SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q
(Mark One)
[X] Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934
For the quarterly period ended December 31, 1999
or
[ ] Transition report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the transition period from to
------------- -------------
Commission file number 33-28417
SITEK, INCORPORATED
(Formerly Known as Dentmart Group, Inc. and Elgin Corporation)
--------------------------------------------------------------
(Exact Name of Registrant as Specified in Its Charter)
Delaware 86-0923886
- --------------------------------- -------------------
(State of Other Jurisdiction (I.R.S. Employer
of Incorporation or Organization) Identification No.)
1817 West 4th Street, Tempe, AZ 85281
- ---------------------------------------- ----------
(Address of Principal Executive Offices) (Zip Code)
(480) 921-8555
----------------------------------------------------
(Registrant's Telephone Number, Including Area Code)
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(Former Name, Former Address and Former Fiscal Year,
if Changed Since Last Report)
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 [ ]
APPLICABLE ONLY TO CORPORATE ISSUERS
Indicate the number of shares outstanding of each of the issuer's classes
of common stock, as of the latest practicable date: 12,307,813 shares of common
stock outstanding as of February 4, 2000.
<PAGE>
TABLE OF CONTENTS
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets as of December 31, 1999
(unaudited) and March 31, 1999........................................... 1
Consolidated Statements of Operations
Three Months and Nine Months ended
December 31, 1999 and 1998 (unaudited)................................... 2
Consolidated Statements of Cash Flow
Nine Months ended December 31, 1999
and 1998 (unaudited)..................................................... 3
Consolidated Statement of Stockholders' Equity Period
from June 23, 1998, date of inception,
to December 31, 1999..................................................... 4
Notes to Consolidated Financial Statements (unaudited)..................... 5
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations.............................. 13
Item 3. Quantitative and Qualitative Disclosures
about Market Risk.......................................................... 16
PART II. OTHER INFORMATION
Item 1. Legal Proceedings.................................................... 17
Item 5. Other Information.................................................... 17
Item 6. Exhibits and Reports on Form 8-K..................................... 17
Signatures................................................................... 18
<PAGE>
SITEK, INCORPORATED AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
AS OF DECEMBER 31, 1999 (UNAUDITED) AND MARCH 31, 1999
December 31, 1999 March 31, 1999
----------------- --------------
Assets (Unaudited)
CURRENT ASSETS
Cash $ 449,701 $ 863
Accounts Receivable 1,570,438 207,934
Related Party Receivable 51,516 58,161
Inventory 3,866,425 5,389,000
Prepaid Financing Fees 46,667 568,533
Prepaid Vat 65,231 910,000
Prepaid Expenses and Other Assets 94,307 117,592
Deferred Tax Asset 193,000 --
----------- -----------
Total Current Assets 6,337,285 7,252,083
----------- -----------
PROPERTY AND EQUIPMENT, Net of Accumulated
Depreciation and Amortization of $77,833
as of December, 31, 1999, and
$14,214 as of March 31, 1999 576,897 90,707
DEPOSITS 66,186 37,466
GOODWILL, Less Accumulated
Amortization of $53,125 504,673 --
COVENANT NOT TO COMPETE, Less Accumulated
Amortization of $8,000 16,000 --
----------- -----------
TOTAL ASSETS $ 7,501,041 $ 7,380,256
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Line of Credit $ 190,464 $ 154,000
Advances From Related Parties 60,941 388,418
Notes Payable -- 5,745,510
Accounts Payable 1,669,280 268,774
Customer Deposits 596,172 171,250
Accrued Expenses 1,230,029 308,080
Vat Payable 93,798 910,000
Income Tax Payable 1,003,000 --
Convertible Debentures 80,000 80,000
Deferred Revenue 20,644 20,644
Capital Lease Obligation 268 --
----------- -----------
Total Current Liabilities 4,944,596 8,046,676
----------- -----------
NOTE PAYABLE 532,431 --
----------- -----------
CAPITAL LEASE OBLIGATION 4,147 --
----------- -----------
DEFERRED REVENUE, LONG TERM PORTION 22,365 37,848
----------- -----------
DEFERRED RENT PAYABLE 55,352 9,367
----------- -----------
CONVERTIBLE DEBENTURES 182,500 --
----------- -----------
LINE OF CREDIT 207,181 207,181
----------- -----------
STOCKHOLDERS' EQUITY
Preferred Stock, $.01 Par Value, 2,000,000
Shares Authorized, None Issued -- --
Common Stock, $.005 Par Value 50,000,000
Authorized, 12,307,813 Shares Issued
and Outstanding as of December 31, 1999,
12,230,813 Shares Issued and Outstanding
With 5,000 Shares Issuable as of
March 31, 1999 61,539 61,179
Additional Paid-in-Capital 74,115 2,475
Retained Earnings (Deficit) 1,416,815 (984,470)
----------- -----------
Total Equity 1,552,469 (920,816)
----------- -----------
TOTAL LIABILITIES & EQUITY $ 7,501,041 $ 7,380,256
=========== ===========
1
<PAGE>
SITEK, INCORPORATED AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
December 31, December 31,
------------------------ -------------------------
1999 1998 1999 1998
---------- ---------- ----------- ----------
<S> <C> <C> <C> <C>
Net sales $5,492,171 $2,586,250 $18,508,460 $2,743,250
Cost of goods sold 2,396,517 1,841,941 8,028,681 1,960,983
---------- ---------- ----------- ----------
Gross profit 3,095,654 744,309 10,479,779 782,267
---------- ---------- ----------- ----------
Operating expenses:
Selling, general and administrative 1,670,092 245,559 4,700,324 511,097
Research development & engineering 450,120 122,068 1,117,257 233,930
