<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
___________
FORM 10-K
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934 [FEE REQUIRED]
For the fiscal year ended December 31, 1996
-------------------------------------------
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
For the transition period from __________ to _________
Commission file number 0-15930
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SOUTHWALL TECHNOLOGIES INC.
------------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 94-2551470
------------------------------- ---------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
1029 Corporation Way, Palo Alto, California 94303
------------------------------------------- ----------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (415) 962-9111
--------------
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock
(Title of Class)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and(2) has been subject to such
filing requirements for the past 90 days. Yes X No
-------- --------
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [X]
1
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The approximate aggregate market value of the Common Stock held by non-
affiliates of the registrant on January 31, 1997, (based upon the closing sales
price of the Common Stock on the NASDAQ National Market System on such date) was
$35,000,000. For purposes of this disclosure, Common Stock held by stockholders
whose ownership exceeds five percent of the Common Stock outstanding as of
January 31, 1997, and Common Stock held by officers and directors of the
registrant has been excluded in that such persons may be deemed to be
"affiliates" as that term is defined in the rules and regulations promulgated
under the Securities Act of 1933, as amended. This determination is not
necessarily conclusive.
The number of shares of the registrant's Common Stock outstanding on
January 31, 1997, was 6,531,253.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the registrant's definitive Proxy Statement to be filed with
the Commission in connection with the Company's 1997 Annual Meeting of
Stockholders (the "Proxy Statement") are incorporated by reference in Part III
of this Form 10-K.
2
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SOUTHWALL TECHNOLOGIES INC.
1996 FORM 10-K ANNUAL REPORT
Table of Contents
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<TABLE>
<CAPTION>
Page
PART I
<S> <C>
ITEM 1. BUSINESS............................................. 4
ITEM 2. PROPERTIES........................................... 10
ITEM 3. LEGAL PROCEEDINGS.................................... 10
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.. 10
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON STOCK AND RELATED
STOCKHOLDER MATTERS................................ 11
ITEM 6. SELECTED FINANCIAL DATA.............................. 11
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS................ 12
ITEM 8. FINANCIAL STATEMENTS................................. 17
ITEM 9. DISAGREEMENTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE......................................... 32
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF REGISTRANT....... 33
ITEM 11. EXECUTIVE COMPENSATION............................... 33
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
AND MANAGEMENT..................................... 33
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS....... 33
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND
REPORTS ON FORM 8-K................................ 34
</TABLE>
3
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PART I
======
ITEM 1 BUSINESS
General
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Southwall Technologies Inc. ("Southwall" or the "Company") designs,
develops, manufactures and markets sputtered thin-film coatings on wide-web,
flexible substrates for energy conservation and electronics applications. The
Company has developed and currently offers a variety of thin-film products for
the residential and commercial architectural glazing, automotive glazing and
electronic display markets. These products include transparent insulation and
solar-control films, anti-reflective film for computer monitor CRTs, transparent
conductive films for use in touch screen displays, and various other types of
commercial film.
During 1996 and years prior, the Company also manufactured products for
various applications in the aerospace industry, including thin-film materials
for shielding and other applications, adhesiveless conductive films for use in
flexible electronic circuits and films that reduce detectability of objects in
selected portions of the electromagnetic spectrum. However, the Company began a
phase out of these products during 1996 and is no longer pursuing these markets.
In September, 1994, the Company entered into an agreement to lease all the
assets formerly of Safety Glass, Inc., dba Armour Worldwide Glass, a glass
laminator in Southern California. The Company created a subsidiary, Southwall
Worldwide Glass Inc., which operated the facility to manufacture the Company's
proprietary California Series(TM) solar control laminated glass, as well as
bullet resistant, security, custom and standard laminated glass products. That
subsidiary operation was closed in March 1996 and certain custom and laminated
glass products were discontinued. The Company continues to manufacture the
proprietary California Series(TM) solar control product line.
Effective October 31, 1994, the Company acquired Sunflex L.P. which
assembles and markets aftermarket film, mesh and glass anti-reflective filters
primarily for personal computer monitors under such trademark names as Krystal
Clear(TM), OPTIVIEW(TM) and Protector(TM).
Markets and Products
- --------------------
Southwall is currently supplying products for use in two broad markets:
energy conservation and electronic displays. The Company's current commercial
products include: (1) its family of transparent Heat Mirror(TM) films for high
performance architectural glazing applications, (2) transparent coatings for use
in conjunction with architectural and automotive glazing laminates and applied
film to provide solar control to windows, (3) anti-reflective films, both OEM
and after market, (4) its Altair(TM) family of transparent conductors, (5)
laminated glass products, and (6) other commercial thin-film products.
4
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Energy Conservation Products
- ----------------------------
Heat Mirror - Transparent Window Insulation
-------------------------------------------
The Company offers a family of Heat Mirror films with various shading and
insulating properties. Windows are primary areas of heat loss in winter and a
major source of heat gain in summer. Windows containing Heat Mirror, while
generally more expensive, have approximately double the insulating capacity of
conventional double-pane windows, and transmit high levels of visible light with
desired degrees of shading. Heat Mirror films, which are sold in rolls to
window manufacturers, are suspended in the airspace between sealed double-pane
residential and commercial windows. The Company has developed and patented this
film-mounting technology, which it licenses to window fabricators. The Company
currently offers a variety of different Heat Mirror films for residential and
commercial architectural applications, including Heat Mirror with XUV(R) fading
protection.
The Company believes that the Heat Mirror and Heat Mirror related
Superglass(R) system is the most comprehensive window glass product available
today, providing R-8 to R-10 insulation, transparent solar shading and
protection from damaging ultraviolet radiation, while also reducing noise and
condensation build-up.
Sales of the Company's Heat Mirror products have been subject to seasonal
buying patterns in the past. See Management's Discussion and Analysis of
Financial Condition and Results of Operations.
Solar-Control Films for Laminated Glazing Applications
------------------------------------------------------
The Company's Heat Mirror XIR(R) Coating is a transparent, sputter-coated,
polyester film used in laminated safety glass for architectural and automotive
applications. The film has a patented, transparent solar-control coating on one
side and a proprietary adhesion-promotion layer on the other side.
The Company's California Series laminated glazing product is comprised of
Heat Mirror XIR, PVB and glass, for architectural and specialty transportation
applications such as agricultural and construction vehicles.
Applied Solar-Control Films
---------------------------
Another glazing product utilizing the Heat Mirror XIR coating is Solis(R)
solar-control films for the retro-fit market for both architectural and
automotive glass. The product has a protective hard coat over the patented,
transparent solar-control coating on one side and an adhesion layer on the other
side and is applied to existing windows.
Silver Reflector Films
----------------------
Southwall markets these mirrored films to fluorescent reflector
manufacturers for energy efficient lighting, primarily for the retrofit market
in North America, and to other manufacturers for various applications including
large screen televisions.
5
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Electronic Products
- -------------------
Anti-Reflective Film and Filters
--------------------------------
Southwall's anti-reflective film for computer monitor CRTs minimize
reflection of ambient light, electromagnetic interference ("EMI") radiation and
static. This film is currently sold primarily to Sony Corporation under a
supply agreement for use in Sony's manufacture of CRTs. The Company, through its
Southwall-Sunflex, Inc. subsidiary, markets aftermarket mesh, glass and film
anti-reflective filters primarily for personal computer monitors under such
trademark names as Krystal Clear(R), OPTIVIEW lite(R), and Protector(R).
Transparent Conductors
----------------------
Southwall currently markets several transparent conductive thin-films under
the brand names ALTAIR-O(TM) and ALTAIR-M(TM). Transparent conductive thin films
combine high visible light transmission with electrical conductivity and
environmental stability. They are typically used where the circuit or conductive
material must not obscure visual information behind the coating. ALTAIR-M films
are sold in roll and sheet form for incorporation into such electronic devices
as touch panels, liquid crystal displays and electroluminescent lighting and
displays. ALTAIR films are also used in EMI shielding, infrared rejection and
electrostatic discharge packaging applications.
Other Products
--------------
Southwall manufactures a variety of other commercial thin-films, including
highly reflective coatings for use in optical storage media.
Manufacturing
- -------------
Three large-scale sputtering production machines currently provide most of
the Company's sputtered thin-film coatings manufacturing capacity. The Company
also uses two small-scale sputtering machines for smaller production runs, and
research and development projects.
The Company has committed to a lease and is currently in the process of
equipping a new facility for the manufacturing of anti-reflective film. The
Company estimates that it will cost approximately $14 million to equip this
facility, of which approximately $2.4 million was expended in 1996,
approximately $9 million will be spent in 1997 and an additional $3 million in
1998. The Company secured $5 million of financing for the project from a
lending institution during December 1996 and is in negotiations with lending
institutions to finance the balance of the costs of this expansion.
The Company anticipates that the new manufacturing facility will begin
operations according to schedule and that adequate financing for the facility
will be obtained. To the extent that completion of the new facility is delayed
or the Company is not able to obtain necessary financing for the facility on
commercially reasonable terms, if at all, the Company's business and results of
operations could be materially adversely affected.
6
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Sources of Supply
- -----------------
The Company has more than one supplier for much of its raw materials and
maintains inventories and close working relationships with its suppliers to
ensure timely and reliable delivery. The substrates used in the manufacture of
Heat Mirror and anti-reflective film are currently available only from a single
source. In each case, an alternative source of supply is being pursued, however,
there can be no assurance that alternative sources of supply will be
successfully developed. Although Southwall has not experienced major
interruptions in production due to a shortage of raw materials, prolonged supply
shortages would materially and adversely affect the Company's manufacturing
operations, business and financial performance.
Research and Development
- ------------------------
Southwall's research and development activities are focused upon the
development of new proprietary products, thin-film materials science, and
deposition process optimization and automation. Company-funded research and
development expenditures totaled $2,310,000, $2,069,000 and $2,487,000, 11%, 6%
and 6% of total net revenues during, 1994, 1995 and 1996, respectively.
Marketing and Customers
- -----------------------
The Company markets its products to OEMs in the United States, Canada,
Europe, the middle East and Asia principally through its own direct sales force
and sales representatives. Mitsui and Marubeni Corporation, are the Company's
distributors for Heat Mirror and certain electronics products in Japan. Mitsui
also has exclusive manufacturing rights for certain of the Company's electronics
products in Japan using the Company's proprietary sputtering technology.
Approximately 80%, 63% and 46% of the Company's net product sales (see below)
resulted from sales to customers located in the United States in 1994, 1995 and
1996, respectively.
In 1992, the Company established and staffed a European office to provide
marketing, sales and field service support in Europe primarily for the Company's
Heat Mirror product line.
In 1995, the Company established and staffed a sales office in Hong Kong to
provide marketing and sales support in Australia and Asia, primarily for the
Company's window products. That office was moved to Singapore during 1996.
In 1995, Southwall started selling its proprietary anti-reflective film
under a Supply Agreement to Sony Corporation, Japan for computer monitor CRTs.
During the first quarter of 1996, the Company and Sony Corporation signed an
Addendum #1 to Supply Agreement. Under the terms of the amended agreement,
among other things, Sony has agreed to increase its minimum order of anti-
reflective film beginning July 1, 1997 and extending through December 31, 2000,
and Southwall has agreed to install any necessary additional manufacturing
capacity by July 1, 1997.
Southwall supplies Heat Mirror products to approximately 60 insulating
glass and window fabricators and distributors worldwide. The Company's
proprietary mounting technology is licensed to its customers, who must acquire
or build specialized mounting equipment for the manufacture of Heat Mirror-
equipped windows. The Company's Field Services organization trains customers in
the manufacture of
7
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Heat Mirror-equipped windows.
In North America, the Company also promotes its Heat Mirror product line,
including its California Series laminated glazing product to the design
community, through approximately 30 regionally based architectural sales
representatives.
The Company sells its anti-reflective filters primarily through independent
direct sales organizations.
Southwall's products are sold with a limited warranty. The Company has not
experienced significant product returns and the costs of its warranty programs
have not been substantial.
A small number of customers have accounted for a substantial portion of the
Company's revenues. The Company's ten largest customers accounted for 47% and
53% of net product sales in 1995 and 1996, respectively. The loss of any of
these customers could have a materially adverse effect on the Company's
operating results. The Company anticipates that customer concentration will
continue for the foreseeable future.
Orders for the Company's products are typically short-term and Southwall
usually ships its products from inventory or produces special customer runs
within 90 days of receiving orders. As a result, the Company generally
experiences no significant order backlog.
Competition
- -----------
The thin-film coatings industry and the markets in which Southwall's
customers compete experience rapid technological change. Southwall's revenues
and operating results could be materially adversely affected by new equipment or
process technologies that improve or change the methods of depositing films on
substrates. Technological change in customers' markets may also result in
obsolescence of the Company's products. Southwall's future success will depend,
in large part, on its ability to anticipate technological change and to
introduce new products.
Southwall has a number of present and potential competitors, many of which
have greater financial resources and greater selling, marketing and technical
resources than the Company. Other U.S. companies serving some of the same
markets as the Company include Material Sciences Corporation and Optical Coating
Laboratories, Inc. One of the largest U.K. polymer film companies, Courtaulds
PLC, entered the market in the mid-1980's by acquiring certain U.S. thin-film
manufacturers. The Company also competes in certain markets with a number of
Japanese companies. Southwall believes that competition for its commercial
products comes primarily from other types of films, various chemical coatings
and solar control coatings deposited directly on glass, and heat absorbing
glass, and that the principal competition to its electronic display products is
currently from non-thin-film alternatives as well as thin-film alternatives.
The Company competes primarily on the basis of the characteristics and
quality of its products, its ability to meet individual customer specifications
and the quality and level of technical assistance furnished to customers.
8
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Patents and Licenses
- --------------------
The Company relies primarily upon trade secrets and know-how to develop and
maintain its competitive position. There can be no assurance that others will
not develop and patent similar technology or that the confidentiality agreements
upon which the Company relies will be honored.
The Company has twenty-six (26) patents and seven (7) patent applications
pending in the United States that cover materials, processes, products and
production equipment. The Company also has patents and patent applications
pending in various foreign countries covering the same technology. Expiration
dates for the various patents range from 1997 to 2014. Southwall considers its
proprietary technology, as well as its patent protection, to be a significant
factor in its business. There can be no assurance that any patent will be
issued on pending applications or that any patent issued will provide adequate
protection for the technology or product covered by it. In addition, other
companies and universities have obtained patents covering film configurations
and processes. The Company has obtained licenses under some of these patents
and may from time to time require licenses under additional patents. There can
be no assurance that Southwall will be able to obtain such licenses, if
required, upon commercially reasonable terms or at all.
Litigation has been and may in the future be necessary from time-to-time to
enforce patents issued to the Company to protect trade secrets and know-how
owned by the Company or to determine the enforceability, scope or validity of
the proprietary rights of others. Any such litigation could result in
substantial costs to the Company and division of effort by the Company's
management and technical personnel.
Employees
- ---------
As of December 31, 1996, Southwall had 215 regular full-time employees, of
whom 31 were engaged in engineering, 128 in manufacturing, and 56 in selling,
general management, finance and administration. The Company is highly dependent
upon the existence and continuing services of certain key scientists, engineers
and management personnel. The loss of services of these employees could have a
materially adverse impact on the business and prospects of the Company. Many of
the Company's employees are highly skilled, and the Company faces strong
competition in recruiting and retaining such personnel.
None of the Company's employees are covered by a collective bargaining
agreement, and the Company has not experienced any work stoppages. The Company
believes that its employee relations are good.
Environmental Matters
- ---------------------
The Company uses certain hazardous materials in its research and
manufacturing operations and has air and water emissions that require controls.
As a result, Southwall is subject to stringent federal, state and local
regulations governing the storage, use and disposal of wastes. The Company has
implemented a program to monitor its past and present compliance with
environmental laws and regulations. Although the Company believes that it is
currently in material compliance with such laws and regulations, current or
future laws and regulations may require the Company to make expenditures for
compliance with chemical exposure, waste treatment or disposal regulations.
9
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There can be no assurance that the operations, business or assets of the
Company will not be materially adversely affected by the interpretation and
enforcement of current or future environmental laws and regulations.
ITEM 2. PROPERTIES
Southwall's administrative, marketing, engineering and manufacturing
facilities are located in five buildings totaling approximately 119,000 square
feet in Palo Alto, California, and 15,000 square feet in Sligo, Ireland where
most of the Company's anti-reflective filters are assembled. The buildings are
occupied under leases that expire from May 1997 to December 1999, with options
to extend some of these leases for terms expiring through 2009. In November
1996, the Company committed to lease of a manufacturing facility currently under
construction in Tempe, Arizona, for ten years, plus two five year options, to
begin May 1, 1997. The Company believes that these facilities are suitable for
it's manufacturing requirements at least through 1997. However, should demand
for the Company's products increase significantly, additional facilities could
be necessary. The Company believes that such additional facilities could be
available at reasonable costs.
ITEM 3. LEGAL PROCEEDINGS
The Company has been named a defendant in a lawsuit filed on April 5, 1996
by one of its customers in the United States District Court for the Eastern
District of New York. The Lawsuit in federal court alleges certain unfair
competition, tort and contractual violations by the Company and seeks relief in
an aggregate amount in excess of $35 million. The Company believes that this
lawsuit is without merit and intends to defend against it vigorously.
In addition, the Company is involved in certain other legal actions arising
in the ordinary course of business. The Company believes, however, that none of
these actions, either individually or in the aggregate, will have a material
adverse effect on the Company's business or its consolidated financial position
or results of operations.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of security holders during the quarter
ended December 31, 1996.
10
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PART II
=======
ITEM 5. MARKET FOR REGISTRANT'S COMMON STOCK AND RELATED
STOCKHOLDER MATTERS
The Company's Common Stock has been traded on the NASDAQ National Market
System under the symbol "SWTX" since the completion of the Company's initial
public offering in June 1987. Prices in the following table represent the high
and low closing sales prices for the Company's Common Stock as reported by
NASDAQ.
Common Stock Prices:
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<TABLE>
<CAPTION>
1995 by Quarter High Low
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<S> <C> <C>
1st $3.25 $2.69
2nd $3.25 $2.88
3rd $4.88 $2.94
4th $4.44 $3.63
<CAPTION>
1996 by Quarter High Low
--------------- ------ ------
<S> <C> <C>
1st $6.50 $4.13
2nd $9.63 $5.38
3rd $7.88 $5.50
4th $7.00 $5.63
</TABLE>
The Company has not paid cash dividends and has no present plans to do so.
There were approximately 2,600 stockholders at December 31, 1996, which includes
stockholders of record and an estimate of the number of stockholders holding
Common Stock in broker name.
ITEM 6. SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
Year ended December 31,
----------------------------------------------
1992 1993 1994 1995 1996
-------- -------- -------- ------- -------
(In thousands, except per share data)
<S> <C> <C> <C> <C> <C>
Statement of Operations Data:
- -------------------------------
Revenues (1) $23,318 $18,501 $21,739 $33,501 $41,720
Income (loss) from
operations (2) (429) (1,509) (3,913) 726 2,568
Net income (loss) 53 (1,324) (3,888) 633 2,427
Net income (loss) per
share $ .01 $ (.23) $ (.67) $ .10 $ .35
Weighted average
shares outstanding 6,372 5,792 5,808 6,315 7,026
</TABLE>
(1) Includes $3.5 million in 1992 and $1.1 million in 1993 of revenues from
sale of a production machine constructed for a Southwall customer in Japan in
connection with a license agreement.
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(2) Includes $1 million of charges during the fourth quarter of 1994 to
eliminate three minor product lines ($.5 million) and to consolidated
facilities ($.5 million).
<TABLE>
<CAPTION>
December 31,
-------------------------------------------
1992 1993 1994 1995 1996
------- ------- ------- ------- -------
(In thousands)
<S> <C> <C> <C> <C> <C>
Balance Sheet Data:
- ------------------------
Working capital $10,134 $10,955 $ 8,102 $ 9,724 $15,846
Total assets 34,782 33,420 31,372 34,105 42,509
Long-term obligations 3,182 3,028 2,947 3,271 7,001
Stockholders' equity 27,844 26,766 22,988 23,914 27,597
</TABLE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (in thousands)
This Form 10-K Report may contain, in this section and elsewhere in the
report, forward looking statements as that term is defined in the Private
Securities Reform Act of 1995, including, without limitation, statements
regarding the Company's expectations, beliefs intentions or strategies regarding
the future. All forward-looking statements included in this document are based
on information available to the Company on the date hereof, and the Company
assumes no obligation to update any such forward-looking statements.
General
-------
The Company has experienced significant fluctuations in quarterly results
of operations. Revenues have varied from quarter to quarter due to the seasonal
buying patterns for the Company's Heat Mirror products, which typically have
been strongest in the second and third quarters and the timing of short-term
sales contracts. Sales of the Company's energy conservation products are
significantly influenced by the residential and commercial construction
industries, and reduction in construction has generally resulted in a reduction
in the sales of the Company's Heat Mirror products. In addition, revenues and
operating results have historically varied from quarter to quarter as a function
of the utilization of the Company's production machines. Manufacturing
inefficiencies have resulted from underutilization of capacity, primarily in
1994, the development and introduction of new products and the changing mix of
products manufactured. Primarily as a result of these factors and in view of
the Company's strategy of developing additional applications for its thin-film
technology, and its ongoing practice of upgrading its manufacturing processes,
the Company may continue to experience quarterly fluctuations in its results of
operations.
Although the Company has not experienced any significant amount of
inventory obsolescence and believes that its inventory is recoverable,
obsolescence of the Company's products could be affected by technological
change, competition, loss of customers and reduction in demand, among other
factors.
Effective September 1, 1994, the Company commenced leasing all the assets
formerly owned by Safety Glass, Inc., dba Armour Worldwide Glass, located in
Southern California, under a five year operating lease for $40 per month. A
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wholly-owned subsidiary, Southwall Worldwide Glass Inc. ("SWGI"), was created to
operate the facility and to manufacture the Company's proprietary California
Series solar control laminated glass, as well as bullet resistant, security,
custom and standard laminated glass products. The Company closed that
subsidiary operation in March, 1996 and certain custom and laminated glass
products were discontinued. The Company continues to manufacture the proprietary
California Series solar control product line.
Effective October 31, 1994, the Company acquired Sunflex L.P. ("Sunflex")
for $500, which will only be paid from Sunflex's operating income, if any, over
the four calendar years ending December 31, 1998. Sunflex assembles and markets
aftermarket mesh, glass and film anti-reflective filters primarily for personal
computer monitors. Sunflex did not have operating income in 1995 or 1996, and,
as a result, no payments have been made to previous owners.
The Company believes that it must continue to increase revenues to achieve
sustained profitability. Although the Company is seeking to expand existing
applications, to develop new applications and to expand international marketing
and sales efforts, there can be no assurance that the Company will be able to
remain profitable.
The following table sets forth for the periods indicated (I) the percentage
relationship to revenues of expense and income items and (ii) the percentage
change of such items as compared to the prior period. The table and the
subsequent discussion should be read in conjunction with the financial
statements and the notes thereto included elsewhere in this Form 10-K.
<TABLE>
<CAPTION>
Percentage of Period to Period
Total Revenues Change
----------------------- -------------------
December 31, 1995 1996
----------------------- vs. vs.
1994 1995 1996 1994 1995
------ ------ ----- ------ ------
<S> <C> <C> <C> <C> <C>
Total revenues 100.0 100.0 100.0 54.1 24.5
Costs and expenses:
Cost of sales 79.3 69.4 67.0 34.9 20.1
Research and development 10.6 6.2 6.0 (10.4) 20.2
Selling, general and
administrative 28.0 22.2 20.9 22.1 17.3
Total costs and expenses 118.0 97.8 93.8 27.8 19.5
Income(loss) from operations (18.0) 2.2 6.2 - 253.7
Interest income(expense), net .1 (0.3) (.1) (48.6) (72.6)
Income(loss) before income
taxes (17.9) 1.9 6.1 - 302.9
Provision for income taxes - - .3 - -
Net income (loss) (17.9) 1.9 5.8 - 283.4
</TABLE>
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Results of Operations (in thousands)
-----------------------------------
1996 Compared to 1995
---------------------
The Company's net sales were $41.7 million for 1996 compared to $33.5
million in 1995, a 25% increase. Net sales of electronic products, including
sales of the Company's new anti-reflective film for computer monitors, increased
by approximately $7.8 million. In addition, net sales of energy conservation
products increased by approximately $1.7 million, offsetting a decrease of
approximately $1.3 million in discontinued product sales.
Cost of sales for 1996 was 67% of sales compared to 69% for 1995. The
percentage decrease was primarily due to increased sales volume and the related
improvement in manufacturing efficiencies.
Research and development expenses, as a percent of sales, were 6% for
1996, compared to 6% for 1995. The absolute dollar increase in 1996 is due to
an increased amount of new product development.
Selling, general and administrative expenses, as a percent of net
sales, decreased to 21% in 1996, from 22% in 1995 due to increased sales volume.
The increase from $7.4 million in 1995 to $8.7 million in 1996, is attributable
to the new operations discussed above, and increased sales and marketing
expenses associated with the introduction of new products and continued
expansion in the Pacific Rim.
As a result of the factors discussed above, the Company reported a
pre-tax income of $2.5 million for 1996, compared to a pre-tax income of $.6
million for 1995.
1995 Compared to 1994
---------------------
The Company's net sales were $33.5 million for 1995 compared to $21.7
million in 1994, a 54% increase. Of this increase, which was primarily volume
related, approximately $2.5 million was from the new operations discussed above.
In addition, net sales of energy conservation products increased by
approximately $6.5 million, and net sales of electronic products, including
sales of the Company's new anti-reflective film product for computer monitors,
increased by approximately $3.5 million, offsetting a decrease of approximately
$.5 million in aerospace and other product sales.
Cost of sales for 1995 was 69% of sales compared to 79% for 1994. The
percentage decrease was primarily due to increased sales volume and the related
improvement in manufacturing efficiencies.
Research and development expenses, as a percent of sales, were 6% for
1995, compared to 11% for 1994. The decrease is primarily attributable to an
increased volume of sales. The absolute dollar decrease in 1995 is due to a
decreased amount of new product development.
Selling, general and administrative expenses, as a percent of net
sales, decreased to 22% in 1995, from 28% in 1994 due to increased sales volume.
The increase from $6.1 million in 1994 to $7.4 million in 1995, is attributable
to the new operations discussed above, and increased sales and marketing
expenses
14
<PAGE>
associated with the introduction of new products and expansion in the Pacific
Rim.
As a result of the factors discussed above, the Company reported a
pre-tax income of $.6 million for 1995, compared to a pre-tax loss of $3.9
million for 1994.
Liquidity and Capital Resources
-------------------------------
At December 31, 1996, the Company's net working capital was $15.8
million compared to $9.7 million at December 31, 1995. For the past four years
the Company has financed its operations primarily from existing cash and cash
flow from operations.
In the first quarter 1996, the Company entered into an addendum to a
previous supply agreement with a major customer which provides for certain "best
efforts" sales and purchase commitments of the Company's anti-reflective film
from the date of the addendum through June 30, 1997. Beginning July 1, 1997,
the Company is firmly committed to supply and the customer is committed to
purchase fixed volumes for the period July 1, 1997 through December 31, 1997,
and annually thereafter until December 31, 2000. Should either the Company fail
to supply or the customer fail to purchase the specified quantities, a penalty,
which is based on the sales price to the customer from the prior period, must be
paid to the other. In order to meet the supply commitment, additional capacity
is planned to be on line during the second half of 1997. The Company estimates
that it will cost approximately $14 million to equip this facility,
approximately $2.4 million of which was expended during 1996, approximately $9
million which will be expended during 1997 and approximately $3 million during
1998. During December, 1996, the Company obtained partial financing for this
project in the amount of $5.0 million under a four year term loan secured by an
existing production machine.
From December 31, 1995 to December 31, 1996, cash and short-term investments
increased by $3.9 million, primarily from cash generated by operations and debt
financing; partially offset by expenditures for property and equipment. Accounts
receivable increased by $1.8 million and inventories increased by $1.8 million.
The increase in accounts receivable is primarily attributable to the increase in
net revenues from $9.1 million in the fourth quarter of 1995 to $10.1 million in
the fourth quarter of 1996, and to the timing of sales, most of which occurred
during the later portion of the quarter. The increase in inventories is
primarily due to strong production during the fourth quarter and preparing for
anticipated continued growth in orders in the first quarter of 1997.
The Company anticipates total capital expenditures of approximately
$2.5 million during 1997, in addition to the amounts relating to the new
facility described above. If demand for the Company's products increase
significantly, additional capital expenditures could be necessary.
At December 31, 1996, the Company had $7.4 million of cash and short-
term investments, a $6 million line of credit and a $5 million term loan, which
are subject to certain financial covenants. As of December 31, 1996, there were
no borrowings under the line of credit. Additional debt financing of $6 million
is currently being negotiated, and the Company has received proposals for a
bridge loan from it's line bank and for an additional term loan from a financing
institution. Under the proposal from the Company's line bank, the line of credit
could be reduced to as low as $3 million should the Company accept the $6
million
15
<PAGE>
bridge loan as proposed by the bank, but would increase back to $6 million when
the bridge loan is converted to a term loan, which is anticipated to occur
during the third or fourth quarter of 1997.
Existing working capital and cash generated from operations are
expected to be adequate to satisfy the Company's capital and operating
requirements, excluding the expansion project, at least through 1997. The
Company believes that long term debt funding received during December, 1996 and
the above described additional financing currently under negotiation will
satisfy the Company's requirements for financing of the manufacturing facility
expansion project currently under way. Failure to generate sufficient cash flow
from operations or external sources would have a material adverse effect on the
Company.
16
<PAGE>
ITEM 8. FINANCIAL STATEMENTS
REPORT OF INDEPENDENT ACCOUNTANTS
---------------------------------
To the Board of Directors and
Stockholders of Southwall Technologies Inc.
In our opinion, the accompanying consolidated balance sheets and the related
consolidated statements of operations, cash flows and stockholders' equity
present fairly, in all material respects, the financial position of Southwall
Technologies Inc. and its subsidiaries at December 31, 1996 and 1995, and the
results of their operations and their cash flows for each of the three years in
the period ended December 31, 1996, in conformity with generally accepted
accounting principles. 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 of these
statements in accordance with generally accepted auditing standards which
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, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for the opinion expressed above.
PRICE WATERHOUSE LLP
San Jose, California
January 24, 1997
17
<PAGE>
SOUTHWALL TECHNOLOGIES INC.
CONSOLIDATED BALANCE SHEETS
--------------------------------
(in thousands)
ASSETS
------
<TABLE>
<CAPTION>
December 31,
1 9 9 5 1 9 9 6
-------- --------
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 1,434 $ 7,419
Short-term investments 2,132 7
Accounts receivable, net 5,288 7,097
Inventories 6,624 8,406
Other current assets 1,166 828
-------- --------
Total current assets 16,644 23,757
Property and equipment, net 15,518 17,223
Other assets 1,943 1,529
-------- --------
Total assets $ 34,105 $ 42,509
======== ========
</TABLE>
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
<TABLE>
<S> <C> <C>
Current liabilities:
Accounts payable $ 3,236 $ 2,635
Accrued compensation 1,413 2,141
Other accrued liabilities 2,170 1,954
Current portion of long-term debt 101 1,181
-------- --------
Total current liabilities 6,920 7,911
Long-term debt 2,890 6,591
Deferred income taxes 381 410
-------- --------
Total liabilities 10,191 14,912
-------- --------
Commitments (Note 6)
Stockholders' equity:
Common stock, $.001 par value, 20,000 shares
authorized; issued and outstanding 6,917
and 6,917 7 7
Capital in excess of par value 47,206 46,673
Notes receivable - (596)
Accumulated deficit (19,339) (16,912)
Less cost of treasury stock, 981 and
390 shares outstanding (3,960) (1,575)
-------- --------
Total stockholders' equity 23,914 27,597
-------- --------
Total liabilities and
stockholders' equity $ 34,105 $ 42,509
======== ========
</TABLE>
See accompanying notes to financial statements.
18
<PAGE>
SOUTHWALL TECHNOLOGIES INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
-------------------------------------
(in thousands, except per share data)
<TABLE>
<CAPTION>
Year ended December 31,
1 9 9 4 1 9 9 5 1 9 9 6
-------- -------- --------
<S> <C> <C> <C>
Net revenues $ 21,739 $ 33,501 $ 41,720
Costs and expenses:
Cost of sales 17,247 23,265 27,936
Research and development 2,310 2,069 2,487
Selling, general and administrative 6,095 7,441 8,729
-------- -------- --------
Total costs and expenses 25,652 32,775 39,152
-------- -------- --------
Income (loss) from operations ( 3,913) 726 2,568
Interest income(expense), net 24 ( 95) ( 26)
-------- -------- --------
Income (loss) before income taxes ( 3,889) 631 2,542
Provision (benefit) for income taxes ( 1) ( 2) 115
-------- --------
Net income (loss) $ (3,888) $ 633 $ 2,427
======== ======== ========
Net income (loss) per share $( .67) $.10 $.35
======== ======== ========
Weighted average shares of common stock
and dilutive common stock equivalents 5,808 6,315 7,026
======== ======== ========
</TABLE>
See accompanying notes to financial statements.
19
<PAGE>
SOUTHWALL TECHNOLOGIES INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
-----------------------------------------------
(in thousands)
<TABLE>
<CAPTION>
Common Stock Capital in Total
-------------- Excess of Notes Accumulated Treasury Stockholders'
Shares Amount Par Value Receivable Defecit Stock Equity
------ ------ --------- ---------- ------- ----- ------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, Jan. 1,
1994 6,911 $ 7 $47,323 $ - $(16,084) $(4,480) $26,766
Acquisition of 25
shares of treasury
stock at cost (91) (91)
Shares issued through:
Interest paid with
stock (55) 225 170
Sales to employees
under Stock Purchase
Plan 6 * 5 26 31
Net loss (3,888) (3,888)
-----------------------------------------------------------------------
Balance, Dec. 31,
1994 6,917 7 47,273 - (19,972) (4,320) 22,988
Shares issued through:
Interest paid with
stock 18 125 143
Exercise of options (55) 156 101
Sales to employees
under Stock Purchase
Plan (30) 79 49
Net income 633 633
-----------------------------------------------------------------------
Balance, Dec. 31,
1995 6,917 7 47,206 - (19,339) (3,960) 23,914
Shares issued through:
Interest paid with
stock 86 193 279
Exercise of options (751) 2,111 1,360
Stock option loans (596) (596)
Stock option other 123 123
Sales to employees
under Stock Purchase
Plan 9 81 90
Net income 2,427 2,427
-----------------------------------------------------------------------
Balance, Dec. 31,
1996 6,917 $ 7 $46,673 $ (596) $(16,912) $(1,575) $27,597
====== ==== ======= ====== ======== ======= =======
</TABLE>
*Indicates amount less than $500.
See accompanying notes to financial statements.
20
<PAGE>
SOUTHWALL TECHNOLOGIES INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
-------------------------------------
(in thousands)
<TABLE>
<CAPTION>
Year ended December 31,
1994 1995 1996
------- ------- -------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income (loss) $(3,888) $ 633 $ 2,427
Adjustments to reconcile net income
(loss) to net cash provided by
(used in) operating activities:
Depreciation and amortization 2,059 2,157 2,313
Decrease (increase) in
accounts receivable (1,502) (1,568) (1,809)
Decrease (increase) in
inventories 825 (2,717) (1,782)
Decrease (increase) in other
current assets ( 8) ( 365) 367
(Decrease) increase in accounts
payable and accrued liabilities 2,075 1,607 190
------- ------- -------
Cash provided by (used in)
operating activities ( 439) ( 253) 1,706
------- ------- -------
Cash flows from investing activities:
Decrease(increase) in
short-term investments 1,531 1,919 2,125
Expenditures for property and
equipment and other assets (1,053) (1,561) (3,604)
------- ------- -------
Net cash (used in) provided by
investing activities 478 358 (1,479)
------- ------- -------
Cash flows from financing activities:
Proceeds from issuance of
stock, net of related costs 31 -- --
(Decrease) increase of long-term
debt ( 175) 35 4,781
(Purchase) issuance of treasury
stock, net ( 91) 50 977
------- ------- -------
Net cash (used in) provided by
financing activities ( 235) 185 5,758
------- ------- -------
Net increase (decrease) in cash
and cash equivalents ( 196) 290 5,985
Cash and cash equivalents, beginning
of year 1,340 1,144 1,434
------- ------- -------
Cash and cash equivalents, end of year $ 1,144 $ 1,434 $ 7,419
======= ======= =======
Supplemental cash flow disclosures:
Interest paid $ 36 $ 40 $ 45
Income taxes paid $( 1) $( 2) $ 118
Supplemental schedule of non-cash
investing and financing activities:
Property and equipment acquired via
capital lease $ -- $ 224 $ --
Treasury stock used for payment
of interest $ 170 $ 143 $ 279
</TABLE>
See accompanying notes to financial statements.
