be unreasonably withheld; provided that the rights
and obligations of either party may be assigned or
transferred in connection with any merger or sale by such
party of all or substantially all of its assets and where the
assignee or transferee expressly agree to be bound by the
terms hereof.
7.5. INFORMATION CONCERNING ELTRAX.
Purchaser may use the Seller's telephone number after the
Closing as set forth on Schedule 7.5 hereof, provided,
however, that Purchaser agrees to forward all telephone
calls, mail (both U.S. Mail and electronic mail) which are
intended for Seller's personnel or Seller, to the new
telephone number which will be provided from time to time by
Seller to Purchaser. Purchaser and Seller agree to
cooperate and provide appropriate notification of this
transaction to existing health card customers and
vendors of the Seller. Seller shall retain its current
Internet homepage addresses and domain names, and the
parties shall cooperate in good faith with each other to
disconnect the link sites used in the Business from
the Seller's homepage addresses.
<PAGE>
7.6 BINDING EFFECT.
Subject to Section 7.4, this Agreement shall be binding upon
and inure to the benefit of the successors and permitted
assigns of the parties hereto.
7.7. GOVERNING LAW.
This Agreement shall be construed in accordance with, and
governed by, the laws of the State of Minnesota.
7.8. COUNTERPARTS.
This Agreement may be executed in any number of counterparts,
each of which shall constitute an original and all of
which shall constitute one agreement.
7.9. AMENDMENT OR MODIFICATION.
This Agreement may not be modified or amended except by a
written instrument duly executed by each of the parties
hereto.
7.10. ENTIRE AGREEMENT.
This Agreement (including the Exhibits and Schedules)
constitutes the sole understanding of the parties with
respect to the matters provided for herein and supersedes any
previous agreements and understandings between the parties
with respect to the subject matter hereof.
7.11. NO THIRD PARTY BENEFICIARIES.
Except as expressly permitted by this Agreement, nothing in
this Agreement will confer any rights upon any person or
entity which is not a party or permitted assignee of a party
to this Agreement.
7.12. SURVIVAL OF COVENANTS.
Each party to this Agreement agrees that all covenants and
agreements of the parties hereto will survive the closing of
the transactions contemplated by this Agreement, and none of
such covenants and agreements will merge into the closing.
7.13. ARBITRATION.
Any controversial claim arising out of or relating to this
Agreement, or the making, performance or interpretation
thereof, including without limitation, alleged fraudulent
inducement thereof, will be settled by binding arbitration in
Minneapolis, Minnesota by a panel of three arbitrators in
accordance with the commercial arbitration rules of the
American Arbitration Association. Judgment upon any
arbitration award may be entered in any court having
jurisdiction thereof, and the parties consent to the
jurisdiction of the courts of the State of Minnesota for this
purpose.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed as of the date first written above.
PURCHASER: SELLER:
ELTRAX HEALTH CARD SOLUTIONS, LLC ELTRAX SYSTEMS, INC.
a Delaware limited liability company a Minnesota corporation
By: /s/ Scott Johnson By: /s/ Mack V. Traynor, III
------------------------------- ------------------------------
Scott Johnson Mack V. Traynor, III
Its: President Its: President and Chief Executive
Officer
EMX, LLC
a Delaware limited liability company
By: /s/ Donald A. Giallorenzo
-------------------------------
Donald A. Giallorenzo
Its: Vice President and Treasurer
AMERICAS TOWER PARTNERS
a New York general partnership
By: /s/ Donald A. Giallorenzo
-------------------------------
Donald A. Giallorenzo
Its: Controller
-------------------------------
<PAGE>
STANDARD OFFICE LEASE AGREEMENT (NET)
THIS LEASE AGREEMENT (hereinafter called the Lease Agreement") made as
of the 27th day of NOVEMBER, 1996, by and between SECURITY LIFE
INSURANCE COMPANY OF AMERICA, A MINNESOTA CORPORATION, having offices at
3500 West 80th Street, Bloomington, Minnesota, 55431 hereinafter called
the "Landlord"), and ELTRAX SYSTEMS, INC., A MINNESOTA CORPORATION
(hereinafter called the "Tenant").
WITNESSETH
FOR AND IN CONSIDERATION of the sum of One Dollar ($1.00) in hand
paid by each of the parties to the other, and other good and valuable
consideration, receipt and sufficiency of which is hereby acknowledged,
Landlord does hereby lease and let unto Tenant, and Tenant does hereby
hire, lease and take from Landlord, that area outlined on Exhibit A-I
attached hereto, and by this reference incorporated herein, and
described as Suite 345, containing approximately 1,567 SQUARE FEET,
(hereinafter called the "Premises") AT SHADY OAK OFFICE CENTER I,
LOCATED AT 10901 RED CIRCLE DRIVE (hereinafter called the "Building") in
the CITY OF MINNETONKA, COUNTY OF HENNEPIN, State of Minnesota. The term
Building as it is used herein shall consist of the land and building(s)
set forth in Exhibit A-2 hereto.
ARTICLE 1-TERM
To have and to hold said Premises for a term FIVE (5) YEARS,
commencing NOVEMBER 27, 1996, and terminating NOVEMBER 30, 2001,
(hereinafter called the "Term") upon the rentals and subject to (he
conditions set forth in this Lease Agreement, and the Exhibits attached
hereto. The commencement and termination dates are specifically
subject to the provisions of Article S hereof.
ARTICLE 2-USE
The Premises shall be used by the Tenant solely for the following
purposes: GENERAL OFFICE PURPOSES.
ARTICLE 3-RENTALS
Tenant agrees to pay to Landlord as minimum rental (hereinafter
called "Minimum Rental") for the Premises, without notice set-off or
demand, the following sums per month, said monthly installments shall be
due and payable by Tenant in advance on the first day of each calendar
month during the Term of this Lease Agreement, or any extension or
renewal thereof, at the office of Landlord set forth in the preamble to
this Lease Agreement or at such other place as Landlord may designate.
In the event of any fractional calendar month, Tenant shall pay for each
day in such partial month a rental equal to 1/30 of the Minimum Rental.
Month of Term Monthly Minimum Rents Rates Per Square Foot
------------- --------------------- ---------------------
01-36 $2,364.86 $18.11
37-60 $2,397.51 $18.36
<PAGE>
Tenant agrees to pay, as Additional Rent, which shall be
collectible to the same extent as Minimum Rental, all amounts which may
become due to Landlord hereunder and any tax, charge or fee that may be
levied, assessed or imposed upon or measured by the rents reserved
hereunder by any governmental authority acting under any present or
future law before any fine, penalty, interest or costs may be added
thereto for non-payment. Pursuant to Article 6 hereof, Landlord's
estimated Operating Expenses for 1996 are $2.27 per square foot and
estimated Real Estate Taxes payable in 1996 are $5.34 per square foot.
ARTICLE 4-CONSTRUCTION
Plans and/or a description for permanent improvements to the
Premises are attached hereto as Exhibit A-3 and by this reference
incorporated herein hereafter called the "Plans"). The Plans have been
approved by each of Landlord and Tenant. The parties acknowledge that
the Plans are to modify the premises to accommodate Tenant's intended
use. Landlord shall be responsible for constructing the improvements
as shown on the Plans (hereafter called "Tenant Improvements") for and
on behalf of Tenant. Landlord and Tenant have agreed that the costs of
such Tenant Improvements shall be paid by Tenant, although initially
advanced by Landlord, with said costs to be reimbursed to Landlord by
Tenant as part of Tenant's payments of Minimum Rental as set forth in
Article 3 above. Any improvements to the Premises, other than as shown
on the Plans, and the furnishing of the Premises, shall be made by
Tenant at the sole cost and expense of Tenant, subject to all other
provisions of this Lease Agreement, including compliance with all
applicable governmental laws, ordinances and regulations. If the
Tenant Improvements cannot be substantially completed prior to the
commencement of the Term, then the provisions of Article 5 shall apply.
ARTICLE 5-POSSESSION
Except as otherwise provided, Landlord shall deliver possession of
the Premises on or before the date hereinabove specified for
commencement of the Term, but delivery of possession prior to such
commencement date shall not affect the expiration date of this Lease
Agreement. Failure of Landlord to deliver possession of the Premises
by the date hereinabove provided, due to a holding over by a prior
tenant, or any other cause beyond Landlord's control, or time
required for construction delays due to material shortages,
strikes, or acts of God, shall automatically postpone the date of
commencement of the Term of this Lease Agreement and shall extend
the termination date by periods equal to those which shall have
elapsed between and including the date hereinabove specified for
commencement of the Term hereof and the date on which possession of
the Premises is delivered to the Tenant. The rentals herein
reserved shall commence on the first day of the Term, provided,
however, in the event of any occupancy by Tenant prior to the
beginning of the Term, such occupancy shall in all respects be the same
as that of a tenant under this Lease Agreement, and the rental shall
commence as of the date that Tenant enters into such occupancy of
the Premises. Provided further, that if Landlord shall be delayed
in delivery of the Premises to Tenant due to Tenant's failure to
agree to the Plans or any delay caused by a party employed by or
the agent of Tenant, or by Tenant's failure to pay for the costs of
the Tenant Improvements requested by Tenant subsequent to approval
of the Plans, then
2
<PAGE>
in such case the rental shall be accelerated by the number of days
of such delay, and the rentals shall commence the same as if occupancy
had been taken by Tenant. Prior to the commencement of the Term,
Landlord shall have no responsibility or liability for loss or damage to
fixtures, facilities or equipment installed or left on the Premises. By
occupying the Premises as a Tenant, or to install fixtures, facilities
or equipment, or to perform finishing work, Tenant shall be conclusively
deemed to have accepted the same and to have acknowledged that the
Premises are in the condition required by this Lease Agreement, except
items which are not in compliance with Exhibit A-3 and for which Tenant
has given Landlord a written "punch list" within thirty (30) days of
Tenant's first occupancy of the Premises. Should the commencement of
the rental obligations of Tenant under this Lease Agreement occur for
any reason on a day other than the first day of a calendar month, then
in that event solely for the purposes of computing the Term of this
Lease Agreement, the commencement date of the Term shall become and be
the first day of the first full calendar month following the date when
Tenant's rental obligation commences, or the first day of the first full
calendar month following the commencement date set out in Article I (if
such is other than the first date of a calendar month), whichever date
is later, and the termination date shall be adjusted accordingly;
provided however, that the termination date shall be the last day of a
calendar month, which date shall in no event be earlier than the
termination date set out in Article 1. Immediately after Tenant's
occupancy of the Premises the Landlord and Tenant shall execute a
ratification agreement which shall set forth the final commencement and
termination dates for the Term and shall acknowledge the Minimum Rental,
the square footage of the Premises, and delivery of the Premises in the
condition required by this Lease Agreement.
ARTICLE 6-TENANT'S PRO RATA SHARE OF REAL ESTATE TAXES AND
OPERATING EXPENSES
A. During each full or partial calendar year during the Term of
this Lease Agreement, Tenant shall pay to Landlord, as Additional
Rental, an amount equal to the Real Estate Taxes and Operating
Expenses (both as hereinafter defined) per square foot of
rentable area in the Building multiplied by the number of square
feet of rentable area in the Premises prorated for the period
that Tenant occupied the Premises. Notwithstanding the preceding
sentence, Tenant's share of the following Operating Expenses
shall be computed on the basis of the cost of said expenses per
rentable square foot of area within the Building actually
occupied: cleaning, management, and energy expenses.
B. Landlord shall, each year during the Term of this Lease
Agreement, give Tenant an estimate of Operating Expenses and Real
Estate Taxes payable per square foot of rentable area for the
coming calendar year. Tenant shall pay, as Additional Rental,
along with its monthly Minimum Rental payments required
hereunder, one-twelfth (1/12) of such estimated Operating
Expenses and Real Estate Taxes and such Additional Rental shall
be payable until subsequently adjusted for the following year
pursuant to this Article.
3
<PAGE>
C. As soon as possible after the expiration of each calendar year,
Landlord shall determine and certify to Tenant the actual
Operating Expenses and Real Estate Taxes for the previous year
per square foot of rentable area in the Building and the amount
applicable to the Premises. If such statement shows THAT Tenant's
share of Operating Expenses and Real Estate Taxes exceeds
Tenant's estimated monthly payments for the previous calendar
year, then Tenant shall, within twenty (20) days after receiving
Landlord's certification, pay such deficiency to Landlord. In the
event of an overpayment by Tenant, such overpayment shall be
refunded to Tenant, at the time of certification, in the form of
an adjustment in the Additional Rental next coming due, or if at
the end of the Term by a refund.
D. For the purposes of this Article, the term "Real Estate Taxes"
means the total of all taxes, fees, charges and assessments,
general and special, ordinary and extraordinary, foreseen or
unforeseen, which become due or payable upon the Building. All
costs and expenses incurred by Landlord during negotiations for
or contests of the amount of Real Estate Taxes shall be included
within the term "Real Estate Taxes." For purposes of this
Article, the term "Operating Expenses" shall be deemed to mean
all costs and expenses directly related to the Building incurred
by Landlord in the repair, operation, management and maintenance
of the Building including interior and exterior and common area
maintenance, management fees, cleaning expenses, energy expenses,
insurance premiums, and the amortization of capital investments
made to reduce operating costs or that are necessary due to
governmental requirements, all in accordance with generally
accepted accounting principles.
E. Landlord may at any time designate a fiscal year in lieu of a
calendar year and in such event, at the time of such a change,
there may be a billing for the fiscal year which is less than 12
calendar months.
F. Landlord reserves, and Tenant hereby assigns to Landlord, the
sole and exclusive right to contest, protest, petition for
review, or otherwise seek a reduction in the Real Estate Taxes.
ARTICLE 7-UTILITIES AND SERVICE
A. Landlord agrees to furnish water, electricity, elevator
service, and janitorial service. In the event Tenant's
requirements and/or usage of such utilities and services is
substantially greater than is customarily supplied to a
typical tenant in the Building, Landlord or Tenant may request
that the difference in such requirement and/or usage be
determined and that appropriate adjustments be made in the
Minimum Rental provided for in Article 3 of this Lease
Agreement.
B. Landlord agrees to furnish heat during the usual heating
season and air conditioning during the usual air conditioning
season, all during normal business hours as defined in this
Lease Agreement.
4
<PAGE>
C. No temporary interruption or failure of such services incidental
to the making of repairs, alterations or improvements, or due to
accidents or strike or conditions or events not under Landlord's
control, shall be deemed as an eviction of the Tenant or relieve
the Tenant from any of the Tenant's obligations hereunder.