---------- ---------- ----------- ----------
Total operating expenses 2,120,212 367,627 5,817,581 745,027
---------- ---------- ----------- ----------
Income from operations 975,442 376,682 4,662,198 37,240
Other income (expense)
Interest (expense) (126,889) (107,404) (1,072,757) (107,404)
Other income 14,566 1 41,644 205
---------- ---------- ----------- ----------
(112,323) (107,403) (1,031,113) (107,199)
Income (loss) before income taxes 863,119 269,279 3,631,085 (69,959)
---------- ---------- ----------- ----------
Income Taxes 314,000 51,000 1,229,800 51,000
---------- ---------- ----------- ----------
Net income (loss) $ 549,119 $ 218,279 $ 2,401,285 $ (120,959)
========== ========== =========== ==========
Basic earnings (loss) per share $ .04 $ .02 $ .20 $ (.01)
========== ========== =========== ==========
Diluted earnings (loss) per share $ .04 $ .02 $ .19 $ (.01)
========== ========== =========== ==========
</TABLE>
2
<PAGE>
SITEK, INCORPORATED AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
Nine Months Ended
December 31, 1999 and 1998 (Unaudited)
Nine Months Ended
December 31,
---------------------------
1999 1998
----------- ------------
CASH FLOWS FROM OPERATING ACTIVITIES
Net Income (Loss) $ 2,401,285 $ (120,959)
Adjustments to Reconcile Net Income (Loss)
to Net Cash Provided by (Used In)
Operating Activities:
Amortization of Prepaid Financing 596,866 --
Depreciation & Amortization 122,228 33,683
Deferred Taxes (165,000) --
Gain Recognized On Sale Leaseback Transaction (15,483) --
Deferred Rent Expense 45,985 --
Change in Assets and Liabilities:
Accounts Receivable (1,297,138) (933,705)
Inventory 1,735,187 --
Prepaid VAT 844,769 --
Prepaid Expenses and Other Assets 40,592 (21,140)
Advances From Related Parties (327,477) 360,293
Accounts Payable 907,441 293,042
Customer Deposits 226,912 --
Accrued Expense 857,817 177,260
Income Tax Payable 983,000 51,000
VAT Payable (816,202) --
Profit Sharing Liability (254,992) --
----------- -----------
Net Cash Provided by (Used In)
Operating Activities 5,885,790 (160,526)
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES
Related Party Receivables 6,645 --
Purchase of VSM, Net of Cash (106,268) --
Capital Expenditures, Net of Retirements (337,258) (512,907)
----------- -----------
Net Cash (Used In) Investing Activities (436,881) (512,907)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES
Prepayments of Financing Fee (75,000) --
Borrowings On Line of Credit 1,387,964 --
Repayments of Line of Credit (1,351,500) --
Proceeds From Issuance of Convertible Debentures 182,500 75,000
Repayment of Notes Payable (9,213,079) --
Proceeds From Notes Payable 4,000,000 615,800
Repayment of Capital Lease (2,956) --
Issuance of Common Stock 72,000 1,000
----------- -----------
Net Cash Provided by (Used In)
Financing Activities (5,000,071) 691,800
----------- -----------
Net Increase in Cash 448,838 18,367
Cash, Beginning 863 --
----------- -----------
Cash, Ending $ 449,701 $ 18,367
=========== ===========
SUPPLEMENTAL SCHEDULE OF NONCASH
INVESTING AND FINANCING ACTIVITIES
Acquisition of VSM Inc.:
Cash Purchase Price $ 1,000,000 $ --
=========== ===========
Working Capital Acquired,
Net of Cash and Cash Equivalents $ (678,194) $ --
Fair Value of Other Assets Acquired,
Principally Property and Equipment 210,035 --
Long-term Debt Assumed (7,371) --
----------- -----------
$ (475,530) $ --
=========== ===========
For the nine months ended December 31,1999, cash payments for interest/financing
expense and income taxes were $374,490 and $417,000, respectively. In the nine
months ended December 31, 1998, cash payments for interest were $54,939. No cash
payments for income taxes were made in the nine months ended December 31, 1998.
3
<PAGE>
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
Period from June 23, 1998, date of inception to December 31, 1999
<TABLE>
<CAPTION>
Common Stock Additional
-------------------- paid-in Retained
Shares Amount capital earnings Total
------ ------ ------- -------- -----
<S> <C> <C> <C> <C> <C>
Issuance of stock, June 23, 1998 1,000,000 $ 1,000 $ -- $ -- $ 1,000
Effect of merger/recapitalization 11,230,813 60,154 0 (60,154) --
Stock issuable for services 5,000 25 2,475 0 2,500
Net (loss) -- 0 0 (924,316) (924,316)
---------- ----------- ----------- ----------- -----------
Balance, March 31, 1999 12,235,813 $ 61,179 $ 2,475 $ (984,470) $ (920,816)
Net income -- -- -- $ 2,401,285 $ 2,401,285
Issuance of stock 72,000 $ 360 $ 71,640 $ -- $ 72,000
---------- ----------- ----------- ----------- -----------
Balance, December 31, 1999
(unaudited) 12,307,813 $ 61,539 $ 74,115 $ 1,416,815 $ 1,552,469
========== =========== =========== =========== ===========
</TABLE>
4
<PAGE>
SITEK, INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
NINE MONTHS ENDED DECEMBER 31, 1999
NOTE A. BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements of SITEK,
Incorporated and Subsidiaries (the Company) have been prepared in accordance
with generally accepted accounting principles for interim financial information
and with the instructions to Form 10-Q and Article 10 of Regulation S-X.
Accordingly, they do not include all of the information and footnotes required
by generally accepted accounting principles for complete financial statements.
In the opinion of management, the unaudited consolidated financial statements
included herein have been prepared on a consistent basis with the March 31, 1999
audited consolidated financial statements and include all adjustments
(consisting of normal recurring accruals) considered necessary for a fair
presentation. Operating results for the three and nine month periods ended
December 31, 1999 are not necessarily indicative of future operating results.