21
<PAGE>
SOUTHWALL TECHNOLOGIES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
(in thousands, except per share data)
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
- ---------------------------------------------------
Operations
- ----------
Southwall Technologies Inc. (the "Company") operates in a single industry
segment and is engaged in the design, development and production of thin film
coatings on flexible substrates. These coatings selectively absorb, reflect or
transmit certain types of electromagnetic radiation for use in energy
conservation and electronics applications. The Company has developed and
currently markets a variety of thin-film products for the residential and
commercial architectural glazing, automotive glazing and electronic display
markets. These products include transparent insulation and solar-control films,
anti-reflective film for computer monitor CRTs, transparent conductive films for
use in touch screen displays, and various other commercial film.
Principles of consolidation
- ---------------------------
The consolidated financial statements include the accounts of Southwall
Technologies Inc. and its wholly-owned subsidiaries. The Company's foreign
operations, which are not significant, are translated using appropriate rates of
exchange, with the U.S. dollar as the functional currency. Foreign currency
transaction gains and losses have not been significant. All significant
intercompany balances and transactions have been eliminated.
Management estimates
- --------------------
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosures of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Cash equivalents and short-term investments
- -------------------------------------------
Cash equivalents and short-term investments consist of domestic and
Eurodollar certificates of deposit, treasury bills, commercial paper, bankers'
acceptances, corporate notes and mutual funds. Investments with maturities of
three months or less from the date of purchase are included in cash equivalents.
The Company has classified its short-term investments as "available-for-
sale securities." At December 31, 1996, the difference between cost and fair
market value was insignificant and the gains/losses on sales of securities
during the year were insignificant.
Concentration of credit risk
- ----------------------------
Financial instruments that potentially subject the Company to significant
concentrations of credit risk consist principally of investments and trade
accounts receivable.
22
<PAGE>
The Company invests, as stated above, in a variety of financial
instruments. The Company, by policy, limits the amount of credit exposure to any
one financial institution or commercial issuer.
The Company sells its products throughout the world. The Company performs
ongoing credit evaluations of its customers' financial condition and, generally,
requires no collateral from its customers. The Company maintains an allowance
for uncollectible accounts receivable based upon expected collectibility of all
accounts receivable. The write-off of uncollectible amounts has been
insignificant.
Revenue recognition
- -------------------
Revenues from sales of manufactured products are recorded at the time
shipments are made. Revenues from long-term contracts, which are not
significant, are generally recorded using the percentage-of-completion method.
The Company has agreements under which it receives fees for certain rights
to technology and products. License revenues associated with these agreements
are recognized when earned, generally upon receipt of payment or shipment of
product.
Accounts receivable
- -------------------
Accounts receivable are stated net of allowance for doubtful accounts of
$534 and $682 at December 31, 1995 and 1996, respectively.
Inventories
- -----------
Inventories are stated at the lower of cost (determined by the first-in,
first-out method) or market. Cost includes materials, labor and manufacturing
overhead.
Property and equipment
- ----------------------
Property and equipment are stated at cost. The Company uses the units-of-
production method for calculating depreciation on certain of its production
machines and the straight-line method for all other property and equipment.
Estimated useful lives of the assets range from five to ten years. On its large
scale production machine, for which the units-of-production depreciation method
is used, the Company records minimum annual depreciation of at least one-half of
the depreciation that would have been recorded utilizing the straight-line
depreciation method over a ten-year life. Leasehold improvements are amortized
using the term of the related lease or the economic life of the improvements, if
shorter.
Additions, major renewals and betterments are included in the asset
accounts at cost. Ordinary maintenance and repairs are charged to expense as
incurred. Gains or losses from disposal are included in earnings.
Intangible assets
- -----------------
Patents, licenses and trademarks relating to the Company's commercial
products are stated at cost less accumulated amortization. Amortization is
computed on the straight-line basis over terms of up to 17 years. At December
31, 1995 and 1996 patents, licenses and trademarks are included in other assets
at a cost of $906 and $882, net of accumulated amortization of $703 and $817,
23
<PAGE>
respectively. Amortization expense for 1994, 1995 and 1996 was $103, $136 and
$121, respectively.
Stock options
- -------------
The Company has adopted the disclosure-only provisions of Statement of
Financial Accounting Standards No. 123, "Accounting for Stock-Based
Compensation".
Income taxes
- ------------
Deferred tax assets and liabilities are recognized for the expected tax
consequences of temporary differences between the tax bases of assets and
liabilities and their reported amounts.
Net income (loss) per share
- ----------------------------
Net income (loss) per share is computed based upon the weighted average
number of common and dilutive common equivalent shares outstanding. Common
equivalent shares include the effect of stock options utilizing the modified
treasury stock method. Under the modified treasury stock method, all stock
options are assumed exercised whether dilutive or not, and the proceeds from the
assumed exercise are applied in steps. First, stock is assumed to be
repurchased up to a maximum of 20% of the actual outstanding shares. Any
remaining proceeds are assumed to be used to reduce debt, and then to acquire
outstanding government securities. For purposes of this calculation, net income
is adjusted by the after tax interest effect related to such assumed
transactions. The result of the two step approach is aggregated and, if
dilutive, enters into the earnings per share calculation. The modified treasury
stock method can result in different earnings per share than those calculated
using the treasury stock method. In the periods presented, the assumed
repurchase of stock was less than 20% of the actual outstanding shares,
therefore there was no pro forma earnings adjustment. Convertible debentures are
not included since they are anti-dilutive.
24
<PAGE>
NOTE 2 - BALANCE SHEET DETAIL:
- -----------------------------------
<TABLE>
<CAPTION>
Inventories: December 31,
---------------------------------- -------------------
1 9 9 5 1 9 9 6
-------- --------
<S> <C> <C>
Work-in-process $ 989 $ 1,848
Raw materials 2,696 2,869
Finished goods 2,939 3,689
-------- --------
$ 6,624 $ 8,406
======== ========
<CAPTION>
Property and Equipment: December 31,
--------------------------------- -------------------
1 9 9 5 1 9 9 6
-------- --------
<S> <C> <C>
Machinery and equipment $ 29,499 $ 30,377
Leasehold improvements 2,518 2,565
Furniture and fixtures 2,553 2,625
Construction-in-process 313 3,122
-------- --------
34,883 38,689
Less - accumulated depreciation
and amortization (19,365) (21,466)
-------- --------
$ 15,518 $ 17,223
======== ========
</TABLE>
Depreciation and amortization expense for the years ended December 31,
1994, 1995 and 1996 was $1,956, $2,021 and $2,192 respectively.
<TABLE>
<CAPTION>
Other Accrued Liabilities: December 31,
- -------------------------- --------------------
1 9 9 5 1 9 9 6
-------- --------
<S> <C> <C>
Reserve for warranties and sales
returns $ 394 $ 875
Other, including $441 for facility
consolidation in 1995 1,776 1,079
-------- --------
$2,170 $ 1,954
======== ========
</TABLE>
NOTE 3 - LONG-TERM DEBT:
- -----------------------
The Company's long term debt includes a $2.65 million convertible
debenture, due May 31, 1999, bearing interest, payable semi-annually with the
Company's common stock, at 2% below prime, but not less than 7% nor higher than
11%, and convertible into the Company's common stock at a price of $9.95 per
share (subject to certain adjustments).
Also included is a $5 million Promissory Note dated December 16, 1996,
secured by an existing production machine, at an interest rate of 9.7037%, and
the Company is subject to certain financial covenants. The note is payable in
monthly installments plus interest for a term of 48 months. Principal
reductions of the note are scheduled as follows:
<TABLE>
<CAPTION>
Principal
Year Reduction
- ---- ---------
<S> <C>
1996 $ 125
1997 1,075
1998 1,184
1999 1,304
2000 1,312
------
Total $5,000
======
</TABLE>
25
<PAGE>
NOTE 4 - INCOME TAXES:
- ---------------------
The income tax provision in 1996 results primarily from minimum tax
liabilities related to federal taxes and foreign withholding taxes on royalty
payments. The effective income tax rate differs from the federal statutory rate
primarily as a result of the utilization of net operating loss carryforwards.
The deferred tax assets valuation allowance at December 31, 1994, 1995 and 1996
is attributable to federal and state deferred tax assets. Management believes
that sufficient uncertainty exists with regards to the realizability of these
tax assets such that a full valuation allowance is necessary. During 1994, 1995
and 1996, the Company realized $0, $.4 and $.6 million respectively of deferred
tax assets previously reserved.
Deferred tax (liabilities) assets are comprised of the following:
<TABLE>
<CAPTION>
December 31,
-------------------
1 9 9 5 1 9 9 6
-------- -------
<S> <C> <C>
Depreciation $ (3,310) $(3,379)
Other ( 172) ( 283)
-------- -------
Gross deferred tax liabilities (3,482) (3,662)
-------- -------
Inventory reserves 340 320
Write-down of fixed assets 964 400
Other 1,414 2,179
Loss carryforwards 7,363 6,740
Credit carryforwards 1,050 1,050
-------- -------
Gross deferred tax assets 11,131 10,689
-------- -------
Deferred tax assets valuation
allowance (7,649) (7,027)
-------- -------
Net deferred taxes $ - $ -
======== =======
</TABLE>
At December 31, 1996 the Company had net federal operating loss
carryforwards of approximately $19 million which expire at various dates from
1997 through 2009. The net operating loss carryforwards include approximately
$2.4 million resulting from employee exercises of non-incentive stock options or
disqualifying dispositions, the tax benefit of which, when realized, will be
accounted for as an addition to capital in excess of par value, rather than as a
reduction of the provision for income taxes. Research and development,
investment tax and foreign tax credit carryovers of approximately $1 million are
also available to reduce future federal income taxes and expire at various dates
through 2005. If certain substantial changes in the Company's ownership occur,
there would be an annual limitation on the amount of the carryforwards which can
be utilized.
26
<PAGE>
NOTE 5 -STOCKHOLDER'S EQUITY
- ----------------------------
Stock Option Plans:
- ------------------
The Company has granted stock options under certain option agreements
in 1981 and 1983, its 1983 Qualified and Non-Qualified Stock Option Plan, and
its restated 1987 Stock Option Plan. The plans and agreements are administered
by the Board of Directors. Under the terms of the 1983 Plan and the 1981 and
1983 Agreements, options to the Company's employees, directors and consultants
were granted at prices not less than the fair market value of the Company's
stock on the date of grant. The exercise price of options granted under the
restated 1987 Stock Option Plan must be at least 85% of the fair market value of
the stock at the date of grant.
Options under the plans generally vest at a rate of 25% per year, are
non-transferable and generally expire over terms not exceeding ten years from
the date of grant or three months after termination of the optionee's
relationship with the Company.
In October 1994, the Company allowed all holders of outstanding
options to exchange higher priced options for new non-qualified options at $2.50
per share, the fair market value at the time of the Board's action. The
repricing terms provided that for each 100 shares of options exchanged, 75
shares of new options would be granted; those options vested at the time of the
exchange would revest in one year; and those options unvested at the time of the
exchange would vest on the original option schedule. Options for 1,493 shares
were exchanged for new options for 1,120 shares.
During 1996, certain employees, officers and directors exercised stock
options under the plan by issuing full recourse notes to the Company with an
interest rate of 8.75%. The principal and accrued interest on the Notes are due
one year from the date of the Note. These notes aggregate $596 at December 31,
1996.
As of December 31, 1996, there were 62 shares of Common Stock
available for grant under all plans. In addition, at December 31, 1996, 652
options were vested and exercisable at prices ranging from $2.50 to $6.75.
Employee Stock Purchase Plan
- ----------------------------
In April 1988, the Company adopted the Employee Stock Purchase Plan
("the Purchase Plan") and reserved 150 shares of Common Stock for issuance
thereunder. Employees of the Company, subject to certain limitations, may
purchase shares at 85% of the lower of the fair market value of the Common Stock
at the beginning of the six month offering period, or the last day of the
purchase period. During 1994, 1995 and 1996, 12, 20 and 20 shares,
respectively, were sold under the Purchase Plan.
27
<PAGE>
Accounting for Stock Based Compensation
- ---------------------------------------
The Company has two stock option plans which reserve shares of Common
Stock for issuance to employees, officers and directors. The Company applies APB
Opinion 25 and related Interpretations in accounting for it's plans.
Accordingly, no compensation cost has been recognized for the stock option
plans, except for $123 related to certain transactions in 1996. The Company has
adopted the disclosure-only provisions of Statement of Financial Accounting
Standards No. 123, "Accounting for Stock-Based Compensation". Had compensation
cost for the Company's two stock option plans been determined based on the fair
value at the grant date for awards granted in 1995 and 1996 under those plans
consistent with the provisions of FAS No. 123, the Company's net income and
income per share would have been reduced to the pro forma amounts indicated
below:
<TABLE>
<CAPTION>
1995 1996
----- ------
<S> <C> <C>
Net income - as reported........ $ 633 $2,427
Net income - pro forma.......... $ 505 $1,879
Income per share - as reported.. $ .10 $ .35
Income per share - pro forma.... $ .08 $ .27
</TABLE>
The pro forma amounts reflect compensation expense related to 1995 and
1996 stock option grants and purchase rights only. In future years, the annual
compensation expense will increase relative to the fair value of stock options
granted in those future years.
For the Stock Option Plan, the fair value of each option grant is
estimated on the date of grant using the Black-Scholes option-pricing model for
the multiple option approach with the following weighted-average assumptions
used for grants in 1995 and 1996, respectively; expected volatility of 60% in
both years; risk-free interest rate of 6.0% and 6.2%; and expected lives from
vesting date of .68 and .72 years. The Company has not paid dividends and
assumed no dividend yield. The weighted-average fair value of those stock
options granted in 1995 and 1996 was $1.69 and $2.99 per share, respectively.
For the Employee Stock Purchase Plan, the fair value of each purchase
right is estimated on the beginning of the offering period using the Black-
Scholes option-pricing model with the following weighted-average assumptions
used in 1995 and 1996, respectively; expected volatility of 63% and 57%; risk-
free interest rate of 6.1% and 5.4%; and expected lives of .5 years in both 1995
and 1996. The Company has not paid dividends and assumed no dividend yield. The
weighted-average fair value of those purchase rights granted in 1995 and 1996
was $0.90 and $1.82 per right, respectively.
28
<PAGE>
The activity under the option plans, combined, was as follows:
<TABLE>
<CAPTION>
Shares of
Common Range of Weighted-Average
Stock Exercise Price Exercise Price
------- -------------- ----------------
<S> <C> <C> <C>
Options outstanding at
January 1, 1994 1,816 $2.50 - $7.75 $5.00
Granted 1,527 $2.50 - $5.38 $2.87
Exercised -
Canceled or expired (1,837) $2.50 - $7.75 $5.04
------
Options outstanding at
December 31, 1994 1,506 $2.50 - $7.25 $2.80
Granted 343 $2.94 - $4.13 $3.62
Exercised ( 38) $2.50 - $3.25 $2.65
Canceled or expired ( 84) $2.50 - $6.00 $3.55
------
Options outstanding at
December 31, 1995 1,727 $2.50 - $7.25 $2.92
Granted 494 $4.63 - $8.13 $5.94
Exercises (523) $2.50 - $5.25 $2.60
Canceled or expired ( 34) $2.50 - $7.25 $4.66
------
Options outstanding at
December 31, 1996 1,664 $2.50 - $8.13 $3.88
======
</TABLE>
The following table summarizes information about stock options outstanding at
December 31, 1996:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
- ---------------------------------------------------------------------------------------------------------
Weighted
Number Average Weighted Number Weighted
Range of Outstanding Remaining Average Exercisable Average
Exercise Prices As of 12/31/96 Contractual Life Exercise Price As of 12/31/96 Exercise Price
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
$2.50 - $2.50 600 2.54 $2.50 444 $2.50
$2.94 - $3.38 334 4.23 $3.16 121 $3.20
$3.40 - $4.75 341 5.37 $4.26 84 $4.20
$4.99 - $6.75 343 6.67 $6.10 3 $5.63
$7.88 - $8.13 46 6.49 $7.91 0 $0.00
- --------------------------------------------------------------------------------------------------------
$2.50 - $8.13 1,664 4.42 $3.88 652 $2.86
===================================================================================
</TABLE>
29
<PAGE>
NOTE 6 - COMMITMENTS:
- --------------------
The Company leases certain property and equipment as well as its facilities
under noncancellable operating leases and $224 of computer equipment under a
capital lease. These leases expire at various periods through 2007.
As of December 31, 1996, the future minimum payments under these leases are as
follows:
<TABLE>
<CAPTION>
Capital Operating
------- ---------
<S> <C> <C>
1997 $ 68 $1,604
1998 68 1,682
1999 68 1,682
2000 23 535
2001 - 523
Thereafter - 2,005
---- ------
Future minimum lease payments $227 $8,031
======
Less - amount representing interest 36
----
Present value of future minimum
lease payments 191
Current maturities 50
----
Long-term lease obligations $141
====
</TABLE>
Rent expense under operating leases was approximately $1,337, $1,720
and $1,398, in 1994, 1995, and 1996, respectively.
During the first quarter 1996, the Company entered into an addendum to
a previous supply agreement with a major customer which provides for certain
"best efforts" sales and purchase commitments of the Company's anti-reflective
film from the date of the addendum through June 30, 1997. Beginning July 1,
1997, the Company is firmly committed to supply and the customer is committed to
purchase fixed volumes for the period July 1, 1997 through December 31, 1997,
and annually thereafter until December 31, 2000. Should either the Company fail
to supply or the customer fail to purchase the specified quantities, a penalty,
which is based on the sales price to the customer from the prior period, must be
paid to the other. In order to meet the supply commitment, additional capacity
is planned to be on line during the second half of 1997. The Company estimates
that it will cost approximately $14 million to equip this facility,
approximately $2.4 million of which was expended during 1996, approximately $9
million which will be expended during 1997 and approximately $3 million during
1998.
NOTE 7 - LINE OF CREDIT AGREEMENT:
- ---------------------------------
The Company has secured a $6 million revolving line of credit which expires
in June 1997, but may be extended for additional one year terms with the bank's
approval. The amount of borrowings is based upon a percentage of accounts
receivable, which at December 31, 1996, limited available borrowing to $3.7
million. The line is secured by certain assets of the Company and bears
interest at an annual rate of prime plus .5%. Under the terms of the agreement,
the Company is required to maintain certain financial ratios. As of December
31, 1996, there were no borrowings under this line of credit.
30
<PAGE>
NOTE 8 - MAJOR CUSTOMERS:
- ------------------------
One customer accounted for 13% of net sales in 1994. In 1995, no one
customer accounted for 10% of net sales and the five largest customers accounted
for 32% of net sales. In 1996, one customer accounted for 26% of net sales.
Export sales accounted for 20%, 37% and 54%, (24% and 38% in the Pacific Rim in
1995 and 1996) in 1994, 1995 and 1996, respectively.
NOTE 9 - ACQUISITIONS:
- ---------------------
Effective September 1, 1994, the Company commenced leasing all the
assets formerly owned by Safety Glass, Inc., dba Armour Worldwide Glass, located
in Southern California, under a five year operating lease for $40 per month. A
wholly-owned subsidiary, Southwall Worldwide Glass Inc. ("SWGI") was created to
operate the facility and to manufacture the Company's proprietary California
Series solar control laminated glass, as well as bullet resistant, security,
custom and standard laminated glass products. The Company closed that
subsidiary operation in March, 1996 and certain custom and laminated glass
products were discontinued. The Company continues to manufacture the proprietary
California Series solar control product line.
The consolidated financial statements for 1994 include four months of
SWGI operations. For the four month period ended December 31, 1994, SWGI's
sales were $809 and SWGI's loss before income taxes was $323. SWGI's assets at
December 31, 1994 include accounts receivable of $290 and inventories of $147.
SWGI sales were $5 million for 1995, of which approximately $2.1 million were
from product discontinued in 1996. Sales in 1996 from products discontinued in
March, 1996 were $.6 million and $.1 million were still in accounts receivable
at the end of 1996 and fully reserved. There were no other assets remaining on
the books for SWGI at the end of 1996.
Effective October 31, 1994, the Company acquired Sunflex L.P.
("Sunflex") for $500 to be paid from Sunflex's operating income, if any, over
the next four years. Sunflex assembles and markets aftermarket mesh, glass and
film anti-reflective filters primarily for personal computer monitors.
This acquisition was accounted for as a purchase. Since the purchase
price is contingent upon future operating income, no payments were made at the
time of acquisition. Sunflex did not have operating income in 1995 or 1996 and,
as a result, no payments were made in any of those years. At the date of
acquisition, assets exceeded liabilities by $105, resulting in negative
goodwill. This negative goodwill will be amortized over 36 months.
The consolidated financial statements for 1994 include two months of
Sunflex operations. For the two month period ended December 31, 1994, Sunflex's
sales were $260 and Sunflex's loss before income taxes was $65.
31
<PAGE>
NOTE 10 - SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED):
Summarized quarterly financial data for 1995 and 1996 is as follows:
<TABLE>
<CAPTION>
First Second Third Fourth
-------- ------- ------ -------
1995:
- -----
<S> <C> <C> <C> <C>
Net sales $ 6,701 $ 8,271 $9,411 $ 9,118
Gross margin 2,099 2,678 2,563 2,896
Net income (loss) (370) 305 345 353
Net income (loss) per share (.06) .05 .05 .05
1996:
- -----
Net sales $10,637 $10,990 $9,966 $10,127
Gross margin 3,228 3,442 3,289 3,825
Net income 511 704 555 657
Net income per share .08 .10 .08 .09
</TABLE>
Per share amounts, based on average shares
outstanding each quarter, may not add to the total for the year.
ITEM 9. DISAGREEMENTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
None
32
<PAGE>
PART III
========
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF REGISTRANT
The information required by this Item concerning the Company's directors and
the Company's executive officers is incorporated by reference to the sections
entitled "Nominees" and "Management", respectively, appearing in the Company's
Proxy Statement for its 1997 Annual Meeting of Stockholders (the "Proxy
Statement").
ITEM 11. EXECUTIVE COMPENSATION
The information required by this Item is incorporated by reference to the
sections entitled "Executive Compensation", "Severance Agreement" and "Report of
the Board of Directors Concerning Executive Compensation" appearing in the Proxy
Statement.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required by this Item is incorporated by reference to the
section entitled "Security Ownership of Officers, Directors and Principal
Stockholders" appearing in the Proxy Statement.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by this Item is incorporated by reference to the
section entitled "Certain Relationships and Other Transactions" appearing in the
Proxy Statement.
33
<PAGE>
PART IV
=======
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
The following documents are filed as part of this Form 10-K:
(a)(1) Index to Financial Statements. The following
Financial Statements of Southwall Technologies Inc. are filed
as part of this Form 10-K:
<TABLE>
<CAPTION>
Form 10-K
Page Number
-----------
<S> <C>
Report of Independent Accountants 17
Consolidated Balance Sheets as of
December 31, 1996 and 1995 18
Consolidated Statements of Operations
for the years ended December 31, 1996,
1995 and 1994 19
Consolidated Statements of Stockholders'
Equity for the years ended December 31,
1996, 1995 and 1994 20
Consolidated Statements of Cash Flows
for the years ended December 31, 1996,
1995 and 1994 21
Notes to Consolidated Financial Statements 22
</TABLE>
(a)(2) Index to Financial Statement Schedules. Schedules
have been omitted because they are not applicable or required, or
the information required to be set forth therein is included in
the Financial Statements or notes thereto.
(a)(3) Exhibits. Reference is made to the Exhibit Index on
--------
pages 37 through 42 of this Form 10-K.
(b) Reports on Form 8-K.
-------------------
None
For the purposes of complying with the amendments to the rules
governing Form S-8 (effective July 12, 1990) under the Securities Act of 1933,
the undersigned registrant hereby undertakes as follows:
Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors, officers or controlling
persons of the registrant pursuant to the foregoing provisions, or otherwise,
the registrant has
34
<PAGE>
been advised that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the 1933 Act and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the registrant of expenses incurred
or paid by a director, officer or controlling person of the registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered on the Form S-8 identified below, the registrant will, unless in the
opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the 1933 Act and
will be governed by the final adjudication of such issue.
The preceding undertaking shall be incorporated by reference into
registrant's Registration Statements on Form S-8 Nos. 33-28599 (filed on May 9,
1989), 33-37247 (filed October 11, 1990), 33-42753 (filed on September 16,
1991), 33-51758 (filed on September 8, 1992) and 33-82138 (filed on July 28,
1994).
35
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this Report to be signed on
its behalf by the undersigned, thereunto duly authorized, as of the 14th day of
March, 1997.
SOUTHWALL TECHNOLOGIES INC.
By /s/Martin M. Schwartz
---------------------
Martin M. Schwartz
President
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons in the capacities
indicated, as of March 14, 1997.
Signature Title
--------- -----
/s/J. Larry Smart Chairman of the Board of Directors
- -----------------
J. Larry Smart)
/s/Martin M. Schwartz President, Chief Executive Officer
- --------------------- and Director (Principal Executive
(Martin M. Schwartz) Officer)
/s/L. Ray Christie Vice President, Chief Financial
- --------------------- Officer and Secretary (Principal Financial
(L. Ray Christie) and Accounting Officer)
/s/Bruce J. Alexander Director
- ---------------------
(Bruce J. Alexander)
/s/ Joseph B. Reagan Director
- ---------------------
(Joseph B. Reagan)
/s/ Walter C. Sedgwick Director
- ----------------------
(Walter C. Sedgwick)
36
<PAGE>
INDEX TO EXHIBITS FILED WITH
FORM 10-K FOR THE YEAR ENDED DECEMBER 31, 1996
<TABLE>
<CAPTION>
Exhibit
Number Description
------- -----------
<S> <C>
3.1(1) Restated Certificate of Incorporation of the Company.
3.2(1) By-laws of the Company.
10.4(1) The Company's Management Incentive Plan.
10.23(1) Agreement, dated January 31, 1984, between the Company and Mitsui
Toatsu Chemicals, Inc., as amended (with certain confidential
information deleted therefrom and filed separately).
10.35(1) Lease Agreement for the facilities at 3941 East Bayshore Road,
dated March 20, 1979, between the Company and Straube Associates,
Inc.
10.36(1) Lease Agreement for the facilities at 3961 East Bayshore Road,
dated March 20, 1979, between the Company and Allan F. Brown and
Robert V. Brown.
10.40(1) Exclusive License Agreement, dated April 20, 1987, between the
Company and Massachusetts Institute of Technology.
10.41(1) Agreement, dated April 16, 1987, between the Company and the BOC
Group, Inc., and amending letter.
10.42(1) Form of Indemnity Agreement, dated April 21, 1987, between the
Company and each of its officers and directors.
10.52(2) Marketing and Distribution Agreement dated as of May 20, 1988,
among Mitsui Toatsu Chemicals, Inc. ("Mitsui"), Marubeni
Corporation ("Marubeni") and the Company, as amended.
10.53(2) Common Stock Purchase Agreement dated as of May 23, 1988, among
Mitsui, Marubeni and the Company.
10.57(2) Restated 1987 Stock Option Plan, as amended.
10.58(2) Employee Stock Purchase Plan, as amended.
10.59(3) Lease Agreement for the facilities at 3969-3975 East Bayshore
Road Palo Alto, California, dated January 1, 1989, between the
Company and Bay Laurel Investment Company.
10.60(3) Lease Agreements for the facilities at 3977-3995 East Bayshore
Road Palo Alto, California, dated January 1, 1989, between the
Company and Bay Laurel Investment Company.
</TABLE>
37
<PAGE>
<TABLE>
<S> <C>
10.62(3) Common Stock Sales Agreement, dated May 2, 1989, between the
Company and Monsanto Company.
10.63(3) Convertible Subordinated Note, Due May 31, 1999.
10.64(3) Warrants to Purchase Common Stock of Southwall Technologies Inc., void
after May 31, 1996.
10.65(3) Second Restated Registration Rights Amendment, Dated May 2,1989, among
the Company, Lockheed Corporation, Minnesota Mining and
Manufacturing Company, Mitsui Toatsu Chemicals, Inc. and Marubeni
Corporation, and Monsanto Company.
10.66(3) Non-exclusive License Agreement, dated March 9, 1989, between the
Company and the Massachusetts Institute of Technology (with certain
confidential information deleted).
10.69(4) Lease Agreement for the facilities at 1029 Corporation Way Palo
Alto, California, dated April 27, 1989, between the Company and C&J
Development, as amended.
10.71(5) Lease Agreement for the facilities at 3780 Fabian Way, Palo Alto,
California, dated June 11, 1990, between the Company and The Fabian
Building.
10.72(5) License Agreement between Mitsui Toatsu Chemicals, Inc. and the
Company, dated January 30, 1991.
10.74(6) License Agreement between the Company and the Dow Chemical Company,
dated February 1, 1993.
10.77(10) Fourth Amendment, dated March 3, 1993, between the Company and C&J
Development to the Lease for the facilities at 1029 Corporate Way
filed as exhibit number 10.69.
10.78(7) Amendment to property lease dated February 2, 1994 to extend lease
period on building at 3961 E. Bayshore Road, Palo Alto, California.
Original lease filed as exhibit number 10.36
10.79(7) Amendment to property lease dated April 4, 1994 to extend lease period
on building at 3941 E. Bayshore Road, Palo Alto, California.
Original lease filed as exhibit number 10.35.
10.80(8) Lease Agreement between Frank Gant, an individual, as Lessor and
Southwall Technologies Inc., a Delaware corporation, as Lessee
effective September 1, 1994.
10.81(8) Purchase Agreement among Southwall Technologies Inc., Southwall-
Sunflex, Inc., Sunflex, L.P., and Sunflex Partners effective October
31, 1994.
10.82(11) Supply Agreement between Sony Corporation and Southwall Technologies
Inc., effective October 23, 1995.
10.83 Addendum #1 To Supply Agreement between Sony Corporation and
</TABLE>
38
<PAGE>
<TABLE>
<S> <C>
Southwall Technologies Inc., with effective dates of April 1, 1996
and July 1, 1997(with certain confidential information deleted
therefrom and filed separately).
10.84 Lease Agreement between Chamberlain Development, L.L.C., as Lessor and
Southwall Technologies Inc., a Delaware corporation, as Lessee
effective May 1, 1997.
10.85 Purchase Agreement, dated April 29, 1996, between an equipment
supplier and Southwall Technologies Inc., (with certain confidential
information deleted therefrom and filed separately).
10.86 Agreement regarding separation of employment between Alfred V.
Larrenaga, an officer of the Company and Southwall Technologies
Inc., dated July 29, 1996 and amended October 29, 1996.
10.87 Loan and security agreement dated as of December 3, 1996, between
the Company as debtor and CIT Group/Equipment Financing, Inc.
21 (11) List of Subsidiaries of Southwall Technologies Inc.
23.1 Consent of Independent Accountants.
99.1(9) Letter, dated June 5, 1987, from the U.S. Department of the Air Force
to the SEC Pursuant to Rule 171.
</TABLE>
_________________
(1) Filed as an exhibit to the Registration Statement on Form S-1 filed with the
Commission on April 27, 1987 (Registration No. 33- 13779) (the "Registration
Statement") and incorporated herein by reference.
(2) Filed as an exhibit to the Form 10-Q Quarterly Report for Quarter Ended June
30, 1988, filed with the Commission on August 15, 1988 and incorporated
herein by reference.
(3) Filed as an exhibit to the Form 10-Q Quarterly Report for Quarter Ended
July 2, 1989, filed with the Commission on August 16, 1989 and incorporated
herein by reference.
(4) Filed as an exhibit to the Form 10-K Annual Report 1989, filed with the
Commission on March 30, 1990 and incorporated herein by reference.
(5) Filed as an exhibit to the Form 10-K Annual Report 1990, filed with the
Commission on March 25, 1991 and incorporated herein by reference.
(6) Filed as an exhibit to the Form 10-K Annual Report 1992, filed with the
Commission on March 15, 1993 and incorporated herein by reference.
(7) Filed as an exhibit to the Form 10-Q Quarterly Report for Quarter Ended July
3, 1994, filed with the Commission on August 15, 1994 and incorporated
herein by reference.
(8) Filed as an exhibit to the Form 10-Q Quarterly report for Quarter Ended
39
<PAGE>
October 2, 1994, filed with the Commission on November 9, 1994 and
incorporated herein by reference.
(9) Filed as Exhibit No. 28.1 to Post-Effective Amendment No. 1 to the
Registration Statement, filed with the Commission on June 9, 1987 and
incorporated herein by reference.
(10) Filed as an exhibit to the Form 10-K Annual Report 1994, filed with the
Commission on March 2, 1995 and incorporated herein by reference.
(11) Filed as an exhibit to the Form 10-K Annual Report 1995, filed with the
Commission on March 19, 1996 and incorporated herein by reference.
40
<PAGE>
EXHIBIT 10.83
ADDENDUM #1 TO SUPPLY AGREEMENT
This Addendum #1 to Supply Agreement (the "Addendum") is entered into as of
April 1, 1996 by and between Southwall Technologies Inc. ("Seller"), a Delaware
corporation, and Sony Corporation ("Buyer"), a Japanese corporation.
WHEREAS, the parties have entered into a Supply Agreement dated October 23,
1995 (the "Supply Agreement") where Seller agreed to supply to Buyer and Buyer
agreed to purchase from Seller certain Products (as defined in the Supply
Agreement); and
WHEREAS, subject to the conditions set forth herein, the parties wish to
enter into this Addendum to, among other things, establish certain pricing and
minimum quantity requirements for the Products during an extended term of the
Supply Agreement.
NOW THEREFORE, in consideration of the premises and the covenants contained
in this Addendum and other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereto agree as
follows:
1. Buyer shall pay Seller a surcharge equal to one dollar per square foot
($1/sq.ft.) of Products that are shipped to Buyer commencing on April 1, 1996
and continuing until four million dollars (US$4,000,000) has been paid by Buyer.
2. Seller shall expand its production capacity so it can be capable of
manufacturing and supplying at least three million square feet (3,000,000
sq.ft.) of Product per year by June 30, 1998.
3. During the period from April 1, 1996 to June 30, 1997, Section 2.4 of the
supply Agreement entitled "Best Efforts" shall be deleted in its entirety and
the following new Section 2.4 shall be substituted in lieu thereof:
2.4 Best Efforts. In addition to, and not in limitation of Section 2.2 of
------------
this Agreement, in exchange for the foregoing exclusivity, Buyer agrees to use
its best efforts to sell and market Products for the Computer Monitor CRT
Applications throughout the world. Without limiting the foregoing, Buyer
expects to and will use best efforts to purchase the following amounts of
Products: (i) two million square feet (2,000,000 sq.ft.) for the period
beginning on October 23, 1995 and ending on April 22, 1997, (ii) three hundred
fifty thousand square feet (350,000 sq.ft.) for the period beginning on April
23, 1997 and ending on June 30, 1997.
<PAGE>
4. The parties have agreed that during the term of the Supply Agreement,
which shall be extended in accordance with Section 6 of this Addendum the
following terms (in addition to those set forth in the Supply Agreement and not
expressly amended herein) shall govern the sale and purchase of Products
commencing as of July 1, 1997 and continuing until December 31, 2000 and
continuing thereafter for successive one year terms until terminated by either
party as set forth herein (the "Extended Term"), provided, however, that nothing
contained in this Section 4 shall govern the sale and purchase of Products prior
to July 1, 1997.
a. Prices payable by Buyer for the Products during the Extended Term
shall be as set forth on Exhibit A to this Addendum. During the Extended Term,
Exhibit A replaces the prices set forth in Exhibit II to the Supply Agreement in
its entirety. Prices are based on Seller's fully loaded manufacturing cost per
square foot of Products plus a sliding scale gross margin percentage. The Prices
of the Products applicable during every quarter which begins with January,
April, July and October respectively shall be determined during the immediately
preceding quarter in accordance with the Pricing Formula as set forth on Exhibit
A to this Addendum. Seller shall submit to Buyer the documents which prove
Seller's manufacturing cost of the Products so that the parties hereto can
determine the applicable unit price of the Products in accordance with the
Pricing Formula.
b. Section 2.2 of the Supply Agreement entitled "Exclusivity" shall
be deleted in its entirety.
c. Section 2.4 of the Supply Agreement entitled "Best Efforts" shall
be deleted in its entirety and the following new Section 2.4 shall be
substituted in lieu thereof:
2.4 Best Efforts.
------------
(a) Buyer agrees to use its best efforts to sell and market
Products for the Computer Monitor CRT Applications throughout the world. Without
limiting the foregoing, Buyer agrees to buy from Seller and Seller commits to
sell product from any of Seller's manufacturing equipment to Buyer the following
minimum quantities of Products during the Extended Term: (i) one and a half
million square feet (1,500,000 sq.ft) during the period beginning July 1, 1997
and ending on December 31, 1997 and (ii) three million square feet (3,000,000
sq.ft) for each twelve (12) month period thereafter.