Notwithstanding the foregoing, in the event any interruption or
failure or such services is the result of Landlord's negligence
or willful misconduct and such interruption or failure of
services continues for five (5) consecutive business days, Tenant
shall be entitled to an equitable abatement of Minimum Rental and
Additional Rental for so long as such interruption or failure
shall materially interfere with Tenant's ability to conduct its
business operations in the Premises and, in fact, Tenant does not
conduct its business operations in the Premises.
D. For the purposes of this Article 7, normal business hours shall
be deemed to mean the period of time between 8:00 a.m. and
5:00 p.m., Monday through Friday, and specifically excluding
Saturdays, Sundays and legal holidays.
ARTICLE 8-NON-LIABILITY OF LANDLORD
Except in the event of negligence or intentional acts of Landlord, its
agents, employees or contractors, Landlord shall not be liable for any loss or
damage for failure to furnish heat, air conditioning, electricity, elevator
service, water, sprinkler system or janitorial service. Landlord shall not be
liable for personal injury, death or any damage from any cause about the
Premises or the Building except if caused by Landlord's gross negligence or
intentional acts.
ARTICLE 9-CARE OF PREMISES
A. Tenant agrees:
1. To keep the Premises in as good condition and repair as they
were in at the time Tenant took possession of same,
reasonable wear and tear and damage from fire and other
casualty excepted;
2. To keep the Premises in a clean and sanitary condition;
3. Not to commit any nuisance or waste on the Premises,
overload the Premises or the electrical, water and/or
plumbing facilities in the Premises or Building, throw
foreign substances in plumbing facilities, or waste any of
the utilities furnished by Landlord;
4. To abide by such rules and regulations as may from time
to time be reasonably promulgated by Landlord;
5. To preserve and protect all carpeted areas and to provide
and use carpet protector mats in all locations within the
Premises where chairs with castors are used; and
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6. To obtain Landlord's prior approval of the interior design of
any portion of the Premises visible from the common areas or
from the outside of the Building. "Interior design as used in
the preceding sentence shall include but not be limited to floor
and wall coverings, furniture office design, artwork and color
scheme.
B. If Tenant shall fail to keep and preserve the Premises in the state of
condition required by the provisions of this Article 9, the Landlord
may at it option put or cause the same to be put into the condition
and state of repair agreed upon, and in such case the Tenant, on
demand, shall pay the cost thereof.
ARTICLE 10-NON-PERMITTED USE
Tenant agrees to use the Premises only for the purposes set forth in
Article 2 hereof. Tenant further agrees not to commit or permit any act to be
performed on the Premises or any omission to occur which shall be in violation
of any statute, regulation or ordinance of any governmental body or which will
increase the insurance rates on the Building or which will be in violation of
any insurance policy carried on the Building by the Landlord. Tenant, at its
expense, shall comply with all governmental laws, ordinances, rules and
regulations applicable to the use of the Premises and its occupancy and shall
promptly comply with all governmental orders, rulings and directives for the
correction, prevention and abatement of any violation upon, or in connection
with the Premises or Tenant's use or occupancy of the Premises, including the
making of any alterations or improvements to the Premises, all at Tenant's sole
cost and expense. The Tenant shall not disturb other occupants of the Building
by making any undue or unseemly noise or otherwise and shall not do or permit to
be done in or about the Premises anything which will be dangerous to life or
limb.
ARTICLE 11-INSPECTION
The Landlord or its employees or agents shall have the right without any
diminution of rent or other charges payable hereunder by Tenant to enter the
Premises at all reasonable times with reasonable prior notice, except in the
case of emergency, for the purpose of exhibiting the Premises to prospective
tenants or purchasers, inspection, cleaning, repairing, testing, altering or
improving the same or said Building, but nothing contained in this Article shall
be construed so as to impose any obligation on the Landlord to make any repairs,
alterations or improvements.
ARTICLE 12-ALTERATIONS
Tenant will not make any alterations, repairs, additions or improvements in
or to the Premises or add, disturb or in any way change any plumbing, wiring,
life/safety or mechanical systems, locks, or structural components of the
Building without the prior written consent of the Landlord as to the character
of the alterations, additions or improvements to be made, the manner of doing
the work, and the contractor doing the work. Such consent shall not be
unreasonably withheld or delayed, if such alterations, repairs, additions or
improvements are required of
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Tenant or are the obligation of Tenant pursuant to this Lease Agreement.
All such work shall comply with all applicable governmental laws, ordinances,
rules and regulations. The Landlord as a condition to said consent may
require a surety performance and/or payment bond from the Tenant for said
actions. Tenant agrees to indemnify and hold Landlord free and harmless
from any liability, loss, cost, damage or expense (including attorney's fees)
by reasons of any said alteration, repairs, additions or improvements.
ARTICLE 13-SIGNS
Tenant agrees that no signs or other advertising materials shall be
erected, attached or affixed to any portion of the interior or exterior of the
Premises or the Building without the express prior written consent of Landlord.
ARTICLE 14-COMMON AREAS
A. Tenant agrees (hat the use of all corridors, passageways, elevators,
toilet rooms, parking areas and landscaped area in and around said
Building, by the Tenant or Tenant's employees, visitors or invitees,
shall be subject to such rules and regulations as may from time to
time be made by Landlord for the safety, comfort and convenience of
the owners, occupants, tenants and invitees of said Building. Tenant
agrees that no awnings, curtains, drapes or shades shall be used upon
the Premises except as may be approved by Landlord.
B. In addition to the Premises, Tenant shall have the right of non-
exclusive use, in common with others, of (a) all unrestricted
automobile parking areas, driveways and walkways, and (b) loading
facilities, freight elevators and other facilities as may be
constructed in the Building, all to be subject to the terms and
conditions of this Lease Agreement and to reasonable rules and
regulations for the use thereof as prescribed from time to time by
Landlord.
C. Landlord shall have the right to make changes or revisions in the site
plan and in the Building so as to provide additional leasing area.
Landlord shall also have the right to construct additional buildings
on the land described on Exhibit A-2 for such purposes as Landlord may
deem appropriate. Landlord also reserves all airspace rights above,
below and to all sides of the Premises, including the right to make
changes, alterations or provide additional leasing areas.
D. Landlord and Tenant agree that Landlord will not be responsible for
any loss, theft or damage to vehicles, or the contents thereof, parked
or left in the parking areas of the Building and Tenant agrees to so
advise its employees, visitors or invitees who may use such parking
areas. The parking areas shall include those areas designated by
Landlord, in its sole discretion, as either restricted or unrestricted
parking areas. Any restricted parking areas shall be leased only by
separate license agreement with Landlord. Tenant further agrees not
to use or permit its
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employees, visitors or invitees to use the parking areas for overnight
storage of vehicles.
ARTICLE 15-ASSIGNMENT AND SUBLETTING
A. Tenant agrees not to assign, sublet, license, mortgage or encumber
this Lease Agreement, the Premises, or any part thereof, whether by
voluntary act, operation of law, or otherwise, without the specific
prior written consent of Landlord in each instance. If Tenant is a
corporation or a partnership, transfer of a controlling interest of
Tenant shall be considered an assignment of this Lease Agreement for
purposes of this Article. Consent by Landlord in one such instance
shall not be a waiver of Landlord's rights under this Article as to
requiring consent for any subsequent instance. In the event Tenant
desires to sublet a part or all of the P Premises or assign this Lease
Agreement, Tenant shall give written notice to Landlord at least
thirty (30) days prior to the proposed subletting or assignment, which
notice shall state the name of the proposed subtenant or assignee, the
terms of any sublease or assignment documents and copies of financial
reports or other relevant financial information of the proposed
subtenant or assignee. At Landlord's option, any and all payments by
the proposed assignee or sublessee with respect to the assignment of
sublease shall be paid directly to Landlord. In any event no
subletting or assignment shall release Tenant of its obligation to pay
the rent and to perform all other obligations to be performed by
Tenant hereunder for the Term of this Lease Agreement. The
acceptance of rent by Landlord from any other person shall not be
deemed to be a waiver by Landlord of any provision hereof. At
Landlord's option, Landlord may terminate the Lease Agreement in lieu
of giving its consent to any proposed assignment of this Lease
Agreement or subletting of the Premises (which termination may be
contingent upon the execution of a new lease with the proposed
assignee or subtenant).
B. Landlord's right to assign this Lease Agreement is and shall remain
unqualified upon any sale or transfer of the Building and, providing
the purchaser succeeds to the interests of Landlords under this Lease
Agreement, Landlord shall thereupon be entirely freed of all
obligations of the Landlord hereunder and shall not be subject to any
liability resulting from any act or omission or event occurring after
such conveyance.
ARTICLE 16-LOSS BY CASUALTY
If the Building is damaged or destroyed by fire or other casualty, the
Landlord shall have the right to terminate this Lease Agreement, provided it
gives written notice thereof to the Tenant within ninety (90) days after such
damage or destruction. If a portion of the Premises or Building is damaged by
fire or other casualty, and Landlord does not elect to terminate this Lease
Agreement, the Landlord shall, at its expense, restore the Premises to as near
the condition which existed immediately prior to such damage or destruction, as
reasonably possible, and the rentals shall abate during such period of time as
the Premises are untenantable, in the proportion that the
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untenantable portion of the Premises bears to the entire Premises.
Notwithstanding the above, Tenant shall have the right to terminate this
Lease if repairs to the Premises are not completed within one hundred eighty
(180) days of the casualty.
ARTICLE 17-WAIVER OF SUBROGATION
Landlord and Tenant hereby release the other from any and all liability or
responsibility to the other or anyone claiming through or under them by way of
subrogation or otherwise for any loss or damage to property caused by fire or
any of the extended coverage or supplementary contract casualties, even if such
fire or other casualty shall have been caused by the fault or negligence of the
other party, or anyone for whom such party may be responsible, provided however,
that this release shall be applicable and in force and effect only with respect
to loss or damage occurring during such times as the releasing party's policies
shall contain a clause or endorsement to the effect that any such release would
not adversely affect or impair said policies or prejudice the right of lie
releasing party to recover thereunder. Landlord and Tenant agree that they
will request their insurance carriers to include in their policies such a clause
or endorsement. If extra cost shall be charged therefore, each party shall
advise the other of the amount of the extra cost, and the other party, at its
election, may pay the same, but shall not be obligated to do so.
ARTICLE 18-EMINENT DOMAIN
If the entire Building is taken by eminent domain, this Lease Agreement
shall automatically terminate as of the date of taking. If a portion of the
Building is taken by eminent domain, the Landlord shall have the right to
terminate this Lease Agreement, provided it gives written notice thereof to the
Tenant within ninety (90) days after the date of taking. If a portion of the
Premises or Building is taken by eminent domain and this Lease Agreement is not
terminated by Landlord, the Landlord shall, at its expense, restore the Premises
to as near the condition which existed immediately prior to the date of taking
as reasonably possible, and the rentals shall abate during such period of time
as the Premises are untenantable, in the proportion that the untenantable
portion of the Premises bears to the entire Premises. All damages awarded for
such taking under the power of eminent domain shall belong to and be the sole
property of Landlord, irrespective of the basis upon which they are awarded,
provided, however, that nothing contained herein shall prevent Tenant from
making a separate claim to the condemning authority for its moving expenses and
trade fixtures. For purposes of this Article, a taking by eminent domain shall
include Landlord's giving of a deed under threat of condemnation.
Notwithstanding the above, Tenant shall have the right to terminate this Lease
if repairs to the Premises are not completed within one hundred eighty (180)
days of the casualty.
ARTICLE 19-SURRENDER
On the last day of the Term of this Lease Agreement or on the sooner
termination thereof in accordance with the terms hereof, Tenant shall peaceably
surrender the Premises in good condition and repair consistent with Tenant's
duty to make repairs as provided in Article 9 hereof. On or before said last
day, Tenant shall at its expense remove all of its equipment from
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the Premises, repairing any damage caused thereby, and any property not
removed shall be deemed abandoned. All alterations, additions and fixtures
other than Tenant's trade fixtures, which have been made or installed by
either Landlord or Tenant upon the Premises shall remain as Landlord's
property and shall be surrendered with the Premises as a part thereof, or
shall be removed by Tenant, at the option of Landlord, in which event Tenant
shall at its expense repair any damage caused thereby. It is specifically
agreed that any and all telephonic, coaxial, ethernet, or other computer,
word-processing, facsimile, or electronic wiring installed by Tenant within
the Premises (hereafter "Wiring") shall be removed at Tenant's cost at the
expiration of the Term, unless Landlord has specifically requested in writing
that said Wiring shall remain, whereupon said Wiring shall be surrendered
with the Premises as Landlord's property. If the Premises are not
surrendered at the end of the Term or the sooner termination thereof, Tenant
shall indemnify Landlord against loss or liability resulting from delay by
Tenant in so surrendering the Premises, including, without limitation, claims
made by any succeeding tenant founded on such delay. Tenant shall promptly
surrender all keys for the Premises to Landlord at the place then fixed for
payment of rental and shall inform Landlord of combinations on any locks and
safes on the Premises.
ARTICLE 20-NON-PAYMENT OF RENT, DEFAULTS
If any one or more of the following occurs: (1) a rent payment or any other
payment due from Tenant to Landlord shall be and remain unpaid in whole or in
part for more than ten (10) days after same is due and payable; (2) Tenant shall
violate or default on any of the other covenants, agreements, stipulations or
conditions herein, or in any parking agreement(s) or other agreements between
Landlord and Tenant relating to the Premises, and such violation or default
shall continue for a period of) thirty (30) days after written notice from
Landlord of such violation or default; (3) if Tenant shall commence or have
commenced against Tenant proceedings under a bankruptcy, receivership,
insolvency or similar type of action; or (4) if Tenant shall vacate any
substantial portion of the Premises for a period of more than 15 days; then it
shall be optional for Landlord, without further notice or demand, to cure such
default or to declare this Lease Agreement forfeited and the said Term ended, or
to terminate only Tenant's right to possession of the Premises, and to re-enter
the Premises, with or without process of law, using such force as may be
necessary to remove all persons or chattels therefrom, and Landlord shall not be
liable for damages by reason of such re-entry or forfeiture; but notwithstanding
re-entry by Landlord or termination only of Tenant's right to possession of the
Premises, the liability of Tenant for the rent and all other sums provided
herein shall not be relinquished or extinguished for the balance of the Term of
this Lease Agreement and Landlord shall be entitled to periodically sue Tenant
for all sums due under this Lease Agreement or which become due prior to
judgment, but such suit shall not bar subsequent suits for any further sums
coming due thereafter. Tenant shall be responsible for, in addition to the
rentals and other sums agreed to be paid hereunder, the cost of any necessary
maintenance, repair, restoration, reletting (including related cost of removal
or modification of tenant improvements) or cure as well as reasonable attorney's
fees incurred or awarded in any suit or action instituted by Landlord to enforce
the provisions of this Lease Agreement, regain possession of the Premises, or
the collection of the rentals due Landlord hereunder, Tenant shall also be
liable to Landlord for the payment of a late charge in the amount of 5% of the
rental installment or other sum due Landlord hereunder if said
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payment has not been received within ten (10) days from the date said payment
becomes due and payable. Tenant agrees to pay interest at the highest
permissible rate of interest allowed under the usury statutes of the State of
Minnesota, or in case no such maximum rate of interest is provided, at the
rate of 12% per annum, on all rentals and other sums due Landlord hereunder
not paid within ten (10) days from the date same become due and payable.