For further information refer to the financial statements and footnotes included
in the company's annual report on Form 10-K for the fiscal year ended March 31,
1999.
The consolidated financial statements include the accounts of SITEK,
Incorporated and its wholly-owned subsidiaries, Advanced Technology Services,
Inc. (ATSI), CMP Solutions, Inc. (CMPS), and VSM Corporation (VSM). All
significant intercompany accounts are eliminated upon consolidation.
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the amounts reported in the financial statements and accompanying notes.
Actual results could differ from those estimates.
The Company recognizes revenue from the sale of products when the risks and
rewards of ownership transfer to the customers, which is generally at the time
of shipment. No significant obligations remain after the product is shipped.
Cost for installation and warranty are accrued when the corresponding sales are
recognized.
NOTE B. BASIC AND DILUTED EARNINGS PER SHARE
Basic net income per common share is computed based on weighted average common
shares outstanding during the period. Diluted net income per share is computed
using the weighted average common and dilutive common equivalent shares
outstanding during the period. Convertible debt and the effect of stock options
are considered common stock equivalent and are included in the weighted average
shares computation using the treasury stock method. The effect of 77,000 stock
options and 64,562 warrants are not included because they are anti-dilutive.
5
<PAGE>
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
December 31, December 31,
----------------------- -----------------------
1999 1998 1999 1998
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Net income (loss) $549,119 $218,279 $2,401,285 $(120,959)
Weighted average shares outstanding 12,307,813 12,230,813 12,297,302 11,002,443
Effect of dilutive securities:
Convertible debt 68,143 15,000 49,015 --
Stock options 888,192 -- 591,942 --
Diluted weighted average shares
outstanding 13,264,146 12,245,813 12,938,259 11,002,443
Basic earnings per share .04 .02 .20 (.01)
Diluted earnings per share .04 .02 .19 (.01)
</TABLE>
NOTE C. INVENTORIES
Inventories are valued at the lower of cost or market. Cost of pre-owned
equipment held for resale is determined on the specific identification method.
Costs of all other inventories are determined on a first-in, first-out (FIFO)
basis. Inventories consisted of the following:
December 31, 1999 March 31, 1999
----------------- --------------
Pre-owned equipment held
for resale, net of reserves $3,124,394 $5,389,000
Raw materials 159,386 --
Work-in-process 582,645 --
---------- ----------
Total $3,866,425 $5,389,000
========== ==========
6
<PAGE>
NOTE D. ACCRUED EXPENSES
The components of accrued expenses are as follows:
December 31, 1999 March 31, 1999
----------------- --------------
Finder's Fee $ 637,789 $ --
Compensation and benefits 222,219 --
Interest expense 58,954 24,506
Installation and warranty 52,330 --
Insurance 52,327 --
Legal/audit 50,295 67,074
Shareholder expense 45,000 125,000
Directors fees -- 72,000
Other 111,115 19,500
----------- ---------
Total $ 1,230,029 $ 308,080
=========== =========
NOTE E. CONTINGENCIES
The Company has been named a defendant in a lawsuit filed by a former employee
(Employee) of and a former consultant (Consultant) to a company controlled by
certain shareholders of the Company alleging wrongful termination, amounts owed
for consulting services and misappropriated trade secrets. Management denies
these allegations and intends to defend itself vigorously. The defendants have
demanded the value of 1,000,000 shares of the Company's stock. No provision has
been made to the financial statements as a result of this lawsuit. Subsequent to
December 31, 1999, the Employee and the Company stipulated all claims be
dismissed with prejudice, each party to bear its own costs and attorneys' fees.
The lawsuit with the Consultant is ongoing.
7
<PAGE>
NOTE F. SALES BY GEOGRAPHIC AREA
The following table presents information about the Company's sales (attributed
to countries based on the location of the customer) by geographic area:
Three Months Ended Nine Months Ended
December 31, December 31,
-------------------------- --------------------------
1999 1998 1999 1998
----------- ----------- ----------- -----------
United Kingdom $ 2,106,000 $ -- $ 8,480,129 $ --
United States 2,648,882 1,250 5,269,775 76,250
Netherlands 157,500 2,189,000 1,953,350 2,271,000
Japan 3,284 -- 895,001 --
Malaysia 455,824 -- 540,136 --
Italy -- -- 499,000 --
France -- 396,000 450,000 396,000
Mexico 35,886 -- 174,761 --
Other 84,795 -- 246,308 --
----------- ----------- ----------- -----------
Total $ 5,492,171 $ 2,586,250 $18,508,460 $ 2,743,250
=========== =========== =========== ===========
NOTE G. INCOME TAX MATTERS
Pretax income from continuing operations for the three months and nine months
ended December 31, 1999 was taxed all domestically.
The income tax provisions charged to continuing operations for the three months
and nine months ended December 31, 1999 and 1998 were as follows:
Three Months ended Nine Months Ended
December 31, December 31,
------------------- ---------------------
1999 1998 1999 1998
-------- ------- ---------- -------
Current:
U.S. federal $268,000 $39,000 $1,131,000 $39,000
State 68,000 12,000 289,000 12,000
Deferred tax expense (benefit) (22,000) -- (190,200) --
-------- ------- ---------- -------
$314,000 $51,000 $1,229,800 $51,000
======== ======= ========== =======
8
<PAGE>
The income tax provision charged to continuing operations for the three months
and nine months ended December 31, 1999 and 1998 differ from the amount of
income tax determined by applying the U.S. federal income tax rate to pretax
income from operations due to the following:
Three Months Ended Nine Months Ended
December 31, December 31,
----------------- --------------------
1999 1998 1999 1998
-------- ------- ---------- -------
Computed "expected" tax $302,000 $94,000 $1,271,000 $(24,000)
Increase (decrease) in income taxes
resulting from:
Nondeductible expenses 16,000 -- 38,000 76,000
State taxes, net of federal benefit 44,000 -- 188,000 --
Change in valuation allowance -- (43,000) (255,000) --
Other (48,000) -- (12,200) (1,000)
-------- ------- ---------- -------
$314,000 $51,000 $1,229,800 $51,000
======== ======= ========== =======
9
<PAGE>
Attributes giving rise to net deferred tax assets consist primarily of other
current liabilities at December 31, 1999.