(b) In the event that Buyer fails to purchase from Seller such
quantities of the Product as it has committed in Section 2.4(a) above within the
period of time set forth therein, Buyer shall pay to Seller as liquidated
damages an amount equal to one half of the applicable unit price of the Products
during the last quarter of the respective period of time set forth in Section
2.4(a) above for the quantities of Products not purchased by Buyer.
<PAGE>
(c) In the event that Seller fails to sell to Buyer such quantities of
the Products as it has committed in Section 2.4(a) above within the period of
time set forth therein, Seller shall pay to Buyer as liquidated damages an
amount equal to one half of the applicable unit price of the Products during the
last quarter of the respective period of time set forth in Section 2.4(a) above
for the quantities of Products not supplied by Seller.
d. The following Section 2.11 shall be added to the Supply Agreement to
reflect the Seller's obligation regarding discounts and contribution fees during
the Extended Term:
2.11 Discounts and Contribution Fee.
------------------------------
(a) In the event that Buyer purchases the Products over three million
square feet (3,000,000 sq.ft.) during each twelve (12) month period of the
Extended Term, Seller agrees to pay to Buyer, as a volume discounts of the price
of Products, an amount equal to two percent (2%) of the sales price received by
Seller (less any allowances actually made and taken for returns; shipping and
insurance costs actually paid; sales, use, value-added and similar taxes and
duties and similar governmental assessments on Products as shipped) for the
quantities of the Products in excess of three million square feet (3,000,000
sq.ft).
(b) In the event that Seller sells the products, which are substantially
similar to the Products, to third parties during the Extended Term, Seller
agrees to pay to Buyer, as a contribution fee of Buyer's providing idea and
advice for selling such products, an amount equal to two percent (2%) of the
sales price received by Seller (less any allowances actually made and taken for
returns; shipping and insurance costs actually paid; sales, use, value-added and
similar taxes and duties and similar governmental assessments on products as
shipped) for such products sold by Seller to third parties.
(c) Discounts or contribution fees shall be paid either in U.S. dollars
or in shares of common stock of Seller valued at one and a half (1.5) times the
average closing price of Seller's stock for the last ten (10) trading days on
Nasdaq (at Buyer's option). Discounts or contribution fees are payable within
forty-five (45) days of each calendar quarter with respect to discounts or
contribution fee-bearing sales occurring in that quarter.
5. This Addendum shall be effective as of April 1, 1996, provided, however,
Section 4 of this Addendum shall not be effective until July 1, 1997.
6. Section 4.1 of the Supply Agreement which sets forth the term of the Supply
Agreement shall be replaced with the following provision: Unless terminated
earlier as provided herein, this Agreement shall continue in effect until
December 31, 2000, and
3
<PAGE>
shall thereafter be extended for successive one year terms until terminated by
either party upon at least six (6) months prior written notice to the other
party.
7. Except as expressly amended by this Addendum, the provisions of the Supply
Agreement shall remain in full force and effect.
8. Capitalized terms used in this Addendum and not otherwise defined in this
Addendum shall have the meanings provided in the Supply Agreement.
9. This Addendum may be executed in two or more counterparts, each of which
shall be deemed an original, but all of which together shall constitute one and
the same instrument.
IN WITNESS WHEREOF, the parties hereto have caused their duly authorized
officers to execute and deliver this Addendum as of the date first above
written.
SELLER BUYER
By: /s/ Martin M Schwartz By: /s/ Yasuhiro Hosozawa
------------------------------- ----------------------------------
Name: Martin M Schwartz Name: YASUHIRO HOSOZAWA
----------------------------- --------------------------------
Title: President/CEO Title: General Manager
---------------------------- -------------------------------
4
<PAGE>
EXHIBIT 10.84
SINGLE-TENANT LEASE-NET
1. BASIC PROVISIONS ("BASIC PROVISIONS")
1.1 PARTIES: This Lease ("LEASE"), dated for reference purposes
only, August 22, 1996, is made by and between CHAMBERLAIN DEVELOPMENT, L.L.C.
("LESSOR") and SOUTHWALL TECHNOLOGIES, Inc. ("LESSEE"), (collectively the
"PARTIES," or individually a "PARTY").
1.2 PREMISES: That certain real property, including all improvements therein
or to be provided by Lessor under the terms of this Lease, and commonly known by
the street address of (not available) located in the County of Maricopa, State
of Arizona, and generally described as (describe briefly the nature of the
property) 55,260 square foot industrial manufacturing facility to be constructed
on the property identified on Exhibit "A" attached hereto ("PREMISES"). (See
Paragraph 2 for further provisions.)
1.3 TERM: Ten years and 0 months ("ORIGINAL TERM") commencing May 1, 1997
("COMMENCEMENT DATE") and ending April 30, 2006 ("EXPIRATION DATE"). (See
Paragraph 3 for further provisions.)
1.4 EARLY POSSESSION: N/A ("EARLY POSSESSION DATE"). (See Paragraphs 3.2 and
---
3.3 for further provisions.)
1.5 BASE RENT: $29,811.00 per month ("BASE RENT"), plus applicable sales tax,
payable on the first day of each month commencing May 1, 1997 (See Paragraph 4
for further provisions.)
[ ] If this box is checked, there are provisions in this Lease for the
Base Rent to be adjusted.
1.6 BASE RENT PAID UPON EXECUTION: $29,811.00 as Base Rent for the Period of
May 1, 1997 through May 31, 1997.
1.7 SECURITY DEPOSIT: $30,000.00 ("SECURITY DEPOSIT"). (See Paragraph 5 for
further provisions.)
1.8 PERMITTED USE: General office purposes, research and development,
manufacturing, and other related uses and for no other purpose (See Paragraph 6
for further provisions.)
1.9 INSURING PARTY: Lessee is the "INSURING PARTY" unless otherwise stated
herein. (See Paragraph 8 for further provisions.)
1.10 REAL ESTATE BROKERS: The following real estate brokers (collectively,
the "BROKERS") and brokerage relationships exist in this transaction and are
consented to by the Parties (check applicable boxes):
Mark Linsalata, Grubb & Ellis represents
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[ ] Lessor exclusively ("LESSOR'S BROKER"); [X] both Lessor and Lessee, and
represents
- ------------------------------------
[ ] Lessee exclusively ("LESSEE'S BROKER"); both Lessee and Lessor. (See
Paragraph 15 for further provisions.)
1.11 GUARANTOR. The obligations of the Lessee under this Lease are to be
guaranteed by N/A ("GUARANTOR"). (See Paragraph 37 for further provisions.)
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1.12 ADDENDA. Attached hereto is an Addendum or Addenda consisting of
Paragraphs 49 through 61 and Exhibits "A, B" all of
which constitute a part of this Lease.
2. PREMISES.
2.1 LETTING. Lessor hereby leases to Lessee, and Lessee hereby leases from
Lessor, the Premises, for the term, at the rental, and upon all of the terms,
covenants and conditions set forth in this Lease. Unless otherwise provided
herein, any statement of square footage set forth in this Lease, or that may
have been used in calculating rental, is an approximation which Lessor and
Lessee agree is reasonable and the rental based thereon is not subject to
revision whether or not the actual square footage is more or less.
2.2 CONDITION. Lessor shall deliver the Premises to Lessee clean and free of
debris on the Commencement Date and warrants to Lessee that the existing
plumbing, fire sprinkler system, lighting, air conditioning, heating, and
loading doors, if any, in the Premises, other than those constructed by Lessee,
shall be in good operating condition on the Commencement Date. If a
non-compliance with said warranty exists as of the Commencement Date, Lessor
shall, except as otherwise provided in this Lease, promptly after receipt of
written notice from Lessee setting forth with specificity the nature and extent
of such non-compliance, rectify same at Lessor's expense. If Lessee does not
give Lessor written notice of a non-compliance with this warranty within six (6)
months after the Commencement Date, correction of that non-compliance shall be
the obligation of the Lessee at Lessee's sole cost and expense.
2.3 COMPLIANCE WITH COVENANTS, RESTRICTIONS AND BUILDING CODE. Lessor
warrants to Lessee that the improvements on the Premises comply with all
applicable covenants or restrictions of record and applicable building codes,
regulations and ordinances in effect on the Commencement Date. Said warranty
does not apply to the use to which Lessee will put the Premises or to any
Alterations or Utility Installations (as defined in Paragraph 7.3 (a)) made or
to be made by Lessee. If the Premises do not comply with said warranty, Lessor
shall, except as otherwise provided in this Lease, promptly after receipt of
written notice from the Lessee setting forth with specificity the nature and
extent of such non-compliance, rectify the same at Lessor's expense. If Lessee
does not give Lessor written notice of a non-compliance with this warranty
within one (1) year following the Commencement Date, correction of that
non-compliance shall be the obligation of Lessee at Lessee's sole cost and
expense.
2.4 ACCEPTANCE OF PREMISES. Lessee hereby acknowledges: (a) that it has been
advised by the Brokers to satisfy itself with respect to the condition of the
Premises (including but not limited to the electrical and fire sprinkler
systems, security, environmental aspects, compliance with Applicable Law, as
defined in Paragraph 6.3) and the present and future suitability of the Premises
for Lessee's intended use, (b) that Lessee has made such investigations it deems
necessary with reference to such matters and assumes all responsibility therefor
as the same relate to Lessee's occupancy of the Premises and/or the term of this
Lease, and (c) that neither Lessor, nor and of Lessor's agents, has made any
oral or written representations or warranties with respect to the said matters
other than as set forth in this Lease.
2.5 LESSEE PRIOR OWNER/OCCUPANT. The warranties made by Lessor in this
Paragraph 2 shall be of no force or effect if immediately prior to the date set
forth in Paragraph 1.1 Lessee was the owner or occupant of the Premises. In such
event, Lessee shall at Lessee's sole cost and expense, correct any
non-compliance of the Premises with said warranties.
3. TERM
3.1 TERM. The Commencement Date, Expiration Date and Original Term of this
Lease are as specified in Paragraph 1.3
3.2 EARLY POSSESSION. If Lessee totally or partially occupies the Premises
prior to the Commencement Date, the obligation to pay Base Rent shall be
prorated for the period of such early possession. All other terms of this Lease,
(including but not limited to the obligations to pay real Property Taxes and
insurance premiums and to maintain the Premises) shall be in effect during such
period. Any such early possession shall not affect nor advance the Expiration
Date of the Original Term.
3.3 DELAY IN POSSESSION. If for any reason Lessor cannot deliver possession
of the Premises to Lessee as agreed herein by the Early Possession Date, if one
is specified in Paragraph 1.4, or, if no Early Possession date is specified, by
the
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Commencement 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,
except as otherwise provided herein, be obligated to pay rent or perform any
other obligation of Lessee under the terms of this Lease until Lessor delivers
possession of the Premises to Lessee. If possession of the Premises is not
delivered to Lessee within sixty (60) days after the Commencement Date, Lessee
may, at its 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, however, that if such written notice
by Lessee is not received by Lessor within said ten (10) day period, Lessee's
right to cancel this Lease shall terminate and be of no further force or effect.
Except as may be otherwise provided, and regardless of when the term actually
commences, if possession is not tendered to Lessee when required by this Lease
and Lessee does not terminate this Lease, as aforesaid, the period free of the
obligation to pay Base Rent, if any, that Lessee would otherwise have enjoyed
shall run from the date of delivery of possession and continue for a period
equal to what Lessee would otherwise have enjoyed under the terms hereof, but
minus any days of delay caused by the acts, changes or omissions of Lessee.
4. RENT.
4.1 BASE RENT. Lessee shall cause payment of Base Rent and other rent or
charges, as the same may be adjusted from time to time, to be received by Lessor
in lawful money of the United States, without offset or deduction, on or before
the day on which it is due under the terms of this Lease. Base Rent and all
other rent and charges for any period during the term hereof which is for less
than one (1) full calendar month shall be prorated based upon the actual number
of days of the calendar month involved. Payment of Base Rent and other charges
shall be made to Lessor at its address stated herein or to such other persons or
at such other addresses as Lessor may from time to time designate in writing to
Lessee.
5. SECURITY DEPOSIT. Lessee shall deposit with Lessor upon execution hereof the
Security Deposit set forth in Paragraph 1.7 as security for Lessee's faithful
performance of Lessee's obligations under this Lease. If Lessee fails to pay
Base Rent or other rent or charges due hereunder, or otherwise Defaults under
this Lease (as defined in Paragraph 13.1), Lessor may use, apply or retain all
or any portion of said Security Deposit for the payment of any amount due Lessor
or to reimburse or compensate Lessor for any liability, cost, expense, loss or
damage (including attorneys' fees) which Lessor may suffer or incur by reason
thereof. If Lessor uses or applies all or any portion of said security Deposit,
Lessee shall within ten (10) days after written request therefor deposit moneys
with Lessor sufficient to restore said Security Deposit to the full amount
required by this Lease. Any time the Base Rent increases during the term of this
lease, Lessee shall, upon written request from Lessor, deposit additional moneys
with Lessor sufficient to maintain the same ratio between the Security Deposit
and the Base Rent as those amounts are specified in the Basic Provisions. Lessor
shall not be required to keep all or any part of the Security Deposit separate
from its general accounts. Lessor shall, at the expiration or earlier
termination of the term hereof and after Lessee has vacated the Premises, return
to Lessee (or, at Lessor's option, to the last assignee, if any of Lessee's
interest herein), that portion of the Security Deposit not used or applied by
Lessor. Unless otherwise expressly agreed in writing by Lessor, no part of the
Security Deposit shall be considered to be held in trust, to bear interest or
other increment for its use, or to be prepayment for any moneys to be paid by
Lessee under this Lease.
6. USE
6.1 USE. Lessee shall use and occupy the Premises only for the purposes set
forth in Paragraph 1.8, or any other use which is comparable thereto, and for no
other purpose. Lessee shall not use or permit the use of the Premises in a
manner that creates waste or a nuisance, or that disturbs owners and/or
occupants of, or causes damage to, neighboring premises or properties.
6.2 HAZARDOUS SUBSTANCES.
(a) REPORTABLE USES REQUIRE CONSENT. The term "HAZARDOUS SUBSTANCE" as used
in this Lease shall mean any product, substance, chemical, material or waste
whose presence, nature, quantity and/or intensity of existence, use,
manufacture, disposal, transportation spill, release or effect, either by itself
or in combination with other materials expected to be on the Premises, is
either: (i) potentially injurious to the public health, safety or welfare, the
environment or the Premises, (ii) regulated or monitored by any governmental
authority, or (iii) a basis for liability of Lessor to any governmental agency
or third party under any applicable statute or common law theory. Hazardous
Substance shall include, but not be limited to, hydrocarbons, petroleum,
gasoline, crude oil or any products, by-products or fractions thereof. Lessee
shall not engage in any activity in, on or about the Premises which constitutes
a Reportable Use (as hereinafter defined) of Hazardous Substances without the
express prior written consent of Lessor and compliance in a timely manner (at
Lessee's sole cost and expense) with all Applicable Law (as defined in Paragraph
6.3). "REPORTABLE USE" shall mean (i) the installation or use of any above or
below ground storage tank, (ii) the generation, possession, storage, use,
transportation, or disposal of a Hazardous Substance that requires a permit
from, or with respect to which a report, notice, registration or business plan
is required to be filed with, any governmental authority. Reportable Use shall
also include Lessee's being responsible for the presence in, on or about the
Premises of a Hazardous Substance with respect to which any Applicable Law
requires that a notice be given to persons entering or occupying the Premises or
neighboring properties. Notwithstanding the foregoing, Lessee may, without
Lessor's prior consent, but in compliance with all Applicable Law, use any
ordinary and customary materials reasonably required to be used by Lessee in the
normal course of Lessee's business permitted on the Premises, so long as such
use is not a Reportable Use and does not expose the Premises or neighboring
properties to any meaningful risk of contamination or damage or expose Lessor to
any liability therefor. In addition, Lessor may (but without any obligation to
do so) condition its consent to the use or presence of any Hazardous substance,
activity or storage tank by Lessee upon Lessee's giving Lessor such additional
assurances as Lessor, in its reasonable discretion, deems necessary to protect
itself, the public, the Premises and the environment against damage,
contamination or injury and/or liability therefrom to therefor, including, but
not limited to, the installation (and removal on or before Lease expiration or
earlier termination) of reasonably necessary. protective modifications to the
Premises (such as concrete encasements) and/or the deposit of an additional
Security Deposit under Paragraph 5 hereof.
(b) DUTY TO INFORM LESSOR. If Lessee knows, or has reasonable cause to
believe, that a Hazardous Substance, or a condition involving or resulting from
same, has come to be located in, on, under or about the Premises, other than as
previously consented to by Lessor, Lessee shall immediately give written notice
of such fact to Lessor. Lessee shall also immediately give Lessor a copy of any
statement, report, notice, registration, application, permit, business plan,
license, claim, action or proceeding given to, or received from, any
governmental authority or private party, or persons entering or occupying the
Premises, concerning the presence, spill, release, discharge of, or exposure to,
any Hazardous Substance or contamination in, on, or about the Premises,
including but not limited to all such documents as may be involved in any
Reportable Uses involving the Premises.
(c) INDEMNIFICATION. Lessee shall indemnify, protect, defend and hold
Lessor, its agents, employees, lenders and ground lessor, if any, and the
Premises, harmless from and against any and all loss of rents and/or damages,
liabilities, judgements, costs, claims, liens, expenses, penalties, permits and
attorney's and consultant's fees arising out of or involving any Hazardous
Substance or storage tank brought onto the Premises by or for Lessee or under
Lessee's control. Lessee's
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obligations under this Paragraph 6 shall include, but not be limited to, the
effects of any contamination or injury to person, property or the environment
created or suffered by Lessee, and the cost of investigation (including
consultant's and attorney's fees and testing), removal, remediation, restoration
and/or abatement thereof, or of any contamination therein involved, and shall
survive the expiration or earlier termination of this Lease. No termination,
cancellation or release agreement entered into by Lessor and Lessee shall
release Lessee for its obligations under this Lease with respect to Hazardous
Substances or storage tanks, unless specifically so agreed by Lessor in writing
at the time of such agreement.
6.3 LESSEE'S COMPLIANCE WITH LAW. Except as otherwise provided in this Lease,
Lessee, shall, at Lessee's sole cost and expense, fully, diligently and in a
timely manner, comply with all "APPLICABLE LAW," which term is used in this
Lease to include all laws, rules, regulations, ordinances, directives,
covenants, easements and restrictions of record, permits, the requirements of
any applicable fire insurance underwriter or rating bureau, and the
recommendations of Lessor's engineers and/or consultants, relating in any manner
to the Premises (including but not limited to matters pertaining to (i)
industrial hygiene, (ii) environmental conditions on, in under or about the
Premises, including soil and groundwater conditions, and (iii) the use,
generation, manufacture, production, installation, maintenance, removal,
transportation, storage, spill or release of any Hazardous Substance or storage
tank), now in effect or which may hereafter come into effect, and whether or not
reflecting a change in policy from any previously existing policy. Lessee shall,
within five (5) days after receipt of Lessor's written request, provide Lessor
with copies of all documents and information, including, but not limited to,
permits, registrations, manifests, applications, reports and certificates,
evidencing Lessee's compliance with any Applicable Law specified by Lessor, and
shall immediately upon receipt, notify Lessor in writing (with copies of any
documents involved) of any threatened or actual claim, notice, citation,
warning, complaint or report pertaining to or involving failure by Lessee or the
Premises to comply with any Applicable Law.
6.4 INSPECTION; COMPLIANCE. Lessor and Lessor's Lender(s) (as defined in
Paragraph 8.3(a)) shall have the right to enter the Premises at any time, in the
case of an emergency, and otherwise at reasonable times and with reasonable
notice, for the purpose of inspecting the condition of the Premises and for
verifying compliance by Lessee with this Lease and all Applicable Laws (as
defined in Paragraph 6.3), and to employ experts and/or consultants in
connection therewith and/or to advise Lessor with respect to Lessee's
activities, including but not limited to the installation, operation, use,
monitoring, maintenance, or removal of any Hazardous Substance or storage tank
on or from the Premises. The costs and expenses of any such inspections shall be
paid by the party requesting same, unless a Default or Breach of this Lease,
violation of Applicable Law, or a contamination, caused or materially
contributed to by Lessee is found to exist or be imminent, or unless the
inspection is requested or ordered by a governmental authority as the result of
any such existing or imminent violation or contamination. In any such case,
Lessee shall upon request reimburse Lessor or Lessor's Lender, as the case may
be, for the costs and expenses of such inspections.
7. MAINTENANCE; REPAIRS; UTILITY INSTALLATIONS; TRADE FIXTURES AND ALTERATIONS.
(See Paragraph 57 for additional requirements)
7.1 LESSEE'S OBLIGATIONS.
(a) Subject to the Provisions of Paragraphs 2.2 (Lessor's warranty as to
condition), 2.3 (Lessor's warranty as to compliance with covenants, etc.), 7.2
(Lessor's obligations to repair), 9 (damage and destruction), and 14
(condemnation), Lessee shall, at Lessee's sole cost and expense and at all
times, keep the Premises and every part thereof in good order, condition and
repair, structural and non-structural (whether or not such portion of the
Premises requiring repair, or the means of repairing the same, are reasonably or
readily accessible to Lessee, and whether or not the need for such repairs
occurs as a result of Lessee's use, any prior use, the elements or the age of
such portion of the Premises), including, without limiting the generality of the
foregoing, all equipment or facilities serving the Premises, such as plumbing,
heating, air conditioning, ventilating, electrical, lighting facilities,
boilers, fired or unfired pressure vessels, fire sprinkler and/or standpipe and
hose or other automatic fire extinguishing system, including fire alarm and/or
smoke detection systems and equipment, fire hydrants, fixtures, walls (interior
and exterior), foundations, ceilings, roofs, floors, windows, doors, plate
glass, skylights, landscaping, driveways, parking lots, fences, retaining walls,
signs, sidewalks and parkways located in, on, about, or adjacent to the
Premises. Lessee shall not cause or permit any Hazardous Substance to be spilled
or released in, on, under, or about the Premises (including through the plumbing
or sanitary sewer system) and shall promptly, at Lessee's expense, take all
investigatory and/or remedial action reasonably recommended, whether or not
formally ordered or required, for the cleanup of any contamination of, and for
the maintenance, security and/or monitoring of, the Premises, the elements
surrounding same, or neighboring properties, that was caused or materially
contributed to by Lessee, or pertaining to or involving any Hazardous Substance
and/or storage tank brought onto the Premises by or for Lessee or under its
control. Lessee, in keeping the Premises in good order, condition and repair,
shall exercise and perform good maintenance practices. Lessee's obligations
shall include restorations, replacements or renewals when necessary to keep the
Premises and all improvements thereon or a part thereof in good order, condition
and state of repair. If Lessee occupies the Premises for seven (7) years or
more, Lessor may require Lessee to repaint the exterior of the buildings on the
Premises as reasonably required, but not more frequently than once every seven
(7) years.
(b) Lessee shall, at Lessee's sole cost and expense, procure and maintain
contracts, with copies to Lessor, in customary form and substance for, and with
contractors specializing and experienced in, the inspection, maintenance and
service of the following equipment and improvements, if any, located on the
Premises: (i) heating, air conditioning and ventilation equipment, (ii) boiler,
fired or unfired pressure vessels, (iii) fire sprinkler and/or standpipe and
hose or other automatic fire extinguishing systems, including fire alarm and/or
smoke detection, (iv) landscaping and irrigation systems, (v) roof covering and
drain maintenance and (vi) asphalt and parking lot maintenance.
7.2 LESSOR'S OBLIGATIONS. Except for the warranties and agreements of Lessor
contained in Paragraphs 2.2 (relating to condition of the Premises), 2.3
(relating to compliance with covenants, restrictions and building code), 9
(relating to destruction of the Premises) and 14 (relating to condemnation of
the Premises), it is intended by the Parties hereto that Lessor have no
obligation, in any manner whatsoever, to repair and maintain the Premises, the
improvements located thereon, or the equipment therein, other than the
structural integrity of the building of which shall be the responsibility of
Lessor, all of which obligations are intended to be that of the Lessee under
Paragraph 7.1 hereof. It is the intention of the Parties that the terms of this
Lease govern the respective obligations of the Parties as to maintenance and
repair of the Premises. Lessee and Lessor expressly waive the benefit of any
statute now or hereafter in effect to the extent it is inconsistent with the
terms of this Lease with the respect to, or which affords Lessee the right to
make repairs at the expense of Lessor or to terminate this Lease by reason of,
any needed repairs.
7.3 UTILITY INSTALLATIONS; TRADE FIXTURES; ALTERATIONS.
(a) DEFINITIONS; CONSENT REQUIRED. The term "UTILITY INSTALLATIONS" is
used in this Lease to refer to all carpeting, window coverings, air lines, power
panels, electrical distribution, security, fire protection systems,
communication systems, lighting fixtures, heating, ventilating, and air
conditioning equipment, plumbing, and fencing in, on or about the Premises. The
term "TRADE FIXTURES" shall mean Lessee's machinery and equipment that can be
removed without doing material damage to the Premises. The term "ALTERATIONS"
shall mean any modification of the improvements on the Premises from
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that which are provided by Lessor under the terms of this Lease, other than
Utility Installations or Trade Fixtures, whether by addition or deletion.
"LESSEE OWNED ALTERATIONS AND/OR UTILITY INSTALLATIONS" are defined as
Alterations and/or Utility Installations made by Lessee that are not yet owned
by Lessor as defined in Paragraph 7.4(a). Lessee shall not make any Alterations
or Utility Installations in, on under or about the Premises without Lessor's
prior written consent. Lessee may, however, make non-structural Utility
Installations to the interior of the Premises (excluding the roof), as long as
they are not visible from the outside, do not involve puncturing, relocating or
removing the roof or any existing walls, and the cumulative cost thereof during
the term of this Lease as extended does not exceed $25,000.
(b) CONSENT. Any Alterations or Utility Installations that Lessee shall
desire to make and which require the consent of the Lessor shall be presented to
Lessor in written form with proposed detailed plans. All consents given by
Lessor, whether by virtue of Paragraph 7.3(a) or by subsequent specific consent,
shall be deemed conditioned upon; (i) Lessee's acquiring all applicable permits
required by governmental authorities, (ii) the furnishing of copies of such
permits together with a copy of the plans and specifications for the Alteration
or Utility Installation to Lessor prior to commencement of the work thereon, and
(iii) the compliance by Lessee with all conditions of said permits in a prompt
and expeditious manner. Any Alterations or Utility Installations by Lessee
during the term of this Lease shall be done in a good and workmanlike manner,
with good and sufficient materials, and in compliance with all Applicable Law.
Lessee shall promptly upon completion thereof furnish Lessor with as-built plans
and specifications therefor. Lessor may (but without obligation to do so)
condition its consent to any requested Alteration or Utility Installation that
costs $10,000 or more upon Lessee's providing Lessor with a lien and completion
bond in an amount equal to one and one-half times the estimated cost of such
Alteration or Utility Installation and/or upon Lessee's posting an additional
Security Deposit with Lessor under Paragraph 36 hereof.
(c) INDEMNIFICATION. Lessee shall pay, when due, all claims for labor or
materials furnished or alleged to have been furnished to or for Lessee at or for
use on the Premises, which claims are or may be secured by any mechanics' or
materialmen's lien against the Premises or any interest therein. Lessee shall
give Lessor not Less than ten (10) days' notice prior to the commencement of any
work in, on or about the Premises, and Lessor shall have the right to post
notices of non-responsibility in or on the Premises as provided by law. If
Lessee shall, in good faith, contest the validity of any such lien, claim or
demand, then Lessee shall, at its sole expense defend and protect itself, Lessor
and the Premises against the same and shall pay and satisfy any such adverse
judgment that may be rendered thereon before the enforcement thereof against the
Lessor or the Premises. If Lessor shall require, Lessee shall furnish to Lessor
a surety bond satisfactory to Lessor in an amount equal to one and one-half
times the amount of such contested lien claim or demand, indemnifying Lessor
against liability for the same, as required by law for the holding of the
Premises free form the effect of such lien or claim. In addition, Lessor may
require Lessee to pay Lessor's attorney's fees and costs in participating in
such action if Lessor shall decide it is to its best interest to do so. Lessor
may require Lessee to pay Lessor's attorney's fees and costs in participating in
such action if Lessor shall decide it is to its best interest to do so.
7.4 OWNERSHIP; REMOVAL; SURRENDER; AND RESTORATION.
(a) OWNERSHIP. Subject to Lessor's right to require their removal or become
the owner thereof as hereinafier provided in this Paragraph 7.4, all Alterations
and Utility Additions made to the Premises by Lessee shall be the property of
and owned by Lessee, but considered a part of the Premises. Lessor may, at any
time and at its option, elect in writing to Lessee to be the owner of all or any
specified part of the Lessee Owned Alterations and Utility Installations. Unless
otherwise instructed per subparagraph 7.4(b) hereof, all Lessee Owned
Alterations and Utility Installations shall, at the expiration or earlier
termination of this Lease, become the property of Lessor and remain upon and be
surrendered by Lessee with the Premises.
(b) REMOVAL. Unless otherwise agreed in writing, Lessor may require that
any or all Lessee Owned Alterations or Utility Installations be removed by the
expiration or earlier termination of this Lease, notwithstanding their
installation may have been consented to by Lessor. Lessor may require the
removal at any time of all or any part of any Lessee Owned Alterations or
Utility Installations made without the required consent of Lessor.
(c) SURRENDER/RESTORATION. Lessee shall surrender the Premises by the end of
the last day of the Lease term or any earlier termination date, with all of the
improvements, parts and surfaces thereof clean and free of debris and in good
operating order, condition and state of repair, ordinary wear and tear excepted.
"ORDINARY WEAR AND TEAR" shall not include any damage or deterioration that
would have been prevented by good maintenance practice or by Lessee performing
all of its obligations under this Lease. Except as otherwise agreed or specified
in writing by Lessor, the Premises, as surrendered, shall include the Utility
Installations. The obligation of Lessee shall include the repair of any damage
occasioned by the installation, maintenance or removal of Lessee's Trade
Fixtures, furnishings, equipment, and Alterations and/or Utility Installations,
as well as the removal of any storage tank installed by or for Lessee, and the
removal, replacement, or remediation of any soil, material or ground water
contaminated by Lessee, all as may then be required by Applicable Law and/or
good practice. Lessee's Trade Fixtures shall remain the property of Lessee and
shall be removed by Lessee subject to its obligation to repair and restore the
Premises per this Lease.
8. INSURANCE INDEMNITY. (See Paragraph for additional requirements)
8.1 PAYMENT FOR INSURANCE. Regardless of whether the Lessor or Lessee is the
Insuring Party, Lessee shall pay for all insurance required under this Paragraph
8 except to the extent of the cost attributable to liability insurance carried
by Lessor in excess of $1,000,000 per occurrence. Premiums for policy periods
commencing prior to or extending beyond the Lease term shall be prorated to
correspond to the Lease term. Payment shall be made by Lessee to Lessor within
ten (10) days following receipt of an invoice for any amount due.
8.2 LIABILITY INSURANCE.
(a) CARRIED BY LESSEE. Lessee shall obtain and keep in force during the
term of this Lease a Commercial General Liability policy of insurance protecting
Lessee and Lessor (as an additional insured) against claims for bodily injury,
personal injury and property damage based upon, involving or arising out of the
ownership, use, occupancy or maintenance of the Premises and all areas
appurtenant thereto. Such insurance shall be on an occurrence basis providing
single limit coverage in an amount not less than $1,000,000 per occurrence with
an "Additional Insured-Managers or Lessors of Premises" Endorsement and contain
the "Amendment of the Pollution Exclusion" for damage caused by heat, smoke or
fumes from a hostile fire. The policy shall not contain any intra-insured
exclusions as between insured persons or organizations, but shall include
coverage for liability assumed under this Lease as an "insured contract" for the
performance of Lessee's indemnity obligations under this Lease. The limits of
said insurance required by this Lease or as carried by Lessee shall not,
however, limit the liability of Lessee nor relieve Lessee of any obligation
hereunder. All insurance to be carried by Lessee shall be primary to and not
contributory with any similar insurance carried by Lessor, whose insurance shall
be considered excess insurance only.
(b) CARRIED BY LESSOR. In the event Lessor is the Insuring Party, Lessor
shall also maintain liability insurance described in Paragraph 8.2(a), above, in
addition to, and not lieu of, the insurance required to be maintained by Lessee.
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Lessee shall not be named as an additional insured therein.
8.3 PROPERTY INSURANCE-BUILDING, IMPROVEMENTS AND RENTAL VALUE.
(a) BUILDING AND IMPROVEMENTS. The Insuring Party shall obtain and keep in
force during the term of this Lease a policy or policies in the name of Lessor,
with loss payable to Lessor and to the holders of any mortgages, deeds of trust
or ground leases on the Premises ("LENDER(S)"), insuring loss or damage to the
Premises. The amount of such insurance shall be equal to the full replacement
cost of the Premises, as the same shall exist from time to time, or the amount
required by Lenders, but in no event more than the commercially reasonable and
available insurable value thereof if, by reason of the unique nature of age of
the improvements involved, such latter amount is less than full replacement
cost. If Lessor is the Insuring Party, however, Lessee Owned Alterations and
Utility Installations shall be insured by Lessee under Paragraph 8.4 rather than
by Lessor. If the coverage is available and commercially appropriate, such
policy or policies shall insure against all risks of direct physical loss or
damage (except the perils of flood and/or earthquake), including coverage for
any additional costs resulting from debris removal and reasonable amounts of
coverage for enforcement of any ordinance or law regulating the reconstruction
or replacement of any undamaged sections of the Premises required to be
demolished or removed by reason of the enforcement of any building, zoning,
safety or land use laws as the result of a covered cause of loss. Said policy or
policies shall also contain an agreed valuation provision in lieu of any
coinsurance clause, waiver of subrogation, and inflation guard protection
causing an increase in the annual property insurance coverage amount by a factor
of not less than the adjusted U.S. Department of Labor Consumer Price Index for
All Urban Consumers for the city nearest to where the Premises are located. If
such insurance coverage has a deductible clause, the deductible amount shall not
exceed $5,000 per occurrence, and Lessee shall be liable for such deductible
amount in the event of an Insured Loss, as defined in Paragraph 9.1 (c).
(b) RENTAL VALUE. The Insuring Party shall, in addition, obtain and keep in
force during the term of this Lease a policy or policies in the name of Lessor,
with loss payable to Lessor and Lender(s), insuring the loss of the full rental
and other charges payable by Lessee to Lessor under this Lease for (1) year
(including all real estate taxes, insurance costs, and any scheduled rental
increases). Said insurance shall provide that in the event the Lease is
terminated by reason of an repairs or replacement of the Premises, to provide
for one full year's loss of rental revenues from the date of any such loss. Said
insurance shall contain an agreed valuation provision in lieu of any coinsurance
clause, and the amount of coverage shall be adjusted annually to reflect the
projected rental income, property taxes, insurance premium costs and other
expenses, if any, otherwise payable by Lessee, for the next twelve (12) month
period. Lessee shall be liable for any deductible amount in the event of such
loss.
(c) ADJACENT PREMISES. If the Premises are part of a larger building, or if
the Premises are part of a group of buildings owned by Lessor which are adjacent
to the Premises, the Lessee shall pay for any increase in the premiums for the
Property insurance of such building or buildings if said increase is caused by
Lessee's acts, omissions, use or occupancy of the Premises.
(d) TENANT'S IMPROVEMENTS. If the Lessor is the Insuring Party, the Lessor
shall not be required to insure Lessee Owned Alterations and Utility
Installations unless the item in question has become the property of Lessor
under the terms of this Lease. If Lessee is the Insuring Party, the policy
carried by Lessee under this Paragraph 8.3 shall insure Lessee Owned Alterations
and Utility Installations.
8.4 LESSEE'S PROPERTY INSURANCE. Subject to the requirements of Paragraph
8.5, Lessee at its cost shall either by separate policy or, at Lessor's option,
by endorsement to a policy already carried, maintain insurance coverage on all
of Lessee's personal property, Lessee Owned Alterations and Utility
Installations in, on, or about the Premises similar in coverage to that carried
by the Insuring Party under Paragraph 8.3. Such insurance shall be full
replacement cost coverage with a deductible of not to exceed $1,000 per
occurrence. The proceeds from any such insurance shall be used by Lessee for the
replacement of personal property or the restoration of Lessee Owned Alterations
and Utility Installations. Lessee shall be the Insuring Party with respect to
the insurance required by the insurance required by this Paragraph 8.4 and shall
provide Lessor with written evidence that such insurance is in force.