Each right or remedy of Landlord provided for in this Lease Agreement shall
be cumulative and shall be in addition to every other right or remedy
provided for in this Lease Agreement now or hereafter existing at law or in
equity or by statute or otherwise.
ARTICLE 21-LANDLORD'S DEFAULT
Landlord shall not be deemed to be in default under (his Lease Agreement
until Tenant has given Landlord written notice specifying the nature of the
default and Landlord does not cure such default within thirty (30) days after
receipt of such notice or within such reasonable time thereafter as may b
necessary to cure such default where such default is of such a character as
to reasonably require more than thirty (30) days to cure.
ARTICLE 22-HOLDING OVER
Tenant will, at the expiration of this Lease Agreement, whether by lapse
of time or termination, give up immediate possession to Landlord. If Tenant
fails to give up possession the Landlord may, at its option, serve written
notice upon Tenant that such holdover constitutes any one of (i) creation of
a month-to-month tenancy, or (ii) creation of a tenancy at sufferance. If
Landlord does not give said notice, Tenant's holdover shall create a tenancy
at sufferance. In any such event the tenancy shall be upon the terms and
conditions of this Lease Agreement, except that the Minimum Rental shall be
double the Minimum Rental Tenant was obligated to pay Landlord under this
Lease Agreement immediately prior to termination (in the case of tenancy at
sufferance such Minimum Rental shall be prorated on the basis of a 365 day
year for each day: Tenant remains in possession); excepting further that in
the case of a tenancy at sufferance, no notices shall be required prior to
commencement of any legal act ion to gain repossession of the Premises. In
the case of a tenancy at sufferance, Tenant shall also pay to Landlord all
damages sustained by Landlord resulting from retention of possession by
Tenant. The provisions of this paragraph shall not constitute a waiver by
Landlord of any right of re-entry a: otherwise available to Landlord; nor
shall receipt of any rent or any other act in apparent affirmance of the
tenancy operate as a waiver of the right to terminate this Lease Agreement
for a breach by Tenant hereof.
ARTICLE 23-SUBORDINATION
Tenant agrees that this Lease Agreement shall be subordinate to any
mortgage(s) that may now or hereafter be placed upon the Building or any part
thereof, and to any and all advances to be made thereunder, and to the
interest thereon, and all renewals, replacements, and extensions thereof,
provided the mortgagee named in such mortgage(s) shall agree to recognize
this Lease Agreement or Tenant in the event of foreclosure provided the
Tenant is not in default In confirmation of such subordination, Tenant shall
promptly execute and deliver any instrument,
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in recordable form, as required by Landlord's mortgagee In the event of any
mortgagee electing to have the Lease Agreement a prior incumbrance to its
mortgage, then and in such event upon such mortgage notifying Tenant to that
effect, this Lease Agreement shall be deemed prior in incumbrance to the said
mortgage, whether this Lease Agreement is dated prior to or subsequent to the
date of said mortgage.
ARTICLE 24-INDEMNITY, INSURANCE AND SECURITY
A. Tenant will keep in force at its own expense for so long as this Lease
Agreement remains in effect public liability insurance with respect to
the Premises in which Landlord shall be named as an additional
insured, in companies and in form acceptable to Landlord with a
minimum combine limit of liability of Two Million Dollars
($2,000,000.00). This limit shall apply per location. Said
insurance shall also provide for ,contractual liability: coverage by
endorsement. Tenant will further deposit with Landlord the policy or
policies of such insurance or certificates thereof, or other
acceptable evidence that such insurance is in effect, which evidence
shall provide that Landlord shall be notified in writing thirty (30)
days prior to cancellation, material change, or failure to renew the
insurance. Tenant further covenants and agrees to indemnify and hold
Landlord and Landlord's manager of the Building harmless for any
claim, loss o damage, including reasonable attorney's fees, suffered
by Landlord, Landlord's manager or Landlord's other tenants caused by:
i) any act or omission b: Tenant, Tenant's employees or anyone
claiming through or by Tenant in, at, or around the Premises or the
Building; ii) the conduct or management of an: work or thing
whatsoever done by Tenant in or about the Premises; or iii) Tenant's
failure to comply with any and all governmental laws, rules,
ordinances o regulations applicable to the use of the Premises and its
occupancy. If Tenant shall not comply with its covenants made in
this Article 24, Landlord may, at it option, cause insurance as
aforesaid to be issued and in such event Tenant agrees to pay the
premium for such insurance promptly upon Landlord's demand.
B. Tenant shall be responsible for the security and safeguarding of the
Premises and all property kept, stored or maintained in the Premises.
Landlord will make available to Tenant, at Tenant's request, the plans
and specifications for construction of the Building and the Premises.
Tenant represent that it is satisfied that the construction of the
Building and the Premises, including the floors, walls, windows, doors
and means of access thereto are suitable for the particular needs of
Tenant's business. Tenant further represents that it is satisfied
with the security of said Building and Premises for the protection of
a[tilde] property which may be owned, held, stored or otherwise caused
or permitted by Tenant to be present upon the Premises. The
placement and sufficiency of al safes, vaults, cash or security
drawers, cabinets or the like placed upon the Premises by Tenant shall
be at the sole responsibility and risk of Tenant. Tenant shall
maintain in force throughout the Term, insurance upon all contents of
the Premises, including that owned by others and Tenant's equipment
ant any alterations, additions,
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fixtures, or improvements in the Premises acknowledged by Landlord to
be the Tenants.
C. Landlord shall carry and cause to be in full force and effect a fire
and extended coverage insurance policy on the Building, but not
contents owned leased or otherwise in possession of Tenant. The cost
of such insurance shall be an Operating Expense.
ARTICLE 25-NOTICES
All notices from Tenant to Landlord required or permitted by any
provisions of this Lease Agreement shall be directed to Landlord postage
prepaid, certified or registered mail, at the address provided for Landlord
in the preamble to this Lease Agreement or at such other address as Tenant
shall be advised to use by Landlord. All notices from Landlord to Tenant
required or permitted by any provision of this Lease Agreement shall be
directed to Tenant, postage prepaid, certified or registered mail, at the
Premises and at the address, if any, set forth on page 6 of this Lease
Agreement. Landlord and Tenant shall each have the right at any time and
from time to time to designate one (1) additional party to whom copies of any
notice shall be sent.
ARTICLE 26-APPLICABLE LAW
This Lease Agreement shall be construed under the laws of the State of
Minnesota.
ARTICLE 27-MECHANICS' LIEN
In the event any mechanic's lien shall at any time be filed against the
Premises or any part of the Building by reason of work, labor, services or
materials performed or furnished to Tenant or to anyone holding the Premises
through or under Tenant, Tenant shall forthwith cause the same to be
discharged of record. If Tenant shall fail to cause such lien forthwith to
be discharged within five (5) days after being notified of the filing
thereof, then, in addition to any other right or remedy of Landlord, Landlord
may, but shall not be obligated to, discharge the same by paying the amount
claimed to be due, or by bonding, and the amount so paid by Landlord and all
costs and expenses, including reasonable attorney's fees incurred by Landlord
in procuring the discharge of such lien, shall be due and payable in full by
Tenant to Landlord on demand.
ARTICLE 28-SECURITY INTEREST
[TEXT WAS STRUCK OUT]
ARTICLE 29-BROKERAGE
Each of the parties represents and warrants that there are no claims for
brokerage commissions or finder's fees in connection with this Lease
Agreement and agrees to indemnify
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the other against, and hold it harmless from all liabilities arising from any
such claim, including without limitation, the cost o attorney's fees in
connection therewith.
ARTICLE 30-SUBSTITUTION
Landlord reserves the right, on thirty (30) days written notice to
Tenant, to substitute other premises within the Building for the Premises
hereunder. The substituted premises shall contain substantially the same
square footage as the Premises, shall contain comparable improvements, and
the Minimum Rental shall not exceed the Minimum Rental specified in Article 3
hereof. Landlord shall pay the expenses reasonably incurred by Tenant in
connection with such substitution of Premises, including but not limited to
costs of moving, door lettering, telephone relocation and, if necessary, one
month's supply of new stationery.
ARTICLE 31-ESTOPPEL CERTIFICATES
Each party hereto agrees that at any time, and from time to time during
the Term of this Lease Agreement (but not more often than twice in each
calendar year), within ten (10) days after request by the other party hereto,
it will execute, acknowledge and deliver to such other party or to an
prospective purchaser, assignee or mortgagee designated by such other party,
an estoppel certificate in a form acceptable to Landlord. Tenant agrees to
provide Landlord (but not more often than twice in any calendar year), within
ten (10) days of request, the then most current financial statements of
Tenant and an guarantors of this Lease Agreement, which shall be certified by
Tenant, and if available, shall be audited and certified by a certified
public accountant. Landlord shall keep such financial statements
confidential, except Landlord shall, in confidence, be entitled to disclose
such financial statements to existing or prospective mortgagees or purchasers
of the Building.
ARTICLE 32-GENERAL
This Lease Agreement does not create the relationship of principal and
agent or of partnership or of joint venture or of any association between
Landlord and Tenant, the sole relationship between Landlord and Tenant being
that of landlord and tenant. No waiver of any default of Tenant hereunder
shall be implied from any omission by Landlord to take any action on account
of such default if such default persists or is repeated, and no express
waiver shall affect any default other than the default specified in the
express waiver and that only for the time and to the extent therein stated.
The covenants of Tenant to pay the Minimum Rental and the Additional Rental
are each independent of any other covenant, condition, or provision contained
in this Lease Agreement The marginal or topical headings of the several
Articles, paragraphs and clauses are for convenience only and do not define,
limit or construe the contents ( such Articles, paragraphs or clauses. All
preliminary negotiations are merged into and incorporated in this Lease
Agreement. This Lease Agreement can only be modified or amended by an
agreement in writing signed by the parties hereto. All provisions hereof
shall be binding upon the heirs, successors an assigns of each party hereto.
If any term or provision of this Lease Agreement shall to any extent be held
invalid or unenforceable, the remainder shall not be affected thereby, and
each other term and provision of this Lease Agreement shall be valid and be
enforced to the
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fullest extent permitted by law. Tenant is a corporation, each individual
executing this Lease Agreement on behalf of said corporation represents and
warrants that he is duly authorized execute and deliver this Lease Agreement
on behalf of said corporation in accordance with a duly adopted resolution of
the Board of Directors of said corporation or in accordance with the Bylaws
of said corporation, and that this Lease Agreement is binding upon said
corporation in accordance with its term. No receipt or acceptance by
Landlord from Tenant of less than the monthly rent herein stipulated shall be
deemed to be other than a partial payment or account for any due and unpaid
stipulated rent; no endorsement or statement of any check or any letter or
other writing accompanying any cheek or payment of rent to Landlord shall be
deemed an accord and satisfaction, and Landlord may accept and negotiate such
check or payment without prejudice Landlord's rights to (i) recover the
remaining balance of such unpaid rent or (ii) pursue any other remedy
provided in this Lease Agreement. (Neither party shall record this Lease
Agreement or any memorandum thereof, and any such recordation shall be a
breach of this Lease Agreement void, and without effect.) Time is of the
essence with respect to the due performance of the terms, covenants and
conditions herein contained. Submission of this instrument for examination
does not constitute a reservation of or option for the Premises, and this
Lease Agreement shall become effective only upon execution an delivery
thereof by Landlord and Tenant.
ARTICLE 33-EXCULPATION
Tenant agrees to look solely to Landlord's interest in the Building for
the recovery of any judgment from Landlord, it being agreed that Landlord and
Landlord's partners, whether general or limited (if Landlord is a
partnership) or its directors, officers or shareholders (if Landlord is a
corporation), shall never be personally liable for any such judgment.
ARTICLE 34-OPTION TO RENEW
Tenant shall have the right to extend the Term of this Lease Agreement
for one (1) additional period of five (5) years (the "Renewal Term") upon the
following terms and conditions:
A. That Tenant is not in default in the performance of any of the terms,
covenants, or conditions of this Lease Agreement either at the time
its exercise of its rights hereunder or at the time of the
commencement of the Renewal Term;
B. That any extension of the Term hereunder shall be on the same terms
and conditions herein contained except for Article 4 and this Article
34, and except that the annual Minimum Rental payable for the Renewal
Term shall be at the market rate for comparable space in comparable
suburban office buildings in Hennepin County as reasonably determined
by Landlord giving due consideration to any improvements to any
Premise for the Renewal Term requested by Tenant;
C. That Tenant shall exercise its right to extend the Term of this Lease
Agreement by giving written notice to Landlord of its intention to do
so no later than six (6)
15
<PAGE>
months prior to the end of the initial Term. The parties agree that
time is of the essence in exercising Tenant's rights hereunder and
accordingly, if Tenant fails to timely notify Landlord in the manner
herein provided, Tenant's rights to extend the Term as provided for
herein shall automatically expire; and
D. Tenant's rights under this Article 34 are personal and shall become
null and void and of no force or effect in the event Tenant assigns
this Lease Agreement or sublets the Premises.
IN WITNESS WHEREOF, this Lease Agreement has been duly executed by the
parties hereto as of the day and year indicated above.
TENANT: LANDLORD:
ELTRAX SYSTEMS, INC., SECURITY LIFE INSURANCE COMPANY OF
a Minnesota corporation AMERICA,
a Minnesota corporation
By: /s/ Mack V. Traynor, III By: /s/ Charles R. Carlson
------------------------- ----------------------
Its: President and CEO Its:
------------------------- ----------------------
-16-
<PAGE>
EXHIBIT A-1
[MAP OF PREMISES]
-17-
<PAGE>
EXHIBIT A-2
LEGAL DESCRIPTION
Lot 7, Block 11, Opus 2 Fourth Addition, according to the recorded
plat thereof, and situated in Hennepin County, Minnesota.
Part of above premises is registered land as evidenced by Certificate of Title
No. 602504.