The Company's deferred tax assets were fully reserved at March 31, 1999.
NOTE H. SEGMENT INFORMATION
Financial information with respect to the reportable segments follows for the
three and nine months ending December 31, 1999 and 1998:
Three Months Ended December 31, 1999
Corporate and
VSM ATSI CMPS Unallocated Total
--- ---- ---- ----------- -----
Revenue from external
customers $1,150,411 $ 4,294,284 $ 39,976 $ 7,500 $5,492,171
Segment operating
income (loss) 106,959 2,078,939 (387,764) (822,692) 975,442
Segment assets 2,020,389 4,237,641 348,313 894,698 7,501,041
Nine Months Ended December 31, 1999
Corporate and
VSM ATSI CMPS Unallocated Total
--- ---- ---- ----------- -----
Revenue from external
customers $2,923,691 $15,404,979 $164,812 $ 14,978 $18,508,460
Segment operating
income (loss) 476,092 7,083,354 (761,843) (2,135,405) 4,662,198
10
<PAGE>
Three Months Ended December 31, 1998
Corporate and
VSM ATSI CMPS Unallocated Total
--- ---- ---- ----------- -----
Revenue from external
customers -- $ 2,585,000 1,250 -- $2,586,250
Segment operating
income (loss) -- 667,120 (124,357) (166,081) 376,682
Segment assets -- 963,264 489,117 55 1,452,436
Nine Months Ended December 31, 1998
Corporate and
VSM ATSI CMPS Unallocated Total
--- ---- ---- ----------- -----
Revenue from external
customers -- $ 2,742,000 1,250 -- $2,743,250
Segment operating
income (loss) -- 695,109 (240,261) (417,608) 37,240
NOTE I. FINDER'S FEE AGREEMENT
Effective May 20, 1999, the Company agreed to pay a finder's fee to Bruar
Associates in exchange for efforts in arranging the purchase of pre-owned
semiconductor equipment located in the United Kingdom. The fee is based upon 15%
of net sales proceeds relating to the purchased equipment when and if such sales
exceed $6,583,000. Fees are due on the next $ 8,417,000 in net sales proceeds.
The agreement expires on May 31, 2002. As of December 31, 1999, the Company has
recognized $1,073,000 in finder's fees expenses of which $286,000 was recognized
in the three months ended December 31, 1999 as management expects sales to
exceed $15,000,000.
11
<PAGE>
NOTE J. RESEARCH, DEVELOPMENT, AND ENGINEERING
Research, development, and engineering activities conducted during the three
months ended December 31, 1999 include the completion of the Corona head product
as well as the initial design work for the Phoenix 2000 Chemical Mechanical
Planarization system and the Wet-Q Wet Buffer Station. In addition, CMPS
incurred engineering expenses associated with development of planarization
processes related to its foundry business.
NOTE K. 1999 STOCK INCENTIVE PLAN
On January 19, 1999, the Board of Directors adopted the 1999 Stock Incentive
Plan and reserved a total of 1,500,000 shares for issuance. The Plan provides
for the grant of options which qualify as incentive stock options under Section
422 of the Internal Revenue Code and nonstatutory stock options which do not
specifically qualify for favorable income tax treatment under the IRS Code. The
Plan is administered by the Compensation Committee of the Board of Directors.
Stockholders approved the Plan as of the September 28, 1999 annual stockholder's
meeting and the reserve was increased to 2,500,000 shares. As of December 31,
1999, the Company has outstanding option grants to certain employees under the
Plan of 1,140,000 shares with an exercise price equal to the fair market value
as of the date of grant. During the three months ended December 31, 1999, the
Company granted 262,000 options.
NOTE L. RESTATEMENT
The December 31, 1998 previously reported numbers have been changed to reflect
certain March 31, 1999 audit adjustments with an effect of reducing the net
profit for the three months ended December 31, 1998 by $51,000 and $290,070 for
the nine months ended December 31, 1998.
NOTE M. SUBSEQUENT EVENTS
On January 10, 2000, the Company entered into a revolving credit agreement with
Imperial Bank in the principal amount of $2,000,000. The loan bears interest at
prime plus 4%, matures January 9, 2001, and is secured by substantially all
assets of Sitek and ATSI other than property acquired by the Company under a
pre-existing credit facility. The credit agreement required a non-refundable fee
of $30,000 which will be amortized over the life of the loan. The Company may
borrow the lessor of $2,000,000 or a percentage of the Borrowing Base which
consists of eligible accounts receivable and eligible inventory.
On January 20, 2000, the Company entered into a facility lease agreement which
expires May 31, 2003. Rent is payable at the rate of $15,000 per month from June
1, 2000 through May 31, 2001, $16,000 per month from June 1, 2001 through May
31, 2002, and $17,000 per month from June 1, 2002 through May 31, 2003.
12
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
This report contains forward-looking statements within the meaning of the
Private Securities Litigation Reform Act of 1995, including projections of
results of operations and financial condition, statements of future economic
performance, and general or specific statements of future expectations and
beliefs. The matters covered by such forward-looking statements are subject to
known and unknown risks, uncertainties and other factors, including those
discussed below, which may cause the actual results, performance or achievements
of the Company to differ materially from those contemplated or implied by such
forward-looking statements.