8.5 INSURANCE POLICIES. Insurance required hereunder shall be in companies
duly licensed to transact business in the state where the Premises are located,
and maintaining during the policy term a "General Policyholders Rating" of at
least B+, V, or such other rating as may be required by a Lender having a lien
on the Premises, as set forth in the most current issue of "Best's Insurance
Guide." Lessee shall not do or permit to be done anything which shall invalidate
the insurance policies referred to in this Paragraph 8. If Lessee is the
Insuring Party, Lessee shall cause to be delivered to Lessor certified copies of
policies of such insurance or certificates evidencing the existence and amounts
of such insurance with the insureds and loss payable clauses as required by this
Lease. No such policy shall be cancelable or subject to material 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 evidence of renewals or "insurance binders" evidencing renewal thereof, or
Lessor may order such insurance and charge the cost thereof to Lessee, which
amount shall be payable by Lessee to Lessor upon demand. If the Insuring Party
shall fail to procure and maintain the insurance required to be carried by the
Insuring Party under this Paragraph 8, the other Party may, but shall not be
required to, procure and maintain the same, but at Lessee's expense.
8.6 WAIVER OF SUBROGATION. Without affecting any other rights or remedies,
Lessee and Lessor ("WAIVING PARTY") each hereby release and relieve the other,
and waive their entire right to recover damages (whether in contract or in tort)
against the other, for loss of or damage to the Waiving Party's property arising
out of or incident to the perils required to be insured against under Paragraph
8. The effect of such releases and waivers of the right to recover damages shall
not be limited by the amount of insurance carried or required, or by any
deductibles applicable thereto.
8.7 INDEMNITY. Except for Lessor's negligence willful misconduct and/or
breach of this lease, Lessee shall indemnify, protect, defend and hold harmless
the Premises, Lessor and its agents, Lessor's master or ground lessor, partners
and Lenders, from and against any and all claims, loss of rents and/or damages,
costs, liens, judgments, penalties, permits, attorney's and consultant's fees,
expenses and/or damages, costs, liens, judgments, penalties, permits, attorney's
and consultant's fees, expenses and/or liabilities arising out of, involving, or
in dealing with, the occupancy of the Premises by Lessee, the conduct of Lessees
business, any act, omission or neglect of Lessee, its agents, contractors,
employees or invitees, and out of any Default of Breach by Lessee in the
performance in a timely manner of any obligation of Lessee's part to be
performed under this Lease. The foregoing shall include, but not be limited to,
the defense or pursuit of any claim or any action or proceeding involved
therein, and whether or not (in the case of claims made against Lessor)
litigated and/or reduced to judgment, and whether well founded or not. In case
any action or proceeding be brought against Lessor by reason of any of the
foregoing matters, Lessee upon notice from Lessor shall defend the same at
Lessee's expense by counsel reasonably satisfactory to Lessor and Lessor shall
cooperate with Lessee in such defense. Lessor need not have first paid any such
claim in order to be so indemnified.
8.8 EXEMPTION OF LESSOR FROM LIABILITY. Lessor shall not be liable for injury
or damage to the person or goods, wares, merchandise or other property of
Lessee, Lessee's employees, contractors, invitees, customers, or any other
person in or
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about the Premises, whether such damage or injury is caused by or results from
fire, steam, electricity, gas, water or rain, or from the breakage, leakage,
obstruction or other defects of pipes, fire sprinklers, wires, appliances,
plumbing, air conditioning or lighting fixtures, or from any other cause,
whether the said injury or damage results for conditions arising upon the
Premises or upon other portions of the building of which the Premises are a
part, or from other sources or places and regardless of whether the cause of
such damage or injury or the means of repairing the same is accessible or not.
Lessor shall not be liable for any damages arising from any act or neglect of
any other tenant of Lessor. Notwithstanding Lessor's negligence or breach of
this Lease, Lessor shall under no circumstances be liable for injury to Lessee's
business or for any loss of income or profit therefrom.
9. DAMAGE OR DESTRUCTION.
9.1 DEFINITIONS.
(a) "PREMISES PARTIAL DAMAGE" shall mean damage or destruction to the
improvements on the Premises, other than Lessee Owned Alterations and Utility
Installations, the repair cost of which damage or destruction is less than 50%
of the then replacement Cost of the Premises immediately prior to such damage or
destruction, excluding from such calculation the value of the land and Lessee
Owned Alterations and Utility Installations.
(b) "PREMISES TOTAL DESTRUCTION" shall mean damage or destruction to the
Premises, other than Lessee Owned Alterations and Utility Installations the
repair cost of which damage or destruction is 50% or more of the then
Replacement Cost of the Premises immediately prior to such damage or
destruction, excluding from such calculation the value of the land and Lessee
Owned Alterations and Utility Installations.
(c) "INSURED LOSS" shall mean damage or destruction to improvements on the
Premises, other than Lessee Owned Alterations and Utility Installations, which
was caused by an event required to be covered by the insurance described in
Paragraph 8.3(a), irrespective of any deductible amounts or coverage limits
involved.
(d) "REPLACEMENT COST" shall mean the cost to repair or rebuild the
improvements owned by Lessor at the time of the occurrence to their condition
existing immediately prior thereto, including demolition, debris removal and
upgrading required by the operation of applicable building codes, ordinances or
laws, and without deduction for depreciation.
(e) "HAZARDOUS SUBSTANCE CONDITION" shall mean the occurrence or discovery of
a condition involving the presence of, or a contamination by, a Hazardous
Substance as defined in Paragraph 6.2(a), in on or under the Premises.
9.2 PARTIAL DAMAGE-INSURED LOSS. If a Premises Partial Damage that is an
Insured Loss occurs, then Lessor shall, at Lessor's expense, repair such damage
(but not Lessee's Trade Fixtures or Lessee Owned Alterations and Utility
Installations) as soon as reasonably possible and this Lease shall continue in
full force and effect; provided, however, that Lessee shall, at Lessor's
election, make the repair of any damage or destruction the total cost to repair
of which is $10,000 or less, and, in such event, Lessor shall make the insurance
proceeds available to Lessee on a reasonable basis for that purpose.
Notwithstanding the foregoing, if the required insurance was not in force or the
insurance proceeds are not sufficient to effect such repair, the Insuring Party
shall promptly contribute the shortage in proceeds (except as to the deductible
which is Lessee's responsibility) as and when required to complete said repairs.
In the event, however, the shortage in proceeds was due to the fact that, by
reason of the unique nature of the improvements, full replacement cost insurance
coverage was not commercially reasonable and available, Lessor shall have no
obligation to pay for the shortage in insurance proceeds or to fully restore the
unique aspects of the Premises unless Lessee provides Lessor with the funds to
cover same, or adequate assurance thereof, within ten (10) days following
receipt of written notice of such shortage and request therefor. If Lessor
receives said funds or adequate assurance thereof within said ten (10) day
period, the party responsible for making the repairs shall complete them as soon
as reasonably possible and this Lease shall remain in full force and effect. If
Lessor does not receive such funds or assurance within said period, Lessor may
nevertheless elect by written notice to Lessee within ten (10) days thereafter
to make such restoration and repair as is commercially reasonable with Lessor
paying any shortage in proceeds, in which case this Lease shall remain in full
force and effect. If in such case Lessor does not so elect then this Lease shall
terminate sixty (60) days following the occurrence of the damage or destruction.
Unless otherwise agreed, Lessee shall in no event have any right to
reimbursement from Lessor for any funds contributed by Lessee to repair any such
damage or destruction. Premises Partial damage due to flood or earthquake shall
be subject to Paragraph 9.3 rather than Paragraph 9.2, notwithstanding that
there may be some insurance coverage, but the net proceeds of any such insurance
shall be made available for the repairs if made by either party.
9.3 PARTIAL DAMAGE-UNINSURED LOSS. If a Premises Partial Damage that is not
an Insured Loss occurs, unless caused by a negligent or willful act of Lessee
(in which event Lessee shall make the repairs at Lessee's expense and this Lease
shall continue in full force and effect, but subject to Lessor's rights under
Paragraph 13), Lessor may at Lessor's option, either: (i) repair such damage as
soon as reasonably possible at Lessor's expense, in which event this Lease shall
continue in full force and effect, or (ii) give written notice to Lessee within
thirty (30) days after receipt by Lessor of knowledge of the occurrence of such
damage of Lessor's desire to terminate this Lease as of the date sixty (60) days
following the giving of such notice. In the event Lessor elects to give such
notice of Lessor's intention to terminate this Lease, Lessee shall have the
right within ten (10) days after the receipt of such notice to give written
notice to Lessor of Lessee's commitment to pay for the repair of such damage
totally at Lessee's expense and without reimbursement from Lessor. Lessee shall
provide Lessor with the required funds or satisfactory assurance thereof within
thirty (30) days following Lessee's said commitment. In such event this Lease
shall continue in full force and effect, and Lessor shall proceed to make such
repairs as soon as reasonable possible and the required funds are available. If
Lessee does not give such notice and provide the funds or assurance thereof
within the times specified above, this Lease shall terminate as of the date
specified in Lessor's notice of termination.
9.4 TOTAL DESTRUCTION. Notwithstanding any other provision thereof, if a
Premises Total Destruction occurs (including any destruction required by any
authorized public authority), this Lease shall terminate (60) days following the
date of such Premises Total Destruction, whether or not the damage or
destruction is an Insured Loss or was caused by a negligent or willful act of
Lessee. In the event, however, that the damage or destruction was caused by
Lessee, Lessor shall have the right to recover Lessor's damages from Lessee
except as released and waived in Paragraph 8.6.
9.5 DAMAGE NEAR END OF TERM. If at any time during the last six (6) months of
the term of this Lease there is a damage for which the cost to repair exceeds
one (1) month's Base Rent, whether or not an insured Loss, Lessor may, at
Lessor's option, terminate this Lease effective sixty (60) days following the
date of occurrence of such damage by giving written notice to Lessee of Lessor's
election to do so within thirty (30) days after the date of occurrence of such
damage. Provided however, if Lessee at that time has an exercisable option to
extend this Lease or to purchase the Premises, then Lessee may preserve this
Lease by, within twenty (20) days following the occurrence of the damage, or
before the expiration of the time provided in such option for its exercise,
whichever is earlier ("EXERCISE PERIOD"), (i) exercising such option and (ii)
providing Lessor with any shortage in insurance proceeds (or adequate assurance
thereof) needed to make the repairs. If Lessee duly exercises such option during
said Exercise Period and provides Lessor with funds for adequate assurance
thereof) to cover any shortage in insurance proceeds, Lessor shall, at Lessor's
expense repair such damage as soon as reasonably possible and this Lease shall
continue in full force and effect. If Lessee fails to exercise such option and
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provide such funds or assurance during said Exercise Period, then Lessor may at
Lessor's option terminate this Lease as of the expiration of said sixty (60) day
period following the occurrence of such damage by giving written notice to
Lessee of Lessor's election to do so within ten (10) days after the expiration
of the Exercise Period, notwithstanding any term or provision in the grant of
option to the contrary.
9.6 ABATEMENT OF RENT; LESSEE'S REMEDIES.
(a) In the event of damage described in Paragraph 9.2 (Partial
Damage-Insured), whether or not Lessor or Lessee repairs or restores the
Premises, the Base Rent, Real Property Taxes, insurance premiums, and other
charges, if any, payable by Lessee hereunder for the period during which such
damage, its repair or the restoration continues (not to exceed the period for
which rental value insurance is required under Paragraph 8.3(b)), shall be
abated in proportion to the degree to which Lessee's use of the Premises is
impaired. Except for abatement of Base Rent, Real Property Taxes, insurance
premiums, and other charges, if any, as aforesaid, all other obligations of
Lessee hereunder shall be performed by Lessee, and Lessee shall have no claim
against Lessor for any damage suffered by reason of any such repair or
restoration.
(b) If Lessor shall be obligated to repair or restore the Premises under the
provisions of this Paragraph 9 and shall not commence and diligently pursue to
completion, in a substantial and meaningful way, the repair or restoration of
the Premises within ninety (90) days after such obligation shall accrue, Lessee
may, at any time prior to the commencement of such repair or restoration, give
written notice to Lessor and to any lenders of which Lessee has actual notice of
Lessee's election to terminate this Lease on a date not less than sixty (60)
days following the giving of such notice. If Lessee gives such notice to Lessor
and such lenders and repair or restoration is not commenced within sixty (60)
days after receipt of such notice, this Lease shall terminate as of the date
specified in said notice. If Lessor or lender commences the repair or
restoration of the Premises within thirty (30) days after receipt of such
notice, this Lease shall continue in full force and effect. "COMMENCE" as used
in this Paragraph shall mean either the unconditional authorization of the
preparation of the required plans, or the beginning of the actual work on the
Premises, whichever first occurs.
9.7 HAZARDOUS SUBSTANCE CONDITIONS. If a Hazardous Substance Condition
occurs, unless Lessee is legally responsible therefor (in which case Lessee
shall make the investigation and remediation thereof required by Applicable Law
and this Lease shall continue in full force and effect, but subject to Lessor's
rights under Paragraph 13), Lessor may at Lessor's option either (i) investigate
and remediate such Hazardous Substance Condition, if required, as soon as
reasonably possible at Lessor's expense, in which event this Lease shall
continue in full force and effect, or (ii) if the estimated cost to investigate
and remediate such condition exceeds twelve (12) times the then monthly Base
Rent, give written notice to Lessee within thirty (30) days after receipt by
Lessor of knowledge of the occurrence of such Hazardous Substance Condition of
Lessor's desire to terminate this Lease as of the date sixty (60) days following
the giving of such notice. In the event Lessor elects to give such notice of
Lessor's intention to terminate this Lease, Lessee shall have the right within
ten (10) days after the receipt of such notice to give written notice to Lessor
of Lessee's commitment to pay for the investigation and remediation of such
Hazardous Substance Condition totally at Lessee's expense and without
reimbursement from Lessor except to the extent of an amount equal to twelve (12)
times the then monthly Base Rent. Lessee shall provide Lessor with the funds
required of Lessee or satisfactory assurance thereof within thirty (30) days
following Lessee's said commitment. In such event this Lease shall continue in
full force and effect, and Lessor shall proceed to make such investigation and
remediation as soon as reasonably possible and the required funds are available.
If Lessee does not give such notice and provide the required funds or assurance
thereof within the times specified above, this Lease shall terminate as of the
date specified in Lessor's notice of termination. If a Hazardous Substance
Condition occurs for which Lessee is not legally responsible, there shall be
abatement of Lessee's obligations under this Lease to the same extent as
provided in Paragraph 9.6(a) for a period of not to exceed twelve months.
9.8 TERMINATION - ADVANCE PAYMENTS. Upon termination of this Lease pursuant
to this Paragraph 9, an equitable adjustment shall be made concerning advance
Base Rent and any other advance payments made by Lessee to Lessor. Lessor shall,
in addition, return to Lessee so much of Lessee's Security Deposit as has not
been, or is not then required to be, used by Lessor under the terms of this
Lease.
9.9 WAIVE STATUTES. Lessor and Lessee agree that the terms of this Lease
shall govern the effect of any damage to or destruction of the Premises with
respect to the termination of this Lease and hereby waive the provisions of any
present or future statute to the extent inconsistent herewith.
10. REAL PROPERTY TAXES.
10.1 (a) PAYMENT OF TAXES. Lessee shall pay the Real Property Taxes, as
defined in Paragraph 10.2, applicable to the Premises during the term of this
Lease. Subject to Paragraph 10.1(b), all such payments shall be made at least
ten (10) days prior to the delinquency date of the applicable installment.
Lessee shall promptly furnish Lessor with satisfactory evidence that such taxes
have been paid. If any such taxes to be paid by Lessee shall cover any period of
time prior to or after the expiration or earlier termination of the term hereof,
Lessee's share of such taxes shall be equitably prorated to cover only the
period of time within the tax fiscal year this Lease is in effect, and Lessor
shall reimburse Lessee for any overpayment after such proration. If Lessee shall
fail to pay any Real Property Taxes required by this Lease to be paid by Lessee,
Lessor shall have the right to pay the same, and Lessee shall reimburse Lessor
therefor upon demand. See Paragraph 57 for additional requirements.
(b) ADVANCE PAYMENT. In order to insure payment when due and before
delinquency of any or all Real Property Taxes, Lessor reserves the right, at
Lessor's option, to estimate the current Real Property Taxes applicable to the
Premises, and to require such current year's Real Property Taxes to be paid in
advance to Lessor by Lessee, either: (i) in a lump sum amount equal to the
installment due, at least twenty (20) days prior to the applicable delinquency
date, or (ii) monthly in advance with the payment of the Base Rent. If Lessor
elects to require payment monthly in advance, the monthly payment shall be that
equal monthly amount which, over the number of months remaining before the month
in which the applicable tax installment would become delinquent (and without
interest thereon), would provide a fund large enough to fully discharge before
delinquency the estimated installment of taxes to be paid. When the actual
amount of the applicable tax bill is known, the amount of such equal monthly
advance payment shall be adjusted as required to provide the fund needed to pay
the applicable taxes before delinquency. If the amounts paid to Lessor by Lessee
under the provisions of this Paragraph are insufficient to discharge the
obligations of Lessee to pay such Real Property Taxes as the same become due,
Lessee shall pay to Lessor, upon Lessor's demand, such additional sums as are
necessary to pay such obligations. All moneys paid to Lessor under this
Paragraph may be intermingled with other moneys of Lessor and shall not bear
interest. In the event of a Breach by Lessee in the performance of the
obligations of Lessee under this Lease, then any balance of funds paid to Lessor
under the provisions of this Paragraph may, subject to proration as provided in
Paragraph 10.l(a), at the option of Lessor, be treated as an additional
Security Deposit under Paragraph 5.
10.2 DEFINITION OF "REAL PROPERTY TAXES". As used herein, the term "REAL
PROPERTY TAXES" shall include any form of real estate tax or assessment,
general, special, ordinary or extraordinary, and any commercial rental tax,
(other than inheritance, personal, income or estate taxes) imposed upon the
Premises by any authority having the direct or indirect power to tax, including
any city, state or federal government, or any school, agricultural, sanitary,
fire, street, drainage or
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other improvement district thereof, or levied against any legal or equitable
interest of Lessor or Lessee in the Premises or against Lessee's Alterations,
Utility Improvements or Trade Fixtures, and any charge or assessment of any kind
whatsoever resulting from the Premises inclusion in any property owners
association.
10.3 JOINT ASSESSMENT. If the Premises are not separately assessed, Lessee's
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.
10.4 PERSONAL PROPERTY TAXES. Lessee shall pay prior to delinquency all taxes
assessed against and levied upon Lessee Owned Alterations, Utility
Installations, Trade Fixtures, furnishings, equipment and all personal property
of Lessee contained in the Premises or elsewhere. When possible, Lessee shall
cause its Trade Fixtures, furnishings, equipment and all other personal property
to be assessed and billed separately from the real property of Lessor. If any of
Lessee's said personal property shall be assessed with the Lessor's real
property, Lessee shall pay Lessor the taxes attributable to Lessee within ten
(10) days after receipt of a written statement setting forth the taxes
applicable to Lessee's property or, at Lessor's option, as provided in Paragraph
10.1(b).
11. UTILITIES. Lessee shall pay for all water, gas, heat, light, power,
telephone, trash disposal and other utilities and services supplied to the
Premises, together with any taxes thereon. If any such services are not
separately metered to Lessee, Lessee shall pay a reasonable proportion, to be
determined by Lessor, of all charges jointly metered with other premises.
12. ASSIGNMENT AND SUBLETTING.
12.1 LESSOR'S CONSENT REQUIRED.
(a) Lessee shall not voluntarily or by operation of law assign, transfer,
mortgage or otherwise transfer or encumber (collectively "ASSIGNMENT") or sublet
all or any part of Lessee's interest in this Lease or in the Premises without
Lessor's prior written consent given under and subject to the terms of Paragraph
36.
(b) An assignment or subletting of Lessee's interest in this Lease without
Lessor's specific prior written consent shall, at Lessor's option, be a Default
curable after notice per Paragraph 13.l(c), or a noncurable Breach without the
necessity of any notice and grace period. If Lessor elects to treat such
unconsented to assignment or subletting as a noncurable Breach, Lessor shall
have the right to either: (i) terminate this Lease, or (ii) upon thirty (30)
days written notice ("Lessor's Notice"), increase the monthly Base Rent to fair
market value or one hundred ten percent (110%) of the Base Rent then in effect,
whichever is greater. Pending determination of the new fair market value, if
disputed by Lessee, Lessee shall pay the amount set forth in Lessor's Notice,
with any overpayment credited against the next installment(s) of Base Rent
coming due, and any underpayment for the period retroactively to the effective
date of the adjustment being due and payable immediately upon the determination
thereof. Further, in the event of such Breach and market value adjustment, (i)
the purchase price of any option to purchase the Premises held by Lessee shall
be subject to similar adjustment to the then fair market value (without the
Lease being considered an encumbrance or any deduction or depreciation or
obsolescence, and considering the Premises at its highest and best use and in
good condition), or one hundred ten percent (110%) of the price previously in
effect, whichever is greater, (ii) any index-oriented rental or price adjustment
formulas contained in this Lease shall be adjusted to require that the base
index be determined with reference to the index applicable to the time of such
adjustment, and (iii) any fixed rental adjustments scheduled during the
remainder of the Lease term shall be increased in the same ratio as the new
market rental bears to the Base Rent in effect immediately prior to the market
value adjustment.
(c) Notwithstanding any other provision of this Lease to the contrary,
Lessee may assign or transfer its right and obligations under this Lease at any
time, or sublease all or part of the Premises, in each case with out Lessor's
consent, to any entity which (i) acquires all or part of Lessee, (ii) acquires
all or substantially all of the assets located on the Premises, (iii) is
acquired in whole or in part by Lessee, (iv) is controlled directly on
indirectly, Lessee, (v) is under common control with Lessee, (vi) controls
directly or indirectly, Lessee (herein called an "Affiliate"), or (vii) which
owns or is owned by the Affiliate: provided however, that Lessor's consent
(which shall not be unreasonably withheld, delayed or conditioned) shall be
required if any of the transactions referred to in clauses (i) through (vii)
above (herein called an "acquisition") arise as the result of a so-called
"leveraged buyout" in which substantially all the assets of Lessee are pledged
as security for the repayment of loans if the proceeds of such loans are used to
finance the acquisition of Lessee.
12.2 TERMS AND CONDITIONS APPLICABLE TO ASSIGNMENT AND SUBLETTING.
(a) Regardless of Lessor's consent, any assignment or subletting shall not
(i) be effective without the express written assumption by such assignee or
sublessee of the obligations of Lessee under this Lease, (ii) release Lessee of
any obligations hereunder, or (iii) alter the primary liability of Lessee for
the payment of Base Rent and other sums due Lessor hereunder or for the
performance of any other obligations to be performed by Lessee under this Lease.
(b) Lessor may accept any rent or performance of Lessee's obligations from
any person other than Lessee pending approval or disapproval of an assignment.
Neither a delay in the approval of disapproval of such assignment nor the
acceptance of any rent or performance shall constitute a waiver or estoppel of
Lessor's right to exercise its remedies for the Default or Breach by Lessee of
any terms, covenants or conditions of this Lease.
(c) The consent of Lessor to any assignment or subletting shall not
constitute a consent to any subsequent assignment or subletting by Lessee or to
any subsequent or successive assignment or subletting by the sublessee. However,
Lessor my consent to subsequent subletting and assignments of the sublease of
the sublease or any amendments or modifications thereto without notifying Lessee
or anyone else liable on the Lease or sublease and without obtaining their
consent, and such action shall not relieve such persons from liability under
this Lease or sublease.
(d) In the event of any Default or Breach of Lessee's obligations under this
Lease, Lessor may proceed directly against Lessee, any Guarantors or any one
else responsible for the performance of the Lessee's obligations under this
Lease, including the sublessee, without first exhausting Lessor's remedies
against any other person or entity responsible therefor to Lessor, or any
security held by Lessor or Lessee.
(e) Any assignee of, or sublessee under, this Lease shall, by reason of
accepting such assignment or entering into such sublease, be deemed, for the
benefit of Lessor, to have assumed and agreed to conform and comply with each
and every term, covenant, condition and obligation herein to be observed or
performed by Lessee during the term of said assignment or sublease, other than
such obligations as are contrary to or inconsistent with provisions of an
assignment or sublease to which Lessor has specifically consented in writing.
(f) Lessor, as a condition to giving its consent to any assignment or
subletting, may require that the amount and adjustment structure of the rent
payable under this Lease be adjusted to what is then the market value and/or
adjustment structure for property similar to the Premises as then constituted.
12.3 ADDITIONAL TERMS AND CONDITIONS APPLICABLE TO SUBLETTING. The following
terms and conditions shall apply to any subletting by Lessee of all or any part
of the Premises and shall be deemed included in all subleases under this Lease
whether or not expressly incorporated therein:
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(a) Lessee hereby assigns and transfers to Lessor all of Lessee's interest
in all rentals and income arising from any sublease of all or a portion of the
Premises heretofore or hereafter made by Lessee, and Lessor may collect such
rent and income and apply same toward Lessee's obligations under this Lease;
provided, however, that until a Breach (as defined in Paragraph 13.1) shall
occur in the performance of Lessee's obligations under this Lease, Lessee may,
except as otherwise provided in this Lease, receive, collect and enjoy the 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 a sublessee, be deemed liable to the sublessee for any failure of
Lessee to perform and comply with any of Lessee's obligations to such sublessee
under such sublease. Lessee hereby irrevocably authorizes and directs any such
sublessee, upon receipt of a written notice from Lessor stating that a Breach
exists in the performance of Lessee's obligations under this Lease, to pay to
Lessor the rents and other charges due and to become due under the sublease.
Sublessee shall rely upon any such statement and request from Lessor and shall
pay such rents and other charges to Lessor without any obligation or right to
inquire as to whether such Breach exists and notwithstanding any notice from or
claim from Lessee to the contrary. Lessee shall have no right or claim against
said sublessee, or, until the Breach has been cured, against Lessor, for any
such rents and other charges so paid by said sublessee to Lessor.
(b) In the event of a Breach by Lessee in the performance of its
obligations under this Lease, Lessor, at its option and without any obligation
to do so, may require any sublessee to attorn to Lessor, in which event Lessor
shall undertake the obligations of the sublessor under such sublease from the
time of the exercise of said option to the expiration of such sublease;
provided, however, Lessor shall not be liable for any prepaid rents or security
deposit paid by such sublessee to such sublessor or for any other prior Defaults
or Breaches of such sublessor under such sublease.
(c) Any matter or thing requiring the consent of the sublessor under a
sublease shall also require the consent of Lessor herein.
(d) No sublessee shall further assign or sublet all or any part of the
Premises without Lessor's prior written consent.
(e) Lessor shall deliver a copy of any notice of Default or Breach by
Lessee to the sublessee, who shall have the right to cure the Default of Lessee
within the grace period, if any, specified in such notice. The sublessee shall
have a right of reimbursement and offset from and against Lessee for any such
Defaults cured by the sublessee.
13. DEFAULT; BREACH; REMEDIES.
13.1 DEFAULT; BREACH. Lessor and Lessee agree that if an attorney is
consulted by Lessor in connection with a Lessee Default or Breach (as
hereinafter defined), $350.00 is a reasonable minimum sum per such occurrence
for legal services and costs in the preparation and service of a notice of
Default, and that Lessor may include the cost of such services and costs in said
notice as rent due and payable to cure said Default. A "DEFAULT" is defined as a
failure by the Lessee to observe, comply with or perform any of the terms,
covenants, conditions or rules applicable to Lessee under this Lease. A "BREACH"
is defined as the occurrence of any one or more of the following Defaults, and,
where a grace period for cure after notice is specified herein, the failure by
Lessee to cure such Default prior to the expiration of the applicable grace
period, and shall entitle Lessor to pursue the remedies set forth in Paragraphs
13.2 and/or 13.3:
(a) The vacating of the Premises without the intention to reoccupy same, or
the abandonment of the Premises.
(b) Except as expressly otherwise provided in this Lease, the failure by
Lessee to make any payment of Base Rent or any other monetary payment required
to be made by Lessee hereunder, whether to Lessor or to a third party, as and
when due, the failure by Lessee to provide Lessor with reasonable evidence of
insurance or surety bond required under this Lease, or the failure of Lessee to
fulfill any obligation under this Lease which endangers or threatens life or
property, where such failure continues for a period of three (3) business days
following written notice thereof by or on behalf of Lessor to Lessee.
(c) Except as expressly otherwise provided in this Lease, the failure to
provide Lessor with reasonable written evidence (in duly executed original form,
if applicable) of (i) compliance with applicable law per Paragraph 6.3, (ii) the
inspection, maintenance and service contracts required under Paragraph 7.1(b),
(iii) the recision of an unauthorized assignment or subletting per Paragraph
12.l(b), (iv) a Tenancy Statement per Paragraphs 16 or 37, (v) the
subordination or non-subordination of this Lease per Paragraph 30, (vi) the
guaranty of the performance of Lessee's obligations under this Lease if required
under Paragraphs 1.11 and 37, (vii) the execution of any document requested
under Paragraph 42 (easements), or (viii) any other documentation or information
which Lessor may reasonably require of Lessee under the terms of this Lease,
where any such failure continues for a period of ten (10) days following written
notice by or on behalf of Lessor to Lessee.
(d) A Default by Lessee as to the terms, covenants, conditions or
provisions of this Lease, or of the rules adopted under Paragraph 40 hereof,
that are to be observed, complied with or performed by Lessee, other than those
described in subparagraphs (a), (b) or (c) above, where such Default continues
for a period of thirty (30) days after written notice thereof by or on behalf of
Lessor to Lessee; provided, however, that if the nature of Lessee's Default is
such that more than thirty (30 days are reasonably required for its cure, then
it shall not be deemed to be a Breach of this Lease by Lessee if Lessee
commences such cure within said thirty (30) day period and thereafter diligently
prosecutes such cure to completion.
(e) The occurrence of any of the following events: (i) The making by Lessee
of any general arrangement or assignment for the benefit of creditors; (ii)
Lessee's becoming a "debtor" as defined in 11 U.S.C. S101 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 the Lease, where such seizure is not
discharged within thirty (30) days; provided, however, in the event that any
provision of this subparagraph (e) is contrary to any applicable law, such
provision shall be of no force or effect, and not affect the validity of the
remaining provisions.
(f) The discovery by Lessor that any financial statement given to Lessor by
Lessee or any Guarantor of Lessee's obligations hereunder was materially false.
(g) If the performance of Lessee's obligations under this Lease is
guaranteed: (i) the death of a guarantor, (ii) the termination of a guarantor's
liability with respect to this Lease other than in accordance with the terms of
such guaranty, (iii) a guarantor's becoming insolvent or the subject of a
bankruptcy filing, (iv) a guarantor's refusal to honor the guaranty, or (v) a
guarantor's breach of its guaranty obligation on an anticipatory breach basis,
and Lessee's failure, within sixty (60) days following written notice by or on
behalf of Lessor to Lessee of any such event, to provide Lessor with written
alternative assurance or security, which, when coupled with the then existing
resources of Lessee, equals or exceeds the combined financial resources of
Lessee and the guarantors that existed at the time of execution of this Lease.
13.2 REMEDIES. If Lessee fails to perform any affirmative duty or obligation
of Lessee under this Lease, within ten (10) days after written notice to Lessee
(or in case of an emergency, without notice), Lessor may at its option (but
without obligation to do so), perform such duty or obligation on Lessee's
behalf, including but not limited to the obtaining of reasonably required bonds,
insurance policies, or governmental licenses, permits or approvals. The costs
and expenses of any such performance by Lessor shall be due and payable by
Lessee to Lessor upon invoice therefore. If any check given to
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Lessor by Lessee shall not be honored by the bank upon which it is drawn,
Lessor, at its option, may require all future payments to be made under this
Lease by Lessee to be made only by cashier's check. In the event of a Breach of
this Lease by Lessee, as defined in Paragraph 13.1, with or without further
notice or demand, and without limiting Lessor in the exercise of any right or
remedy which Lessor may have by reason of such Breach, Lessor may:
(a) Terminate Lessee's right to possession of the Premises by any lawful
means, in which case this Lease and the term hereof shall terminate and Lessee
shall immediately surrender possession of the Premises to Lessor. In such event
Lessor shall be entitled to recover from Lessee: (i) the worth at the time of
the award of the unpaid rent which had been earned at the time of termination;
(ii) the worth at the time of award of the amount by which the unpaid rent which
would have been earned after termination until the time of award exceeds the
amount of such rental loss that the Lessee proves could have been reasonably
avoided; (iii) the worth at the time of award of the amount by which the unpaid
rent for the balance of term after the time of award exceeds the amount of such
rental loss that the Lessee proves could be reasonably avoided; and (iv) any
other amount necessary to compensate Lessor for all the detriment proximately
caused by the Lessee's failure to perform its obligations under this Lease or
which in the ordinary course of things would be likely to result therefrom,
including but not limited to the cost of recovering possession of the Premises,
expenses of reletting, including necessary renovation and alteration of the
Premises, reasonable attorneys' fees, and that portion of the leasing commission
paid by Lessor applicable to the unexpired term of this Lease. The worth at the
time of award of the amount referred to in provision (iii) of the prior sentence
shall be computed by discounting such amount at the discount rate of the Federal
Reserve Bank of San Francisco at the time of award plus one percent. Efforts by
Lessor to mitigate damages caused by Lessee's Default or Breach of this Lease
shall not waive Lessor's right to recover damages under this Paragraph. If
termination of this Lease is obtained through the provisional remedy of unlawful
detainer, Lessor shall have the right to recover in such proceeding the unpaid
rent and damages as are recoverable therein, or Lessor may reserve therein the
right to recover all or any part thereof in a separate suit for such rent and/or
damages. If a notice and grace period required under subparagraphs 13.1(b), (c)
or (d) was not previously given, a notice to pay rent or quit, or perform or
quit, as the case may be, given to Lessee under any statute authorizing the
forfeiture of leases for unlawful detainer shall also constitute the applicable
notice for grace period purposes required by subparagraphs 13.l(b), (c) or (d).
In such case, the applicable grace period under subparagraphs 13.1(b), (c) or
(d) and under the unlawful detainer statue shall run concurrently after the one
such statutory notice, and the failure of Lessee to cure the Default within the
greater of the two such grace periods shall constitute both an unlawful retainer
and a Breach of this Lease entitling Lessor to the remedies provided for in this
Lease and/or by said statute.
(b) Continue the Lease and Lessee's right to possession in effect (in
California under California Civil Code Section 1951.4) after Lessee's Breach and
abandonment and recover the rent as it becomes due, provided Lessee has the
right to sublet or assign, subject only to reasonable limitations. See
Paragraphs 12 and 36 for the limitations on assignment and subletting which
limitations Lessee and Lessor agree are reasonable. Acts of maintenance or
preservation, efforts to relet the Premises, or the appointment of a receiver to
protect the Lessor's interest under the Lease, shall not constitute a
termination of the Lessee's right to possession.
(c) Pursue any other remedy now or hereafter available to Lessor under the
laws or judicial decisions of the state wherein the Premises are located.
(d) The expiration or termination of this Lease and/or the termination of
Lessee's right to possession shall not relieve Lessee from liability under any
indemnity provisions of this Lease as to matters occurring or accruing during
the term hereof or by reason of Lessee's occupancy of the Premises.
13.3 INDUCEMENT RECAPTURE IN EVENT OF BREACH. Any agreement by Lessor for
free or abated rent or other charges applicable to the Premises, or for the
giving or paying by Lessor to or for Lessee of any cash or other bonus,
inducement or consideration for Lessee's entering into this Lease, all of which
concessions are hereinafter referred to as "Inducement Provisions", shall be
deemed conditioned upon Lessee's full and faithful performance of all of the
terms, covenants and conditions of this Lease to be performed and observed by
Lessee during the term hereof as the same may be extended. Upon the occurrence
of a Breach of this Lease by Lessee, as defined in Paragraph 13.1 any such
Inducement Provision shall automatically be deemed deleted from this Lease and
of no future force or effect, and any rent, other charge, bonus, inducement or
consideration theretofore abated, given or paid by Lessor under such an
Inducement Provision shall be immediately due and payable by Lessee to Lessor,
and recoverable by Lessor as additional rent due under this Lease,
notwithstanding any subsequent cure of said Breach by Lessee. The acceptance by
Lessor of rent or the cure of the Breach which initiated the operation of this
Paragraph shall not be deemed a waiver by Lessor of the provisions of this
Paragraph unless specifically so stated in writing by Lessor at the time of such
acceptance.
13.4 LATE CHARGES. Lessee hereby acknowledges that late payment by Lessee to
Lessor of rent and other sums due hereunder will cause Lessor to incur costs not
contemplated by this Lease, the exact amount of which will be extremely
difficult to ascertain. Such costs include, but are not limited to, processing
and accounting charges, and late charges which may be imposed upon Lessor by
terms of any ground lease, mortgage or trust deed covering the Premises.
Accordingly, if any installment of rent or any other sum due from Lessee shall
not be received by Lessor or Lessor's designee on the first day of each month
then, after notice pursuant to Section 13, Lessee shall pay to Lessor a late
charge equal to six percent (6%) of such overdue amount. The parties hereby
agree that such late charge represents a fair and reasonable estimate of the
costs Lessor will incur by reason of late payment by Lessee. Acceptance of such
late charge by Lessor shall in no event constitute a waiver of Lessee's Default
or Breach with respect to such overdue amount, not prevent Lessor from
exercising any of the other rights and remedies granted hereunder. In the event
that a late charge is payable hereunder, whether or not collected, for three (3)
consecutive installments of Base Rent, then notwithstanding Paragraph 4.1 or any
other provision of this Lease to the contrary, Base Rent shall, at Lessor's
option, become due and payable quarterly in advance.