The registered portion of premises is described as follows:
That part of Lot 7, Block 11, Opus 2 Fourth Addition, lying Northerly
of the Southerly line of Opus II 1st Addition, according to the plat
thereof on file and of record in the Office of the Register of Deeds,
in and for Hennepin County, Minnesota.
-18-
<PAGE>
EXHIBIT A-3
LEASEHOLD IMPROVEMENTS
Landlord makes no representation or agreement with respect to the condition
or improvements of the Premises under or by reason of this Lease except that
Landlord shall perform, at its expense, certain leasehold improvement work
(the "Work") to the Premises shown or described in this Exhibit A-3. All
improvements shall be done in a quality, workmanlike manner using building
standard material. Tenant shall be responsible for all costs associated
with changes to the Floor Plan requested by Tenant. The parties acknowledge
that Tenant will occupy Suite 345 pursuant to this Lease prior to completion
of Tenant Improvements. Accordingly, Landlord shall be completing Tenant
Improvements in portions of the Premises following Tenant's occupancy of the
Premises. All work is to be done during normal business hours. Landlord
shall make reasonable efforts to not unreasonably interfere with Tenant's
business. Tenant hereby grants a license to Landlord to enter the Premises
to perform such work, all without setoff reduction or abatement in the rent.
Tenant shall cooperate with Landlord in making available portions of the
Premises necessary to perform said work free of personal property, equipment
and employees of Tenant. Upon completion of such work, Tenant shall be
deemed to have conclusively accepted the same as being in conformance with
the provisions of this Lease, except for those matters for which Tenant has
given Landlord written notice within thirty (30) days of completion of such
work.
Landlord shall complete the following Work as specified as below:
A. Provide for floor plan necessary to design and build space
and secure necessary permits for construction of the
Premises.
B. Perform necessary demolition and construct new walls as
indicated on Floor Plan.
C. Paint all new construction walls within the Premises to
match existing.
D. Install new building standard carpet in areas noted on Floor
Plan.
E. Ceiling to be patched with building standard ceiling tile
and grid where demolition occurs.
F. Relocate and install new building light fixtures as required
to accommodate Floor Plan.
G. Provide building standard electrical outlets, dedicated
circuits, light switches, phone openings (wiring by Tenant)
and electrical demolition as required to accommodate Floor
Plan.
H. Modify HVAC system as required to accommodate Floor Plan.
-19-
<PAGE>
These specifications are based on the plans dated 11/26/96 prepared by Jafvert
Mueller Architects, Inc.
[FLOOR PLAN]
-20-
<PAGE>
AMENDMENT NUMBER ONE
This Lease Amendment, dated as of January 23, 1997 for reference purposes
only is to that certain lease dated January 1, 1996 by and between Seligman Real
Estate Services, inc., as Landlord and EL TRAX SYSTEMS, INC., AND NORDATA, INC.
DBA DATATECH, as Tenant for the premises at 27126 A Paseo Espada, Suite 1602 and
1603, San Juan Capistrano, CA 92675.
R E C I T A L S
A. On January 1, 1996 Seligman Real Estate Services, Inc. (the
"Landlord") and, EL TRAX SYSTEMS, INC., AND NORDATA, INC. DBA
DATATECH, (the "Tenant") entered into a written Lease (the "Lease")
for space (the "Premises") in that certain business park located at
27130B Paseo Espada, Suite 501, San Juan Capistrano, CA 92675.
B. Landlord and Tenant desire to amend the Lease to extend the Lease term
on a Month To Month basis not to exceed (6) months (ending June 30,
1997).
NOWTHEREFORE, THE PARTIES HEREBY AGREE:
1. EXTENDED LEASE TERM: Landlord and Tenant agree to an extended Lease
term on a Month to Month basis not to exceed (6) Six Months. This
extension shall commence January 1, 1997 and end at midnight June 30,
1997.
2. BASE RENT:
Months 1-6 $ 2414 per month
3. OPERATING EXPENSES:
Months 1-6 $ 80 per month
4. OPTION TO EXTEND: Provided tenant has not defaulted at any time
during the current lease, Lessee may, at it's option renew this Lease
at any time for another 6 months at Current Market Rates. Lessee
shall have given at least 30 days written notice of its intention to
either exercise the option to renew or intention to vacate.
5. MISCELLANEOUS PROVISIONS: Notwithstanding the above provisions, all
other terms, covenants and conditions of the Lease shall remain in
full force and effect.
LANDLORD:
SOLELY AS AGENT FOR:
SELIGMAN REAL ESTATE SERVICES, INC.
BY: /s/ MARY STEINER
----------------
AGENT
MARY STEINER, PROPERTY MANAGER
TENANT:
BY: /s/ ROBERT W. TAYLOR
--------------------
ROBERT W. TAYLOR VP FINANCE NORDATA, INC.
<PAGE>
NON-NEGOTIABLE UNSECURED PROMISSORY NOTE
$38,227 Minneapolis, Minnesota
Due: January 21, 2002 January 21, 1997
1. LOAN AMOUNT AND INTEREST RATE. FOR VALUE RECEIVED, GENE A. BIER, an
individual residing in Plymouth, Minnesota (the "Maker") promises to pay to the
order of, ELTRAX SYSTEMS, INC., a Minnesota corporation (the "Lender"), its
successors and assigns, at 10901 Red Circle Drive, Suite 345, Minnetonka,
Minnesota 55343, or such other place as the Lender or holder hereof may
designate in writing from time to time, the principal sum of Thirty Eight
Thousand Two Hundred Twenty Seven Dollars ($38,227.00), in lawful money of the
United States, together with interest, compounded annually, from the date hereof
on the unpaid balance hereof from time to time outstanding at a fixed annual
rate of six and fifty-four hundredths percent (6.54%). Interest hereon shall be
computed on the actual number of days elapsed and a 360-day year.
This Note has been executed and delivered in connection with the
exercise by the Maker of certain options (the "Options") to purchase an
aggregate of 24,000 shares of common stock, no par value, of the Lender (the
"Common Stock"). A schedule detailing the terms of such Options, including the
exercise price, the date of grant, the number of underlying shares and the
expiration date of each Option, is attached hereto as Schedule I.
2. PAYMENT SCHEDULE. This Note shall be payable in the following manner:
2.1 Principal payments shall be due and payable within five (5) days after
the Maker sells any shares of the Lender's Common Stock beneficially
owned by the Maker. The amount of each such principal payment shall
be determined by multiplying the number of shares of the Lender's
Common Stock sold by the Maker at that time times One Dollar and Sixty
Cents ($1.60), the weighted average exercise price of the Options. If
the Maker sells less than 24,000 shares or none of the Lender's Common
Stock during the term of this Note, the outstanding principal shall be
due and payable January 21, 2002.
2.2 Accrued interest with respect to each principal payment, if any, paid
to the Lender pursuant to Section 2.1 shall be due and payable with
each such principal payment. Additionally, quarterly interest
payments in the amount of $625.02 are due commencing April 1, 1997.
All outstanding accrued interest shall be due and payable January 21,
2002.
2.3 Any payment due on any non-business day shall be due upon (and
interest shall accrue to) the next business day.
3. PREPAYMENT PRIVILEGE. The principal of this Note may be prepaid in
full or in part at any time, without premium or penalty. Each such prepayment
shall be accompanied by the interest accrued on the amount prepaid to the date
of the prepayment. All prepayments shall be applied to the payment of principal
due hereunder except that if any advance made by the Lender to the Maker under
any agreement or document has not been repaid, or if any amount is then due
under any other obligation of the Maker to the Lender, the Lender may, at its
option, apply any payment made by the Maker to repay such unpaid advance or
obligation and interest thereon, and the balance, if any, shall be applied as a
prepayment of amounts not yet due under this Note.
<PAGE>
4. DEFAULT AND ACCELERATION. If all or any portion of the indebtedness
evidenced hereby is not paid when due, or in the event of a default under any
agreement made by any party in connection with this Note, or in the event of the
death, dissolution, insolvency, bankruptcy or receivership, business failure or
occurrence of any other adverse change in the financial condition or management
of any maker, endorser, or guarantor hereof, or if the holder hereof otherwise
reasonably believes in good faith that the prospect of payment hereunder is
impaired, the Lender or other holder may, without notice, demand, presentment
for payment and/or notice of nonpayment, all of which the Maker hereby expressly
waives, declare the indebtedness evidenced hereby and all other indebtedness and
obligations of the Maker to the Lender or holder hereof immediately due and
payable and the Lender or other holder hereof may, without notice, immediately
exercise any right of setoff and enforce any lien or security interest securing
payment hereof. The foregoing shall be in addition to the rights of
acceleration that may be provided in any loan agreement, security agreement,
mortgage and/or other writing relating to the indebtedness evidenced hereby. If
this Note is placed with any attorney(s) for collection upon any default, the
Maker agrees to pay to the Lender or holder, its reasonable attorneys fees and
all lawful costs and expenses of collection, whether or not a suit is commenced.
5. WAIVER. Time is of the essence. No delay or omission on the part of
the Lender or other holder hereof in exercising any right or remedy hereunder
shall operate as a waiver of such right or of any other right or remedy under
this Note or any other document or agreement executed in connection herewith.
All waivers by the Lender must be in writing to be effective and a waiver on any
occasion shall not be construed as a bar to or a waiver of any similar right or
remedy on a future occasion.
The makers, endorsers, sureties, guarantors and all other persons liable for all
or any part of the indebtedness evidenced by this Note jointly and severally
waive presentment for payment, protest and notice of nonpayment. Such parties
hereby consent without affecting their liability to any extension or alteration
of the time or terms of payment hereon, any renewal, any release of all or any
part of the security given for the payment hereof, any acceptance of additional
security of any kind, and any release of, or resort to any party liable for
payment hereof and such parties shall remain bound in the same capacities as
prior thereto upon each such event.
6. JURISDICTION. This Note represents a loan negotiated, executed and to
be performed in the State of Minnesota and shall be construed, interpreted and
governed by the law of said state.
The Maker hereby consents to the personal jurisdiction of the state and federal
courts located in the State of Minnesota in connection with any controversy
related to this Note, waives any argument that venue in such forums is not
convenient and agrees that any litigation instigated by the Maker against the
Lender in connection with this Note shall be venued in the federal or state
court that has jurisdiction over matters arising in Minnesota.
7. INTEREST LIMITATION. All agreements between the Maker and the Lender
are hereby expressly limited so that in no contingency or event whatsoever,
whether by reason of acceleration of maturity of the indebtedness evidenced or
secured thereby or otherwise, shall the rate of interest charged or agreed to be
paid to the Lender for the use, forbearance, loaning or detention of such
indebtedness exceed the maximum permissible interest rate under applicable law
("Maximum Rate"). If for any reason or in any circumstance whatsoever
fulfillment of any provision of this Note, any document securing or executed in
connection with this Note, or any other agreement between the Maker and the
Lender, at any time shall require or permit the interest rate applied thereunder
to exceed the Maximum Rate, then the interest rate shall automatically be
reduced to the Maximum Rate, and if the Lender should ever receive interest at a
rate that would exceed the Maximum Rate, the amount of interest received which
would be in excess of the amount receivable after applying the Maximum Rate to
the balance of the outstanding obligation shall be
2
<PAGE>
applied to the reduction of the principal balance of the outstanding
obligation for which the amount was paid and not to the payment of interest
thereunder. This provision shall control every other provision of any and
all agreements between the Maker and the Lender and shall also be binding
upon and available to any subsequent holder of this Note.
IN WITNESS WHEREOF, the Maker has executed and delivered this Note to the
Lender as of the day and year first above written.
/s/ Gene A. Bier
------------------------------
Gene A. Bier
3
<PAGE>
SCHEDULE I
Gene A. Bier Stock Options
- --------------------------------------------------------------------------------
GRANT DATE EXERCISE PRICE PLAN NUMBER OF SHARES EXPIRATION DATE
---------- -------------- ---- ---------------- ---------------
- --------------------------------------------------------------------------------
7/1/92 $1.7500 1992 1,500 7/1/02
- --------------------------------------------------------------------------------
10/1/92 $1.7500 1992 1,500 10/1/02
- --------------------------------------------------------------------------------
1/4/93 $3.1875 1992 1,500 1/4/03
- --------------------------------------------------------------------------------
4/1/93 2.5625 1992 1,500 4/1/03
- --------------------------------------------------------------------------------
7/1/93 2.0000 1992 1,500 7/1/03
- --------------------------------------------------------------------------------
10/1/93 1.3750 1992 1,500 10/1/03
- --------------------------------------------------------------------------------
1/3/94 1.6875 1992 1,500 1/3/04
- --------------------------------------------------------------------------------
4/1/94 1.5625 1992 1,500 4/1/04
- --------------------------------------------------------------------------------
7/1/94 0.9688 1992 1,500 7/1/04
- --------------------------------------------------------------------------------
10/3/94 0.7188 1992 1,500 10/3/04
- --------------------------------------------------------------------------------
1/3/95 0.5156 1992 1,500 1/3/05
- --------------------------------------------------------------------------------
4/3/95 0.4375 1992 1,500 4/3/05
- --------------------------------------------------------------------------------
7/3/95 0.3750 1992 1,500 7/3/05
- --------------------------------------------------------------------------------
10/2/95 1.5313 1995 1,500 10/2/05
- --------------------------------------------------------------------------------
1/2/96 1.6875 1995 1,500 1/2/06
- --------------------------------------------------------------------------------
3/31/96 3.3750 1995 1,500 3/31/06
- --------------------------------------------------------------------------------
4
<PAGE>
CONSULTING AGREEMENT
THIS CONSULTING AGREEMENT is dated January 21, 1997, and is between ELTRAX
SYSTEMS, INC. a Minnesota corporation ("the Company") and Gene A. Bier, an
individual residing in the State of Minnesota ("the Consultant").
A. The Company desires to retain the Consultant to perform services to
the Company.
B. The Company desires to engage the Consultant to perform certain
consulting services in order to benefit from the Consultant's
management experience and abilities, and the Consultant desires to
accept such engagement, all upon the terms and conditions set forth in
this Agreement.
NOW, THEREFORE, the parties, each intending to be legally bound, agree
as follows:
1. ENGAGEMENT. Subject to all of the terms and conditions of this
Agreement, the Company agrees to engage the Consultant to assist the Company in
seeking out and identifying various opportunities for the Company to increase
its operations and revenues including, but not limited to, possible
acquisitions, joint ventures, marketing agreements and other growth
opportunities, as well as various management and other duties as may be agreed
to from time to time between the Board and the Consultant, and the Consultant
agrees to accept such engagement.