GENERAL
Sitek provides administrative, product development, and business support
functions for its semiconductor capital equipment and foundry subsidiary
companies. As of December 31, 1999, Sitek operated three wholly-owned
subsidiaries: CMP Solutions, Inc. ("CMPS"), Advanced Technology Services Inc.
("ATSI"); and VSM Corporation ("VSM"). Sitek and its subsidiaries employed 61
persons as of December 31, 1999. Sitek is a start-up company with only a very
limited operating history. As such, it remains subject to all the risks and
uncertainties of a new business, including those relating to the establishment
of operational, accounting, financial, employment, sales, marketing and other
systems and procedures. In addition, the company is subject to the special risks
inherent in the very dynamic semiconductor industry where, because obsolescence
cycles are short and timing is critical, companies with limited resources may be
unable to complete effectively.
CMP SOLUTIONS, INC.
CMPS, which commenced operations in July 1998, provides services and products
relating to "chemical mechanical planarization," or CMP. This is the process by
which surface materials on a silicon wafer are removed or polished to make it
possible to add new layers of integrated circuit metal and insulator on the
wafer. This technology is primarily used by integrated circuit manufacturers who
use this process in their most advanced circuits. Large companies which use the
CMP process on their wafers have the capability to manufacture their own
customized CMP treated wafer. However, the high cost associated with equipment
procurement, process design and the scarcity of qualified technicians can make
in-house CMP wafer treatment economically unattractive for smaller companies.
CMPS provides foundry CMP process capability for the smaller manufacturer and
research and development markets. The CMPS foundry is in the early stages of
marketing its services and does not yet have sufficient revenue to cover its
operating expenses. CMPS has no material backlog of orders.
ADVANCED TECHNOLOGY SERVICES INC.
ATSI, which commenced business in July 1998, buys and sells pre-owned
semiconductor processing and manufacturing equipment to the world-wide market of
semiconductor companies. These manufacturers purchase used equipment for various
reasons, including the lower cost compared to new equipment, the availability of
such equipment on a more timely basis than new equipment and the need to replace
equipment which is no longer manufactured.
VSM CORPORATION
VSM, which was acquired by Sitek on April 28, 1999, manufactures and refurbishes
semiconductor process equipment and subassemblies. The VSM ultra-pure gas and
chemical handling systems have wide applications in wafer manufacturing
operations and plant facilities. VSM has recently introduced a proprietary
magnetic anneal furnace system that is utilized in the fabrication of
nonvolatile semiconductor memory circuits and other devices. Marketing efforts
have recently begun and the level of customer acceptance, if any, of this system
has not yet been determined. A patent application was filed with the U.S. Patent
and Trademark Office for protection of intellectual property associated with
this system during the three months ended December 31, 1999.
13
<PAGE>
RESULTS OF OPERATIONS
NET SALES
Sitek's net sales of $ 5,492,000 in the three months ended December 31, 1999 and
$ 18,508,000 in the nine months ended December 31, 1999 were principally due to
resales by ATSI of $4,294,000 and $ 15,405,000, respectively, of pre-owned
semiconductor capital equipment. The current fiscal year net sales increased
significantly over sales in the three and nine month periods ended December 31,
1998 when Sitek was operating as a developmental stage company.
A substantial portion of the Company's inventory of pre-owned semiconductor
capital equipment was acquired in a single purchase of equipment at a very
attractive price from a discontinued semiconductor manufacturing facility in the
United Kingdom. As of December 31, 1999, the company sold approximately 66% of
this equipment. The company's ability to maintain its current levels of revenue
from sales of pre-owned equipment depends on the company's success in locating
pre-owned equipment at acceptable prices. The worldwide supply of and demand for
such equipment fluctuates widely and is affected by such things as the price of
and demand for semiconductors, introduction of improved manufacturing
technology, the age of semiconductor equipment currently in use, and other
semiconductor market conditions. There can be no assurance that the company will
be able to locate suitable pre-owned equipment, or that such equipment will be
available at acceptable prices or that the company will have the necessary
resources to acquire such equipment if it does become available. The Company's
operating results and financial condition would be materially adversely affected
if it is unable to locate suitable equipment at acceptable prices or if it is
unable to exploit such opportunities.
Net sales attributable to VSM were $ 1,150,000 during the three months ended
December 31, 1999 and $ 2,924,000 during the nine months ended December 31,
1999. VSM was acquired by Sitek on April 28, 1999.
CMPS generated net sales of $ 40,000 during the three months and $ 165,000 for
the nine months ended December 31, 1999. CMPS had nominal revenue in the
comparable year earlier periods.
GROSS MARGIN
Sitek's gross margin was 56.4% for the three months ended December 31, 1999 and
56.6% for the nine months ended December 31, 1999 compared with 28.8% and 28.5%
for the three month and nine month periods ended December 31, 1998,
respectively. This increase was primarily due to increased sales in the current
fiscal year of certain pre-owned semiconductor capital equipment obtained at
attractive prices. The company does not expect to be able to maintain its
present gross margins after sale of this pre-owned equipment inventory.
OPERATING EXPENSE
Operating expenses of $ 2,120,212 in the three months ended December 31, 1999 or
38.6% of net sales and $ 5,817,581 for the nine months ended December 31, 1999
or 31.4% of net sales were significantly higher in absolute dollars than the
expenses incurred in the same periods for fiscal 1999 when Sitek operated as a
developmental stage company. Sitek has concentrated on building its
administrative, selling, and research, development and engineering staff and
infrastructure during the current fiscal year to support existing and future
growth in sales volume.