13.5 BREACH BY LESSOR. Lessor shall not be deemed in breach of this Lease
unless Lessor fails within a reasonable time to perform an obligation required
to be performed by Lessor. For purposes of this Paragraph 13.3, a reasonable
time shall in no event be less than thirty (30) days after receipt by Lessor,
and by the holders of any ground lease, mortgage or deed of trust covering the
Premises whose name and address shall have been furnished Lessee in writing for
such purpose, of written notice specifying wherein such obligation of Lessor has
not been performed; provided, however, that if the nature of Lessor's obligation
is such that more than thirty (30) days after such notice are reasonably
required for its performance, then Lessor shall not be in breach of this Lease
if performance is commenced within such thirty (30) day period and thereafter
diligently pursued to completion.
14. CONDEMNATION. If the Premises or any portion thereof are taken under the
power of eminent domain or sold under the threat of the exercise of said power
(all of which are herein called "condemnation"), this Lease shall terminate as
to the part so taken as of the date the condemning authority takes title or
possession, whichever first occurs. If more than ten percent (10%) of the floor
area of the Premises, or more than twenty-five percent (25%) of the land area
not occupied by any building, is taken by condemnation, Lessee may, at Lessee's
option, to be exercised in writing within ten (10) days after Lessor shall have
given Lessee, written notice of such taking (or in the absence of such notice,
within ten (10) days after the condemning authority shall have taken possession)
terminate this Lease as of the date the condemning authority takes such
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possession. If Lessee does not terminate this Lease in accordance with the
foregoing, this Lease shall remain in full force and effect as to the portion of
the Premises remaining, except that the Base Rent shall be reduced in the same
proportion as the rentable floor area of the Premises taken bears to the total
rentable floor area of the building located on the Premises. No reduction of
Base Rent shall occur if the only portion of the Premises taken is land on which
there is no building. Any award for the taking of all or any part of the
Premises under the power of eminent domain or any payment made under threat of
the exercise of such power shall be the property of Lessor, whether such award
shall be made as compensation for diminution in value of the leasehold or for
the taking of the fee, or as severance damages; provided, however, that Lessee
shall be entitled to any compensation, separately awarded to Lessee for Lessee's
relocation expenses and/or loss of Lessee's Trade Fixtures or otherwise. In the
event that this Lease is not terminated by reason of such condemnation, Lessor
shall to the extent of its net severance damages received, over and above the
legal and other expenses incurred by Lessor in the condemnation matter, repair
any damage to the Premises caused by such condemnation, except to the extent
that Lessee has been reimbursed therefor by the condemning authority. Lessee
shall be responsible for the payment of any amount in excess of such net
severance damages required to complete such repair.
15. BROKER'S FEE.
15.1 The Brokers named in Paragraph 1.10 are the procuring causes of this
Lease.
15.2 Upon execution of this Lease by both Parties, Lessor shall pay to said
Brokers jointly, or in such separate shares as they may mutually designate in
writing, a fee as set forth in a separate written agreement between Lessor and
said Brokers (or in the event there is no separate written agreement between
Lessor and said Brokers, the sum of $by separate agree.)for brokerage services
------------------
rendered by said Brokers to Lessor in this transaction.
15.3 Unless Lessor and Brokers have otherwise agreed in writing, Lessor
further agrees that: (a) if Lessee exercises any Option (as defined in Paragraph
39.1) or any Option subsequently granted which is substantially similar to an
Option granted to Lessee in this Lease, or (b) if Lessee acquires any rights to
the Premises or other premises described in this Lease which are substantially
similar to what Lessee would have acquired had an Option herein granted to
Lessee been exercised, or (c) if Lessee remains in possession of the Premises,
with the consent of Lessor, after the expiration of term of this Lease after
having failed to exercise an Option, or (d) if said Brokers are the procuring
cause of another lease or sale entered into between the Parties pertaining to
the Premises and/or any adjacent property in which Lessor has an interest, or
(e) if Base Rent is increased, whether by agreement or operation of an
escalation clause herein, then as to any of said transactions, Lessor shall pay
said Brokers a fee in accordance with the schedule of said Brokers in effect at
the time of the execution of this Lease.
15.4. Any buyer or transferee of Lessor's interest in this Lease, whether
such transfer is by agreement or by operation of law, shall be deemed to have
assumed Lessor's obligation under this Paragraph 15. Each Broker shall be a
third party beneficiary of the provisions of this Paragraph 15 to the extent of
its interest in any commission arising from this Lease and may enforce that
right directly against Lessor and its successors.
15.5. Lessee and Lessor each represent and warrant to the other that it has
had no dealings with any person, firm, broker or finder (other than the Brokers,
if any named in Paragraph 1.10) in connection with the negotiation of this Lease
and/or the consummation of the transaction contemplated hereby, and that no
broker or other person, firm, or entity other than said named Brokers is
entitled to any commission or finder's fee in connection with said transaction.
Lessee and Lessor do each hereby agree to indemnify, protect, defend and hold
the other harmless from and against liability for compensation or charges which
may be claimed by any such unnamed broker, finder or other similar party by
reason of any dealings or actions of the indemnifying Party, including any
costs, expenses, attorneys' fees reasonably incurred with respect thereto.
15.6 Lessor and Lessee hereby consent to and approve all agency
relationships, including any dual agencies, indicated in Paragraph 1.10.
16. TENANCY STATEMENT.
16.1. Each Party (as "RESPONDING PARTY") shall within ten (10) days from the
other Party (the "REQUESTING PARTY") execute, acknowledge and deliver to the
Requesting Party a statement in writing in form similar to the then most current
"TENANCY STATEMENT" form published by the American Industrial Real Estate
Association, plus such additional information, confirmation and/or statements
as may be reasonably requested by the Requesting Party.
16.2 If Lessor desire to finance, refinance, or sell the Premise, any part
thereof, or the building of which the Premises are a part, Lessee and all
Guarantors of Lessee's performance hereunder shall deliver to any potential
lender or purchaser designated by Lessor such financial statements of Lessee and
such Guarantors as may be reasonably required by such lender or purchaser and
are reasonably available by Lessee, including but not limited to Lessee's
financial statements for the past three (3) years. All such financial statements
shall be received by Lessor and such lender or purchaser in confidence and shall
be used only for the purposes herein set forth.
17. LESSOR'S LIABILITY. The term "LESSOR" as used herein shall mean the owner or
owners at the time in question of the fee title to the Premises, or, if this is
a sublease, of the lessee's interest in the prior lease. In the event of a
transfer of Lessor's title or interest in the Premises or in this Lease, Lessor
shall deliver to the transferee or assignee (in cash or by credit) any unused
Security Deposit held by Lessor at the time of such transfer or assignment.
Except as provided in Paragraph 15, upon such transfer or assignment and
delivery of the Security Deposit, as aforesaid, the prior Lessor shall be
relieved of all liability with respect to the obligations and/or covenants under
this Lease thereafter to be performed by the Lessor. Subject to the foregoing,
the obligations and/or covenants in this Lease to be performed by the Lessor
shall be binding only upon the Lessor as hereinafter defined.
18. SEVERABILITY. The invalidity of any provision of this Lease, as determined
by a court of competent jurisdiction, shall in no way affect the validity of
another provision hereof.
19. INTEREST ON PAST-DUE OBLIGATIONS. Any monetary payment due Lessor hereunder,
other than late charges, not received by Lessor within thirty (30) days
following the date of which it was due, shall bear interest from the
thirty-first (31st) day after it was due at the rate of 12% per annum, but not
exceeding the maximum rate allowed by law, in addition to the late charge
provided for in Paragraph 13.4.
20. TIME OF ESSENCE. Time is of the essence with respect to the performance of
all obligations to be performed or observed by the Parties under this Lease.
21. RENT DEFINED. All monetary obligations of Lessee to Lessor under the terms
of this Lease are deemed to be rent.
22. NO PRIOR OR OTHER AGREEMENTS; BROKER DISCLAIMER. This Lease contains all
agreements between the Parties with respect to any matter mentioned herein, and
no other prior or contemporaneous agreement or understanding shall be effective.
Lessor and Lessee each represents and warrants to the Brokers that is has made,
and is relying solely upon, its owner investigation as to the nature, quality,
character and financial responsibility of the other Party to this Lease and as
to the nature, quality and character of the Premises. Brokers have no
responsibility with respect thereto or with respect to any default or breach
hereof by either Party.
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23. NOTICES.
23.1 All notices required or permitted by this Lease shall be in writing
and may be delivered in person (by hand or by messenger or courier service) or
may be sent by regular, certified or registered mail or U.S. Postal Service
Express Mail, with postage prepaid, or by facsimile transmission, and shall be
deemed sufficiently given if served in a manner specified in this Paragraph 21.
The addressees noted adjacent to Party's signature on this Lease shall be that
Party's address for delivery or mailing of notice purposes. Either Party may by
written notice to the other specify a different address for notice purposes,
except that upon Lessee's taking possession of the Premises, the Premises shall
constitute Lessee's address for the purpose of mailing or delivering notices to
Lessee. A copy of all notices required or permitted to be given to Lessor
hereunder shall be concurrently transmitted to such party or parties at such
addresses as Lessor may from time to time hereafter designate by written notice
to Lessee.
23.2 Any notice sent by registered or certified mail, return receipt
requested, shall be deemed given on the date of delivery shown on the receipt
card, or if no delivery date is shown, the postmark thereon. If sent by regular
mail the notice shall be deemed given forty-eight (48) hours after the same is
addressed as required herein and mailed with postage prepaid. Notices delivered
by United State Express Mail or overnight courier that guarantees next day
delivery shall be deemed given twenty-four (24) hours after delivery of the same
to the United States Postal Service or courier. If any notice is transmitted by
facsimile transmission or similar means, the same shall be deemed served or
delivered upon telephone confirmation of receipt of the transmission thereof,
provided a copy is also delivered via delivery or mail. If notice is received on
a Sunday or legal holiday, it shall be deemed received on the next business day.
24. WAIVERS. No waiver by Lessor of the Default or Breach of any term, covenant
or condition hereto by Lessee, shall be deemed a waiver of any other term,
covenant or condition hereof, or of any subsequent Default or Breach by Lessee
of the same or of any other term, covenant or condition hereof. Lessor's consent
to, or approval of, any act shall not be deemed to render unnecessary the
obtaining of Lessor's consent to, or approval of, any subsequent or similar act
by Lessee, or be construed as the basis of an estoppel to enforce the provision
or provisions of this Lease requiring such consent. Regardless of Lessor's
knowledge of a Default or Breach at the time of accepting rent, the acceptance
of rent by Lessor shall not be a waiver of any preceding Default or Breach by
Lessee of any provision hereof, other than the failure of Lessee to pay the
particular rent so accepted. Any payment given Lessor by Lessee may be accepted
by Lessor on account of moneys or damages due Lessor, notwithstanding any
qualifying statements or conditions made by Lessee in connection therewith,
which such statement and/or conditions shall be of no force or effect whatsoever
unless specifically agreed to in writing by Lessor at or before the time of
deposit such payment.
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. The party requesting recordation shall be
responsible for payment of any fees or taxes applicable thereto.
26. NO RIGHT TO HOLDOVER. Lessee has no right to retain possession of the
Premises or any part thereof beyond the expiration or earlier termination of
this Lease.
27. CUMULATIVE REMEDIES. No remedy or election hereunder shall be deemed
exclusive but shall, wherever possible, be cumulative with all other remedies at
law or in equity.
28. COVENANTS AND CONDITIONS. All provisions of this Lease to be observed or
performed by Lessee are both covenants and conditions.
29. BINDING EFFECT; CHOICE OF LAW. This Lease shall be binding upon the parties,
their personal representatives, successor and assigns and be governed by the
Laws of the State in which the Premises are located. Any litigation between the
Parties hereto concerning this Lease shall be initiated in the county in which
the Premises are located.
30. SUBORDINATION; ATTORNMENT; NON-DISTURBANCE.
30.1 SUBORDINATION. This Lease and any Option granted hereby shall be
subject and subordinate to any ground lease, mortgage, deed of trust, or other
hypothecation or security device (collectively, "Security Device"), now or
hereafter placed by Lessor upon the real property of which the Premises are a
part, to any and all advances made on the security thereof, and to all renewals,
modifications, consolidations, replacements and extensions thereof. Lessee
agrees that the lenders holding any such Security Device shall have no duty,
liability or obligation to perform any of the obligations of Lessor under this
Lease, but that in the event of Lessor's default with respect to any such
obligation, Lessee will give any Lender whose name and address have been
furnished Lessee in writing for such purpose notice of Lessor's default and
allow such Lender thirty (30) days following receipt of such notice the cure of
said default before invoking any remedies Lessee may have by reason thereof. If
any Lender shall elect to have this Lease and/or any Option granted hereby
superior to the lien of its Security Device and shall give written notice
thereof to Lessee, this Lease and such Options shall be deemed prior to such
Security Device, notwithstanding the relative dates of the documentation or
recordation thereof.
30.2. ATTORNMENT. Subject to the non-disturbance provision of Paragraph
30.3, Lessee agrees to attorn to a Lender or any other party who acquires
ownership of the Premises by reason of a foreclosure of a Security Device, and
that in the event of such foreclosure, such new owner shall not: (i) be liable
for any act or omission of any prior lessor with respect to events occurring
prior to acquisition of ownership, (ii) be subject to any offsets or defenses
which Lessee might have against any prior lessor, or (iii) be bound by
prepayment of more than one month's rent.
30.3 NON-DISTURBANCE. With respect to Security Devices entered into by
Lessor after the execution of this Lease, Lessee's subordination of this Lease
shall be subject to receiving assurance (a "Non-disturbance Agreement") from the
Lender that Lessee's possession and this Lease, including any options to extend
the term hereof, will not be disturbed so long as Lessee is not in Breach hereof
and attorn to the record owner of the Premises.
30.4 SELF-EXECUTING. The agreements contained in this Paragraph 30 shall be
effective without the execution of any further documents; provided, however,
that, upon written request from Lessor or a Lender in connection with a sale,
financing or refinancing of the Premises, Lessee and Lessor shall execute such
further writings as may be reasonably required to separately document any such
subordination or non-subordination, attornment and/or non-disturbance agreement
as provided herein.
31. ATTORNEY'S FEES. If any Party or Broker brings an action or proceeding to
enforce the terms hereof or declare rights hereunder, the Prevailing Party (as
hereafter defined) or Broker in any such proceeding, action, or appeal thereon,
shall be entitled to reasonable attorney's fees. Such fees may be awarded in the
same suit or recovered in a separate suit, whether or not such action or
proceeding is pursued to decision or judgment. The term "Prevailing Party" shall
include, without limitation, a Party or Broker who substantially obtains or
defeats the relief sought, as the case may be, whether by compromise,
settlement, judgment, or the abandonment by the other Party or Broker of its
claim or defense. The attorney's fee award shall not be computed in accordance
with any court fee schedule, but shall be such as to fully reimburse all
attorney's fees reasonably incurred. Lessor shall be entitled to attorney's
fees, costs and expenses incurred in the preparation and service of notice of
Default and consultations in connection therewith, whether or not a legal action
is subsequently commenced in connection with such Default or resulting Breach.
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32. LESSOR'S ACCESS; SHOWING PREMISES; REPAIRS. Lessor and Lessor's agents shall
have the right to enter the Premises at any time, in the case of emergency, and
otherwise at reasonable times and with reasonable notice for the purpose of
showing the same to prospective purchasers, lenders, or lessees, and making such
alterations, repairs, improvements or additions to the Premises or to the
building of they are a part, as Lessor may reasonably deem necessary. Lessor may
at any time place on or about the Premises or building any ordinary "For Sale"
signs and Lessor may at any time during the last one hundred twenty (120) days
of the term hereof place on or about the Premises any ordinary "For Lease"
signs. All such activities of Lessor shall be without abatement of rent or
liability to Lessee.
33. AUCTIONS. Lessee shall not conduct, nor permit to be conducted, either
voluntarily, any auction upon the Premises without first having obtained
Lessor's prior written consent. Notwithstanding anything to the contrary in this
Lease, Lessor shall not be obligated to exercise any standard of reasonableness
in determining whether to grant such consent.
34. SIGNS. Lessee shall not place any signs upon the Premises, except that
Lessee may, with Lessor's prior written consent, install (but not on the roof)
such signs as are reasonably required to advertise Lessee's own business. The
installation of any sign on the Premises by or for Lessee shall be subject to
the provisions of Paragraph 7 (Maintenance, Repairs, Utility Installations,
Trade Fixtures and Alterations). Unless otherwise expressly agreed herein,
Lessor reserves all rights to the use of the roof and the right to install, and
all revenues from the installation of, such advertising signs on the Premises,
including the roof, as do not unreasonably interfere with the conduct of
Lessee's business.
35. TERMINATION; MERGER. Unless specifically stated otherwise
in writing by Lessor, the voluntary or other surrender of this Lease by Lessee,
the mutual termination or cancellation hereof, or a termination hereof by Lessor
for Breach by Lessee, shall automatically terminate any sublease or lesser
estate in the Premises, provided, however, Lessor shall, in the event of any
such surrender, termination or cancellation, have the option to continue any one
or all of any existing subtenancies. Lessor's failure within ten (10) days
following any such event to make a written election to the contrary by written
notice to the holder of any such lesser interest, shall constitute Lessor's
election to have such event constitute the termination of such interest.
36. CONSENTS.
(a) Except for Paragraph 33 hereof (Auctions) or as otherwise provided
herein, wherever in this Lease the consent of a Party is required to an act by
or for the other Party, such consent shall not be unreasonably withheld or
delayed. Lessor's actual reasonable costs and expenses (including but not
limited to architects', attorneys', engineers' or other consultants' fees)
incurred in the consideration of, or response to, a request by Lessee for any
Lessor consent pertaining to this Lease or the Premises, including but not
limited to consents to an assignment, a subletting or the presence or use of a
Hazardous Substance, practice or storage tank, shall be paid by Lessee to Lessor
upon receipt of an invoice and supporting documentation therefor. Subject to
Paragraph 12.2(e) (applicable to assignment or subletting), Lessor may, as a
condition to considering any such request by Lessee, require that Lessee deposit
with Lessor an amount of money (in addition to the Security Deposit held under
Paragraph 5), reasonably calculated by Lessor to represent the cost Lessor will
incur in considering and responding to Lessee's request. Except as otherwise
provided, any unused portion of said deposit shall be refunded to Lessee without
interest. Lessor's consent to any act, assignment of this Lease or subletting of
the Premises by Lessee shall not constitute an acknowledgement that no Default
or Breach by Lessee of this Lease exists, nor shall such consent be deemed a
waiver of any then existing Default or Breach, except as may be otherwise
specifically stated in writing by Lessor at the time of such consent.
(b) All conditions to Lessor's consent authorized by this Lease are
acknowledged by Lessee as being reasonable. The failure to specify herein any
particular condition to Lessor's consent shall not preclude the imposition by
Lessor at the time of consent of such further or other conditions as are then
reasonable with reference to the particular matter for which consent is being
given.
37. GUARANTOR.
37.1 If there are to be any Guarantors of this Lease per Paragraph 1.11,
the form of the guaranty to be executed by each such Guarantor shall be the form
most recently published by the American Industrial Real Estate Association and
each said Guarantor shall have the same obligations as Lessee under this Lease,
including but not limited to the obligation to provide the Tenancy Statement and
information called for by Paragraph 16.
37.2 It shall constitute a Default of the Lessee under this Lease of any such
Guarantor fails or refuses, upon reasonable request by Lessor to give: (a)
evidence of the due execution of the guaranty called for by this Lease,
including the authority of the Guarantor (and of the party signing on
Guarantor's behalf) to obligate such Guarantor on said guaranty, and including
in the case of a corporate Guarantor, a certified copy of a resolution of its
board of directors authorizing the making of such guaranty, together with a
certificate of incumbency showing the signature of the persons authorized to
sign on its behalf, (b) current financial statements of Guarantor as may from
time to time be requested by Lessor, (c) a Tenancy Statement, or (d) written
confirmation that the guaranty is still in effect.
38. QUIET POSSESSION. Upon payment by Lessee of the rent for the Premises and
the observance and performance of all of the covenants, conditions, and
provisions on Lessee's part to be observed and performed under this Lease,
Lessee shall have quiet possession of the Premises for the entire term hereof
subject to all of the provisions of this Lease.
39. OPTIONS.
39.1 DEFINITION. As used in this Paragraph 39 the word "Option" has the
following meaning: (a) the right to extend the term of this Lease or to renew
this Lease or to extend or renew any lease that Lessee has on other property of
Lessor; (b) the right of first refusal to lease the Premises or the right of
first offer to lease the Premises or the right of first refusal to lease other
property of Lessor or the right of first offer to lease other property of
Lessor; (c) the right to purchase the Premises, or the right of first refusal to
purchase the Premises, or the right of first offer to purchase the Premises, or
the right to purchase other property of Lessor, or the right of first refusal to
purchase other property of Lessor, or the right of first offer to purchase other
property of Lessor.
39.2 OPTIONS PERSONAL TO ORIGINAL LESSEE. Each Option granted to Lessee in
this Lease is personal to the original Lessee named in Paragraph 1.1 hereof, and
cannot be voluntarily or involuntarily assigned or exercised by any person or
entity other than said original Lessee while the original Lessee is in full and
actual possession of the Premises and without the intention of thereafter
assigning or subletting. The Options, if any, herein granted to Lessee are not
assignable, either as a part of an assignment of this Lease or separately or
apart therefrom, and no Option may be separated from this Lease in any manner,
by reservation or otherwise.
39.3 MULTIPLE OPTIONS. In the event that Lessee has any multiple Options to
extend or renew this Lease, a later option cannot be exercised unless the prior
Options to extend or renew this Lease have been validly exercised.
39.4 EFFECT OF DEFAULT ON OPTIONS.
(a) Lessee shall have no right to exercise an Option, notwithstanding any
provision in the grant of Option to the contrary; (i) during the period
commencing with the giving of any notice of Default under Paragraph 13.1 and
continuing until the noticed Default is cured, or (ii) during the period of time
any monetary obligation due Lessor from Lessee is unpaid (without regard to
whether notice thereof is given Lessee), or (iii) during the time Lessee is in
Breach of this Lease, or (iv)
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in the event that Lessor has given to Lessee three (3) or more notices of
Default under Paragraph 13.1, whether or not the Defaults are cured, during the
twelve (12) month period immediately preceding the exercise of the Option.
(b) The period of time within which an Option may be exercised shall not be
extended or enlarged by reason of Lessee's inability to exercise an Option
because of the provisions of Paragraph 39.4(a).
(c) All rights of Lessee under the provisions of an Option shall terminate
and be of no further force or effect, notwithstanding Lessee's due and timely
exercise of the Option, if, after such exercise and during the term of this
Lease (i) Lessee fails to pay to Lessor a monetary obligation of Lessee for a
period of thirty (30) days after such obligation becomes due (without any
necessity of Lessor to give notice thereof to Lessee), or (ii) Lessor gives to
Lessee three or more notices of Default under Paragraph 13.1 during any twelve
month period, whether or not the Defaults are cured, or (iii) if Lessee commits
a Breach of this Lease.
40. MULTIPLE BUILDINGS. If the Premises are part of a group of buildings
controlled by Lessor, Lessee agrees that it will abide by, keep and observe all
reasonable rules and regulations which Lessor may make from time to time for the
management, safety, care, and cleanliness of the grounds, the parking and
unloading of vehicles and the preservation of good order, as well as for the
convenience of other occupants or tenants of such other buildings and their
invitees, and that Lessee will pay its fair share of common expenses incurred in
connection therewith.
41. SECURITY MEASURES. Lessee hereby acknowledges that the rental payable to
Lessor hereunder does not include the cost of guard service or other security
measures, and that Lessor shall have no obligation whatsoever to provide same.
Lessee assumes all responsibility for the protection of the Premises, Lessee,
its agents and invitees and their property from the acts of third parties.
42. RESERVATIONS. Lessor reserves to itself the right, from time to time, to
grant, without the consent or joinder of Lessee, such easements, rights, and
dedications that Lessor deems necessary, and to cause the recordation of parcel
maps and restrictions, so long as such easements, rights, dedications, maps and
restrictions do not unreasonably interfere with the use of the Premises by
Lessee. Lessee agrees to sign any documents reasonably requested by Lessor top
effectuate any such easement rights, dedication, map or restrictions.
43. PERFORMANCE UNDER PROTEST. If at any time a dispute shall arise as to any
amount or sum of money to be paid by one Party to the other under the provisions
hereof, the Party against whom the obligation to pay the money is asserted shall
survive the right to make payment "under protest" and such payment shall not be
regarded as a voluntary payment and there shall survive the right on the part of
said Party to institute suit for recovery of such sum. If it shall be adjudged
that there was no legal obligation on the part of said Party to pay such sum or
any part thereof, said Party shall be entitled to recover such sum or so much
thereof as it was not legally required to pay under the provisions of this
Lease.
44. AUTHORITY. If either Party hereto is a corporation, trust, or general or
limited partnership, each individual executing this Lease on behalf of such
entity represents and warrants that he or she is duly authorized to execute and
deliver this Lease on its behalf. If Lessee is a corporation, trust or
partnership, Lessee shall, within thirty (30) days after request by Lessor,
deliver to Lessor evidence satisfactory to Lessor of such authority.
45. CONFLICT. Any conflict between the printed provisions of this Lease and the
typewritten or handwritten provisions shall be controlled by the typewritten or
handwritten provisions.
46. OFFER. Preparation of this Lease by Lessor or Lessor's agent and
submission of same to Lessee shall not be deemed an offer to lease to Lessee.
This Lease is not intended to be binding until executed by all Parties hereto.
47. AMENDMENTS. This Lease may be modified only in writing, signed by the
parties in interest at the time of the modification. The parties shall amend
this Lease from time to time to reflect any adjustment that are made to the Base
Rent or other rent payable under this Lease. As long as they do not materially
change Lessee's obligations hereunder, Lessee agrees to make such reasonable
non-monetary modifications to this Lease as may be reasonably required by an
institutional, insurance company, or pension plan Lender in connection with the
obtaining of normal financing or refinancing of the property of which the
Premises are a part.
48. MULTIPLE PARTIES. Except as otherwise expressly provided herein, if more
than one person or entity is named herein as either Lessor or Lessee, the
obligations of such multiple parties shall be the joint and several
responsibility of all persons or entities named herein as such Lessor or Lessee.
LESSOR AND LESSEE HAVE CAREFULLY READ AND REVIEWED THIS LEASE AND EACH TERM AND
PROVISION CONTAINED HEREIN, AND BY THE EXECUTION OF THIS LEASE SHOW THEIR
INFORMED AND VOLUNTARY CONSENT THERETO. THE PARTIES HEREBY AGREE THAT, AT THE
TIME THIS LEASE IS EXECUTED, THE TERMS OF THIS LEASE ARE COMMERCIALLY REASONABLE
AND EFFECTUATE THE INTENT AND PURPOSE OF LESSOR AND LESSEE WITH RESPECT TO THE
PREMISES.
IF THIS LEASE HAS BEEN FILLED IN, IT HAS BEEN PREPARED FOR SUBMISSION
TO YOUR ATTORNEY FOR HIS APPROVAL. FURTHER, EXPERTS SHOULD BE CONSULTED
TO EVALUATE THE CONDITION OF THE PROPERTY AS TO THE POSSIBLE PRESENCE
OF ASBESTOS, STORAGE TANKS OR HAZARDOUS SUBSTANCES, NO REPRESENTATION
OR RECOMMENDATION IS MADE BY THE AMERICAN INDUSTRIAL REAL ESTATE
ASSOCIATION OR BY THE REAL ESTATE BROKER(S) OR THEIR AGENTS OR
EMPLOYEES AS TO THE LEGAL SUFFICIENCY, LEGAL EFFECT, OR TAX
CONSEQUENCES OF THIS LEASE OR THE TRANSACTION TO WHICH IT RELATES. THE
PARTIES SHALL RELY SOLELY UPON THE ADVICE OF THEIR OWN COUNSEL AS TO
THE LEGAL AND TAX CONSEQUENCES OF THIS LEASE. IF THE SUBJECT PROPERTY
IS LOCATED IN A STATE OTHER THAN CALIFORNIA, AN ATTORNEY FROM THE STATE
WHERE THE PROPERTY IS LOCATED SHOULD BE CONSULTED.
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The parties hereto have executed this Lease at the place on the dates specified
above to their respective signatures.
Executed at Executed at
---------------------- --------------------------------
on on
------------------------------- -----------------------------
By LESSOR: By LESSEE:
CHAMBERLAIN DEVELOPMENT, L.L.C. SOUTHWALL TECHNOLOGIES, INC.
By: /s/ Jim Chamberlain By: /s/ Martin M. Schwartz
------------------------------- -----------------------------
Name Printed: Jim Chamberlain Name Printed: Martin M. Schwartz
--------------------- -------------------
Title: Member Title: President/CEO
---------------------------- --------------------------
By: /s/ Patsy L. Chamberlain By:
------------------------------- -----------------------------
Name Printed: Patsy L. Chamberlain Name Printed:
--------------------- -------------------
Title: Member Title:
---------------------------- --------------------------
Telephone: 602-894-1286 Telephone:
------------------------ ----------------------
Facsimile: 602-968-4826 Facsimile:
------------------------ ----------------------
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ADDENDUM TO STANDARD INDUSTRIAL LEASE/COMMERCIAL
SINGLE-TENANT LEASE - NET
49. PREMISES.
The Premises shall include the real property described in Exhibit "A"
attached hereto, containing approximately 212,386 square feet, together with
an industrial building (the "Building") to be erected thereon by Lessor. The
Building shall be erected substantially in accordance with the plans and
specifications prepared in conformity with the site plan, floor plan and List
of Components described in Exhibit "B" attached hereto (the "Approved Plans
and Specifications") (subject to possible minor deviations therefrom), as
they may be modified as hereinafter provided.
50. TERM.
The term of this Lease (the "Term") shall be for ten (10) years (plus the
partial month at the beginning of the Term if the Term Commencement Date is a
day other than the first day of a calendar month), unless this Lease is
sooner terminated as hereinafter provided. The Term shall commence on the
date the Improvements are deemed completed in accordance with Paragraph 52
(the "Term Commencement Date"). Notwithstanding the foregoing, if Lessee
takes possession of or begins to use the Premises or any part thereof prior
to the Term Commencement Date (as defined herein), the Term of this Lease
shall commence on the date such possession or use begins. Upon the
commencement of the Term, Lessor and Lessee shall execute an amendment to
this Lease specifying the commencement date and expiration date of the Term.
51. CONSTRUCTION OF THE IMPROVEMENTS:
As soon as practicably possible, Lessor shall apply for all building permits
and other governmental permits and approvals necessary for the improvements
described in the Approved Plans and Specifications (the "Improvements").
Thereafter, Lessor at its sole expense shall proceed diligently with the
construction and completion of the Improvements in accordance with the
Approved Plans and Specifications and all applicable governmental permits and
approvals and all applicable laws, ordinances, regulations and court orders.
Lessor shall complete the Improvements and they shall be ready for occupancy
by Lessee not later than May 1, 1997, as such date may be extended by Force
Majeure. As used in this Lease, the term "Force Majeure" shall mean war,
fire, earthquake, flood, unavailability of materials and court orders
(provided the court orders do not result from the conduct of the party
claiming the delay). Lessor shall notify Lessee in writing of any Force
Majeure event within fifteen (15) days after it occurs.
Lessor hereby agrees to hold Lessee harmless from and against any liens filed
in connection with the Improvements (other than liens caused by Lessee),
including without limitation liens filed in connection with any repair or
reconstruction of the Premises by Lessor. Lessor shall reimburse Lessee upon
demand for any costs and expenses as incurred in connection with any such
lien, including without limitation attorneys' fees.
52. COMPLETION AND DELIVERY.
The Improvements shall be deemed completed when:
(a) All work of construction has been substantially completed in accordance
with the Approved Plans and Specifications, subject to normal minor
so-called "Punch-list Items" (defined below) agreed to after an inspection
by Lessor and Lessee;
(b) The architect or engineer in charge of construction of the Improvements
has prepared, certified by his signature and delivered to Lessor and
Lessee a written statement certifying that the Improvements have been
completed in accordance with the Approved Plans and Specifications, the
working drawings and any properly authorized construction changes, and
certifying the date of such completion; and
(c) A temporary or permanent certificate of occupancy for the Building has
been delivered to Lessee.
Notwithstanding the foregoing, if issuance of a certificate of occupancy is
delayed by reason of Lessee's work, the Term of this Lease shall commence
upon substantial completion of Lessor's work, as provided in subparagraphs
(a) and (b) above, and the certificate of occupancy shall be obtained
thereafter upon completion of Lessee's work.
Lessor shall diligently complete any Punch-List Items as soon as reasonably
possible. "Punch-List Items," as used herein, shall refer to minor,
non-structural repairs and/or minor, non-structural replacement of work not
installed (i) in a workmanlike manner and/or (ii) in accordance with the
Approved Plans and Specifications. "Minor, non-structural repairs and
replacements" shall mean repairs and replacements that do not interfere with
the occupancy of the Building and Premises or use of the Building and
Premises for their intended purposes.
Time is of the essence with respect to the completion of the Improvements.
Lessor agrees to prosecute the Work diligently to completion so that the
Improvements shall be available to Lessee for the installation of process
equipment and associated mechanical and electrical systems in the
manufacturing portion of the building on April 1, 1997 (the "Date of
Beneficial" occupancy) and shall be substantially completed not later than
May 1, 1997 (the "Completion Date"); provided, however, that for each day
that Lessor is delayed in completing the Improvements as the result of an
"Excused Delay" (as hereinafter defined) and for each day in which a "Force
Majeure" event occurs and is continuing, Lessor shall be entitled to an
additional day to complete the Improvements. An "Excused Delay" as used in
this paragraph means a delay that occurs (i) if and only if on or before
September 20, 1996, Lessor has submitted to the applicable municipal, county
or other governmental authorities (collectively, "governmental authorities")
the Approved
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Plans and Specifications together with all required applications, fees, and
other materials, all in substantially proper form and content as required by
applicable procedures and requirements of the government authorities as a
precondition to the processing of the approvals and permits necessary to
construct the Improvements, and (ii) if and only if, Lessor having satisfied
the conditions specified in clause (i) above, the governmental authorities
shall have failed to issue on or before October 31, 1996, final approvals and
permits permitting the construction of the Improvements substantially in
accordance with the Approved Plan and Specifications (herein called "Final
approvals").
If Lessor fails to substantially complete construction of the improvements
before the completion date, Lessor shall pay to Lessee as liquidated damages,
and not as a penalty, the sum of one thousand dollars ($1,000) per day (the
"Liquidated Damages") for each day required to complete the improvements
beyond the completion date. Lessor and Lessee agree that the liquidated
damages are a fair and reasonable estimate of the damages that Lessee would
suffer as a result of such a delay, including without limitation, carrying
costs, administrative costs, and consequential damages, and that it would be
extremely difficult to fix the actual damages to Lessee caused by such delay.
The liquidated damages shall apply only with respect to the damages
recoverable by Lessee attributable to Lessor's breach of its covenant to
substantially complete the improvements on or before the completion date and
shall not limit Lessor's liability for Lessor's breach of any other covenant,
representation or warranty, or any other obligation of Lessor hereunder.
53. LESSEE'S WORK.
Lessee, at its own cost and subject to all of the terms of this Lease (other
than the obligation to pay the Net Rent and other charges hereunder prior to
the commencement of the Term), may perform work in the Building concurrently
with Lessor's work, to fit the Building for Lessee's occupancy, provided
Lessee's work does not interfere with Lessor's work; Lessee's work may be
performed through Lessor's contractor or, if no labor discord would be caused
thereby, through Lessee's own contractor. Lessee shall not allow any liens or
encumbrances of any kind to be attached to or placed upon the Premises as a
result of Lessee's work and in the event such liens or encumbrances are
discovered, Lessee agrees to promptly satisfy and remove same. Lessee hereby
agrees to hold Lessor harmless from and against any liens caused by Lessee,
and Lessee shall reimburse Lessor upon demand for any costs and expenses
incurred in connection with any such lien, including without limitation
attorneys' fees. Possession of the building for performance of Lessee's work
between the Date of Beneficial occupancy and the Completion Date shall not
constitute Early Possession pursuant to Section 3.3
54. LESSEE REQUESTED CONSTRUCTION CHANGES.
Lessee may, at any time, by a written request signed by one of Lessee's
Change Representatives and delivered or mailed in accordance with this Lease
to one of Lessor's Change Representatives at Lessor's address for notices,
make any change in the work within the general scope of construction
contemplated by the Approved Plans and Specifications, including, but not
limited to changes:
(a) in the plans, specifications or working drawings, including without
limitation the Approved Plans and Specifications; provided, however that
no such request shall result in any major structural change to the
Building or change the "footprint" of the Building as depicted in the
Approved Plans and Specifications; or
(b) in the method or manner of performance of the work.