2. DUTIES.
a. During the term of this Agreement, the Consultant agrees to
consult with the Board and the Company regarding such matters, and to provide
such services to the Board and the Company, as may reasonably be requested by
the Board consistent with the Consultant's expertise and experience.
b. The services to be rendered by the consultant to the Company
pursuant to this Agreement will be as an independent contractor, and this
Agreement does not make the Consultant an employee, agent or legal
representative of the Company for any purpose whatsoever, including without
limitation participation in any benefits or privileges given or extended by the
Company to its employees. No right or authority is granted to the Consultant to
assume or create any obligation or responsibility, express or implied, on behalf
of or in the name of the Company. The Company will not withhold from the
amounts paid to the Consultant under this Agreement for any federal or state
taxes, and the Consultant agrees that he will pay all taxes due on such amounts
paid.
c. Notwithstanding anything to the contrary contained in this
Agreement other than in Section 7 hereof, nothing shall be construed to limit
the ability of the Consultant to consult for or serve on the Board of Directors
of such other corporations, trade associations, charitable organizations or
other entities as the Consultant shall from time to time deem appropriate and to
engage in such other activities as the Consultant shall reasonably deem not to
be in conflict with his duties to the Company.
3. TERM. Subject to earlier termination in accordance with Section
4 below and subject to the respective continuing obligations of the Company and
the Consultant under Sections 6 and 7 below, this Agreement will become
effective as of the date hereof and will remain in effect until January 21,
1998. The term of this Agreement will automatically renew for an additional one
(1) year term unless earlier terminated in accordance with Section 4 below.
This automatic annual renewal will terminate
<PAGE>
on January 21, 2002, if the agreement has not already terminated in accordance
with Section 4 below.
4. TERMINATION. Subject to the respective continuing obligations of
the Company and the Consultant under Sections 5, 6, and 7 of this Agreement:
a. This Agreement may be terminated by the Company immediately
upon written notice to the Consultant "for cause," with the basis for
termination specified in such notice. For purposes of this Agreement, "FOR
CAUSE" will mean (i) dishonesty, fraud, gross misrepresentation, embezzlement or
material and deliberate injury or attempted injury, in each case related to the
Company or its business, (ii) any unlawful or criminal activity of a serous
nature, (iii) any willful breach of duty, habitual neglect of duty or
unreasonable job performance, or (iv) a material breach of any provision of this
Agreement.
b. This Agreement may be terminated by the Company or the
Consultant upon not less than thirty (30) days prior written notice without
cause.
c. This Agreement may be terminated by the Company ninety (90)
days following the Consultant's Total Disability. For purposes of this
Agreement, "TOTAL DISABILITY" will be as defined in the long-term disability
plan of the Company then in effect for employees of the Company (regardless of
whether the Consultant is covered by such plan) or, if no such plan exists,
"Total Disability" will mean such disability that prevents the Consultant from
performing his duties under Section 2 of this Agreement for a continuous period
of ninety (90) days.
d. This Agreement will be automatically terminated upon the
death of the Consultant.
5. COMPENSATION.
a. ANNUAL CONSULTING FEE. In consideration of the Consultant's
services under this Agreement, the Company will pay the Consultant a fee of
$2,800.00 annually, payable quarterly in arrears, commencing April 21, 1997.
b. EXPENSES. The Company will pay or reimburse the consultant
for reasonable expenses that the Consultant incurs while performing his duties
under this Agreement, whether as a Consultant, Chairman or a director, provided
that such expenses are incurred and properly accounted for in accordance with
the Company's policies regarding reimbursement of business expenses as may be in
effect from time to time.
6. CONFIDENTIAL INFORMATION.
(a) "CONFIDENTIAL INFORMATION," as used in this Agreement, means
information that is not generally known and that is proprietary to the
Company or that the Company is obligated to treat as proprietary. Any
information that the Consultant reasonably considers Confidential
Information, or that the Company treats as Confidential Information,
will be presumed to be Confidential Information (whether the
Consultant or others originated it and regardless of how the
Consultant obtained it).
(b) Except as specifically permitted by an authorized officer of
the Company or by written Company policies, the Consultant will never,
either during or after his service with the Company, use Confidential
Information for any purpose other than the business of the Company or
disclose it to any person who is not an employee of the Company. When
the Consultant's service with the Company ends, the Consultant will
promptly deliver to the
<PAGE>
Company all records and any customer lists, compositions, articles,
devices, apparatus and other items that disclose, describe or embody
Confidential Information, including all copies, reproductions and
specimens of the Confidential Information in the Consultant's
possession, regardless of who prepared them and will promptly deliver
any other property of the Company in the Consultant's possession,
whether or not Confidential Information.
7. NON-COMPETITION. The Consultant agrees that during the term of
this Agreement, the Consultant will not alone, or in any capacity with another
firm or entity:
(a) directly or indirectly engage in any commercial activity
that competes with the Company's business within any state in the
United States or within any country in which the Company directly or
indirectly markets or services products or provides services,
(b) in any way interfere or attempt to interfere with the
Company's relationships with any of its current or potential
customers, or
(c) employ or attempt to employ any of the Company's then
employees or consultants on behalf of any other firm or entity
competing with the Company.
8. NO ADEQUATE REMEDY; NONEXCLUSIVITY. The Consultant understands
that if Consultant fails to fulfill Consultant's obligations under this
Agreement, the damages to the Company would be very difficult to determine.
Therefore, in addition to any other rights or remedies available to the Company
at law, in equity, or by statute, the Consultant hereby consents to the specific
enforcement of this Agreement by the Company through an injunction or
restraining order issued by an appropriate court.
9. MISCELLANEOUS.
(a) The Consultant represents and warrants to the Company that
neither the entering into of this Agreement nor the performance of any
of the Consultant's obligations hereunder will conflict with or
constitute a breach under any obligation of the Consultant, under any
agreement or contract to which the Consultant is a party or any other
obligation by which the Consultant is bound. Without limiting the
foregoing, the Consultant agrees that at no time will the Consultant
use any trade secrets or other intellectual property of any third
party while performing services hereunder.
(b) The services rendered by the Consultant to the Company
pursuant to this Agreement will be as an independent contractor, and
this Agreement does not make the Consultant the employee, agent or
legal representative of the Company for any purpose whatsoever. No
right or authority is granted to the Consultant to assume or to create
any obligation or responsibility, express or implied, on behalf of or
in the name of the Company. The Company will not withhold for the
Consultant any federal, state or local taxes from the amounts to be
paid to the Consultant hereunder, and the Consultant agrees that he
will pay all taxes due on such amounts.
(c) This Agreement is binding on and inures to the benefit of
the Company's successors and assigns. Because the Company is
contracting for the unique and personal skills of the Consultant, the
Consultant is precluded from assigning or delegating his rights or
duties hereunder.
3
<PAGE>
(d) This Agreement may be modified or amended only by a writing
signed by both the Company and the Consultant.
(e) The laws of the State of Minnesota will govern the validity,
construction and performance of this Agreement. Except as provided in
Section 8, any dispute, controversy or claim arising under or in
connection with this Agreement will be settled exclusively by binding
arbitration administered by the American Arbitration Association in
Minneapolis, MN in accordance with the Commercial Arbitration Rules of
the American Arbitration Association then in effect. Judgment may be
entered on the arbitrator's award in any court having jurisdiction.
(f) Wherever possible, each provision of this Agreement will be
interpreted so that it is valid under the applicable law. If any
provision of this Agreement is to any extent invalid under the
applicable law, that provision will still be effective to the extent
it remains valid. The remainder of this Agreement also will continue
to be valid, and the entire Agreement will continue to be valid in
other jurisdictions.
(g) No failure or delay by either the Company or the Consultant
in exercising any right or remedy under this Agreement will waive any
provision of the Agreement, nor will any single or partial exercise by
either the Company or the Consultant of any right or remedy under this
Agreement preclude either of them from otherwise or further exercising
these rights or remedies, or any other rights or remedies granted by
any law or any related document.
(h) The headings in this Agreement are for convenience only and
do not affect the interpretation of this Agreement.
(i) This Agreement supersedes all previous and contemporaneous
oral negotiations, commitments, writings and understandings between
the parties concerning the matters in this Agreement, including
without limitation any policy or personnel manuals of the Company.
(j) All notices and other communications required or permitted
under this Agreement shall be in writing and shall be hand-delivered
or sent by registered or certified first-class mail, postage prepaid,
and shall be effective upon delivery if hand-delivered, or three (3)
days after mailing if mailed to the following addresses:
If to the Company: Eltrax Systems, Inc.
10901 Red Circle Drive, Suite 345
Minnetonka, MN 55343
Attn: President and Chief Executive
Officer
If to the Consultant: Gene A. Bier
2820 Holly Lane
Plymouth, MN 55447
These addresses may be changed at any time by like notice.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed
4
<PAGE>
and delivered as of the day and year first above written.
ELTRAX SYSTEMS, INC. CONSULTANT
By
--------------------------------- ---------------------------------------
Its: Gene A. Bier
-----------------------------
5
<PAGE>
LEASE AMENDMENT ONE
(EXPANSION OF PREMISES)
THIS AMENDMENT ONE ("AMENDMENT") is made and entered as of the 4th day of
March, 1997, by and between TOWN CENTER DELAWARE, INC., a Delaware corporation
("LANDLORD"), and ELTRAX SYSTEMS, INC., a Minnesota corporation ("TENANT").
A. Landlord's predecessor in interest, PMTC Limited Partnership, and
Tenant have heretofore entered into that certain Town Center Office Lease dated
as of May 20, 1996, for premises described as Suite 690 (the "PREMISES"),
initially containing approximately 1,095 rentable square feet in the property
(the "PROPERTY") known as 2000 Town Center located at 2000 Town Center,
Southfield Michigan (collectively, the "LEASE").
B. Tenant has requested that additional space currently known as Suite
682 (the "EXPANSION PREMISES"), located on the sixth floor of the Property and
consisting of approximately 1,092 rentable square feet for purposes hereof, be
added to the Premises, and Landlord is willing to grant the same, all on the
terms and conditions hereinafter set forth.
NOW, THEREFORE, in consideration of the mutual covenants and agreements
herein contained, and other good and valuable consideration, the parties do
hereby agree that the Lease shall be, and hereby is, modified as follows:
I. MODIFICATIONS TO LEASE SCHEDULE. Commencing on the Expansion Date
set forth below (or such other date for any particular Item specifically set
forth herein), the Schedule set forth on the first page of the Lease shall be
modified with respect to the following items (such modifications to the
Schedule are hereinafter referred to as the "REVISED SCHEDULE"):
REVISED SCHEDULE
2. Rentable Square Feet of Premises: 2,187
4. Base Rent:
Period Monthly Annually
-------------------- --------- ----------
06/01/97 to 05/31/98 $2,004.25 $24,051.00
06/01/98 to 05/31/99 $2,049.81 $24,597.72
06/01/99 to 05/31/00 $2,094.56 $25,134.72
06/01/00 to 05/31/01 $2,140.94 $25,691.28
5. Tenant's Share: 0.421%
6. Security Deposit $3,550.00 (Tenant shall pay an
additional amount of $1,998.75 upon
1
<PAGE>
Tenant's execution of this
Amendment)
7. Broker(s) Premisys Real Estate Services, Inc.
8. Expansion Date June 1, 1997, subject to the
provisions below
13. Exhibits EXHIBIT A hereto shall replace
EXHIBIT A attached to the Lease
EXHIBIT B (Construction Workletter)
attached to the Lease shall not be
applicable to the Expansion
Premises and is hereby deleted
The foregoing provisions are intended to supplement, and supersede in cases
of inconsistency, the corresponding provisions of the Lease, and shall be
interpreted and applied in accordance with the other provisions of this
Amendment and the Lease. Capitalized terms not otherwise defined herein shall
have the meanings ascribed thereto in the Lease.
II. OTHER LEASE MODIFICATIONS. The parties hereby agree as follows:
1. Section 28 (Termination Option) of the Lease is hereby deleted.
III. EXPANSION. Commencing on the Expansion Date set forth above (but
subject to adjustment as provided herein), the Expansion Premises described
above shall be added to and shall become a part of the Premises, subject to the
terms and conditions set forth herein.
IV. PRORATIONS. If the Expansion Date occurs other than on the
beginning of the applicable payment period under the Lease, Tenant's obligations
for Base Rent, Taxes, Expenses and other such charges shall be prorated on a per
diem basis.
V. POSSESSION AND CONDITION OF EXPANSION PREMISES. Tenant has inspected
the Expansion Premises and agrees to accept the same "AS IS" without any
agreements, representations, understandings or obligations on the part of
Landlord to perform any alterations, repairs or improvements, or any allowance
therefor. Any construction, alterations or improvements made to the Expansion
Premises by Tenant shall be subject to Landlord's prior written approval
including without limitation, approval of the plans, specifications, contractors
and subcontractors therefor, and all applicable terms and conditions of the
Lease relating to construction, alterations or improvements of the Premises, and
such other reasonable requirements or conditions as Landlord may impose. During
any period that Tenant shall be permitted to enter the Expansion Premises prior
to the Expansion Date other than to occupy the same (e.g., to perform
alterations or improvements), Tenant shall comply with all terms and provisions
of the Lease, except that the Base Rent and Tenant's Share under the Revised
Schedule shall not apply. If Tenant shall be
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permitted to enter the Expansion Premises prior to the Expansion Date for the
purpose of occupying the same, the Revised Schedule shall commence on such
date; if Tenant shall commence occupying only a portion of the Expansion
Premises prior to the Expansion Date, such rent and charges shall be prorated
based on the number of rentable square feet occupied by Tenant.
VI. DELAYS. The Expansion Date shall be delayed and the Base Rent and
Tenant's Share under the Revised Schedule shall be postponed (and Tenant shall
continue paying in accordance with the original Schedule) to the extent that
Landlord fails to deliver possession of the Expansion Premises for any reason,
including but not limited to holding over by prior occupants, except to the
extent that Tenant, its contractors, agents or employees in any way contribute
to such failure. If Landlord so fails for a ninety (90) day initial grace
period, or such additional time as may be necessary due to acts or omissions of
Tenant, its contractors, agents or employees, or other causes beyond Landlord's
reasonable control, Tenant shall have the right to terminate this Amendment by
written notice to Landlord within ten (10) days thereafter unless Landlord
delivers possession within ten (10) days after receiving Tenant's notice. Any
such delay in the Expansion Date shall not subject Landlord to any liability for
any loss or damage resulting therefrom, and Tenant's sole remedy with respect
thereto shall be the abatement of Base Rent and Tenant's Share under the Revised
Schedule and right to terminate this Amendment described above. If the
Expansion Date is delayed, the Expiration Date under the Lease shall not be
similarly extended (unless Landlord so elects in writing). TENANT HEREBY
ACKNOWLEDGES THAT LANDLORD WILL NEED TO GIVE 60 DAYS' NOTICE OF TERMINATION TO
THE EXISTING TENANT OF THE EXPANSION PREMISES, AND THAT LANDLORD WILL NOT GIVE
SUCH NOTICE UNTIL THIS AMENDMENT IS SIGNED AND DELIVERED BY BOTH PARTIES.