Research, development, and engineering expenses were $ 450,000 or 8.2% of net
sales for the three months and $ 1,117,000 or 6.0% of net sales for the nine
months ended December 31, 1999. These expenses were incurred primarily to
complete the development of a new CMP wafer carrier for use with existing CMP
14
<PAGE>
(Chemical Mechanical Planarization) tools. Research and development expenses
also were incurred during the three months ended December 31, 1999 on a
proprietary CMP system, the Wet-Q 200, which is a wet wafer storage system, and
engineering expenses associated with development of planarization processes
related to the CMPS foundry operation. Research, development, and engineering
expenses incurred in the three and nine months ended December 31, 1998 were
$122,000 and $234,000, respectively. These expenses related mainly to
engineering efforts in setting up the CMPS facility.
The Company has a number of products in the developmental or beta testing stage.
The company expects that completion of the development of these products will
require substantial additional expenditures which cannot accurately be
predicted. There can be no assurance that the company will successfully complete
development of or commercially market such products or that such development is
economically feasible or that the company will have adequate resources to
complete development or adequately market such products.
Selling, general and administrative expensives for the three and nine month
periods ended December 31, 1999 were $1,670,092 or 30.4% of net sales and
$4,700,324 or 25.4% of net sales, respectively. These expenses related to
general business activities including selling and administrative wages, travel,
legal and accounting, facility rent, and equipment rentals as well as $ 286,000
and $1,073,000, respectively, in finder's fees expenses associated with the U.K.
pre-owned inventory acquisition as referred to in Note I to the financial
statements included elsewhere herein. Selling, general, and administrative
expenses of $ 246,000 and $511,000 for the three and nine months ended December
31, 1998, respectively, were primarily due to start-up costs and other general
business activities.
INTEREST EXPENSE
Interest expense during the three months ended December 31, 1999 was $127,000 or
2.3% of net sales as compared to $1,073,000 for the nine months ended December
31, 1999 or 5.8% of net sales. Sitek has reduced its interest expense in the
three months ended December 31, 1999 from three months ended September 30, 1999
due to debt repayment.
Interest expense of $107,000 for the three and nine month periods ended December
31, 1998 was mainly due to pre-owned equipment inventory financing.
15
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LIQUIDITY AND SOURCES OF CAPITAL
Cash flows provided by operating activities were $5,886,000 for the nine months
ended December 31, 1999, compared to ($160,526) for the comparable period in
1998. The increase in cash from operations was due to the increase in net sales,
primarily sales of pre-owned equipment. Since commencing operations, the company
has used internally generated cash and debt financing to fund its product
development and other operating and capital expenditure requirements.
Sitek's funding requirements for the next 12 months include corporate tax
payments, product development expenses and repayment of debt, in addition to
normal operating expenses. The company must fund its next scheduled corporate
income tax payment on March 15, 2000. As of December 31, 1999, income tax
payable totaled $1,003,000. In addition, the company expects that CMPS will
continue to need additional funding to support operations until it can generate
sufficient revenues to cover operating expenses. Although management has
forecast increased sales at CMPS during the next twelve months, there can be no
assurance that such increase will occur or that the company will realize a
positive gross margin from any such sales. If sales at CMPS remain unchanged
from current levels, the company may be required to advance funds of up to
$1,000,000 during the next 12 months to cover operating expenses. The company
had total availability of $527,000 under its revolving bank line of credit as of
February 9, 2000 which bears interest at the lender's prime rate plus four
percentage points. In addition, the Company has the ability to borrow up to
$809,000 from a commercial funding source to be used for pre-owned equipment.
The company also expects to incur substantial new product development costs in
the next 12 months. The amount of these costs is difficult to predict and
depends on the attempted rate of development, technological difficulties
encountered, changing requirements of semiconductor fabricators and other
factors. In addition, the company expects to pursue attractive acquisition
opportunities should they become available. The company will not pursue these
activities if sufficient funds are not available.
The company expects to use cash generated from operations and its revolving bank
line of credit to meet its funding needs during the next 12 months. These
sources are not expected to be adequate unless the company can dispose of its
remaining inventory of pre-owned equipment acquired in the U.K. and can
materially increase the sales of its VSM and CMPS units. If these sources of
funds are inadequate, the company will be required to obtain capital from
outside sources, by issuing additional long- or short-term debt or common or
preferred equity, either in private or public offerings. The company has no
commitment from any outside source for such financing and there is no assurance
that such sources would be available to the company in the amount required or on
terms acceptable to the company. Any issuance of equity under such circumstances
may be highly dilutive.
If the company is unable to fund its capital needs through internal or external
sources, it will be forced to delay or cancel planned product development,
reduce its workforce and manufacturing capability, sell operating assets or some
combination of the foregoing.
16
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ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Market risk generally represents the risk that losses may occur in the values of
financial instruments as a result of movements in interest rates, foreign
currency exchange rates and commodity prices.
Interest Rate Risk - The Company evaluated the potential effect that near term
changes in interest rates would have had on the fair value of its interest rate
risk sensitive financial instruments at year-end. Due to limited borrowing
availability, any near term changes in interest rates would not have a material
adverse affect.
Foreign Exchange Rate Risk - The Company conducts business in various parts of
the world and in various foreign currencies. As of December 31, 1999, the
company did not have any material foreign currency risk. The company expects it
may have foreign currency exchange rate risk in the future.
17
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PART II - OTHER INFORMATION
ITEM 1: LEGAL PROCEEDINGS.