Lessee requested construction changes will be transmitted to Lessor only by
means of written requests ("Construction Change Requests") given in
accordance with this section. "Lessee's Change Representatives" will be those
two (2) persons designated by Lessee to Lessor in writing who will be the
only representatives of Lessee authorized to request construction changes.
Until such designation is received by Lessor, Lessor may send requests for
construction changes to Lessee's address for notices without reference to any
Lessee Change Representative, and Lessee may not make any Construction Change
Requests.
Upon receipt of any Construction Change Request issued pursuant to this
section, Lessor shall immediately proceed in accordance with the directions
contained in the Requested Construction Change Request. Lessor shall have the
right to (i) require Lessee to pay, in addition to any other payments due
under this lease, all of the increase in construction costs caused by the
change as such changes are completed or (ii) increase the annual rent payable
under this Lease by One Hundred Twenty and No/100 Dollars ($120.00) for every
One Thousand and No/100 Dollars ($1,000.00) of increases in construction
costs caused by the change; provided, however, that such costs payable by
Lessee for the Construction Change Request or as increased rent shall be
limited to Lessor's actual, reasonable direct costs for labor and materials
(excluding any and all overhead and administration costs and any profit
margin in excess of twelve percent (12%) of such direct costs).
If Lessee shall have requested a construction change and Lessor elects to
increase the annual rent, then within thirty (30) days after the Term
Commencement Date, Lessor and Lessee shall execute an amendment to this lease
setting forth the rent payable under this Lease, as adjusted pursuant to this
Section. Lessee shall not be required to pay Lessor any increases in rent
pursuant to this Section until such an amendment has been executed or any
arbitration of the increase in rent has been concluded, but Lessee shall
thereupon promptly pay any past due rent to Lessor.
Except as provided in this Section, no order, statement, or conduct of
Lessee's Change Representatives, or of any manager, inspector, engineer,
architect, employee representative, or consultant of Lessee, shall be treated
as a change order under this Section.
The time period specified above for the completion of the Improvements shall
be extended by delays caused by Construction Change Requests.
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55. LESSOR REQUESTED CONSTRUCTION CHANGES.
Lessor may, at any time, by a written request ("Lessor Change Request")
signed by one of Lessor's Change Representatives which expressly refers to
this paragraph and which is delivered or mailed in accordance with this Lease
to Lessee's Change Representatives at Lessee's address for notices, request
any reasonable change in the work within the general scope of the
construction necessary to comply with law, to obtain required governmental
permits or approvals, or to complete the Improvements in accordance with the
Approved Plans and Specifications, including changes:
a) in the plans, specifications or working drawings, including, without
limitation the Approved Plans and Specifications; provided, however, that
no such request shall result in any major structural change to the
Building or change the "footprint" of the Building as depicted in the
Approved Plans and Specifications; and
b) in the method or manner of performance of the work or type of materials
provided, however that no such change will degrade the quality of the
Building and provided, further that no change in materials may be
requested unless the change is necessary because of any inability to
obtain the material or the new materials is necessary to comply with law
or to obtain required governmental permits or approvals.
"Lessor's Change Representatives" will be those two (2) persons designated by
Lessor to Lessee in writing who will be the only representatives of Lessor
authorized to make Lessor Change Requests. Until such designation is received
by Lessee, Lessee may send Construction Change Requests to Lessor's address
for notices without reference to any Lessor Change Representative, and Lessor
may not make any Lessor Change Requests. Lessor Change Requests will be
transmitted to Lessee by means of a written request describing in full the
requested change, plus the reasons, effects and results of the change as
compared to the original and/or existing working drawings or plans pertaining
to the requested change. The Lessor Change Request will include drawings,
documents, specifications, and all pertinent data relating to the requested
change.
Upon receipt of any Lessor Change Request, Lessee shall immediately begin
analysis of the Lessor Change Request. Lessee will unilaterally have the
option to:
(a) Accept the Lessor Change Request by issuing a Construction Change Request
referencing the specific Lessor Change Request.
(b) Enter into fact-finding or negotiations with Lessor pertaining to Lessor
Change Request.
(c) Reject the Lessor Change Request in writing and require the Lessor to
perform the work in accordance with the Approved Plans and Specifications
at no delay to Lessee in Building occupancy.
Should Lessee not act within ten (10) business days after submittal of any
Lessor Change Request, the requested change will be considered to be rejected
by Lessee. Under no condition will the Lessor begin work on any Lessor Change
Request until after receipt of a fully executed Construction Change Request
from Lessee.
Except as provided in this Section, no order, statement or conduct of
Lessor's Change Representatives or of any manager, inspector, engineer,
architect or other employee representative, or consultant of Lessor shall be
treated as a change request under this Section.
56. RENTAL ADJUSTMENTS.
Notwithstanding anything to the contrary contained in the Lease, the Base
Rent commencing with the sixty-first (61st) month of the term of the Lease
shall be increased to 115% of the Base Rent in the immediately preceding
month. For example, if there are no changes in the Base Rent pursuant to
Paragraph 54 or otherwise such that the Base Rent in the 60th month is
$29,811.00, the Base Rent for the 61st month shall be increased to:
$34,282.65. Applicable sales tax will be added to all rental amounts.
57. ADDITIONAL MAINTENANCE REQUIREMENTS:
Lessee shall maintain a contract with a fire sprinkler maintenance company
that provides quarterly inspections of the fire sprinklers on the Premises.
Lessee shall provide a copy of the contract and copies of the quarterly
inspection reports to Lessor.
Lessee shall maintain a contract with a roof maintenance company that
provides for two (2) yearly inspections, the sealing of all roof protrusions,
and any necessary repairs, including without limitation caulking or adhesive
work. Lessee shall provide copies of the contract and copies of all
inspection reports to Lessor.
Lessee shall keep all roof drains and scuppers free of debris and shall
promptly notify the roof warranty company and/or roof maintenance company of
all additional protrusions made by Lessee.
58. PROPERTY TAXES:
Lessee will receive a bill in October of each year for the year's property
taxes to be paid to Lessor in two installments. This bill will include sales
tax on the property taxes as required by the State and City.
Lessor shall have the option to appeal tax valuations each year. In the event
the tax appeal service obtains a reduction in the assessor's value as
originally published for that year, Lessee shall reimburse Lessor the fee
paid to the tax service.
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EXAMPLE:
Property tax before appeal: $ 10,000.00
Property tax after appeal: $ 9,000.00
-----------
Tax savings: $ 1,000.00
Tax service fee: $ 350.00
-----------
Total tax savings for Lessee: $ 650.00
59. BROKERS' COMMISSIONS.
Section 15 of the Lease (including Paragraph 15.1 through 15.6, inclusive) is
hereby stricken in its entirety. Lessor agrees to pay a brokers' commission
to Mark Linsalata, Grubb & Ellis (the "Broker") for brokerage services in
connection with this Lease and in connection with the foregoing option to
purchase pursuant to the terms of a separate agreement between Lessor and
said Broker. Lessor and Lessee hereby represent and warrant to one another
that, except for the Broker named above, neither has dealt with any person in
such a manner to give rise to a valid claim for a brokerage commission in
connection with this Lease or in connection with the foregoing option to
purchase. If any person other than the Broker named above shall assert a
claim to a fee, commission or other compensation on account of alleged
employment as a broker, finder, or intermediary in connection with this
transaction, the party hereto under whom the broker, finder, or intermediary
is claiming shall indemnify and hold harmless the other party against and
from any such claim and all costs, expenses and liabilities incurred in
connection with such claim or any action or proceeding brought thereon
(including, but without limitation, counsel and witness fees and court costs
in defending against such claim).
60. PURCHASE OF PROPERTY.
Lessee acknowledges that Lessor's obligations under this lease are
conditioned on the successful purchase of the Property. In the event that
Lessor has not satisfied itself as to its ability to purchase the Property on
or before September 15, 1996, Lessor shall have no further obligations under
this lease. In such event, Lessor and Lessee shall cooperate to relocate the
facility to a mutually satisfactory site.
61. LEASE CANCELLATION.
In the event that Lessee elects to cancel its plans to open a facility in the
Phoenix area, Lessee shall have the right to cancel this lease at any time
prior to the earlier of close of escrow for the purchase of the Property or
the start of construction, which is estimated to occur on or before October
31, 1996. Should the Lessee exercise this right, Lessee shall pay for any
out-of-pocket costs and expenses (including escrow deposits; architectural
and engineering costs; site investigation, city fees and permit costs)
incurred by Lessor in connection with this lease plus a fee of $25,000. Said
payment shall not exceed $100,000.
62. RENEWAL OPTIONS.
So long as Lessee is not in default of this lease, Lessee shall have the
Option to extend the Expiration Date of this Lease for two (2) five year
periods by giving notice to Lessor twelve (12) months prior to the Expiration
Date. In such event, the Base Rent shall be increased to a Market Rate but in
no event less than the Base Rent in the immediately proceeding period. All
other terms of this Lease shall remain the same
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<PAGE>
EXHIBIT "A"
The North 209 feet of the South 666 feet of the West 306 feet; and the
South 457 feet of the West 416 feet of the Northeast quarter of Section 16,
Township 1 South, Range 4 East of the Gila and Salt River Base and Meridan,
Maricopa County, Arizona
<PAGE>
EXHIBIT "B"
LIST OF COMPONENTS
SOUTHWALL TECHNOLOGIES
54,800 SQUARE FOOT BUILD-TO-SUIT
August 20th, 1996
ARCHITECTURAL WORK
Complete architectural working drawings prepared by a registered Arizona
Architect. Included shall be all necessary architectural, structural,
mechanical, electrical, civil, and landscape drawings.
Topographic survey from a registered Arizona Civil Engineer.
City required building permits and plan check fees.
SITE PREPARATION AND PAVING
Five year guarantee of termite pre-treatment of the soil.
Soils report by a registered Arizona Soils Engineer.
Building pad to be built according to soils report recommendations with soils
engineer providing on-site monitoring during construction. At this time, site
is assumed to balance with use of on-site soils acceptable under the floor slab
and no overexcavation of footings required.
4,100 square yards of 2" asphalt over 4" of ABC at low traffic parking areas.
3,000 square yards of 3" asphalt over 6" of ABC at truck maneuvering areas.
Extruded curb with Maricopa edges and cast-in-place concrete curbs at high
exposure areas.
On-site retention provided to disperse water run-off from the site.
CONCRETE WORK
Concrete footings to support all walls and columns with steel reinforcing as
required by the structural engineer.
5" thick concrete (5.5 sack cement mix) floor slab over 3" of crashed rock
designed to provide 3,800 psi at 28 days and a crack free surface with saw
cutting of control joints a maximum of 15' by 15'. Concrete cured after placing
and sealed with two (2) coats of sealer at completion of project.
Exterior concrete slab in from of each overhead door opening and at trash
enclosure.
Concrete tilt panels with thickness and reinforcing as required by structural
engineer. Panels to be 34' overall height with reveals on the elevation.
Double-wide truckwell with a 50' long by 24' wide concrete slab at the loading
area designed
1
<PAGE>
with minimal slope.
7 and 28 day strength tests for each 50 cubic yards of concrete poured.
ROOF
Roof system utilizing either a steel structure, wood panelized system or a
combination thereof with 40' x 40' bays and a 24' clear height.
4-ply built-up roof with a 25 lb. base, two (2) 11 lb. plys, a 72 lb. fiberglass
cap sheet and a modified flashing. Roofing shall have a two (2) year warranty
and be inspected by manufacturer's representative prior to installation for roof
deck integrity and during roofing application for compliance with manufacturer's
specification. A ten (10) year limited warranty is included.
At parapet, a 3" cant strip will be used and a one piece nail-on flashing with
waterproof sealant installed the length of the parapet.
STEEL
Reinforcing, connectors, lintels, and pipe columns as determined by the
structural engineer.
Roof access ladder conforming to OSHA requirements.
Angle iron door guards 4' up each side and at floor of each overhead door
opening.
Guard posts at trash enclosures and around any object in a potential collision
location around building.
INTERIOR SPACE
Warehouse area to have R-30 insulation at roof, columns painted with two (2)
coats of semi-gloss enamel, and the floor sealed with two (2) coats of sealer.
Production area to have batt insulation with white vinyl scrim at roof,
sheet-rocked furred exterior walls taped, textured and painted with two (2)
coats of interior semi-gloss paint, columns painted with two (2) coats of
semi-gloss enamel and the floor sealed with two (2) coats of sealer.
Converting/QC Lab area with 2' x 4' T-bar grid with acoustic tile at 20' height;
sheet-rocked furred exterior walls taped, textured, and painted with two (2)
coats of interior semi-gloss paint. Stain grade doors with commercial hardware
and VCT flooring given as an Allowance. QC Lab walls and ceiling sealed to meet
requirements for a Class 10,000 environment.
Office area with 2' x 4' T-bar grid with acoustic tile at 9' height;
sheet-rocked metal framed walls taped, textured, and painted with two (2) coats
of interior semi-gloss paint. Stain grade doors with commercial hardware and
commercial grade carpet or vinyl tile given as an allowance. Full height
demising wall is figured at perimeter of office areas.
Full height interior demising wall along equipment corridor double studded with
double insulation for sound.
4,200 square foot future mezzanine designed for above the office area with
footings, bearing walls, and joists. Excluded are the deck, sub-floor, and
stairs.
2
<PAGE>
ELECTRICAL,
3,750 amps of 277/480 three (3) phase power to the building.
Coordinating the design, setting, and power to the service entrance section and
transformer.
Photo-cell operated high pressure sodium wall packs, six (6) parking lot lights,
and soffit lights for outside security lighting.
80 F.C. of 2' x 4' lay-in lighting in Office, Convening, and QC Lab areas; 80
F.C. of lighting in production areas, and 20 F.C. of lighting in warehouse
areas. Emergency and exit lights provided.
Within office areas, outlets provided every ten (10) lineal feet of wall with a
telephone conduit and outlet in each area..
MECHANICAL
Air conditioning for the Office areas figured at 250 square feet per ton with
heating provided. Standard non-programmable thermostats provided.
Air conditioning for the Production, Warehouse, and Convening areas figured at
300 square feet per ton with heating provided. Standard non-programmable
thermostats provided.
Air conditioning for the QC Lab area figured at 125 square feet per ton with
heating provided to meet Class 10,000 requirements. Standard non-programmable
thermostats provided.
Four (4) exhaust fans in restrooms.
Scuppers, down-spouts, roof flashing, and miscellaneous metal.
PLUMBING
1 1/2" water meter and sewer hookup with city imposed occupational development
fees included.
Five (5) restrooms for personnel with two (2) 20 gallon water heaters and a
total of eight (8) siphon-jet water closets, eight (8) lavs, two (2) urinals,
and five (5) showers.
Bathrooms complete with ceramic tile to 4' on walls, toilet partitions, urinal
screens, mirrors, paper holders, towel dispensers, and ceramic tile flooring
given as an allowance.
Two (2) drinking fountains, one (1) lunchroom sink, two (2) utility sinks, and
seven (7) hose bibs provided.
FIRE SPRINKLERS
Class 231 extra hazard fire sprinkler system with chrome semi recessed heads in
drop ceiling areas. Coordination with insurance agency for compliance.
GLAZING
Centered glazed solar tinted glass in anodized metal framing at entry and window
areas. Clear interior glass in wood or metal framing. Given as an allowance with
1,000 square feet figured.
3
<PAGE>
INSULATION
R-30 batt insulation with vinyl scrim on the underside of the roof system.
3-1/2" batt insulation for sound deadening between office and other areas and
around private offices, conference rooms, and bathrooms.
Batt insulation above soffit areas and at furred-out exterior walls.
DOORS
Two (2) 12' x 14' grade level insulated electric overhead doors and four (4) 14'
x 20' grade level insulated manual overhead doors.
Ten (10) 3' x 7' exterior metal personnel doors.
Seven (7) interior pairs of 3' by 7' hollow metal doors.
MISCELLANEOUS
Chemical Storage building measuring 30' x 30'. Given as an allowance.
Hazardous Building Code requirements for the Wet Coater Mixing room given as an
allowance.
Full height walls are figured between warehouse/production and
production/support areas.
Caulking of interior and exterior wall joints and
floor slab joints.
Painting of exterior walls with two (2) coats of exterior poly-vinyl paint.
Landscape complete with electric timed sprinkler system that meets or exceeds
all codes. Given as an allowance for owner flexibility in material selection and
design.
Power company charges for design of electrical service to the project.
Masonry trash enclosure with concrete slab.
Cabinets, counters, and tops. Given as an allowance.
Three (3) driveway cuts.
Telephone brought to one (1) central location (telephone mounting board).
Utility company electrical primary and secondary conduits and telephone
conduits.
Ten (10) back-to-back covered parking spaces.
2,000 lineal feet of 4' high plywood for wall protection where requested.
Final cleanup.
Escrow fees.
Interim finance fees.
4
<PAGE>
Course of Construction insurance.
Sales tax.
ALLOWANCES INCLUDED
Cabinets, counters and tops $ 2,400.00
Flooring and ceramic tile $ 38,200.00
Landscape $ 42,500.00
Windows $ 10,000.00
Wet Coater Mixing Room $ 25,000.00
Chemical Storage Building $ 50,00.00
ITEMS NOT INCLUDED
Battery chargers, charging stations, ventilation, etc. at the Battery Charger
area.
Signs, drapes, wall coverings, furnishings, or appliances.
Import or export of soils to balance site and overexcavation of footings (if
required).
Fire hydrants (if required).
Drywells.
Gas distribution (if required).
Hook-up or distribution of power for tenant equipment.
Off-site street lights, curbs, gutters, or sidewalks (if required).
Site perimeter fencing, other than as shown on site plan.
Water, sewer, electrical, or telephone to property line.
In-rack fire sprinklers.
Dock levelers.
Telephone, alarm, or security systems.
Trenches.
Compressed air or gasses (hydrogen, oxygen, etc.) distribution.
Waste containment.
Additional electrical service entrance section.
Hazardous occupancy requirements in any areas other than Wet Coater Mixing Room
and Chemical Storage Building.
Cranes and associated structures.
5
<PAGE>
Design of pits or trenches.
Isolated and/or thickened slabs for equipment.
Environmental Report.
City imposed costs (Development fees, Art fees, lighting, etc.) not specifically
included.
Expenses and/or delays incurred due to inclement weather.
OSHA requirements imposed after this date.
This proposal is good for thirty (30) days.
6
<PAGE>
EXHIBIT B-1
[SCHEMATIC SITE PLAN]
<PAGE>
EXHIBIT B-2
[SCHEMATIC GROUND FLOOR PLAN]
<PAGE>
EXHIBIT 10.85
CONTRACT
for
SPUTTER ROLL COATERS
between
SOUTHWALL TECHNOLOGIES INC.
1029 Corporation Way
Palo Alto, CA 94303
USA
Herein referred to as the "Buyer"
and
herein referred to as the "Seller"
CONTRACT NO: C9871SGE
DATE: April 29 1996
<PAGE>
This Contract ("Contract") dated as of April 29 1996, is made by and between
Southwall Technologies Inc. (herein referred to as the "Buyer") and ("Seller").
WHEREAS, Buyer desires to acquire two sputter roll coaters from Seller which
Buyer intends to combine with Buyer's technology.
NOW, THEREFORE, the parties hereto agree as follows:
1. SCOPE OF CONTRACT
1.1 Subject to the terms and conditions of this Contract, the Buyer agrees to
buy from the Seller, and the Seller agrees to sell to the Buyer, one
Sputter Roll Coater (hereinafter referred to as the "Coater") conforming
to the specification titled "Sputtering Roll Coater" attached hereto as
Exhibit A (the "Specification") together with all documentation specified
therein, together with an option to buy an identical machine (subject to
common parts supplied with the first machine) within 12 months of the
signing of this contract.
2. PRICE
The Contract Price of the Coaters as stipulated in Item 1.1 is US
$2,812,000 (two million eight hundred twelve thousand US dollars) for the
first machine and US $2,488,000 (two million four hundred eighty eight
thousand US dollars) for the second machine provided the second machine
is ordered within 12 months of the date of this contract. Details of the
price are set forth on Exhibit D.
3. TERMS OF PAYMENT
The Contract Price for each machine shall be paid by Buyer as follows:
(i) 10% within 30 days following the execution of the Contract; and
(ii) 10% on commencement of assembly or 18th September 1996 whichever is
earlier.
(iii) 70% upon the shipment of the Coater to USA following the date the
Coater has passed the portion of _____________ Acceptance Test (as
defined herein) applicable to the items manufactured or provided by
Seller.
(iv) 10% after final acceptance in the buyers factory or 120 days following
shipment whichever is earliest.
2
<PAGE>
4. DELIVERY
Exhibit B hereto sets forth the production schedule for the first machine to be
met by Seller with respect to actions required to be taken or items to be
delivered by Seller (the "Sellers Production Schedule") and the production
schedule to be met by Buyer with respect to actions required to be taken or
items to be delivered by Buyer (the "Buyer's Production Schedule). Seller shall
use its best efforts to meet the Seller's Production Schedule. The first Coater
shall be available for the conducting of ____________ Acceptance Tests in
____________, not later than the date set forth in the Seller's Production
Schedule. In the event that Seller fails to meet the Seller's Production
Schedule, Seller shall pay to Buyer a late penalty equal to 1% of the Contract
Price for each machine for each week of delay of each machine from the dates
specified in the Seller's Production Schedule (prorated in the case of a delay
of less than a week) up to an aggregate maximum of 5% of the Contract Price of
the first machine. In the event that Seller fails to meet the Seller's
Production Schedule as a result of the Buyer's failure to meet the Buyer's
obligations, Seller shall be entitled to a delay of equal duration to such delay
of Buyer without liability for any late penalty for such period. The Seller will
promptly notify the Buyer of any such delays as and when they occur and of the
resultant delays in the Seller's Production Schedule.
The delivery of the second machine will be 9 months from order but will be
subject to confirmation. All other Terms of their Agreement shall apply to the
second machine, but dates will be adjusted to reflect its order date.
5. ACCEPTANCE TESTS
Each Coater will be subjected to partial acceptance testing prior to shipment
______________ to USA and after installation at Southwall's facilities in USA.
In the first case, Seller shall promptly notify Buyer when each Coater is ready
for commencement of partial acceptance tests. As soon as practicable thereafter,
Seller and the Buyer shall jointly conduct the acceptance tests specified in
Exhibit C hereto, (the "Acceptance Tests"). If the Buyer determines that the
Coater has not passed all of the Acceptance tests, Buyer shall so notify the
Seller in writing and specify in reasonable detail the deficiencies and the
basis for that determination. Seller shall as soon as possible after receipt of
any notice of deficiency correct any such deficiency and notify Seller when the
Coater is ready to be retested and the foregoing test procedure will be
repeated. The ______________ Acceptance Tests" shall mean the Acceptance Tests
conducted _____________ prior to shipment of the Coater to USA and the term "USA
Acceptance Tests" shall mean the Acceptance Tests conducted at Southwall's
facilities after the Coater is installed. The Coater shall not be deemed to have
passed ___________ Acceptance Tests until the Buyer (i) is personally satisfied
that the Coater has passed all of the criteria of all Acceptance Tests and (ii)
Buyer has delivered to Seller a notice to that effect .
6. IMPORT LICENSE
Any import licence required for importation of the Coater into USA is the
responsibility of the Buyer. In the event that Buyer fails to obtain such an
import licence, and as a result the Seller is unable meet the Seller's
Production Schedule, Seller shall not be required to pay any resultant
<PAGE>
penalties under Section 4 and Seller shall be entitled to payment of the entire
Contract Price for the Coater pursuant to Section 3 notwithstanding the fact
that the Coater has not been shipped, been installed, passed the Buyer's
Acceptance Tests or been commissioned. Seller agrees to cooperate with Buyer's
reasonable requests for information and documentation regarding Seller and the
Coater in connection with Buyer's attempts to receive all necessary import
licences and authorizations for the importation to USA. Seller shall be
responsible for, and shall obtain at Seller's expense any export licences or
other governmental approvals required for the export of the Coater.
7. IMPORT DUTIES
All import duty, local taxes etc., levied by the USA authorities on the Coater's
arrival in USA shall be the responsibility of the Buyer.
8. WARRANTY
The Seller warrants that the Coater will conform to and operate in accordance
with the Specifications and that all parts and components provided by Seller be
free from defects in material and workmanship during the warranty period.
Defects and deficiencies will be repaired and replaced free of charge during the
warranty period. Parts replaced will become the property of the Seller. The
warranty period will commence upon shipment of the Coater _______ expire upon
the earlier of (i) 12 months from the date the Coater passes the Buyer's
Acceptance Tests in USA or (ii) 15 months from the date the Coater passes _____
Acceptance Tests.
9. CHANGE ORDERS
In the event that, during the design or construction of the Coater, the Seller
determines that it is necessary to make a change in construction or design which
will change some aspect of the Specification forming part of this Contract, then
the Seller will immediately notify the Buyer in writing of such a change, the
reason for it, and the implications on performance, cost and shipment. The Buyer
will respond promptly to such notices and, when agreed to in writing by both
parties, any such changes will become an integral part of the Specification and
this Contract. Any increase in cost as a result of such agreed upon changes
shall be borne by the Seller and shall not increase the Contract Price specified
in Section 2. Any decrease in cost as a result of such agreed upon changes shall
reduce the Contract Price and all payments specified in Section 3 shall be
adjusted accordingly.
In the event that, during the design, construction or assembly and completion of
acceptance tests of the Coater, the Buyer determines that it is necessary to
make a change in construction or design which will change some aspect of the
Specification forming part of this Contract, then the Buyer will immediately
notify the Seller in writing of such a change. The Seller will respond promptly
to such notice with information on the implications on performance, cost and
shipment time of such changes. When agreed to in writing by both parties, any
such changes will become an integral part of the Specification and of this
Contract. Any increase in cost as a result of such
<PAGE>
agreed upon changes shall be borne by the Buyer and shall increase the Contract
Price and all payments specified in Section 3 shall be adjusted accordingly.
10. ASSIGNMENT
The rights and obligations of the parties under this Contract may not be
assigned or transferred, except (i) rights to payment of money may be assigned
and (ii) this Contract and the rights and obligations hereunder may be assigned
to an acquirer of all or substantially all the assets, business or stock of a
party.
11. TERM AND TERMINATION
11.1 If a party materially breaches a material provision of this Contract, the
other party may terminate this Contract upon 30 days' written notice unless
the breach is cured within the notice period. The failure of either Coater
to pass any of the Acceptance Tests within 60 days of the commencement of
the Acceptance Test shall be deemed a material breach of this Contract by
Seller.
11.2 At any time prior to the shipment of either Coater, Buyer may cancel this
Contract for any reason upon 30 days prior written notice; provided that
Buyer pays to Seller a cancellation fee equal to the difference between (i)
the product of the Contract Price multiplied by the Completion Percentage
on the date of such notice, minus (ii) the amount of the Contract Price
previously paid to Seller; provided, however, that if the amount in (ii)
above is greater than the amount in (i) above, Seller shall refund to Buyer
the amount of such excess within 30 days of such written notice and shall
be entitled to no other cancellation fee. The Completion Percentage means
that percentage which reflects the degree to which the design, construction
and assembly of the Coater has been completed and shall be determined by
the mutual agreement of the parties. Upon payment of the cancellation fee,
Buyer shall own all right, title and interest in the Coaters and all parts
and components thereof, whether or not assembled.
11.3 In the event of any termination of this Contract, Sections 8 and 11 through
14 shall survive, along with any cause of action for breach of this
Contract prior to termination (except, that if pursuant to Section 11.2 the
Buyer terminates this Agreement, Section 14.9 shall not survive
termination).
11.4 Except as provided in Section 11.2, neither party shall incur any liability
whatsoever for any damage, loss or expenses of any kind suffered or
incurred by the other arising from or incident to any termination of this
Contract (or any part thereof) by such party which complies with the terms
of the Contract whether or not such party is aware of any such damage, loss
or expenses.
11.5 Termination is not the sole remedy under this Contract and, whether or not
termination is effected, all other remedies will remain available.
5
<PAGE>
12. INCIDENTAL AND CONSEQUENTIAL DAMAGES
NEITHER PARTY WILL BE LIABLE UNDER ANY CONTRACT, NEGLIGENCE, STRICT LIABILITY OR
OTHER THEORY FOR ANY INCIDENTAL OR CONSEQUENTIAL DAMAGES WITH RESPECT TO ANY
SUBJECT MATTER OF THIS CONTRACT, EXCEPT AS PROVIDED IN SECTION 4 HEREOF.
13. INDEPENDENT CONTRACTORS
The parties are independent contractors and not partners, joint ventures or
otherwise affiliated and neither has any right or authority to bind the other in
any way.
14. MISCELLANEOUS
14.1 Amendment and Waiver
--------------------
Except as otherwise expressly provided herein, any provision of this
Contract may be amended and the observance of any provision of this
Contract may be waived (either generally or any particular instance and
either retroactively or prospectively) only with the written consent of the
parties.
14.2 Governing Law and Legal Actions
-------------------------------
This Contract shall be governed by and construed under the laws of the
State of California and the United States without regard to conflicts of
laws provisions thereof, and without regard to the United Nations
Convention on Contracts for the International Sale of Goods. Unless
otherwise elected by Buyer in writing for a particular instance (which
Buyer may do at its option), the sole jurisdiction and venue for actions
related to the subject matter hereof shall be the California state and US
federal courts having within their jurisdiction the location of Buyer's
principal place of business. Both parties consent to the jurisdiction of
such courts and agree that process may be served in the manner provided
herein for giving of notices or otherwise as allowed by California or
federal law. In any action or proceeding to enforce rights under this
Contract, the prevailing party shall be entitled to recover costs and
attorneys; fees.
14.3 Headings
--------
Headings and captions are for convenience only and are not to be used in
the interpretation of this Contract.
<PAGE>
14.4 Notices
-------
Notices under this Contract shall be sufficient only if personally
delivered, delivered by a major commercial rapid delivery courier service
or mailed by certified or registered mail, return receipt requested to a
party at its addresses set forth in the signature block below or as amended
by notice pursuant to this subsection. If not received sooner, notice by
mail shall be deemed received 5 days after deposit in the US and __________
14.5 Risk of Loss
------------
Upon shipment from Seller's factory __________ all risk of loss and damage
to the Coaters shall pass immediately to Buyer. Title to the Coaters shall
pass upon payment in full of the Contract price.
14.6 Arbitration
-----------
Except that either party may seek equitable or similar relief from a court,
any dispute, controversy or claim arising out of or in relation to this
Contract or at law, or the breach, termination or invalidity thereof, that
cannot be settled amicably by agreement of the parties hereto, shall be
finally settled by arbitration in accordance with the arbitration rules of
the International Chamber of Commerce ("ICC"), Paris, then in force by one
or more arbitrators appointed in accordance with said rules; provided,
however, that arbitration proceedings may not be instituted until the party
alleging breach of this Contract by the other party has given the other
party not less than sixty (60 days) to remedy any alleged breach and the
other party has failed to do so. The appointing authority shall be the ICC
Court of Arbitration. The place of arbitration shall be New york City. All
documents and agreements relative to any such dispute shall be read,
interpreted and construed from the __________ versions thereof. The award
rendered shall be final and binding upon both parties. Judgement upon the
award may be entered in any court having jurisdiction, or application may
be made to such court for judicial acceptance of the award and/or an order
of enforcement as the case may be.
14.7 Insurance and Indemnity
-----------------------
Each party hereto shall effect at its own expense accident insurance for
those of its personnel sent to the other party pursuant to this Contract
and shall indemnify the other party for any and all damages and claims
resulting from personal injury or deal of its own personnel. Each party
hereto shall also obtain insurance at its own expense covering personal
injury, death or property damage to it or to any third party that may
result from the work or services of personnel of the other party sent to
its plant under this Contract and shall indemnify the other party for all
such damages and claims. An indemnifying party's obligations shall be
conditioned upon (i) prompt notification of any claim or threat and (ii)
such party having the option to control any defence and settlement. If the
indemnifying party does not control defence or settlement, any settlements
shall be subject to its approval, which approval shall not be unreasonable
withheld. The foregoing
7
<PAGE>
indemnities shall not be unreasonably withheld. The foregoing indemnities
shall not apply to injury, death or damage caused by the gross negligence
or wilful misconduct of the party seeking to be indemnified.
14.8 Licence Fees
------------
This is an agreement regarding the supply of two Coaters and no licences
of any sort are granted hereunder expressly or by implication except that
Buyer and its successors may use, repair, rebuild, obtain replacement
parts for, and take all other actions necessary or appropriate to
operating or maintaining the Coaters (or have others perform the
foregoing.) In the event that any third party is entitled to receive a
licence fee with respect to a component or technology supplied by the
Seller, Seller shall be responsible for any fees payable to such a third
party. Buyer shall not be responsible for any infringement or unauthorized
use with regard to any patent, utility model, trademark, design, copyright
or any other industrial property right, whether in________________or any
other place in respect of any component or technology supplied by the
Seller. Nothing herein contained shall be construed to be a transfer of
any patent, utility model, trademark, design, copyright or any other
industrial property right covering the goods, and all such rights are
expressly reserved to the true and lawful owners thereof. In case any
dispute or claim arises in connection with the above right or rights,
Buyer may cancel at its discretion any remaining shipment under this
contract, if any, and in any case shall be free from any liability arising
therefrom, and Seller shall be responsible for any and all loss or damage
caused thereby.
14.9 Payment Advance Guarantee
-------------------------
To secure the payments made by Buyer to Seller, at all times until the
Coaters have been shipped, Seller shall furnish Buyer with a bank
guarantee in the amount of the aggregate payment actually made by Buyer
hereunder from a bank, reasonably acceptable to Buyer, which will permit
Buyer to receive on demand an amount equal to any amount (without
interest) which is determined to be owing by Seller to Buyer as a result
of any breach or non-performance by Seller of the provisions of this
Contract.
14.10 Spare Parts
-----------
A certified Parts List will be supplied by Seller after the design stage
of the Contract to enable the Buyer to ascertain which parts are available
locally and which may be purchased from Seller. The price of spare parts
available from Seller will be determined by Buyer and Seller if and when
Buyer elects to purchase any spare parts.
14.11 Force Majeure
-------------
Neither party hereto shall be responsible for any failure to perform its
obligations under this Agreement (other than obligations to pay money) if
such failure is caused by acts of God, war, strikes, revolutions, lack or
failure of transportation facilities, laws or governmental
<PAGE>
regulations or other causes which are beyond the reasonable control of such
party. Obligations hereunder, however, shall in no event be excused but
shall be suspended only until the cessation of any cause of such failure.
In the event that such force majeure should obstruct performance of this
Agreement for more than six (6) months, the parties hereto shall consult
with each other to determine whether this Agreement should be modified. The
party facing any event of force majeure shall use its best endeavors in
order to remedy that situation as well as to minimize its effects. A case
of force majeure shall be notified to the other party by telex or telefax
within five (5) days after its occurrence and shall be confirmed by a
letter.
IN WITNESS WHEREOF, the undersigned have executed this Contract as of the date
first set forth above.
SOUTHWALL TECHNOLOGIES INC.