VII. OTHER TERMS. On the Expansion Date, the Expansion Premises shall
be added to the Premises under the Lease, and all terms and conditions then or
thereafter in effect under the Lease shall apply to the Expansion Premises,
except as otherwise expressly provided to the contrary herein. Notwithstanding
the foregoing to the contrary, this Amendment is intended to supersede any
rights of Tenant under the Lease to expand or relocate the Premises, or
terminate the Lease early, and all such provisions are hereby deleted. In
addition, any rights of Tenant under the Lease to extend the term shall with
respect to the Expansion Premises shall be subordinate to, and limited by, any
rights of any other parties to lease the Expansion Premises granted prior to
full execution and delivery of this Amendment.
VIII.CONFIDENTIALITY. Tenant shall keep the content and all copies of
this document and the Lease, all related documents or agreements now or
hereafter entered, and all proposals, materials, information and matters
relating thereto strictly confidential, and shall not disclose, disseminate or
distribute any of the same, or permit the same to occur, with respect to any
party other than Tenant's financial or legal advisors to the extent that they
need such information to advise Tenant (and Tenant shall obligate any such other
parties to whom disclosure is permitted to honor the confidentiality provisions
hereof), except as may be required by Law or court proceedings.
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IX. REAL ESTATE BROKERS. Tenant represents and warrants that Tenant has
not dealt with any broker, agent or finder in connection with this Amendment
other than the broker(s), if any, set forth above (whom Landlord shall pay
pursuant to separate written agreement(s), if any), and agrees to indemnify and
hold Landlord, and it employees, agents and affiliates harmless from all
damages, judgments, liabilities and expenses (including reasonable attorneys'
fees) arising from any claims or demands of any other broker, agent or finder
with whom Tenant has dealt for any commission or fee alleged to be due in
connection with this Amendment.
X. CONSENT. This Amendment is subject to and conditioned upon, any
required consent or approval being granted without any fee, charge or condition
that is unacceptable to Landlord, by Landlord's mortgagees, ground lessors or
partners. If any such consents shall be denied or granted subject to the payment
of unacceptable fees, charges or conditions, the Lease shall remain in full
force and effect, without the modifications provided herein.
XI. OFFER. The submission and negotiation of this Amendment shall not be
deemed an offer to enter the same by Landlord. Tenant's execution of this
Amendment constitutes a firm offer to enter the same which may not be withdrawn
for a period of forty-five (45) days after delivery to Landlord. During such
period, Landlord may proceed in reliance thereon and permit Tenant to enter the
Expansion Premises, but such acts shall not be deemed an acceptance. Such
acceptance shall be evidenced only by Landlord signing and delivering this
Amendment to Tenant.
XII. WHOLE AMENDMENT. This Amendment sets forth the entire agreement
between the parties with respect to the matters set forth herein. There have
been no additional oral or written
[This Space Left Intentionally Blank]
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representations or agreements. In case of any inconsistency between the
provisions of the Lease and this Amendment, the latter provisions shall govern
and control.
IN WITNESS WHEREOF, the Landlord and Tenant have duly executed this
Amendment as of the day and year first above written.
LANDLORD:
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TOWN CENTER DELAWARE, INC., a Delaware
corporation
By: /s/ Thomas Lee
---------------------------------
Name: Thomas Lee
------------------------------
Title: Authorized Signatory
------------------------------
By: /s/ Tia S. Miyamoto
---------------------------------
Name: Tia S. Myamoto
-------------------------------
Title: Authorized Signatory
-------------------------------
TENANT:
------
ELTRAX SYSTEMS, INC., a Minnesota corporation
By: /s/ Clunet R. Lewis
---------------------------------
Name: Clunet R. Lewis
-------------------------------
Title: Chief Financial Officer
-------------------------------
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ELTRAX SYSTEMS, INC.
1997 STOCK INCENTIVE PLAN
1. PURPOSE OF PLAN.
The purpose of the Eltrax Systems, Inc. 1997 Stock Incentive Plan (the
"Plan") is to advance the interests of Eltrax Systems, Inc. (the "Company") and
its shareholders by enabling the Company and its Subsidiaries (i) to attract and
retain persons of ability to perform services for the Company and its
Subsidiaries by providing an incentive to such individuals through equity
participation in the Company and by rewarding such individuals who contribute to
the achievement by the Company of its economic objectives; and (ii) to pursue
its growth strategy by providing a means to the Company to consummate future
acquisitions by structuring part of the payment of the purchase price for such
acquisitions in the form of stock options or other incentive awards and
providing an incentive through equity participation in the Company and its
Subsidiaries to key employees of acquired companies to remain with the Company
and its Subsidiaries.
2. DEFINITIONS.
The following terms will have the meanings set forth below, unless the
context clearly otherwise requires:
2.1. "BOARD" means the Board of Directors of the Company.
2.2. "BROKER EXERCISE NOTICE" means a written notice pursuant to which a
Participant, upon exercise of an Option, irrevocably instructs a broker
or dealer to sell a sufficient number of shares or loan a sufficient
amount of money to pay all or a portion of the exercise price of the
Option and/or any related withholding tax obligations and remit such
sums to the Company and directs the Company to deliver stock
certificates to be issued upon such exercise directly to such broker or
dealer.
2.3. "CHANGE IN CONTROL" means an event described in Section 13.1 of the
Plan.
2.4. "CODE" means the Internal Revenue Code of 1986, as amended.
2.5. "COMMITTEE" means the group of individuals administering the Plan, as
provided in Section 3 of the Plan.
2.6. "COMMON STOCK" means the common stock of the Company, par value $.01
per share, or the number and kind of shares of stock or other
securities into which such Common Stock may be changed in accordance
with Section 4.3 of the Plan.
2.7. "DISABILITY" means the disability of the Participant such as would
entitle the Participant to receive disability income benefits pursuant
to the long-term disability plan of the Company or Subsidiary then
covering the Participant or, if no such plan exists or is applicable to
the Participant, the permanent and total disability of the Participant
within the meaning of Section 22(e)(3) of the Code.
2.8. "ELIGIBLE RECIPIENTS" means all employees of the Company or any
Subsidiary and any non-employee directors, consultants and independent
contractors of the Company or any Subsidiary.
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2.9. "EXCHANGE ACT" means the Securities Exchange Act of 1934, as amended.
2.10. "FAIR MARKET VALUE" means, with respect to the Common Stock, as of any
date (or, if no shares were traded or quoted on such date, as of the
next preceding date on which there was such a trade or quote) (a) the
mean between the reported high and low sale prices of the Common Stock
if the Common Stock is listed, admitted to unlisted trading privileges
or reported on any national securities exchange or on the Nasdaq
National Market; (b) if the Common Stock is not so listed, admitted to
unlisted trading privileges or reported on any national securities
exchange or on the Nasdaq National Market, the closing bid price as
reported by the Nasdaq SmallCap Market, OTC Bulletin Board or the
National Quotation Bureau, Inc. or other comparable service; or (c) if
the Common Stock is not so listed or reported, such price as the
Committee determines in good faith in the exercise of its reasonable
discretion. If determined by the Committee, such determination will be
final, conclusive and binding for all purposes and on all persons,
including, without limitation, the Company, the shareholders of the
Company, the Participants and their respective successors-in-interest.
No member of the Committee will be liable for any determination
regarding the fair market value of the Common Stock that is made in
good faith.
2.11. "INCENTIVE AWARD" means an Option, Stock Appreciation Right,
Restricted Stock Award, Performance Unit or Stock Bonus granted to an
Eligible Recipient pursuant to the Plan.
2.12. "INCENTIVE STOCK OPTION" means a right to purchase Common Stock
granted to an Eligible Recipient pursuant to Section 6 of the Plan that
qualifies as an "incentive stock option" within the meaning of Section
422 of the Code.
2.13. "NON-STATUTORY STOCK OPTION" means a right to purchase Common Stock
granted to an Eligible Recipient pursuant to Section 6 of the Plan that
does not qualify as an Incentive Stock Option.
2.14. "OPTION" means an Incentive Stock Option or a Non-Statutory Stock
Option.
2.15. "PARTICIPANT" means an Eligible Recipient who receives one or more
Incentive Awards under the Plan.
2.16. "PERFORMANCE UNIT" means a right granted to an Eligible Recipient
pursuant to Section 9 of the Plan to receive a payment from the
Company, in the form of stock, cash or a combination of both, upon the
achievement of established employment, service, performance or other
goals.
2.17. "PREVIOUSLY ACQUIRED SHARES" means shares of Common Stock that are
already owned by the Participant or, with respect to any Incentive
Award, that are to be issued upon the grant, exercise or vesting of
such Incentive Award.
2.18. "RESTRICTED STOCK AWARD" means an award of Common Stock granted to an
Eligible Recipient pursuant to Section 8 of the Plan that is subject to
the restrictions on transferability and the risk of forfeiture imposed
by the provisions of such Section 8.
2.19. "RETIREMENT" means termination of employment or service pursuant to
and in accordance with the regular (or, if approved by the Board for
purposes of the Plan, early) retirement/pension plan or practice of the
Company or Subsidiary then covering the Participant, provided that if
the Participant is not covered by any such plan or practice, the
Participant will be deemed to be covered by the Company's plan or
practice for purposes of this determination.
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<PAGE>
2.20. "SECURITIES ACT" means the Securities Act of 1933, as amended.
2.21. "STOCK APPRECIATION RIGHT" means a right granted to an Eligible
Recipient pursuant to Section 7 of the Plan to receive a payment from
the Company, in the form of stock, cash or a combination of both, equal
to the difference between the Fair Market Value of one or more shares
of Common Stock and the exercise price of such shares under the terms
of such Stock Appreciation Right.
2.22. "STOCK BONUS" means an award of Common Stock granted to an Eligible
Recipient pursuant to Section 10 of the Plan.
2.23. "SUBSIDIARY" means any entity that is directly or indirectly
controlled by the Company or any entity in which the Company has a
significant equity interest, as determined by the Committee.
2.24. "TAX DATE" means the date any withholding tax obligation arises under
the Code for a Participant with respect to an Incentive Award.
3. PLAN ADMINISTRATION.
3.1. THE COMMITTEE. The Plan will be administered by the Board or by a
committee of the Board. So long as the Company has a class of its
equity securities registered under Section 12 of the Exchange Act, any
committee administering the Plan will consist solely of two or more
members of the Board who are "non-employee directors" within the
meaning of Rule 16b-3 under the Exchange Act and, if the Board so
determines in its sole discretion, who are "outside directors" within
the meaning of Section 162(m) of the Code. Such a committee, if
established, will act by majority approval of the members (including
written consent of a majority of the members), and a majority of the
members of such a committee will constitute a quorum. As used in the
Plan, "Committee" will refer to the Board or to such a committee, if
established. To the extent consistent with corporate law, the
Committee may delegate to any officers of the Company the duties, power
and authority of the Committee under the Plan pursuant to such
conditions or limitations as the Committee may establish; provided,
however, that only the Committee may exercise such duties, power and
authority with respect to Eligible Recipients who are subject to
Section 16 of the Exchange Act. The Committee may exercise its duties,
power and authority under the Plan in its sole and absolute discretion
without the consent of any Participant or other party, unless the Plan
specifically provides otherwise. Each determination, interpretation or
other action made or taken by the Committee pursuant to the provisions
of the Plan will be conclusive and binding for all purposes and on all
persons, and no member of the Committee will be liable for any action
or determination made in good faith with respect to the Plan or any
Incentive Award granted under the Plan.
3.2. AUTHORITY OF THE COMMITTEE.
(a) In accordance with and subject to the provisions of the Plan, the
Committee will have the authority to determine all provisions of
Incentive Awards as the Committee may deem necessary or desirable
and as consistent with the terms of the Plan, including, without
limitation, the following: (i) the Eligible Recipients to be
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<PAGE>
selected as Participants; (ii) the nature and extent of the
Incentive Awards to be made to each Participant (including the
number of shares of Common Stock to be subject to each Incentive
Award, any exercise price, the manner in which Incentive Awards
will vest or become exercisable and whether Incentive Awards will
be granted in tandem with other Incentive Awards) and the form of
written agreement, if any, evidencing such Incentive Award; (iii)
the time or times when Incentive Awards will be granted; (iv) the
duration of each Incentive Award; and (v) the restrictions and
other conditions to which the payment or vesting of Incentive
Awards may be subject. In addition, the Committee will have the
authority under the Plan in its sole discretion to pay the
economic value of any Incentive Award in the form of cash, Common
Stock or any combination of both.
(b) The Committee will have the authority under the Plan to amend or
modify the terms of any outstanding Incentive Award in any manner,
including, without limitation, the authority to modify the number
of shares or other terms and conditions of an Incentive Award,
extend the term of an Incentive Award, accelerate the
exercisability or vesting or otherwise terminate any restrictions
relating to an Incentive Award, accept the surrender of any
outstanding Incentive Award or, to the extent not previously
exercised or vested, authorize the grant of new Incentive Awards
in substitution for surrendered Incentive Awards; provided,
however that the amended or modified terms are permitted by the
Plan as then in effect and that any Participant adversely affected
by such amended or modified terms has consented to such amendment
or modification. No amendment or modification to an Incentive
Award, however, whether pursuant to this Section 3.2 or any other
provisions of the Plan, will be deemed to be a regrant of such
Incentive Award for purposes of this Plan.
(c) In the event of (i) any reorganization, merger, consolidation,
recapitalization, liquidation, reclassification, stock dividend,
stock split, combination of shares, rights offering, extraordinary
dividend or divestiture (including a spin-off) or any other change
in corporate structure or shares, (ii) any purchase, acquisition,
sale or disposition of a significant amount of assets or a
significant business, (iii) any change in accounting principles or
practices, or (iv) any other similar change, in each case with
respect to the Company or any other entity whose performance is
relevant to the grant or vesting of an Incentive Award, the
Committee (or, if the Company is not the surviving corporation in
any such transaction, the board of directors of the surviving
corporation) may, without the consent of any affected Participant,
amend or modify the vesting criteria of any outstanding Incentive
Award that is based in whole or in part on the financial
performance of the Company (or any Subsidiary or division thereof)
or such other entity so as equitably to reflect such event, with
the desired result that the criteria for evaluating such financial
performance of the Company or such other entity will be
substantially the same (in the sole discretion of the Committee or
the board of directors of the surviving corporation) following
such event as prior to such event; provided, however, that the
amended or modified terms are permitted by the Plan as then in
effect.