Sitek was named as a defendant in a lawsuit that was filed on April 1,
1999. The lawsuit involves two separate claims by two plaintiffs; EDMOND L.
LONERGAN AND ROBERT F. RUSSO, JR. V. SITEK, INCORPORATED, ET AL., Superior Court
for the State of Arizona, County of Maricopa, Case No. CV 99-05785. The first
plaintiff, Edmond Lonergan, alleges that he was not paid for consulting services
by Global Semiconductor Technologies, Inc., a company controlled by certain
shareholders of SITEK. Mr. Lonergan also claims that Global Semiconductor
Technologies, Inc. and/or the other defendants misappropriated trade secrets in
conducting the reverse merger of Dentmart into Sitek. The second plaintiff,
Robert Russo, Jr., was a former employee of Global Semiconductor Technologies,
Inc. Mr. Russo claims that he was wrongfully terminated. SITEK filed its answer
denying these allegations and intends to defend itself vigorously. Mr. Lonergan
and Mr. Russo have demanded the value of 1,000,000 shares of Sitek's capital
stock and other damages to be proven at trial in their complaint. Subsequent to
December 31, 1999 Mr. Russo and Sitek stipulated all claims be dismissed with
prejudice, each party to bear its own costs and attorneys' fees. Mr. Lonergan's
case is ongoing.
ITEM 5: OTHER INFORMATION.
(a) On January 10, 2000, the Company entered into a Credit Agreement with
Imperial Bank pursuant to which Imperial Bank agreed to provide a $2,000,000
revolving line of credit. A copy of the Credit Agreement is filed herewith.
(b) On January 20, 2000, the Company entered into a Commercial Lease with
Fairmont Commerce Center, LLC to lease facilities. A copy of the Commercial
Lease is filed herewith.
ITEM 6: EXHIBITS AND REPORTS ON FORM 8-K
(a) See Exhibit Index following the signature page, which is incorporated
herein by reference.
(b) Reports on form 8-K
On May 13, 1999, the Company filed a form 8-K to report in Item 2, an
acquisition of all the outstanding shares of VSM Corporation for $1,000,000
pursuant to a Stock Purchase Agreement dated April 28, 1999.
18
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SIGNATURES
Pursuant to the requirements 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.
SITEK, INCORPORATED
(Registrant)
Date: February 11, 2000 By: /s/ Dr. Don M. Jackson
-------------------------------------
Dr. Don M. Jackson
President and Chief Executive Officer
Date: February 11, 2000 By: /s/ Gloria Zemla
-------------------------------------
Gloria Zemla
Chief Financial Officer
19
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SITEK, Incorporated
Exhibit Index to Quarterly Report on Form 10-Q
For the Quarter Period Ended December 31, 1999
Incorporated by
Exhibit No. Description Reference to:
- ----------- ----------- -------------
2.1 Stock Purchase Agreement Form 8-K filed with the SEC
dated April 28, 1999 on May 13, 1999
3.1 Articles of Incorporation of Form 8-K-filed with the SEC
Registrant on August 17, 1998
3.2 By laws of Registrant Form 10-K filed with the
SEC on April 17, 1998
10.1 Credit Agreement with Imperial Filed Herewith
Bank dated January 10, 2000
10.2 Commercial Lease with Fairmont Filed Herewith
Commerce Center, LLC dated
January 20, 2000
27.1 Financial Data Schedule Filed Herewith
================================================================================
CREDIT AGREEMENT
by and between
SITEK, INCORPORATED, a Delaware corporation,
ADVANCED TECHNOLOGY SERVICES, INC., an Arizona corporation
and
IMPERIAL BANK, a California banking corporation
Dated as of
January 10, 2000
================================================================================
<PAGE>
TABLE OF CONTENTS
Page
----
RECITALS.......................................................................1
ARTICLE 1 DEFINITION OF TERMS...............................................2
1.1 Definitions.......................................................2
1.2 References........................................................8
1.3 Accounting Terms..................................................8
ARTICLE 2 THE RLC...........................................................9
2.1 Commitment........................................................9
2.2 Revolving Line of Credit..........................................9
2.3 RLC Advances......................................................9
2.4 RLC Payments......................................................9
2.5 Principal Prepayments; Excess Balance Payment....................10
2.6 Method of Payment................................................10
2.7 Collection of Payment............................................10
2.8 Conditions.......................................................10
2.9 Other RLC Advances by Lender.....................................11
2.10 Assignment.......................................................11
2.11 Fees.............................................................11
ARTICLE 3 SECURITY.........................................................12
3.1 Security.........................................................12
3.2 Security Documents...............................................12
ARTICLE 4 CONDITIONS PRECEDENT.............................................13
4.1 Initial or Any Subsequent Advance................................13
4.2 No Event of Default..............................................14
4.3 No Material Adverse Effect.......................................14
4.4 Representations and Warranties...................................14
ARTICLE 5 REPRESENTATIONS AND WARRANTIES...................................15
5.1 Recitals.........................................................15
5.2 Organization and Good Standing...................................15
5.3 Authorization and Power..........................................15
5.4 Security Documents...............................................15
5.5 No Conflicts or Consents.........................................15
5.6 No Litigation....................................................15
5.7 Financial Condition..............................................16
5.8 Taxes............................................................16
5.9 No Stock Purchase................................................16
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5.10 Advances.........................................................16
5.11 Enforceable Obligations..........................................16
5.12 No Default.......................................................16
5.13 Significant Debt Agreements......................................16
5.14 ERISA............................................................17
5.15 Compliance with Law..............................................17
5.16 Solvent..........................................................17
5.17 Investment Borrower Act..........................................17
5.18 Title............................................................17
5.19 Survival of Representations, Etc.................................17
5.20 Environmental Matters............................................17
5.21 Licenses, Tradenames.............................................17
ARTICLE 6 AFFIRMATIVE COVENANTS............................................18
6.1 Financial Statements, Reports and Documents......................18
6.2 Maintenance of Existence and Rights; Conduct of Business;
Management.......................................................19
6.3 Operations and Properties........................................19