By /s/ R. L. Cormia By
---------------- -----------------
Robert L. Cormia
Senior Vice President
Technology
9
<PAGE>
EXHIBIT B
<TABLE>
<CAPTION>
ID Task Name Duration Start Finish
- -----------------------------------------------------------------------------
<C> <S> <C> <C> <C>
1
2 Pre Design Order 0d 12/04/96 12/04/96
3 Contract Order 0d 20/04/96 29/04/96
4
5 Design 80d 15/04/96 18/08/96
6 Schematics 7w 15/04/96 31/05/96
7 Layout Drawings 7w 15/04/96 31/05/96
8 Cathode Design 38d 17/04/96 07/08/96
9 Visit 1d 17/04/96 17/04/96
10 Design Layout 4d 18/04/96 23/04/96
11 Design Review 2d 23/04/96 24/04/96
12 Southwall visit 2d 25/04/96 26/04/95
13 Design Review 1w 13/05/96 17/05/96
14 Design Review 1w 03/06/96 07/06/96
15 Define Long Lead Items 0d 17/05/96 17/05/96
16 Detail Drawings 80d 15/04/96 18/08/96
17 Start 0d 15/04/96 15/04/96
18 Complete 0d 16/08/96 16/08/96
19
20
</TABLE>
Page 1
<PAGE>
EXHIBIT B
<TABLE>
<CAPTION>
ID Task Name Duration Start Finish
- -----------------------------------------------------------------------------
<C> <S> <C> <C> <C>
21 Manufacture 284d 22/04/96 29/05/97
22 Purchase components 90d 22/04/96 23/08/96
23 Order Long Lead Items 2w 22/04/96 03/05/96
24 Detail Manufacturer 277d 01/06/96 29/05/97
25 Face plate 60d 01/06/96 20/08/96
26 Material 8w 01/05/96 25/08/96
27 Fabrication 8w 26/06/96 20/08/96
28 Vessel 100d 01/05/96 17/09/96
29 Material 8w 01/05/96 25/06/96
30 Fabrication 8w 26/06/96 20/08/96
31 Polish/mte. 4w 21/08/96 17/09/96
32 Assembly Mte. No 1 75d 18/08/96 07/01/97
33 Vessel 3w 18/09/96 08/10/96
34 Mechanism End 0w 09/10/96 10/12/96
35 Source End 8w 09/10/96 03/12/96
36 Cathode Deliver 0d 10/12/96 10/12/96
37 Cathode Assy 3w 11/12/96 07/01/97
38 Pumping Group 8w 09/10/96 03/12/96
39 Services 7w 13/11/96 07/01/97
40 Electrics 8w 20/11/96 07/01/97
</TABLE>
Page 2
<PAGE>
EXHIBIT B
<TABLE>
<CAPTION>
ID Task Name Duration Start Finish
- -----------------------------------------------------------------------------
<C> <S> <C> <C> <C>
41 Test 8w 08/01/97 04/03/97
42 Strip & Package 3w 05/03/97 25/03/97
43 Ship to Oakland 4w 26/03/97 22/04/97
44 Deliver to Site 1w 23/04/97 28/04/97
45 Install 2w 30/04/97 13/05/97
46 Commission 2w 14/05/97 27/05/97
47 Customer Acceptance 2d 26/05/97 28/05/97
</TABLE>
Page 3
<PAGE>
EXHIBIT C
ACCEPTANCE TEST CRITERIA FOR STAR 1
1.0 INTRODUCTION
Comprehensive acceptance tests will be agreed between the buyer and the seller
to assure that the equipment meets the specifications set out in exhibit A.
2.0 CRITERIA
2.1 VACUUM
Ultimate pressure.
Time to base pressure.
Leak rate.
Polycold operation.
Gauging.
Gas load.
2.2 WINDING
Thin and thick substrate.
Tension ratios.
Speeds.
Modes.
Rewind arm function.
2.3 DRUM CHILLER
Temperature requirements.
Chiller operation.
2.4 MECHANISM
Mechanical end.
Cathode door movement.
Minichamber to drum, extraction,...
Lighting.
Fit cathodes and PEM sensors.
<PAGE>
2.5 CONTROL SYSTEM
Speed.
Mimics.
Handshakes.
2.6 GAS CONTROL SYSTEM
MFC operation.
<PAGE>
EXHIBIT D
<TABLE>
<CAPTION>
PRICE BREAKDOWN
MACHINE 1 MACHINE 2
<S> <C> <C>
ONE 1170 mm WIDE SPUTTER ROLL
COATING MACHINE INCLUDING $2,688,000 $2,414,000
INSTALLATION AND COMMISSIONING
PACKING AND CARRIAGE TO US PORT $74,000 $74,000
SPARE PARTS $50,000 -
TOTAL MACHINE PRICE $2,812,000 $2,488,000
</TABLE>
<PAGE>
[LETTERHEAD OF SOUTHWALL TECHNOLOGIES]
EXHIBIT 10.86
October 29, 1996
Mr. Alfred V. Larrenaga
50 Hudson Street
Redwood City, CA 94062
Dear Al:
The purpose of this letter is to modify and amend the agreement between you and
Southwall Technologies dated July 29, 1996. Changes to the existing agreement,
which are primarily dates, are shown below, with deletions shown in "strikeout,"
and additions shown in bold type:
1. You agree that the only payments and benefits that you are entitled to
receive from the Company in the future are those specified in this letter.
2. Your resignation from the position of Senior Vice President and CFO with
Southwall Technologies will be effective [*September 30, 1996] October 31,
1996. Between now and [*September 30] October 31, your responsibilities
would be as follows, reporting to the CEO: (1) Adequately train and prepare
Ray Christie to become Vice President, Finance and CFO, effective [*October
1, 1996] November 1, 1996. As part of this training, you would introduce
Ray to key investors, analysts, bankers, attorneys, etc., and (2) Work with
the CEO as a team for the purposes of developing acquisition or merger
opportunities for the Company, with final negotiations for such a
transaction to be conducted by a committee including members of the Board
and yourself.
After [*September 30, 1996] October 31, 1996 and through [*October 31,
1996] November 30, 1996, you would serve in the capacity of Senior Vice
President, [*Special Projects] Corporate Development, continuing to work
with the CEO for the purposes of developing acquisition or merger
opportunities for the Company, or other related projects.
It is expected that you will continue to carry out your responsibilities
to the best of your abilities and in a professional manner. If you do not
do so, under the terms of "at will" employment, the Company reserves the
right to terminate all or part of this agreement as it deems appropriate.
3. Until [*October 31, 1996] November 30, 1996, your compensation would
continue at its current level, including base salary, auto allowance and
other current benefits. Your accrued but unused vacation pay would be paid
to you on [*October 31, 1996] November 27, 1996, less applicable taxes and
withholdings.
[* ]="STRIKEOUT"
<PAGE>
Mr. A. Larrenaga
October 29, 1996
page 2
4. On [*October 31, 1996] November 30, 1996, you will cease to be a full-time
employee and you will no longer be required to report to work on a full-
time basis, however, you would be a part-time employee of the Company for a
period of six months. During that period [*October 1, 1996] November 1,
1996, through [*April 30, 1997] May 31, 1997, your salary would continue at
its current level, including automobile allowance, excluding vacation
accruals, and would be paid less applicable withholdings. During that
period, you would continue to report to the CEO, and would remain available
on an as-needed basis to perform certain duties and respond to various
requests for advice or information. You and the CEO will discuss and review
such requirements on a monthly basis. It is not expected that this would
require more than an average of approximately two hours per week from you.
As of no later than [*April 30, 1997] May 31, 1997, your employment will be
terminated, and you will have no right to employment with the Company.
5. As of [*October 31, 1996] November 30, 1996, you would no longer be
eligible for participation in Southwall's benefits programs, and your group
insurance coverage would otherwise be terminated. However, if you elect and
are eligible to continue your coverage under the provisions of COBRA,
Southwall will pay for your coverage through COBRA through [*April 30,
1997] May 31, 1997. After [*April 30, 1997] May 31, 1997, you may then
continue this coverage at your own expense through the remainder of the
COBRA period, which would be 18 months after [*October 31, 1996] November
30, 1996. At the end of the COBRA period, you may apply for conversion to
an individual policy through Prudential; such policies are not subject to
medical eligibility or screening. If you have not obtained other
employment which offers group medical insurance benefits before the end of
the COBRA period, and if you are not eligible for coverage under another
group insurance policy, Southwall agrees to reimburse you for individual
medical insurance premium payments for up to six months, either through
Prudential or another carrier of your choice. The maximum amount
reimbursable would be the Prudential rate. If you became eligible for
coverage under another plan during the six month period, Southwall would
discontinue reimbursement for the remainder of the period.
6. If the Company has received a letter of intent from a prospective buyer by
[*October 31, 1996] November 30, 1996, you would be entitled to any
benefits that would become payable to you under the Severance Agreement for
executives, as described in the Company's Proxy Statement, subject to such
limitations as set forth in that severance agreement (i.e., that total
compensation received, including acceleration of stock options cannot
exceed 2.99 times the average of the last five years W-2 earnings).
7. Management will recommend to the Board of Directors that, in exchange for
your continuing goodwill and friendship to the Company, that you remain in
"service provider" status for the purposes of stock option status of stock
options currently held by you. Therefore, any stock options which are
currently held by you would be allowed to continue in force through their
existing terms without modification, i.e., all options would continue to
vest and be exercisable according to the current schedule and would be
unaffected by your change in employment status.
[* ]= "STRIKEOUT"
<PAGE>
Mr. A. Larrenaga
October 29, 1996
page 3
8. In consideration for receiving the payments and benefits described above,
you waive and release and promise never to assert any claims or causes of
action whether or not now known, against Southwall or its predecessors,
successors, subsidiaries, officers, directors, agents, employees and assign,
with respect to any matter arising out of or connected with your employment
with the Company or the termination of that employment, including without
limitation, claims of wrongful discharge, emotional distress, defamation,
breach of contract, breach of the covenant of good faith and fair dealing,
and claims of discrimination based on sex, age, race, national origin, or on
any other basis, under title VII of the Civil Rights Act of 1964, as
amended, the California Fair Employment and Housing Act, the Age
Discrimination in Employment Act of 1967, and all other laws and regulations
relating to employment.
9. You expressly waive and release any and all rights and benefits under
Section 1542 of the Civil Code of the State of California, or any analogous
law of any other state, which reads as follows: "A general release does not
extend to claims which the creditor does not know or suspect to exist in his
favor at the time of executing the release, which, if known by him, must
have materially affected his settlement with the debtor."
10. At all times in the future, you will remain bound by Southwall's Proprietary
Information and Invention Agreement signed by you upon your employment with
the Company. As you know, the purpose of the Proprietary Information and
Invention Agreement is to protect confidential and proprietary information,
and is not intended to interfere with your future employment opportunities.
11. You agree that you will not disclose to others the terms of this agreement,
except that you may disclose such information to your family and to your
attorney and accountant in order for such individuals to render services to
you.
12. You agree that except as expressly provided in this letter, this letter
renders null and void any and all prior agreements between you and the
Company.
13. You have up to twenty-one (21) days after receipt of this letter within
which to review it, and to discuss it with an attorney of your own choosing
regarding whether or not you wish to execute it. Furthermore, you have seven
(7) days after you have signed this letter during which time you may revoke
this agreement.
If you wish to revoke this agreement, you may do so by delivering a letter
of revocation to me. Because of this revocation period, you understand that
the agreement set forth in this letter shall not become effective or
enforceable until the eighth day after the date you sign this letter.
<PAGE>
Mr. A. Larrenaga
October 29, 1996
Page 4
Please indicate your agreement with the above terms, including the modifications
to the terms of our July 29, 1996 agreement, by signing below.
Sincerely,
/s/ J. Larry Smart
J. Larry Smart
Chairman
My agreement with the above terms is signified by my signature below.
Furthermore, I acknowledge that I have read and understand the foregoing letter
and that I sign this release of all claims voluntarily, with full appreciation
that I am forever foreclosed from pursuing any of the rights I have waived.
Signed: /s/ Alfred V. Larrenaga Dated: 11/5, 1996
----------------------- -----
Alfred V. Larrenaga
<PAGE>
[LETTERHEAD OF Corporate Office
SOUTHWALL -----------------------------------------------
TECHNOLOGIES] 1029 Corporation Way Palo Alto, CA 94303
Tel: 415 962-9111 Fax: 415 967-8713
July 29, 1996
Mr. Alfred V. Larrenaga
50 Hudson Street
Redwood City, CA 94062
Dear Al:
After consideration of your proposed agreement dated July 15, 1996, regarding
your separation from employment with the Company as a result of your decision to
resign from employment, this letter represents our best and final proposal for
an agreement between you and Southwall Technologies:
1. You agree that the only payments and benefits that you are entitled to
receive from the Company in the future are those specified in this letter.
2. Your resignation from the position of Senior Vice President and CFO with
Southwall Technologies will be effective September 30, 1996. Between now
and September 30, your responsibilities would be as follows, reporting to
the CEO: (1) Adequately train and prepare Ray Christie to become Vice
President, Finance and CFO, effective October 1, 1996. As part of this
training, you would introduce Ray to key investors, analysts, bankers,
attorneys, etc., and (2) Work with the CEO as a team for the purposes of
developing acquisition or merger opportunities for the Company, with final
negotiations for such a transaction to be conducted by a committee
including members of the Board and yourself.
After September 30, 1996 and through October 31, 1996, you would serve in
the capacity of Senior Vice President, Special Projects, continuing to
work with the CEO for the purposes of developing acquisition or merger
opportunities for the Company, or other related projects.
It is expected that you will continue to carry out your responsibilities
to the best of your abilities and in a professional manner. If you do not
do so, under the terms of "at will" employment, the Company reserves the
right to terminate all or part of this agreement as it deems appropriate.
3. Until October 31, 1996, your compensation would continue at its current
level, including base salary, auto allowance and other current benefits.
Your accrued but unused vacation pay would be paid to you on October 31,
1996, less applicable taxes and withholdings.
Corporate Headquarters
1029 Corporation Way Palo Alto, CA 94303
Tel: 415 962-9111 Fax: 415 967-8713
<PAGE>
Mr. A. Larrenaga
June 29, 1996
page 2
4. On October 31, 1996, you will cease to be a full-time employee and you will
no longer be required to report to work on a full-time basis, however, you
would be a part-time employee of the Company for a period of six months.
During that period from October 1, 1996, through April 30, 1997, your salary
would continue at its current level, including automobile allowance,
excluding vacation accruals, and would be paid less applicable withholdings.
During that period, you would continue to report to the CEO, and would
remain available on an as-needed basis to perform certain duties and respond
to various requests for advice or information. You and the CEO will discuss
and review such requirements on a monthly basis. It is not expected that
this would require more than an average of approximately two hours per week
from you. As of no later than April 30, 1997, your employment will be
terminated, and you will have no right to employment with the Company.
5. As of October 31, 1996, you would no longer be eligible for participation in
Southwall's benefits programs, and your group insurance coverage would
otherwise be terminated. However, if you elect and are eligible to continue
your coverage under the provisions of COBRA, Southwall will pay for your
coverage through COBRA through April 30, 1997. After April 30, 1997, you may
then continue this coverage at your own expense through the remainder of the
COBRA period, which would be 18 months after October 31, 1996. At the end of
the COBRA period, you may apply for conversion to an individual policy
through Prudential; such policies are not subject to medical eligibility or
screening. If you have not obtained other employment which offers group
medical insurance benefits before the end of the COBRA period, and if you
are not eligible for coverage under another group insurance policy,
Southwall agrees to reimburse you for individual medical insurance premium
payments for up to six months, either through Prudential or another carrier
of your choice. The maximum amount reimbursable would be the Prudential
rate. If you became eligible for coverage under another plan during the six
month period, Southwall would discontinue reimbursement for the remainder of
the period.
6. If the Company has received a letter of intent from a prospective buyer by
October 31, 1996, you would be entitled to any benefits that would become
payable to you under the Severance Agreement for executives, as described in
the Company's Proxy Statement, subject to such limitations as set forth in
that severance agreement (i.e., that total compensation received, including
acceleration of stock options cannot exceed 2.99 times the average of the
last five years W-2 earnings).
7. Management will recommend to the Board of Directors that, in exchange for
your continuing goodwill and friendship to the Company, that you remain in
"service provider" status for the purposes of stock option status of stock
options currently held by you. Therefore, any stock options which are
currently held by you would be allowed to continue in force through their
existing terms without modification, i.e., all options would continue to
vest and be exercisable according to the current schedule and would be
unaffected by your change in employment status.
<PAGE>
Mr. A. Larrenaga
June 29, 1996
page 3
8. In consideration for receiving the payments and benefits described above,
you waive and release and promise never to assert any claims or causes of
action whether or not now known, against Southwall or its predecessors,
successors, subsidiaries, officers, directors, agents, employees and
assign, with respect to any matter arising out of or connected with your
employment with the Company or the termination of that employment,
including without limitation, claims of wrongful discharge, emotional
distress, defamation, breach of contract, breach of the covenant of good
faith and fair dealing, and claims of discrimination based on sex, age,
race, national origin, or on any other basis, under title VII of the Civil
Rights Act of 1964, as amended, the California Fair Employment and Housing
Act, the Age Discrimination in Employment Act of 1967, and all other laws
and regulations relating to employment.
9. You expressly waive and release any and all rights and benefits under
Section 1542 of the Civil Code of the State of California, or any analogous
law of any other state, which reads as follows: "A general release does not
extend to claims which the creditor does not know or suspect to exist in
his favor at the time of executing the release, which, if known by him,
must have materially affected his settlement with the debtor."
10. At all times in the future, you will remain bound by Southwall's
Proprietary Information and Invention Agreement signed by you upon your
employment with the Company. As you know, the purpose of the Proprietary
Information and Invention Agreement is to protect confidential and
proprietary information, and is not intended to interfere with your future
employment opportunities.
11. You agree that you will not disclose to others the terms of this agreement,
except that you may disclose such information to your family and to your
attorney and accountant in order for such individuals to render services to
you.
12. You agree that except as expressly provided in this letter, this letter
renders null and void any and all prior agreements between you and the
Company.
13. You have up to twenty-one (21) days after receipt of this letter within
which to review it, and to discuss it with an attorney of your own choosing
regarding whether or not you wish to execute it. Furthermore, you have
seven (7) days after you have signed this letter during which time you may
revoke this agreement.
If you wish to revoke this agreement, you may do so by delivering a letter
of revocation to me. Because of this revocation period, you understand that
the agreement set forth in this letter shall not become effective or
enforceable until the eighth day after the date you sign this letter.
<PAGE>
Mr. A. Larrenaga
June 29, 1996
Page 4
Please indicate your agreement with the above terms by signing below.
Sincerely,
Southwall Technologies
/s/Martin M. Schwartz
Martin M. Schwartz
President &
Chief Executive Officer
My agreement with the above terms is signified by my signature below.
Furthermore, I acknowledge that I have read and understand the foregoing letter
and that I sign this release of all claims voluntarily, with full appreciation
that I am forever foreclosed from pursuing any of the rights I have waived.
Signed: /s/ Alfred V. Larrenaga Dated: July 31, 1996.
------------------------- -----------
Alfred V. Larrenaga
<PAGE>
EXHIBIT 10.87
LOAN AND SECURITY AGREEMENT
THIS LOAN AND SECURITY AGREEMENT dated as of December 3, 1996, is made by
and between SOUTHWALL TECHNOLOGIES INC. ("Debtor"), a Delaware corporation and
THE CIT GROUP/EQUIPMENT FINANCING, INC., a New York corporation ("CIT").
SECTION 1. DEFINITIONS.
All capitalized terms which are not defined herein are defined in Rider A
attached hereto and made a part hereof ("Rider A"). Accounting terms not
specifically defined shall be construed in accordance with generally accepted
accounting principles.
SECTION 2. AMOUNT AND TERMS OF LOANS; GRANT OF SECURITY INTEREST.
Subject to the terms and conditions hereof, CIT agrees to make Loans to
Debtor from time to time, in the amount described in paragraph 2 of Rider A.
Each Loan shall be evidenced by Debtor's Note, which Note shall set forth the
repayment terms and Interest Rate for such Loan.
As security for the prompt and complete payment and performance when due of
all the Obligations and in order to induce CIT to enter into this Agreement and
make the Loans and to extend other credit from time to time to Debtor, whether
under this Agreement or otherwise, Debtor hereby grants to CIT a first priority
security interest in all Debtor's right, title and interest in, to and under the
Collateral. The Notes and all Obligations shall be equally secured by all
Collateral. No lien securing the Obligations or any of them shall be released or
deemed released unless and until all Obligations are fully and finally repaid
and discharged.
SECTION 3. CONDITIONS OF BORROWING.
CIT shall not be required to make any Loan hereunder unless on the Closing
Date thereof all legal matters with respect to, and all legal documents executed
in connection with, the contemplated transactions are satisfactory to CIT and
all of the following conditions are met to the satisfaction of CIT (except that
(a) and (b) are required in connection with the initial Loan only); (a) CIT has
received a satisfactory Secretary's Certificate certified by Debtor's Secretary
or Assistant Secretary; (b) INTENTIONALLY LEFT BLANK; (c) Debtor has executed
and delivered to CIT the Note evidencing, and a Supplement describing the
Equipment to be financed by, such Loan; (d) the Equipment being financed by such
Loan has been delivered to, and accepted by, Debtor and CIT has received
satisfactory evidence that the Equipment is insured in accordance with the
provisions hereof and that the Cost thereof has been, or concurrently with the
making of the Loan shall be, fully paid; (e) INTENTIONALLY LEFT BLANK; (f) all
filings, recordings and other actions (including the obtaining of landlord
and/or mortgagee waivers) deemed necessary or desirable by CIT in order to
perfect a first (and only) priority security interest in the Equipment being
financed by such Loan have been duly effected, and all fees, taxes and other
charges relating to such filings and recordings have been paid by Debtor; (g)
the representations and warranties contained in this Agreement are true and
correct with the same effect as if made on and as of such date, and no Default
or Event of Default is in existence on such date or shall occur as a result of
such Loan; (h) in the sole judgment of CIT, there has been no material adverse
change in the financial condition, business or operations of Debtor from the
date referred to in Section 4(j) hereof; (i) CIT has received from Debtor such
other documents and information as CIT has reasonably requested; (j) CIT has
inspected and appraised the Equipment and found it satisfactory in value and
condition; (k) CIT has received satisfactory bank and/or customer references on
Debtor; and (l) CIT has received and found satisfactory Debtor's most recent
quarterly financial statement.
SECTION 4. REPRESENTATIONS AND WARRANTIES.
In order to induce CIT to enter into this Agreement and to make each Loan,
Debtor represents and warrants to CIT
Page 1 of 6
<PAGE>
that: (a) Debtor is a corporation duly organized, validly existing and in good
standing under the laws of its State of Incorporation, has the necessary
authority and power to own the Equipment and its other assets and to transact
the business in which it is engaged, is duly qualified to do business in each
jurisdiction where the Equipment is located and in each other jurisdiction in
which the conduct of its business or the ownership of its assets requires such
qualification, and its chief executive office is located at the address set
forth in paragraph 5 of Rider A; (b) Debtor has full power, authority and legal
right to execute and deliver this Agreement and the Notes, to perform its
obligations hereunder and thereunder, to borrow hereunder and to grant the
security interest created hereby; (c) this Agreement has been (and each Note
when executed and delivered shall have been) duly authorized, executed and
delivered by Debtor and constitutes (and each Note when executed and delivered
shall constitute) a legal, valid and binding obligation of Debtor enforceable in
accordance with its terms except as such rights may be limited by bankruptcy,
insolvency or other similar laws affecting the enforcement of creditors' rights
generally; (d) the execution, delivery and performance by Debtor of this
Agreement and the Notes do not and will not violate any provision of any
applicable law or regulation or of any judgment or order of any court or
governmental instrumentality to the extent that such violation will have an
adverse effect on Debtor, and will not violate any provision of, or cause a
default under, any loan, other agreement, contract or judgment to which Debtor
is a party to the extent that such violation will have an adverse effect on
Debtor; (e) Debtor is not in material default under any material agreement,
contract or judgment to which Debtor is a party; (f) Debtor has filed all tax
returns that are required to be filed and has paid all taxes as shown on said
returns and all assessments received by it to the extent such taxes and
assessments have become due other than those which are being contested in good
faith by appropriate proceedings and as to which appropriate reserves are being
maintained by Debtor in accordance with generally accepted accounting principles
and so long as such proceedings operate during the pendency thereof to prevent
the sale, forfeiture, or loss of the Collateral, and Debtor does not have any
knowledge of any actual or proposed deficiency or additional assessment in
connection therewith; (g) there is no action, audit, investigation or proceeding
pending or threatened against or affecting Debtor or any of its assets which
involves any of the Equipment or any of the contemplated transactions hereunder
and which, if adversely determined, could have a material adverse effect on
Debtor's business, operations of financial condition; (h) on each Closing Date,
Debtor shall have good and marketable title to the Equipment being financed on
such date and CIT shall have a perfected first (and only) Lien on such
Equipment; and (i) (i) the operations of Debtor comply in all material respects
with all applicable Environmental Laws; and (ii) except as disclosed to CIT, (A)
none of the operations of Debtor are subject to any judicial or administrative
proceeding alleging the violation of any Environmental Laws; (B) none of the
operations of Debtor is the subject of an investigation to determine whether any
remedial action is needed to respond to a release of any Hazardous Material into
the environment: and (C) Debtor has no known material contingent liability in
connection with any release of any Hazardous Material into the environment: (j)
all financial statements of Debtor which have been delivered to CIT have been
prepared in accordance with generally accepted accounting principles
consistently applied, and present fairly Debtor's financial position as at, and
the results of its operations for, the periods ended on the dates set forth on
such financial statements, and there has been no material adverse change in
Debtor's financial condition, business or operations since December 31, 1995, as
reflected in such financial statements; (k) Debtor has not changed its name in
the last five years or done business under any other name except as previously
disclosed in writing to CIT; and (l) no consent of any Person, and no consent,
license, approval or authorization of, or registration or filing with, any
governmental authority, bureau or agency is required in connection with the
execution, delivery and performance of, and payment under, this Agreement.
SECTION 5. COVENANTS.
Debtor covenants and agrees that from and after the date hereof and so long
as the Commitment or any of the Notes is outstanding:
A. It will: (1) promptly give written notice to CIT of the occurrence
of any Event of Loss; (2) observe all material requirements of any governmental
authorities relating to the conduct of its business, to the performance of its
obligations hereunder, to the use; operation or ownership of the Equipment, or
to its other properties or assets, maintain its existence as a legal entity
and obtain and keep in full force and effect all rights, franchises, licenses
and permits which are necessary to the proper conduct of its business, and pay
all fees, taxes, assessments and governmental charges or levies imposed upon any
of the Equipment; (3) at any reasonable time or times, and upon reasonable
notice, permit CIT or its authorized representative to inspect the Equipment
and, following the occurrence and during the continuation of an Event of
Default, to inspect the books and records of Debtor; (4) in accordance with
generally accepted accounting principles, keep proper books of record and
account in which entries will be made of all dealings or transactions in
relation to its business and activities; (5) furnish to CIT the following
financial statements, all in reasonable detail, prepared in accordance with
Page 2 of 6
<PAGE>
generally accepted accounting principles applied on a basis consistently
maintained throughout the period involved, (a) as soon as available, (i) but not
later than 120 days after the end of each fiscal year, its consolidated balance
sheet as at the end of such fiscal year, and its consolidated statements of
income and consolidated statements of cash flow and all footnotes of such fiscal
year together with comparative information for the prior fiscal year, audited by
certified public accountants, and (ii) Debtor's Annual Report under Section 13
or 15(d) of the Securities Exchange Act of 1934; and (b) as soon as available,
(i) but not later than 90 days after the end of each of the first three
quarterly periods of each fiscal year, its consolidated balance sheet as at the
end of such quarterly period and its consolidated statements of income and
consolidated statements of cash flow for such quarterly period and for the
portion of the fiscal year then ended together with comparative information for
the prior comparable period, signed by its chief financial officer as fairly
presenting the results of operations and financial position of Debtor for the
periods then ended and as of the date thereof, respectively, and (ii) Debtor's
Quarterly Report under Section 13 or 15(d) of the Securities Exchange Act of
1934; (6) (i) furnish to CIT, together with the financial statements described
in clauses 5(a) and 5(b) above, a statement signed by Debtor's chief financial
officer certifying that Debtor is in compliance with all financial covenants
contained in any documents evidencing a financial obligation to which Debtor is
a party, or if Debtor is not in compliance, the nature of such noncompliance or
default, and the status thereof (such statement shall set forth the actual
calculations of any financial covenants and the details of any amendments or
modifications of any financial covenants), and (ii) promptly, such additional
financial and other information as CIT may from time to time reasonably request;
(7) promptly, at Debtor's expense, execute and deliver to CIT such instruments
and documents, and take such action, as CIT may from time to time reasonably
request in order to carry out the intent and purpose of this Agreement and to
establish and protect the rights, interest and remedies created, or intended to
be created, in favor of CIT hereby, including, without limitation, the
execution, delivery, recordation and filing of financing statements (hereby
authorizing CIT, in such jurisdictions where such action is authorized by law,
to effect any such recordation or filing of financing statements without
Debtor's signature, and to file as valid financing statements in the applicable
financing statement records, photocopies hereof, of the Supplements and of any
other financing statement executed in connection herewith); (8) warrant and
defend its good and marketable title to the Equipment, and CIT's perfected first
(and only) priority security interest in the Collateral, against all claims and
demands whatsoever (hereby agreeing that the Equipment shall be and at all times
remain separately identifiable personal property, and shall not become part of
any real estate), and will, at its expense, take such action as may be necessary
to prevent any other Person from acquiring any right or interest in the
Equipment; (9) at Debtor's expense, if requested by CIT in writing after an
Event of Default has occurred and is continuing hereunder, attach to the
Equipment a notice satisfactory to CIT disclosing CIT's security interest in the
Equipment; (10) at Debtor's expense, maintain the Equipment in good condition
and working order and furnish all parts, replacements and servicing required
therefor so that the value, condition and operating efficiency thereof will at
all times be maintained, normal wear and tear expected, and any repairs,
replacements and parts added to the Equipment in connection with any repair or
maintenance or with any improvement, change, addition or alteration shall
immediately, without further act, become part of the Equipment and subject to
the security interest created by this Agreement; (11) obtain and maintain at all
times on the Collateral, at Debtor's expense, "All-Risk" physical damage
(excluding earthquake and flood coverages) and, if required by CIT, liability
insurance (including bodily injury and property damage) in such amounts, against
such risks, with such deductibles and in such form as shall be satisfactory to
CIT, and with insurers having an A.M. Best Key Rating Guide rating of A-IX or
better; provided, however, that the amount of physical damage insurance shall
not be less than the then aggregate outstanding principal amount of the Notes.
All physical damage insurance policies shall be made payable to CIT as its
interest may appear; if liability insurance is required by CIT, the liability
insurance policies shall name CIT as an additional insured. Debtor shall
maintain and deliver to CIT the original certificates of insurance or other
documents satisfactory to CIT prior to policy expiration or upon CIT's request,
but CIT shall bear no duty or liability to ascertain the existence or adequacy
of such insurance. Each insurance policy shall, among other things, require that
the insurer give CIT at least 30 days' prior written notice of any alteration in
the terms of such policy or the cancellation thereof and that the interests of
CIT shall be continued insured regardless of any breach of or violation by
Debtor of any warranties, declarations or conditions contained in such insurance
policy. CIT shall not be responsible for premiums, warranties or representations
to underwriters. The insurance maintained by the Debtor shall be primary with no
other insurance maintained by CIT (if any) contributory; and (12) maintain a
bank provided revolving line of credit with a minimum availability of
$3,000,000.00.
B. Without the prior written consent of CIT, it will not: (1) sell, convey,
transfer, exchange, lease or otherwise relinquish possession or dispose of any
of the Collateral or attempt or offer to do any of the foregoing; (2) create,
assume or suffer to exist any Lien upon the Collateral except for the security
interest created hereby; (3) liquidate or dissolve; (4) change the form of
organization of its business; (5) without thirty (30) days prior written notice
to CIT, change its name or its chief executive office; (6) move any of the
Equipment from the location specified on the Supplement relating thereto; (7)
make or authorize any improvement, change, addition or alteration to the
Equipment which would impair its originally
Page 3 of 6
<PAGE>
intended function or use or its value; or (8) amend, modify or in any way change
any of the terms or conditions of that certain Supply Agreement, dated as of
October 23, 1995, entered into between Debtor and Sony Corporation, and as
amended by Addendum #1 to Supply Agreement, dated as of April 1, 1996 (CIT's
written consent to (8) shall not be unreasonably withheld).
SECTION 6. EVENTS OF DEFAULT; REMEDIES.
The following events shall each constitute an "Event of Default" hereunder:
----------------
(a) Debtor shall fail to pay any Obligation within 10 days after the same
becomes due (whether at the stated maturity, by acceleration or otherwise); (b)
any representation or warranty made by Debtor in this Agreement or in any
document, certificate or financial or other statement now or hereafter furnished
by Debtor in connection with this Agreement or any Loan shall at any time prove
to be untrue or misleading in any material respect as of the time when made; (c)
Debtor shall fail to observe any covenant, condition or agreement contained in
Sections 5.A(11) or 5.B hereof or in paragraphs 4(b) or 7 of Rider A; (d) Debtor
shall fail to observe or perform in any material respect any other covenant or
condition contained in this Agreement, and such failure shall continue
unremedied for a period of 30 days after the earlier of the date on which Debtor
obtains knowledge of such failure or the date on which notice thereof shall be
given by CIT to Debtor; (e) Debtor or any affiliate of Debtor shall default in
the payment of, or other performance under, any obligation for payment or lease
(whether or not capitalized) or any guarantee (i) to CIT or any affiliate of CIT
beyond the period of grace, if any, provided with respect thereto, or (ii) to
any Person beyond the period of grace, if any, provided with respect thereto,
where such obligation or amount guaranteed is in excess of $2,000,000.00; or (f)
a complaint in bankruptcy or for arrangement or reorganization or for relief
under any insolvency law is filed by or against Debtor (and when filed against
Debtor is in effect for 60 days) or Debtor admits its inability to pay its debts
as they mature.
If an Event of Default shall occur, CIT may, by notice of default given to
Debtor, do any one or more of the following: (a) terminate the Commitment and/or
(b) declare the Notes to be due and payable, whereupon the principal amount of
the Notes, together with accrued interest thereon and all other amounts owing
under this Agreement and the Notes, shall become immediately due and payable
without presentment, demand, protest or other notice of any kind, all of which
are hereby expressly waived (and in the case of any Event of Default specified
in clause (f) of the above paragraph, such acceleration of the Notes shall be
automatic, without any notice by CIT). In addition, if an Event of Default shall
occur and be continuing, CIT may exercise all other rights and remedies
available to it, whether under this Agreement, under any other instrument or
agreement securing, evidencing or relating to the Obligations, under the Code,
or otherwise available at law or in equity. Without limiting the generality of
the foregoing, Debtor agrees that in any such event, CIT, without demand of
performance or other demand, advertisement or notice of any kind (except the
notice specified below of time and place of public or private sale) to or upon
Debtor or any other Person (all and each of which demands, advertisements and
notices are hereby expressly waived), may forthwith do any one or more of the
following: collect, receive, appropriate and realize upon the Collateral or any
part thereof, and sell, lease, assign, give an option or options to purchase or
otherwise dispose of and deliver, the Collateral (or contract to do so), or any
part thereof, in one or more parcels at public or private sale or sales at such
places and at such prices as it may deem best, for cash or on credit or for
future delivery without the assumption of any credit risk. CIT shall have the
right upon any such public sale or sales, and to the extent permitted by law,
upon any such private sale or sales, to purchase the whole or any part of the
Collateral so sold, free of any right or equity of redemption of Debtor, which
right or equity is hereby expressly released. Debtor further agrees, at CIT's
request, to assemble (at Debtor's expense) the Collateral and make it available
to CIT at such places which CIT shall select, whether at Debtor's premises or
elsewhere. CIT shall apply the net proceeds of any such collection, recovery,
receipt, appropriation, realization or sale (after deducting all reasonable
costs and expenses of every kind incurred therein or incidental to the care,
safekeeping or otherwise of any or all of the Collateral or in any way relating
to the rights of CIT hereunder, including reasonable attorney's fees and legal
expenses) to the payment in whole or in part of the Obligations, in such order
as CIT may elect. Debtor agrees that CIT need not give more than 10 days' notice
of the time and place of any public sale or of the time after which a private
sale may take place and that such notice is reasonable notification of such
matters. Debtor shall be liable for any deficiency if the proceeds of any sale
or disposition of the Collateral are insufficient to pay all amounts to which
CIT is entitled. Debtor agrees to pay all costs of CIT, including reasonable
attorneys' fees, incurred with respect to collection of any of the Obligations
and enforcement of any of CIT's rights hereunder. To the extent permitted by
law, Debtor hereby waives presentment, demand, protest or any notice (except as
expressly provided in this Section 6) of any kind in connection with this
Agreement or any Collateral.
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<PAGE>
SECTION 7. MISCELLANEOUS.
No failure or delay by CIT in exercising any right, remedy or privilege
hereunder or under any Note shall operate as a waiver thereof, nor shall any
single or partial exercise of any right, remedy or privilege hereunder or
thereunder preclude any other or further exercise thereof or the exercise of any
other right, remedy or privilege. No right or remedy in this Agreement is
intended to be exclusive but each shall be cumulative and in addition to any
other remedy referred to herein or otherwise available to CIT at law or in
equity; and the exercise by CIT of any one or more of such remedies shall not
preclude the simultaneous or later exercise by CIT of any or all such other
remedies. No express or implied waiver by CIT of an Event of Default shall in
any way be, or be construed to be, a waiver of any other or subsequent Event of
Default. The acceptance by CIT of any regular installment payment or any other
sum owing hereunder shall not (a) constitute a waiver of any Event of Default in
existence at the time, regardless of CIT's knowledge or lack of knowledge
thereof at the time of such acceptance, or (b) constitute a waiver of any Event
of Default unless CIT shall have agreed in writing to waive the Event of
Default.
All notices, requests and demands to or upon any party hereto shall be
deemed duly given or made when sent, if given by telecopier, when delivered, if
given by personal delivery or overnight commercial carrier, on the third
calendar day after deposit in the United States mail, certified mail, return
receipt requested, addressed to such party at its address (or telecopier number)
set forth in paragraph 5 of Rider A or such other address or telecopier number
as may be hereafter designated in writing by such party to the other party
hereto.