4. SHARES AVAILABLE FOR ISSUANCE.
4.1. MAXIMUM NUMBER OF SHARES AVAILABLE. Subject to adjustment as provided
in Section 4.3 of the Plan, the maximum number of shares of Common
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Stock that will be available for issuance under the Plan will be
1,100,000 shares of Common Stock. Notwithstanding any other provisions
of the Plan to the contrary, no Participant in the Plan may be granted
any Options or Stock Appreciation Rights, or any other Incentive Awards
with a value based solely on an increase in the value of the Common
Stock after the date of grant, relating to more than 200,000 shares of
Common Stock in the aggregate in any fiscal year of the Company
(subject to adjustment as provided in Section 4.3 of the Plan);
provided, however, that a Participant who is first appointed or elected
as an officer, hired as an employee or retained as a consultant by the
Company or who receives a promotion that results in an increase in
responsibilities or duties may be granted, during the fiscal year of
such appointment, election, hiring, retention or promotion, Options,
Stock Appreciation Rights or such other Incentive Awards relating to up
to 300,000 shares of Common Stock (subject to adjustment as provided in
Section 4.3 of the Plan).
4.2. ACCOUNTING FOR INCENTIVE AWARDS. Shares of Common Stock that are
issued under the Plan or that are subject to outstanding Incentive
Awards will be applied to reduce the maximum number of shares of Common
Stock remaining available for issuance under the Plan. Any shares of
Common Stock that are subject to an Incentive Award that lapses,
expires, is forfeited or for any reason is terminated unexercised or
unvested and any shares of Common Stock that are subject to an
Incentive Award that is settled or paid in cash or any form other than
shares of Common Stock will automatically again become available for
issuance under the Plan. Any shares of Common Stock that constitute
the forfeited portion of a Restricted Stock Award, however, will not
become available for further issuance under the Plan.
4.3. ADJUSTMENTS TO SHARES AND INCENTIVE AWARDS. In the event of any
reorganization, merger, consolidation, recapitalization, liquidation,
reclassification, stock dividend, stock split, combination of shares,
rights offering, divestiture or extraordinary dividend (including a
spin-off) or any other change in the corporate structure or shares of
the Company, the Committee (or, if the Company is not the surviving
corporation in any such transaction, the board of directors of the
surviving corporation) will make appropriate adjustment (which
determination will be conclusive) as to the number and kind of
securities or other property (including cash) available for issuance or
payment under the Plan and, in order to prevent dilution or enlargement
of the rights of Participants, (a) the number and kind of securities or
other property (including cash) subject to outstanding Options, and (b)
the exercise price of outstanding Options.
5. PARTICIPATION.
Participants in the Plan will be those Eligible Recipients who, in the
judgment of the Committee, have contributed, are contributing or are expected to
contribute to the achievement of economic objectives of the Company or its
Subsidiaries. Eligible Recipients may be granted from time to time one or more
Incentive Awards, singly or in combination or in tandem with other Incentive
Awards, as may be determined by the Committee in its sole discretion. Incentive
Awards will be deemed to be granted as of the date specified in the grant
resolution of the Committee, which date will be the date of any related
agreement with the Participant.
6. OPTIONS.
6.1. GRANT. An Eligible Recipient may be granted one or more Options under
the Plan, and such Options will be subject to such terms and
conditions, consistent with the other provisions of the Plan, as may be
determined by the Committee in its sole discretion. The Committee may
designate whether an Option is to be considered an Incentive Stock
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<PAGE>
Option or a Non-Statutory Stock Option. To the extent that any
Incentive Stock Option granted under the Plan ceases for any reason to
qualify as an "incentive stock option" for purposes of Section 422 of
the Code, such Incentive Stock Option will continue to be outstanding
for purposes of the Plan but will thereafter be deemed to be a Non-
Statutory Stock Option.
6.2. EXERCISE PRICE. The per share price to be paid by a Participant upon
exercise of an Option will be determined by the Committee in its
discretion at the time of the Option grant, provided that (a) such
price will not be less than 100% of the Fair Market Value of one share
of Common Stock on the date of grant with respect to an Incentive Stock
Option (110% of the Fair Market Value if, at the time the Incentive
Stock Option is granted, the Participant owns, directly or indirectly,
more than 10% of the total combined voting power of all classes of
stock of the Company or any parent or subsidiary corporation of the
Company), and (b) such price will not be less than 85% of the Fair
Market Value of one share of Common Stock on the date of grant with
respect to a Non-Statutory Stock Option.
6.3. EXERCISABILITY AND DURATION. An Option will become exercisable at such
times and in such installments as may be determined by the Committee in
its sole discretion at the time of grant; provided, however, that no
Option may be exercisable after 10 years from its date of grant or, in
the case of an Eligible Participant who owns, directly or indirectly
(as determined pursuant to Section 424(d) of the Code), more than 10%
of the combined voting power of all classes of stock of the Company or
any subsidiary or parent corporation of the Company (within the meaning
of Sections 424(f) and 424(e), respectively, of the Code), five years
from its date of grant.
6.4. PAYMENT OF EXERCISE PRICE. The total purchase price of the shares to
be purchased upon exercise of an Option will be paid entirely in cash
(including check, bank draft or money order); provided, however, that
the Committee, in its sole discretion and upon terms and conditions
established by the Committee, may allow such payments to be made, in
whole or in part, by tender of a Broker Exercise Notice, Previously
Acquired Shares, by tender of a promissory note (on terms acceptable to
the Committee in its sole discretion) or by a combination of such
methods.
6.5. MANNER OF EXERCISE. An Option may be exercised by a Participant in
whole or in part from time to time, subject to the conditions contained
in the Plan and in the agreement evidencing such Option, by delivery in
person, by facsimile or electronic transmission or through the mail of
written notice of exercise to the Company (Attention: Chief Financial
Officer) at its principal executive office in Minneapolis, Minnesota
and by paying in full the total exercise price for the shares of Common
Stock to be purchased in accordance with Section 6.4 of the Plan.
6.6. AGGREGATE LIMITATION OF COMMON STOCK SUBJECT TO INCENTIVE STOCK
OPTIONS. To the extent that the aggregate Fair Market Value
(determined as of the date an Incentive Stock Option is granted) of the
shares of Common Stock with respect to which Incentive Stock Options
are exercisable for the first time by a Participant during any calendar
year (under the Plan and any other incentive stock option plans of the
Company, any subsidiary or any parent corporation of the Company
(within the meaning of Sections 424(f) and 424(e), respectively, of the
Code)) exceeds $100,000 (or such other amount as may be prescribed by
the Code from time to time), such excess Incentive Stock Options shall
be treated as Non-Statutory Stock Options. The determination shall be
made by taking Incentive Stock Options into account in the order in
which they were granted. If such excess only applies to a portion of
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an Incentive Stock Option, the Committee, in its discretion, shall
designate which shares shall be treated as shares to be acquired upon
exercise of an Incentive Stock Option.
7. STOCK APPRECIATION RIGHTS.
7.1. GRANT. An Eligible Recipient may be granted one or more Stock
Appreciation Rights under the Plan, and such Stock Appreciation Rights
will be subject to such terms and conditions, consistent with the other
provisions of the Plan, as may be determined by the Committee in its
sole discretion.
7.2. EXERCISE PRICE. The exercise price of a Stock Appreciation Right will
be determined by the Committee, in its discretion, at the date of grant
but may not be less than 100% of the Fair Market Value of one share of
Common Stock on the date of grant.
7.3. EXERCISABILITY AND DURATION. A Stock Appreciation Right will become
exercisable at such time and in such installments as may be determined
by the Committee in its sole discretion at the time of grant; provided,
however, that no Stock Appreciation Right may be exercisable after 10
years from its date of grant. A Stock Appreciation Right will be
exercised by giving notice in the same manner as for Options, as set
forth in Section 6.5 of the Plan.
8. RESTRICTED STOCK AWARDS.
8.1. GRANT. An Eligible Recipient may be granted one or more Restricted
Stock Awards under the Plan, and such Restricted Stock Awards will be
subject to such terms and conditions, consistent with the other
provisions of the Plan, as may be determined by the Committee in its
sole discretion. The Committee may impose such restrictions or
conditions, not inconsistent with the provisions of the Plan, to the
vesting of such Restricted Stock Awards as it deems appropriate,
including, without limitation, that the Participant remain in the
continuous employ or service of the Company or a Subsidiary for a
certain period or that the Participant or the Company (or any
Subsidiary or division thereof) satisfy certain performance goals or
criteria.
8.2. RIGHTS AS A SHAREHOLDER; TRANSFERABILITY. Except as provided in
Sections 8.1, 8.3 and 14.3 of the Plan, a Participant will have all
voting, dividend, liquidation and other rights with respect to shares
of Common Stock issued to the Participant as a Restricted Stock Award
under this Section 8 upon the Participant becoming the holder of record
of such shares as if such Participant were a holder of record of shares
of unrestricted Common Stock.
8.3. DIVIDENDS AND DISTRIBUTIONS. Unless the Committee determines otherwise
in its sole discretion (either in the agreement evidencing the
Restricted Stock Award at the time of grant or at any time after the
grant of the Restricted Stock Award), any dividends or distributions
(including regular quarterly cash dividends) paid with respect to
shares of Common Stock subject to the unvested portion of a Restricted
Stock Award will be subject to the same restrictions as the shares to
which such dividends or distributions relate. In the event the
Committee determines not to pay such dividends or distributions
currently, the Committee will determine in its sole discretion whether
any interest will be paid on such dividends or distributions. In
addition, the Committee in its sole discretion may require such
dividends and distributions to be reinvested (and in such case the
Participants consent to such reinvestment) in shares of Common Stock
that will be subject to the same restrictions as the shares to which
such dividends or distributions relate.
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8.4. ENFORCEMENT OF RESTRICTIONS. To enforce the restrictions referred to
in this Section 8, the Committee may place a legend on the stock
certificates referring to such restrictions and may require the
Participant, until the restrictions have lapsed, to keep the stock
certificates, together with duly endorsed stock powers, in the custody
of the Company or its transfer agent or to maintain evidence of stock
ownership, together with duly endorsed stock powers, in a
certificateless book-entry stock account with the Company's transfer
agent.
<PAGE>
9. PERFORMANCE UNITS.
An Eligible Recipient may be granted one or more Performance Units under
the Plan, and such Performance Units will be subject to such terms and
conditions, consistent with the other provisions of the Plan, as may be
determined by the Committee in its sole discretion. The Committee may impose
such restrictions or conditions, not inconsistent with the provisions of the
Plan, to the vesting of such Performance Units as it deems appropriate,
including, without limitation, that the Participant remain in the continuous
employ or service of the Company or any Subsidiary for a certain period or that
the Participant or the Company (or any Subsidiary or division thereof) satisfy
certain performance goals or criteria. The Committee will have the sole
discretion to determine the form in which payment of the economic value of
vested Performance Units will be made to the Participant (i.e., cash, Common
Stock or any combination thereof) or to consent to or disapprove the election by
the Participant of the form of such payment.
10. STOCK BONUSES.
An Eligible Recipient may be granted one or more Stock Bonuses under the
Plan, and such Stock Bonuses will be subject to such terms and conditions,
consistent with the other provisions of the Plan, as may be determined by the
Committee. The Participant will have all voting, dividend, liquidation and
other rights with respect to the shares of Common Stock issued to a Participant
as a Stock Bonus under this Section 10 upon the Participant becoming the holder
of record of such shares; provided, however, that the Committee may impose such
restrictions on the assignment or transfer of a Stock Bonus as it deems
appropriate.
11. EFFECT OF TERMINATION OF EMPLOYMENT OR OTHER SERVICE.
11.1. TERMINATION DUE TO DEATH, DISABILITY OR RETIREMENT. In the event a
Participant's employment or other service with the Company and all
Subsidiaries is terminated by reason of death, Disability or
Retirement:
(a) All outstanding Options and Stock Appreciation Rights then held by
the Participant will become immediately exercisable in full and
will remain exercisable for a period of one year after such
termination (but in no event after the expiration date of any such
Option or Stock Appreciation Right);
(b) All Restricted Stock Awards then held by the Participant will
become fully vested; and
(c) All Performance Units and Stock Bonuses then held by the
Participant will vest and/or continue to vest in the manner
determined by the Committee and set forth in the agreement
evidencing such Performance Units or Stock Bonuses.
11.2 TERMINATION FOR REASONS OTHER THAN DEATH, DISABILITY OR RETIREMENT.
-8-
<PAGE>
(a) In the event a Participant's employment or other service is
terminated with the Company and all Subsidiaries for any reason
other than death, Disability or Retirement, or a Participant is in
the employ or service of a Subsidiary and the Subsidiary ceases to
be a Subsidiary of the Company (unless the Participant continues
in the employ or service of the Company or another Subsidiary),
all rights of the Participant under the Plan and any agreements
evidencing an Incentive Award will immediately terminate without
notice of any kind, and no Options or Stock Appreciation Rights
then held by the Participant will thereafter be exercisable, all
Restricted Stock Awards then held by the Participant that have not
vested will be terminated and forfeited, and all Performance Units
and Stock Bonuses then held by the Participant will vest and/or
continue to vest in the manner determined by the Committee and set
forth in the agreement evidencing such Performance Units or Stock
Bonuses; provided, however, that if such termination is due to any
reason other than termination by the Company or any Subsidiary for
"cause," all outstanding Options or Stock Appreciation Rights then
held by such Participant will remain exercisable to the extent
exercisable as of such termination for a period of three months
after such termination (but in no event after the expiration date
of any such Option or Stock Appreciation Right).
(b) For purposes of this Section 11.2, "cause" (as determined by the
Committee) will be as defined in any employment or other agreement
or policy applicable to the Participant or, if no such agreement
or policy exists, will mean (i) dishonesty, fraud,
misrepresentation, embezzlement or deliberate injury or attempted
injury, in each case related to the Company or any Subsidiary,
(ii) any unlawful or criminal activity of a serious nature, (iii)
any intentional and deliberate breach of a duty or duties that,
individually or in the aggregate, are material in relation to the
Participant's overall duties, or (iv) any material breach of any
employment, service, confidentiality or noncompete agreement
entered into with the Company or any Subsidiary.