Debtor agrees (A) to pay or reimburse CIT for (i) all expenses of CIT in
connection with the documentation thereof; (ii) all fees, taxes and expenses of
whatever nature incurred in connection with the creation, preservation and
protection of CIT's security interest in the Collateral, including, without
limitation, all filing and lien search fees, payment or discharge of any taxes
or Liens upon, or in respect to, the Collateral, and all other fees and expenses
in connection with protecting or maintaining the Collateral or in connection
with defending or prosecuting any actions, suits or proceedings arising out of,
or related to, the Collateral; and (iii) all costs and expenses (including
reasonable legal fees and disbursements) of CIT in connection with the
enforcement of this Agreement and the Notes, and (B) to pay, and to indemnify
and hold CIT harmless from and against any and all liabilities, obligations,
losses, damages, penalties, claims, actions, judgments, suits, out-of-pocket
costs, expenses (including reasonable legal expenses) or disbursements of any
kind or nature whatsoever arising out of or with respect to (a) this Agreement,
the Collateral or CIT's interest therein, including, without limitation, the
execution, delivery, enforcement, performance or administration of this
Agreement and the Notes and the manufacture, purchase, ownership, possession,
use, selection, operation or condition of the Collateral or any part thereof, or
(b) Debtor's violation or alleged violation of any Environmental Laws or any law
or regulation relating to Hazardous Materials (the foregoing being referred to
as the "indemnified liabilities"), provided, that Debtor shall have no
obligation hereunder with respect to indemnified liabilities arising from the
gross negligence or willful misconduct of CIT. If Debtor fails to perform or
comply with any of its agreements contained in this Agreement and CIT shall
itself perform, comply or cause performance or compliance, the expenses of CIT
so incurred, together with interest thereon at the Late Charge Rate, shall be
payable by Debtor to CIT on demand and until such payment is made shall
constitute Obligations hereunder. CIT hereby agrees that Debtor shall not be
liable to CIT for incidental and consequential damages. The agreements and
indemnities contained in this paragraph shall survive termination of this
Agreement and payment of the Notes.
This Agreement contains the complete, final and exclusive statement of the
terms of the agreement between CIT and Debtor related to the contemplated
transactions, and neither this Agreement, nor any terms hereof, may be changed,
waived, discharged or terminated orally, but only by an instrument in writing
signed by the party against which enforcement of a change, waiver, discharge or
termination is sought.
This Agreement shall be binding upon, and inure to the benefit of, Debtor
and CIT and their respective successors and assigns, except the Debtor may not
assign or transfer its rights hereunder or any interest herein without the prior
written consent of CIT, which consent shall not be unreasonably withheld.
Headings of sections and paragraphs are for convenience only, are not part
of this Agreement and shall not be deemed to affect the meaning or construction
of any of the provisions hereof. Any provision of this Agreement which is
prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction,
be ineffective to the extent of such prohibition or unenforceability without
invalidating the remaining provisions hereof, and any such prohibition or
unenforceability shall not invalidate or render unenforceable such provision in
any other jurisdiction.
Page 5 of 6
<PAGE>
Debtor hereby authorizes CIT to correct errors and to fill in such blanks
as serial numbers and dates herein and in the Notes, Supplements and in any
document executed in connection herewith.
This Agreement may be executed by the parties hereto on any number of
separate counterparts, each of which when so executed and delivered shall be an
original, but all such counterparts shall together constitute but one and the
same instrument.
THIS AGREEMENT AND THE NOTES SHALL BE GOVERNED BY, AND CONSTRUED AND
INTERPRETED IN ACCORDANCE WITH, THE INTERNAL LAWS OF THE STATE OF CALIFORNIA.
DEBTOR HEREBY IRREVOCABLY CONSENTS AND AGREES THAT ANY LEGAL ACTION IN
CONNECTION WITH THIS AGREEMENT MAY BE INSTITUTED IN THE COURTS OF THE STATE OF
CALIFORNIA, IN THE COUNTY OF LOS ANGELES OR THE UNITED STATES COURTS FOR THE
CENTRAL DISTRICT OF CALIFORNIA, AS CIT MAY ELECT, AND BY EXECUTION AND DELIVERY
OF THIS AGREEMENT, DEBTOR HEREBY IRREVOCABLY ACCEPTS AND SUBMITS TO, FOR ITSELF
AND IN RESPECT OF ITS PROPERTY, THE NON-EXCLUSIVE JURISDICTION OF ANY SUCH
COURT, AND TO ALL PROCEEDINGS IN SUCH COURTS. DEBTOR AND CIT ACKNOWLEDGE THAT
JURY TRIALS OFTEN ENTAIL ADDITIONAL EXPENSES AND DELAYS NOT OCCASIONED BY
NONJURY TRIALS. DEBTOR AND CIT AGREE AND STIPULATE THAT A FAIR TRIAL MAY BE HAD
BEFORE A STATE OR FEDERAL JUDGE BY MEANS OF A BENCH TRIAL WITHOUT A JURY. IN
VIEW OF THE FOREGOING, AND AS A SPECIFICALLY NEGOTIATED PROVISION OF THIS
AGREEMENT, DEBTOR AND CIT HEREBY EXPRESSLY WAIVE ANY RIGHT TO TRIAL BY JURY OF
ANY CLAIM, DEMAND, ACTION OR CAUSE OF ACTION ARISING UNDER THIS AGREEMENT, OR
THE TRANSACTIONS RELATED HERETO, WHETHER NOW EXISTING OR HEREAFTER ARISING, AND
WHETHER SOUNDING IN CONTRACT OR TORT OR OTHERWISE; AND DEBTOR AND CIT HEREBY
AGREE AND CONSENT THAT DEBTOR OR CIT MAY FILE AN ORIGINAL COUNTERPART OR A COPY
OF THIS SECTION WITH ANY COURT AS WRITTEN EVIDENCE OF THE CONSENT OF THE PARTIES
HERETO TO THE WAIVER OF THEIR RIGHT TO TRIAL BY JURY.
IN WITNESS WHEREOF, the parties have caused this Agreement to be duly
executed and delivered by their duly authorized officers as of December 3, 1996.
CIT: DEBTOR:
THE CIT GROUP/EQUIPMENT SOUTHWALL TECHNOLOGIES INC.,
FINANCING, INC., a Delaware corporation
a New York corporation
/s/ M. F. Kahmann /s/ Martin M. Schwartz
By:--------------------------------- By:_______________________________
Senior Vice President President/CEO
Title: ----------------------------- Title:----------------------------
S:\LEGALCEF\SOUTHWALLSA
Page 6 of 6
<PAGE>
RIDER A TO
LOAN AND SECURITY AGREEMENT
DATED AS OF DECEMBER 3, 1996
BETWEEN THE CIT GROUP/EQUIPMENT FINANCING, INC. ("CIT") AND
SOUTHWALL TECHNOLOGIES INC. ("DEBTOR").
1. DEFINITIONS. As used in the Loan and Security Agreement, the following
terms shall have the following defined meanings (applicable to both singular and
plural forms), unless the context otherwise requires:
"Agreement": "hereof", "hereto", "hereunder" and words of similar
---------
meaning: the Loan and Security Agreement of even date herewith between Debtor
and CIT including this Rider A and any other rider, schedule and exhibit
executed by Debtor and CIT in connection herewith, as from time to time amended,
modified or supplemented.
"Business Day": a day other than a Saturday, Sunday or legal holiday
------------
under the laws of the State of New York.
"Closing Date": each date on which a Loan is made.
------------
"Code": the Uniform Commercial Code as from time to time in effect in
----
any applicable jurisdiction.
"Collateral": the Equipment and the Proceeds thereof.
----------
"Commitment": CIT's obligation to make Loans in the aggregate
----------
principal amount stated in paragraph 2 of this Rider A.
"Cost": with respect to any item of new Equipment, the seller's
----
invoiced purchase price therefor (after giving effect to any discount or other
reduction) payable by Debtor, and all other amounts payable by Debtor and
approved by CIT in connection with the acquisition or installation of the
Equipment or, with respect to any item of used Equipment, such amount as CIT
may approve. The Cost shall be set forth in the applicable Supplement.
"Default": any event which with notice, lapse of time, or both would
-------
constitute an Event of Default.
"Equipment": any and all items of property which are listed on
---------
Supplements, together with all now owned or hereafter acquired accessories,
parts, repairs, replacements, substitutions, attachments, modifications,
additions, improvements, upgrades and accessions of, to or upon such items of
property.
"Environmental Laws": the Resource Conservation and Recovery Act, the
------------------
Comprehensive Environmental Response, Compensation and Liability Act, any
so-called "Superfund" or "Superlien" law, the Toxic Substances Control Act, or
any other federal, state or local statute, law, ordinance, code, rule,
regulation, order or decree regulating, relating to, or imposing liability or
standards of conduct concerning, any hazardous, toxic or dangerous waste,
substance or material, as now or at any time hereafter in effect.
"Event of Default": as set forth in Section 6 of the Agreement.
----------------
"Event of Loss": with respect to any item of Equipment, (i) the actual
-------------
or constructive loss or loss of use thereof, due to theft, destruction, damage
beyond repair or to an extent which makes repair uneconomical, or (ii) the
condemnation, confiscation or seizure thereof, or requisition of title thereto,
or use thereof, by any Person.
"Hazardous Materials": any pollutant or contaminant defined as such in
-------------------
(or for the purposes of) any Environmental Laws including, but not limited to,
petroleum, any radioactive material, and asbestos in any form or condition.
"Installment Payment Date": with respect to any Note, each date on
------------------------
which a regular installment of principal is due.
"Interest Rate": as set forth in paragraph 3 of this Rider A.
-------------
"Late Charge Rate": a rate per annum equal to 18%, but in no event to
----------------
exceed the highest rate permitted by applicable law.
"Liens": liens, mortgages, security interests, financing statements or
-----
other encumbrances of any kind whatsoever.
"Loan": each loan made pursuant to the Agreement.
----
"Note": each promissory note executed and delivered by Debtor pursuant
----
hereto, satisfactory in form and substance to CIT.
"Obligations": all indebtedness, obligations, liabilities and
-----------
performance of Debtor to CIT, now existing or hereafter incurred under, arising
out of, or in connection with, the Agreement or any Note; and any and all other
present and future indebtedness, obligations, liabilities and performance of any
kind whatsoever of Debtor to CIT, whether direct or indirect, joint or several,
absolute or contingent, liquidated or unliquidated, secured or unsecured,
matured or unmatured and whether originally contracted with CIT or otherwise
acquired by CIT.
"Parent Company": any Person having beneficial ownership (directly or
--------------
indirectly) of 25% or more of Debtor's shares of voting stock.
"Person": an individual, partnership, corporation, trust,
------
unincorporated association, joint venture, governmental
Page 1 of 3
<PAGE>
authority or other entity of whatever nature.
"Prepayment Percentage": on the date of the required prepayment of any Note
---------------------
pursuant to the Agreement, the product obtained by multiplying (i) 3%, if the
prepayment occurs between the 1st Installment Payment Date and the 24th
Installment Payment Date; (ii) 2%, if the prepayment occurs between the 25th
Installment Payment Date and the 36th Installment Payment Date; or (iii) 1%, if
the prepayment occurs between the 37th Installment Payment Date and the 48th
Installment Payment Date, in all cases by a fraction, the numerator of which is
the number of Installment Payment Dates remaining as of the date of prepayment
(including the Installment Payment Date, if any, on which prepayment is made)
and the denominator of which is the total number of Installment Payment Dates.
"Proceeds": the meaning assigned to it in the Code, and in any event,
--------
including, without limitation, (i) any and all proceeds of any insurance,
indemnity, warranty or guaranty payable to Debtor from time to time with respect
to any of the Equipment; (ii) any and all payments made, or due and payable from
time to time, in connection with any requisition, confiscation, condemnation,
seizure or forfeiture of all or any part of the Equipment by any Person; (iii)
any and all accounts arising out of, or chattel paper evidencing a lease of, any
of the Equipment; and (iv) any and all other rents or profits or other amounts
from time to time paid or payable in connection with any of the Equipment.
"Prohibited Transaction": a transaction in which: (i) Debtor enters into
----------------------
any transaction of merger or consolidation where (x) it shall not be the
surviving corporation or (y) if it is the surviving corporation, after giving
effect to such merger or consolidation its tangible net worth does not equal or
exceed at least 75% of that which existed prior to such merger or consolidation;
or (ii) Debtor sells, transfers or otherwise disposes of all or any substantial
part of its assets; or (iii) any Person, or group of Persons acting together,
becomes or agrees to become the beneficial owner (directly or indirectly) of 25%
or more of Debtor's or any Parent Company's shares of voting stock (excluding
current shareholders as of the date of this Agreement owning 25% or more of
Debtor's or any Parent Company's shares of voting stock).
"Prohibited Transaction Fee": on the date of the required prepayment of the
--------------------------
Notes pursuant to the provisions of paragraph 4(b) of this Rider A, the product
obtained by multiplying (i) 3%, if the prepayment occurs between the 1st
Installment Payment Date and the 24th Installment Payment Date; (ii) 2%, if the
prepayment occurs between the 25th Installment Payment Date and the 36th
Installment Payment Date; or (iii) 1%, if the prepayment occurs between the 37th
Installment Payment Date and the 48th Installment Payment Date, in all cases by
a fraction, the numerator of which is the number of Installment Payment Dates
remaining as of the date of prepayment (including the Installment Payment Date,
if any, on which prepayment is made) and the denominator of which is the total
number of Installment Payment Dates.
"Supplement": each supplement executed and delivered by Debtor pursuant
----------
hereto, satisfactory in form and substance to CIT.
"Treasury Rate": with respect to any Loan made hereunder, the interpolated
-------------
rate per annum for a U.S. Treasury Security with a maturity equal to the average
life of the Loan. The Treasury Rate will be determined as at (and shall be fixed
as of) the close of business on the 3rd Business Day prior to the making of such
Loan by interpolating between the yields to maturity for those U.S. Treasury
Securities having a remaining term to maturity closest to the average life of
the Loan as reported on page 5 ("U.S. Treasury and Money Markets") of the
information ordinarily provided by Telerate Systems Incorporated.
2. LOAN AND COMMITMENT. The aggregate principal amount of all Loans shall not
exceed $5,000,000.00. Each Loan shall be in a principal amount of not less than
$500,000.00. CIT's Commitment shall terminate on December 16, 1996.
3. INTEREST RATE. The interest rate per annum on the unpaid principal amount of
each Loan shall be the Treasury Rate plus 3.90%.
4. PREPAYMENT. (a) Should any item of Equipment suffer an Event of Loss, Debtor
shall make a prepayment on the corresponding Note within 30 days thereafter. The
amount to be prepaid shall be (i) the unpaid principal amount of such Note
multiplied by a fraction the numerator of which is the Cost of the item of
Equipment which suffered the Event of Loss and the denominator of which is the
original principal amount of the Note less the Cost of each item of Equipment
which previously suffered an Event of Loss or for which a prepayment has
otherwise previously been made (the "Prepaid Principal Amount"), (ii) all other
------------------------
amounts then due and owing hereunder and under the Notes and (iii) an amount
equal to the product of the Prepayment Percentage and the Prepaid Principal
Amount.
(b) Not less than twenty (20) Business Days prior to the date the proposed
Prohibited Transaction is expected to be consummated, Debtor shall give CIT
written notice of the proposed Prohibited Transaction. In the event CIT does not
consent to the Prohibited Transaction and the Prohibited Transaction is
nonetheless to be consummated, Debtor shall, on or prior to the date the
Prohibited Transaction is to be consummated, prepay the outstanding principal
under all Notes together with (1) all interest accrued thereon, (2) all other
amounts then due and owing hereunder and under the Notes, and (3) an amount
equal to the product of the Prohibited Transaction Fee and the outstanding
principal amount of the
Page 2 of 3
<PAGE>
Notes.
(c) On any Installment Payment Date occurring on or after the 13th
Installment Payment Date with respect to any Note executed hereunder, Debtor
may, at its option, on at least 30 days' prior written notice to CIT, prepay
all, but not less than all, of the outstanding principal under such Note
executed together with (i) all interest accrued thereon to the date of
prepayment, (ii) all other amounts then due and owing hereunder or under the
Note, and (iii) an amount equal to the product of the outstanding principal
under such Note and the Prepayment Percentage.
(d) Except as provided in (a), (b) or (c) of this paragraph 4, the Notes
may not be prepaid in whole or in part.
5. ADDRESSES FOR NOTICE PURPOSES AND DEBTOR'S CHIEF EXECUTIVE OFFICE.
CIT: DEBTOR:
THE CIT GROUP/EQUIPMENT FINANCING, INC. SOUTHWALL TECHNOLOGIES INC.
Address: Address:
1211 Avenue of the Americas 1029 Corporation Way
21st Floor Palo Alto, CA 94303
New York, New York 10036
Telecopier No. (212) 536-1385 Telecopier No. (415) 967-8713
Attention: Senior Vice President/Credit Attention: Vice President - Chief
Financial Officer
6. COMMITMENT FEE. CIT acknowledges receipt from Debtor of a non-refundable
commitment fee in the amount of $50,000.00.
7. FINANCIAL COVENANTS. Debtor agrees that so long as any Note remains
outstanding and unpaid, Debtor shall not, directly or indirectly, permit: (a)
its consolidated tangible net worth (defined as Debtor's total stockholder's
equity plus subordinated debt (subordinated debt is defined as any debt of
Debtor which, by its terms, is subordinate to the interests of senior lenders,
including CIT) less the aggregate of any treasury stock, any intangible assets,
deferred charges and any obligations due Debtor from stockholders, employees, or
affiliates) at any time to be less than $24,000,000.00; (b) the ratio of its
total liabilities to its consolidated tangible net worth to exceed .70 to 1.00
at any time; (c) the ratio of its cash plus cash equivalents plus trade
receivables to its current liabilities to be less than 1.00 to 1.00 at any time;
and (d) its minimum net profit to be less than $1.00 on a quarterly basis, or,
if its minimum net profit is less than $1.00 for a quarter, its minimum net
profit on a rolling four quarter basis to be less than $1.00, with no more than
one quarter showing a net loss. Debtor hereby further agrees that if a bank
providing a revolving line of credit obtains better financial convenants, such
better financial convenants shall, with no further action required by either
Debtor or CIT, become incorporated herein and made a part hereof.
THE PROVISIONS SET FORTH IN THIS RIDER A ARE INCORPORATED IN AND MADE A PART OF
THE LOAN AND SECURITY AGREEMENT BETWEEN CIT AND DEBTOR DATED AS OF DECEMBER 3,
1996.
CIT: DEBTOR:
THE CIT GROUP/EQUIPMENT SOUTHWALL TECHNOLOGIES INC.
FINANCING, INC. a New York corporation a Delaware corporation
By: /s/ M. F. Kahmann By: /s/ Martin M. Schwartz
---------------------------------- --------------------------------
Title: Senior Vice President Title: President/CEO
------------------------------- -----------------------------
Page 3 of 3
<PAGE>
SUPPLEMENT
This Supplement is executed and delivered by SOUTHWALL TECHNOLOGIES INC.
("Debtor") pursuant to the terms of a Loan and Security Agreement ("Agreement")
dated as of December 3, 1996 between Debtor and THE CIT GROUP/EQUIPMENT
FINANCING, INC. ("CIT").
1. Debtor hereby affirms, as set forth in Section 2 of the Agreement,
that CIT has a first (and only) lien on and security interest in the Equipment
set forth below:
Qty. Model/Mfrs. Description Serial No. Cost
---- ----------- ----------- ---------- ----
See Attached.
2. Debtor hereby represents and warrants that the above described
Equipment has been delivered to it, duly assembled and in good working order,
and is located at 1029 Corporation Way, Palo Alto, CA 94303.
3. Debtor hereby affirms that its representations and warranties set
forth in Section 4 of the Agreement are true and correct as of the date hereof.
4. Debtor hereby affirms that CIT has made a Loan to it secured by the
above described Equipment, which Loan is evidenced by a Note, in the principal
amount of $5,000,000.00, dated December 16, 1996.
DEBTOR:
SOUTHWALL TECHNOLOGIES INC.
By: /s/ Martin M. Schwartz
-------------------------
Title: President/CEO
----------------------
<PAGE>
EXHIBIT A
ITEM # QTY DESCRIPTION
1 Lot- (1) Southwell Technologies Custom Designed and Fabricated (PM4)
Tandem High Vacuum Planar Magnetron Sputter Roll Coating System
Consisting Of:
(2) Horizontal Chambers Each Consisting Of:
(1) 54" Diameter x 84" Wide Capacity Main Drum
Surrounded By (7) Cathodes - 9" x 92" Planar Magnetron,
With 120 KW DC Power Supplies, (1) Proprietary Retractable
Cover With Alignment, (1) Stationary Web Drive With Rigid
Drive System, 30" Diameter x 82" Long, (Approximately (28)
Southwall Designed & Built 9" x 92" Planar Magnetron
Cathodes, 120 KW DC Power Supply),
(2) 2-Ton Bridge Crane System,
(6) 6.25 KW, 2,500 Volt Glow Discharge Power Supplies
Vacuum System Consisting Of:
(12) 35" Varian Diffusion Pumps, (2) 20" Varian Diffusion
Pumps, Meissner Coils Cooled Polycold 650s, 94) Edwards
Blower Packages, With Proprietary Microprocessor
Controllers, Flow Controllers, Optical monitoring, Software,
Avtron Control Systems, Including Stainless Steel
Construction, Modular Scaffolding, Ancillary Support
Equipment
PERFORMANCE SPECIFICATIONS
--------------------------
The machine may be run as two independent roll coaters or as
one system coating two sides or with multiple coatings. The two
chambers are separated by a "tunnel". The tunnel may be sealed
by a proprietary door that creates two separate distinct
chambers. Each chamber is self sufficient and may product
different products.
These are approximately (28) Southwall Designed & Built 9"
x 92" Planar Magnetron Cathodes with 120 KW DC Power
Supplies. Each Main Chamber sputters with (7) Cathodes. In
full operation PM4 utilizes (14) Cathodes.
Continuous / successive coating of 84" wide polyester or
equivalent film. Common materials utilized are nickel, copper
and inchrome. Coating width 72" to 2 meters.
Winding system handles rolls of 30" Diameter by 82" long,
weighing up to 2,500 pounds. Speed is 5 to 500 millimeter
per second, with 50 to 500 pounds tension. Capabilities
include tension isolation, rewinder tension taper, spreading
and positioning.
A1
<PAGE>
ITEM# QTY DESCRIPTION
Vacuum system achieves a base pressure to 10 to 6 torr in a
24 hour pump-down.
Retractable end plates result in a 5 minute turnaround time
to load & unload, shield change. Cathode change and service
performed with approximately three crews.
Concrete reinforcement to 8.3 Seismic rating.
A2
<PAGE>
PROMISSORY NOTE
$5,000,000.00 DECEMBER 16, 1996
FOR VALUE RECEIVED, SOUTHWALL TECHNOLOGIES INC. ("Debtor") promises to pay
to the order of THE CIT GROUP/EQUIPMENT FINANCING, INC. ("CIT"), at such address
as CIT may designate, in lawful money of the United States, the principal sum of
Five Million and 00/100 Dollars ($5,000,000.00) together with interest in like
money on the principal sum remaining unpaid from time to time from the date of
this Note until due and payable (whether as stated, by acceleration or
otherwise) at the rate of nine and .7037 percent (9.7037%) per annum, said
principal and interest to be paid in forty-eight (48) consecutive monthly
installments, commencing on December 16, 1996 with the following installments on
the same day of each month thereafter until payment in full of this Note, as
more fully set forth in Schedule A attached hereto and made a part hereof. Each
such installment shall be a payment of principal and interest in the respective
amounts set forth opposite the payment date therefor in such Schedule A. Each
such installment shall be applied first to the payment of any unpaid interest on
the principal sum and then to payment of principal. Interest shall be calculated
on the basis of a 360-day year consisting of twelve 30-day months. Any amount
not paid when due under this Note shall bear late charges thereon, calculated at
the Late Charge Rate, from the due date thereof until such amount shall be paid
in full. Any payment received after the maturity of any installment of principal
shall be applied first to the payment of unpaid late charges, second to the
payment of any unpaid interest on said principal, and third to the payment of
principal.
This Note is one of the Notes referred to in the Loan and Security Agreement
dated as of December 3, 1996 between Debtor and CIT (herein, as the same may
from time to time be amended, supplemented or otherwise modified, called the
"Agreement"), is secured as provided in the Agreement, and is subject to
prepayment only as provided therein, and the holder hereof is entitled to the
benefits thereof.
Terms defined in the Agreement shall have the same meaning when used in this
Note, unless the context shall otherwise require.
Except as provided in the Agreement, Debtor hereby waives presentment,
demand of payment, notice of dishonor, and any and all other notices or demands
in connection with the delivery, acceptance, performance, default or enforcement
of this Note and hereby consents to any extensions of time, renewals, releases
of any party to this Note, waivers or modifications that may be granted or
consented to by the holder of this Note.
Upon the occurrence of any one or more of the Events of Default specified in
the Agreement, the amounts then remaining unpaid on this Note, together with any
interest accrued, may be declared to be (or, with respect to certain Events of
Default, automatically shall become) immediately due and payable as provided
therein.
In the event that any holder shall institute any action for the enforcement
or the collection of this Note, there shall be immediately due and payable, in
addition to the unpaid balance hereof,
Page 1 of 4
<PAGE>
all late charges and all reasonable costs and expenses of such action, including
attorneys' fees. In accordance with the provisions of the Agreement, Debtor and
CIT waive trial by jury in any litigation relating to or in connection with this
Note in which they shall be adverse parties, and Debtor hereby waives the right
to interpose any setoff, counterclaim or defense of any nature or description
whatsoever.
Debtor agrees that its liabilities hereunder are absolute and unconditional
without regard to the liability of any other party, and that no delay on the
part of the holder hereof in exercising any power or right hereunder shall
operate a waiver thereof; nor shall any single or partial exercise of any power
or right hereunder preclude other or further exercise thereof or the exercise of
any other power or right.
If at any time this transaction would be usurious under applicable law,
then regardless of any provision contained in the Agreement, in this Note or in
any other agreement made in connection with this transaction, it is agreed that
(a) the total of all consideration which constitutes interest under applicable
law that is contracted for, charged or received upon the Agreement, this Note or
any such other agreement shall under no circumstances exceed the maximum rate of
interest authorized by applicable law and any excess shall be credited to Debtor
and (b) if CIT elects to accelerate the maturity of, or if CIT permits Debtor to
prepay the indebtedness described in, this Note, any amounts which because of
such action would constitute interest may never include more than the maximum
rate of interest authorized by applicable law and any excess interest, if any,
shall be credited to Debtor automatically as of the date of acceleration or
prepayment.
THIS NOTE SHALL BE GOVERNED BY, AND CONSTRUED AND INTERPRETED IN ACCORDANCE
WITH, THE INTERNAL LAWS OF THE STATE OF CALIFORNIA.
SOUTHWALL TECHNOLOGIES, INC.
By: /s/ Martin M. Schwartz
-----------------------
Title: President and CEO
--------------------
Page 2 of 4
<PAGE>
SCHEDULE A, to that certain Promissory Note, dated December 16, 1996, in the
- ----------
original principal amount of $5,000,000.00.
<TABLE>
<CAPTION>
=======================================================================================================
Payment Payment Debt
Number Date Service Interest Principal Balance
- ------ ---- ------- -------- --------- -------
<S> <C> <C> <C> <C> <C>
12/16/96 5,000,000.00
1 12/16/96 125,091.02 0.00 125,091.02 4,874,908.98
2 01/16/97 125,091.02 39,420.43 85,670.59 4,789,238.39
3 02/16/97 125,091.02 38,727.66 86,363.35 4,702,875.04
4 03/16/97 125,091.02 38,029.29 87,061.72 4,615,813.32
5 04/16/97 125,091.02 37,325.28 87,765.74 4,528,047.58
6 05/16/97 125,091.02 36,615.57 88,475.45 4,439,572.13
7 06/16/97 125,091.02 35,900.12 89,190.89 4,350,381.24
8 07/16/97 125,091.02 35,178.89 89,912.13 4,260,469.11
9 08/16/97 125,091.02 34,451.83 90,639.19 4,169,829.92
10 09/16/97 125,091.02 33,718.88 91,372.14 4,078,457.79
11 10/16/97 125,091.02 32,980.01 92,111.01 3,986,346.78
12 11/16/97 125,091.02 32,235.16 92,855.85 3,893,490.93
13 12/16/97 125,091.02 31,484.30 93,606.72 3,799,884.21
14 01/16/98 125,091.02 30,727.36 94,363.66 3,705,520.55
15 02/16/98 125,091.02 29,964.29 95,126.72 3,610,393.82
16 03/16/98 125,091.02 29,195.06 95,895.95 3,514,497.87
17 04/16/98 125,091.02 28,419.61 96,671.41 3,417,826.46
18 05/16/98 125,091.02 27,637.89 97,453.13 3,320,373.33
19 06/16/98 125,091.02 26.849.84 98,241.17 3,222,132.16
20 07/16/98 125,091.02 26,055.43 99,035.59 3,123,096.57
21 08/16/98 125,091.02 25,254.58 99,836.43 3,023,260.13
22 09/16/98 125,091.02 24,447.27 100,643.75 2,922,616.39
23 10/16/98 125,091.02 23,633.42 101,457.59 2,821,158.79
24 11/16/98 125,091.02 22,813.00 102,278.02 2,718,880.77
25 12/16/98 125,091.02 21,985.94 103,105.08 2,615,775.69
26 01/16/99 125,091.02 21,152.19 103,938.83 2,511,836.87
27 02/16/99 125,091.02 20,311.70 104,779.32 2,407,057.55
28 03/16/99 125,091.02 19,464.41 105,626.60 2,301,430.94
29 04/16/99 125,091.02 18,610.27 106,480.74 2,194,950.20
30 05/16/99 125,091.02 17,749.23 107,341.79 2,087,608.41
31 06/16/99 125,091.02 16,881.22 108,209.80 1,979,398.62
32 07/16/99 125,091.02 16,006.19 109,084.82 1,870,313.80
33 08/16/99 125,091.02 15,124.09 109,966.93 1,760,346.87
34 09/16/99 125,091.02 14,234.86 110,856.16 1,649,490.71
35 10/16/99 125,091.02 13,338.43 111,752.59 1,537,738.12
36 11/16/99 125,091.02 12,434.75 112,656.26 1,425,081.86
37 12/16/99 125,091.02 11,523.77 113,567.25 1,311,514.62
</TABLE>
Page 3 of 4
<PAGE>
SCHEDULE A, to that certain Promissory Note, dated December 16, 1996, in the
- ----------
original principal amount of $5,000,000.00.
<TABLE>
<CAPTION>
=======================================================================================================
Payment Payment Debt
Number Date Service Interest Principal Balance
- ------ ---- ------- -------- --------- -------
<S> <C> <C> <C> <C> <C>
38 01/16/00 125,091.02 10,605.42 114,485.59 1,197,029.02
39 02/16/00 125,091.02 9,679.65 115,411.37 1,081,617.65
40 03/16/00 125,091.02 8,746.38 116,344.63 965,273.02
41 04/16/00 125,091.02 7,805.58 117,285.44 847,987.58
42 05/16/00 125,091.02 6,857.16 118,233.86 729,753.72
43 06/16/00 125,091.02 5,901.08 119,189.94 610,563.78
44 07/16/00 125,091.02 4,937.26 120,153.76 490,410.02
45 08/16/00 125,091.02 3,965.65 121,125.37 369,284.65
46 09/16/00 125,091.02 2,986.18 122,104.84 247,179.82
47 10/16/00 125,091.02 1,998.79 123,092.22 124,087.60
48 11/16/00 125,091.02 1,003.42 124,087.60 0.00
-------- ------------ ------------ ------------
TOTAL 6,004,368.79 1,004,368.79 5,000,000.00
</TABLE>
Page 4 of 4
<PAGE>
SECRETARY'S CERTIFICATE OF DEBTOR
I, L. Ray Christie, DO HEREBY CERTIFY to THE CIT GROUP/EQUIPMENT FINANCING,
---------------
INC. that I am the Secretary or Assistant Secretary of SOUTHWALL TECHNOLOGIES
INC., a corporation duly organized and existing under the laws of the State of
Delaware (the "Corporation"): that I am the keeper of the corporate records,
including, without limitation, the Charter, By-laws and the minutes of the
meetings of the Board of Directors of the Corporation; that the following is a
true, accurate and compared transcript of the resolutions contained in the
Minute Book of the Corporation, duly adopted by the Board of Directors on
, 1996 by unanimous written consent thereof or at a meeting of
- ---------------
the Board of Directors duly held thereon, at which time a quorum was present and
acted throughout; that the Corporation was authorized to transact the business
hereinafter described, and that said resolutions have not been amended or
rescinded, and are in full force and effect:
"RESOLVED, that any officer of the Corporation be and is hereby authorized
and empowered in the name and on behalf of the Corporation to obtain from The
CIT Group/Equipment Financing, Inc. ("CIT") loans and advances in such amounts
and on such terms and conditions as such officer deems proper and to mortgage,
pledge, assign and/or grant a security interest in property of the Corporation;
from time to time to modify, supplement or amend any such agreements; and to do
and perform all other acts and things deemed by such officer to be necessary,
convenient or proper to carry out any of the foregoing; and be it further
RESOLVED, that all that any officer shall have done or may do in connection
with the matters set forth above is hereby ratified, confirmed and approved; and
be it further
RESOLVED, that the foregoing resolutions shall remain in full force and
effect until written notice of their amendment or rescission shall have been
received by CIT and that receipt of such notice shall not affect any action
taken or loans or advances made by CIT prior thereto; and be it further
RESOLVED, that the Secretary or Assistant Secretary be and is hereby
authorized and directed to certify to CIT the foregoing resolutions and that the
provisions thereof are in conformity with the Charter and By-laws of the
Corporation."
I DO FURTHER CERTIFY that there are no restrictions imposed by the Charter
or By-laws of the Corporation restricting the power or authority of the Board of
Directors of the Corporation to adopt the foregoing resolutions or upon the
Corporation or its officers to act in accordance therewith.
I DO FURTHER CERTIFY that the following are names and specimen signatures
of officers of the Corporation empowered and authorized by the above
resolutions, each of whom has been duly elected to hold and currently holds the
office of the Corporation set forth opposite such officer's name:
NAME OFFICE SIGNATURE
---- ------ ---------
President &
Martin M. Schwartz Chief Executive Officer /s/ Martin M. Schwartz
- -------------------- -------------------------------- ----------------------
L. Ray Christie VP, CFO & Secretary /s/ L. Ray Christie
- -------------------- -------------------------------- ----------------------
- -------------------- -------------------------------- ----------------------
IN WITNESS WHEREOF, I have hereunto set my hand this 13th day of December,
----
1996.
/s/ L. Ray Christie
---------------------------------
SECRETARY OR ASSISTANT SECRETARY
OF SOUTHWALL TECHNOLOGIES INC.
Page 1 of 1
<PAGE>
SOUTHWALL TECHNOLOGIES INC.
EXHIBIT 21
----------
LIST OF SUBSIDIARIES OF SOUTHWALL TECHNOLOGIES INC.
---------------------------------------------------
Name State or other Jurisdiction of Incorporation
---- --------------------------------------------
Southwall Worldwide Glass Inc. California
Southwall-Sunflex, Inc. California
41
<PAGE>
SOUTHWALL TECHNOLOGIES INC.
EXHIBIT 23.1
------------
CONSENT OF INDEPENDENT ACCOUNTANTS
----------------------------------
We hereby consent to the incorporation by reference in the Registration
Statements of Southwall Technologies Inc. on Form S-8 Nos. 33-28599 (filed on
May 9, 1989), 33-37247 (filed on October 11, 1990), 33-42753 (filed on September
16, 1991), 33-51758 (filed on September 8, 1992) and 33-82138 (filed on July 28,
1994) of our report dated January 24, 1997 appearing on page 17 of this Form
10-K.
PRICE WATERHOUSE LLP
San Jose, California
March 26, 1997
42
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> DEC-31-1996
<CASH> 7,419
<SECURITIES> 7
<RECEIVABLES> 7,779
<ALLOWANCES> 682
<INVENTORY> 8,406
<CURRENT-ASSETS> 23,757
<PP&E> 38,689
<DEPRECIATION> 21,466
<TOTAL-ASSETS> 42,509
<CURRENT-LIABILITIES> 7,911
<BONDS> 0
44,509
0
<COMMON> 0
<OTHER-SE> (16,919)
<TOTAL-LIABILITY-AND-EQUITY> 42,509
<SALES> 41,062
<TOTAL-REVENUES> 41,720
<CGS> 27,936
<TOTAL-COSTS> 39,152
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 26
<INCOME-PRETAX> 2,542
<INCOME-TAX> 115
<INCOME-CONTINUING> 2,427
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,427
<EPS-PRIMARY> .35
<EPS-DILUTED> .35
</TABLE>