11.3. MODIFICATION OF RIGHTS UPON TERMINATION. Notwithstanding the other
provisions of this Section 11, upon a Participant's termination of
employment or other service with the Company and all Subsidiaries, the
Committee may, in its sole discretion (which may be exercised at any
time on or after the date of grant, including following such
termination), cause Options and Stock Appreciation Rights (or any part
thereof) then held by such Participant to become or continue to become
exercisable and/or remain exercisable following such termination of
employment or service and Restricted Stock Awards, Performance Units
and Stock Bonuses then held by such Participant to vest and/or
continue to vest or become free of transfer restrictions, as the case
may be, following such termination of employment or service, in each
case in the manner determined by the Committee; provided, however,
that no Option or Stock Appreciation Right may remain exercisable
beyond its expiration date.
11.4. BREACH OF CONFIDENTIALITY OR NONCOMPETE AGREEMENTS. Notwithstanding
anything in the Plan to the contrary, in the event that a Participant
materially breaches the terms of any confidentiality or noncompete
agreement entered into with the Company or any Subsidiary, whether
such breach occurs before or after termination of such Participant's
employment or other service with the Company or any Subsidiary, the
Committee in its sole discretion may immediately terminate all rights
of the Participant under the Plan and any agreements evidencing an
Incentive Award then held by the Participant without notice of any
kind.
-9-
<PAGE>
11.5. DATE OF TERMINATION OF EMPLOYMENT OR OTHER SERVICE. Unless the
Committee otherwise determines in its sole discretion, a Participant's
employment or other service will, for purposes of the Plan, be deemed
to have terminated on the date recorded on the personnel or other
records of the Company or the Subsidiary for which the Participant
provides employment or other service, as determined by the Committee
in its sole discretion based upon such records.
12. PAYMENT OF WITHHOLDING TAXES.
12.1. GENERAL RULES. The Company is entitled to (a) withhold and deduct
from future wages of the Participant (or from other amounts that may
be due and owing to the Participant from the Company or a Subsidiary),
or make other arrangements for the collection of, all legally required
amounts necessary to satisfy any and all federal, state and local
withholding and employment-related tax requirements attributable to an
Incentive Award, including, without limitation, the grant, exercise or
vesting of, or payment of dividends with respect to, an Incentive
Award or a disqualifying disposition of stock received upon exercise
of an Incentive Stock Option, or (b) require the Participant promptly
to remit the amount of such withholding to the Company before taking
any action, including issuing any shares of Common Stock, with respect
to an Incentive Award.
12.2. SPECIAL RULES. The Committee may, in its sole discretion and upon
terms and conditions established by the Committee, permit or require a
Participant to satisfy, in whole or in part, any withholding or
employment-related tax obligation described in Section 12.1 of the
Plan by electing to tender Previously Acquired Shares, a Broker
Exercise Notice or a promissory note (on terms acceptable to the
Committee in its sole discretion), or by a combination of such
methods.
13. CHANGE IN CONTROL.
13.1. CHANGE IN CONTROL. For purposes of this Section 13, a "Change in
Control" of the Company will mean the following:
(a) the sale, lease, exchange or other transfer, directly or
indirectly, of substantially all of the assets of the Company (in
one transaction or in a series of related transactions) to a
person or entity that is not controlled by the Company,
(b) the approval by the shareholders of the Company of any plan or
proposal for the liquidation or dissolution of the Company;
(c) any person becomes after the effective date of the Plan the
"beneficial owner" (as defined in Rule 13d-3 under the Exchange
Act), directly or indirectly, of (A) 20% or more, but less than
50%, of the combined voting power of the Company's outstanding
securities ordinarily having the right to vote at elections of
directors, unless the transaction resulting in such ownership has
been approved in advance by the Incumbent Directors, or (B) 50% or
more of the combined voting power of the Company's outstanding
securities ordinarily having the right to vote at elections of
directors (regardless of any approval by the Incumbent Directors);
(d) a merger or consolidation to which the Company is a party if the
shareholders of the Company immediately prior to effective date of
such merger or consolidation have "beneficial ownership" (as
defined in Rule 13d-3 under the Exchange Act),
-10-
<PAGE>
immediately following the effective date of such merger or
consolidation, of securities of the surviving corporation
representing (i) more than 50%, but less than 80%, of the combined
voting power of the surviving corporation's then outstanding
securities ordinarily having the right to vote at elections of
directors, unless such merger or consolidation has been approved
in advance by the Incumbent Directors (as defined in Section 13.2
below), or (ii) 50% or less of the combined voting power of the
surviving corporation's then outstanding securities ordinarily
having the right to vote at elections of directors (regardless of
any approval by the Incumbent Directors);
(e) the Incumbent Directors cease for any reason to constitute at
least a majority of the Board; or
(f) any other change in control of the Company of a nature that would
be required to be reported pursuant to Section 13 or 15(d) of the
Exchange Act, whether or not the Company is then subject to such
reporting requirements.
13.2. INCUMBENT DIRECTORS. For purposes of this Section 13, "Incumbent
Directors" of the Company will mean any individuals who are members of
the Board on the effective date of the Plan and any individual who
subsequently becomes a member of the Board whose election, or
nomination for election by the Company's shareholders, was approved by
a vote of at least a majority of the Incumbent Directors (either by
specific vote or by approval of the Company's proxy statement in which
such individual is named as a nominee for director without objection
to such nomination).
13.3. ACCELERATION OF VESTING. Without limiting the authority of the
Committee under Sections 3.2 and 4.3 of the Plan, if a Change in
Control of the Company occurs, then, unless otherwise provided by the
Committee in its sole discretion either in the agreement evidencing an
Incentive Award at the time of grant or at any time after the grant of
an Incentive Award, (a) all outstanding Options and Stock Appreciation
Rights will become immediately exercisable in full and will remain
exercisable for the remainder of their terms, regardless of whether
the Participant to whom such Options or Stock Appreciation Rights have
been granted remains in the employ or service of the Company or any
Subsidiary; (b) all outstanding Restricted Stock Awards will become
immediately fully vested and non-forfeitable; and (c) all outstanding
Performance Units and Stock Bonuses then held by the Participant will
vest and/or continue to vest in the manner determined by the Committee
and set forth in the agreement evidencing such Performance Units or
Stock Bonuses.
13.4. CASH PAYMENT FOR OPTIONS. If a Change in Control of the Company
occurs, then the Committee, if approved by the Committee in its sole
discretion either in an agreement evidencing an Incentive Award at the
time of grant or at any time after the grant of an Incentive Award,
and without the consent of any Participant effected thereby, may
determine that some or all Participants holding outstanding Options
will receive, with respect to some or all of the shares of Common
Stock subject to such Options, as of the effective date of any such
Change in Control of the Company, cash in an amount equal to the
excess of the Fair Market Value of such shares immediately prior to
the effective date of such Change in Control of the Company over the
exercise price per share of such Options.
13.5. LIMITATION ON CHANGE IN CONTROL PAYMENTS. Notwithstanding anything in
Section 13.3 or 13.4 of the Plan to the contrary, if, with respect to
a Participant, the acceleration of the vesting of an Incentive Award
as provided in Section 13.3 or the payment of cash in
-11-
<PAGE>
exchange for all or part of an Incentive Award as provided in Section
acceleration or payment could be deemed a "payment" within the meaning
of Section 280G(b)(2) of the Code), together with any other "payments"
which such Participant has the right to receive from the Company or
any corporation that is a member of an "affiliated group" (as defined
in Section 1504(a) of the Code without regard to Section 1504(b) of
the Code) of which the Company is a member, would constitute a
"parachute payment" (as defined in Section 280G(b)(2) of the Code),
then the "payments" to such Participant pursuant to Section 13.3 or
13.4 of the Plan will be reduced to the largest amount as will result
in no portion of such "payments" being subject to the excise tax
imposed by Section 4999 of the Code; provided, however, that if a
Participant is subject to a separate agreement with the Company or a
Subsidiary that expressly addresses the potential application of
Sections 280G or 4999 of the Code (including, without limitation,
that "payments" under such agreement or otherwise will be reduced,
that such "payments" will not be reduced or that the Participant will
have the discretion to determine which "payments" will be reduced),
then this Section 13.5 will not apply, and any "payments" to a
Participant pursuant to Section 13.3 or 13.4 of the Plan will be
treated as "payments" arising under such separate agreement.
14. RIGHTS OF ELIGIBLE RECIPIENTS AND PARTICIPANTS; TRANSFERABILITY.
14.1. EMPLOYMENT OR SERVICE. Nothing in the Plan will interfere with or
limit in any way the right of the Company or any Subsidiary to
terminate the employment or service of any Eligible Recipient or
Participant at any time, nor confer upon any Eligible Recipient or
Participant any right to continue in the employ or service of the
Company or any Subsidiary.
14.2. RIGHTS AS A SHAREHOLDER. As a holder of Incentive Awards (other than
Restricted Stock Awards and Stock Bonuses), a Participant will have no
rights as a shareholder unless and until such Incentive Awards are
exercised for, or paid in the form of, shares of Common Stock and the
Participant becomes the holder of record of such shares. Except as
otherwise provided in the Plan, no adjustment will be made for
dividends or distributions with respect to such Incentive Awards as to
which there is a record date preceding the date the Participant
becomes the holder of record of such shares, except as the Committee
may determine in its discretion.
14.3. RESTRICTIONS ON TRANSFER. Except pursuant to testamentary will or the
laws of descent and distribution or as otherwise expressly permitted
by the Plan, unless approved by the Committee in its sole discretion,
no right or interest of any Participant in an Incentive Award prior to
the exercise or vesting of such Incentive Award will be assignable or
transferable, or subjected to any lien, during the lifetime of the
Participant, either voluntarily or involuntarily, directly or
indirectly, by operation of law or otherwise. A Participant will,
however, be entitled to designate a beneficiary to receive an
Incentive Award upon such Participant's death, and in the event of a
Participant's death, payment of any amounts due under the Plan will be
made to, and exercise of any Options (to the extent permitted pursuant
to Section 11 of the Plan) may be made by, the Participant's legal
representatives, heirs and legatees.
14.4. NON-EXCLUSIVITY OF THE PLAN. Nothing contained in the Plan is
intended to modify or rescind any previously approved compensation
plans or programs of the Company or create any limitations on the
power or authority of the Board to adopt such additional or other
compensation arrangements as the Board may deem necessary or
desirable.
-12-
<PAGE>
15. SECURITIES LAW AND OTHER RESTRICTIONS.
Notwithstanding any other provision of the Plan or any agreements
entered into pursuant to the Plan, the Company will not be required to issue any
shares of Common Stock under this Plan, and a Participant may not sell, assign,
transfer or otherwise dispose of shares of Common Stock issued pursuant to
Incentive Awards granted under the Plan, unless (a) there is in effect with
respect to such shares a registration statement under the Securities Act and any
applicable state securities laws or an exemption from such registration under
the Securities Act and applicable state securities laws, and (b) there has been
obtained any other consent, approval or permit from any other regulatory body
which the Committee, in its sole discretion, deems necessary or advisable. The
Company may condition such issuance, sale or transfer upon the receipt of any
representations or agreements from the parties involved, and the placement of
any legends on certificates representing shares of Common Stock, as may be
deemed necessary or advisable by the Company in order to comply with such
securities law or other restrictions.
16. PLAN AMENDMENT, MODIFICATION AND TERMINATION.
The Board may suspend or terminate the Plan or any portion thereof at any
time, and may amend the Plan from time to time in such respects as the Board may
deem advisable in order that Incentive Awards under the Plan will conform to any
change in applicable laws or regulations or in any other respect the Board may
deem to be in the best interests of the Company; provided, however, that no
amendments to the Plan will be effective without approval of the shareholders of
the Company if shareholder approval of the amendment is then required pursuant
to Section 422 of the Code or the rules of any stock exchange or Nasdaq. No
termination, suspension or amendment of the Plan may adversely affect any
outstanding Incentive Award without the consent of the affected Participant;
provided, however, that this sentence will not impair the right of the Committee
to take whatever action it deems appropriate under Sections 3.2, 4.3 and 13 of
the Plan.
17. EFFECTIVE DATE AND DURATION OF THE PLAN.
The Plan is effective as of May 15, 1997, the date it was adopted by the
Board and the shareholders. The Plan will terminate at midnight on May 14,
2007, and may be terminated prior to such time to by Board action, and no
Incentive Award will be granted after such termination. Incentive Awards
outstanding upon termination of the Plan may continue to be exercised, or become
free of restrictions, in accordance with their terms.
-13-
<PAGE>
18. MISCELLANEOUS.
18.1. GOVERNING LAW. The validity, construction, interpretation,
administration and effect of the Plan and any rules, regulations and
actions relating to the Plan will be governed by and construed
exclusively in accordance with the laws of the State of Minnesota,
notwithstanding the conflicts of laws principles of any jurisdictions.
18.2. SUCCESSORS AND ASSIGNS. The Plan will be binding upon and inure to
the benefit of the successors and permitted assigns of the Company and
the Participants.
-14-
<PAGE>
<TABLE>
<CAPTION>
SUBSIDIARIES OF THE REGISTRANT
NAME UNDER
WHICH SUBSIDIARY JURISDICTION OF PERCENTAGE
NAME OF SUBSIDIARY DOES BUSINESS INCORPORATION OWNER OWNED
<S> <C> <C> <C> <C>
Nordata, Inc. Datatech/Eltrax California Eltrax Systems, Inc. 100%
Rudata, Inc. None California Eltrax, Inc. 100%
Atlantic Network ANS/Eltrax North Carolina Eltrax Systems, Inc. 100%
Systems, Inc.
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> APR-01-1996
<PERIOD-END> DEC-31-1996
<CASH> 501199
<SECURITIES> 0
<RECEIVABLES> 6726966
<ALLOWANCES> 677000
<INVENTORY> 3081643
<CURRENT-ASSETS> 9764657
<PP&E> 433328
<DEPRECIATION> 237259
<TOTAL-ASSETS> 16069052
<CURRENT-LIABILITIES> 8485571
<BONDS> 0
0
0
<COMMON> 75581
<OTHER-SE> 7507900
<TOTAL-LIABILITY-AND-EQUITY> 16069052
<SALES> 28121355
<TOTAL-REVENUES> 28121355
<CGS> 23746297
<TOTAL-COSTS> 23746297
<OTHER-EXPENSES> 5370543
<LOSS-PROVISION> 230000
<INTEREST-EXPENSE> 7909
<INCOME-PRETAX> (1003394)
<INCOME-TAX> 0
<INCOME-CONTINUING> (1003394)
<DISCONTINUED> (140555)
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1143949)
<EPS-PRIMARY> (.16)
<EPS-DILUTED> (.16)
</TABLE>