6.4 Authorizations and Approvals.....................................19
6.5 Compliance with Law..............................................19
6.6 Payment of Taxes and Other Indebtedness..........................19
6.7 Compliance with Significant Debt Agreements
and Other Agreements.............................................20
6.8 Compliance with Credit Documents.................................20
6.9 Notice of Default................................................20
6.10 Other Notices....................................................20
6.11 Books and Records; Access........................................20
6.12 ERISA Compliance.................................................20
6.13 Further Assurances...............................................20
6.14 Insurance........................................................21
6.15 Depository Accounts..............................................21
6.16 Equipment Located in United Kingdom..............................22
ARTICLE 7 NEGATIVE COVENANTS...............................................23
7.1 No Debt..........................................................23
7.2 Liens............................................................23
7.3 Existence........................................................23
7.4 Amendments to Organizational Documents...........................23
7.5 Margin Stock.....................................................23
7.6 Distributions....................................................24
7.7 Indebtedness; Payments...........................................24
7.8 Transfer Collateral..............................................24
7.9 Merger; Sale of Assets...........................................24
7.10 Financial Covenants..............................................24
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ARTICLE 8 EVENTS OF DEFAULT................................................25
8.1 Events of Default................................................25
8.2 Remedies Upon Event of Default...................................27
8.3 Performance by Lender............................................28
ARTICLE 9 MISCELLANEOUS....................................................29
9.1 Modification.....................................................29
9.2 Waiver...........................................................29
9.3 Payment of Expenses..............................................29
9.4 Notices..........................................................29
9.5 Governing Law; Jurisdiction, Venue; Waiver of Jury Trial.........30
9.6 Reference Provision..............................................31
9.7 Invalid Provisions...............................................32
9.8 Binding Effect...................................................32
9.9 Entirety.........................................................32
9.10 Headings.........................................................32
9.11 Survival.........................................................32
9.12 No Third Party Beneficiary.......................................32
9.13 Time.............................................................33
9.14 Schedules and Exhibits Incorporated..............................33
9.15 Counterparts.....................................................33
9.16 Equipment Located in United Kingdom..............................ii
EXHIBIT "A" Form of Advance Notice
EXHIBIT "B" Form of Compliance Certificate
EXHIBIT "C" Borrowing Base Certificate
EXHIBIT "D" Subordination Agreement
EXHIBIT "E" Pending Litigation
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CREDIT AGREEMENT
BY THIS CREDIT AGREEMENT (together with any amendments or modifications,
the "Credit Agreement"), entered into as of this 10th day of January, 2000 by
and between SITEK, INCORPORATED, a Delaware corporation ("SITEK"), ADVANCED
TECHNOLOGY SERVICES, INC., an Arizona corporation ("ATSI"; and together with
SITEK, the "Borrower"), and IMPERIAL BANK, a California banking corporation (the
"Lender"), in consideration of the mutual promises herein contained and for
other valuable consideration, the parties hereto do hereby agree as follows:
RECITALS
A. Borrower has applied to Lender for a revolving line of credit facility
(the "RLC") in the principal amount of TWO MILLION AND NO/100 DOLLARS
($2,000,000.00) for the purpose of funding Borrower's working capital needs
related to trading cycles.
B. As a condition for extending such financial accommodations, Lender has
required that Borrower enter into this Credit Agreement, establishing the terms
and conditions thereof.
<PAGE>
ARTICLE 1
DEFINITION OF TERMS
1.1 DEFINITIONS. For the purposes of this Credit Agreement, unless the
context otherwise requires, the following terms shall have the respective
meanings assigned to them in this Article 1 or in the Section hereof referred to
below:
"ACCOUNTS RECEIVABLE" means, at any time, the accounts receivable of
ATSI.
"ADVANCE" means an RLC Advance.
"AFFILIATE" of any Person means any Person which, directly or
indirectly, controls or is controlled by such Person. For the purposes of this
definition, "control" (including, with correlative meanings, the term
"controlled by"), as used with respect to any Person, shall mean the possession,
directly or indirectly, of the power to direct or cause the direction of the
management and policies of such Person, whether by contract or otherwise.
"APPROVED CUSTOMERS" means the following customers of ATSI (as
amended, from time to time, by Lender in its reasonable discretion): Phillips,
Motorola, National Semiconductor, Samsung, Intel, Fujitsu, Siemens, ST
Microelectronics, Sony, AMCC, LSI Logic, Texas Instruments, On Semiconductor and
TSMC.
"ATSI": See the Preamble hereto.
"AUTHORIZED OFFICER" means one or more officers of Borrower duly
authorized (and so certified to Lender by the corporate secretary of Borrower
pursuant to a certificate of authority and incumbency from time to time
satisfactory to Lender in the exercise of Lender's reasonable discretion),
acting alone, to request Advances under the provisions of this Credit Agreement
and execute and deliver documents, instruments, agreements, reports, statements
and certificates in connection herewith.
"BANKING DAY" means a day of the year on which banks are not required
or authorized to close in Inglewood, California and Phoenix, Arizona.
"BORROWER": See the Preamble hereto.
"BORROWING BASE" means the sum of (i) the Eligible Accounts Amount
plus (ii) the Eligible Inventory Amount.
"BORROWING BASE CERTIFICATE" means a certificate substantially in the
form attached hereto as Exhibit "C".
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"CHANGE IN CONTROL" means the occurrence or existence of the following
events or conditions without the prior written consent of Lender, if different
than the state of affairs as of the Closing Date:
(a) the acquisition by any Person or two or more Persons acting
in concert of Control of the Borrower.
"CLOSING DATE" means the date of delivery of this Credit Agreement.
"CODE" means the Internal Revenue Code of 1986, as amended.
"COLLATERAL" means all property subject to the Security Documents.
"CONTROL" when used with respect to any Person means the power,
directly or indirectly, to direct the management policies of such Person,
whether through the ownership of voting securities, by contract or otherwise;
and the terms "controlling" and "controlled" have meanings correlative to the
foregoing.
"CONTROLLED GROUP" means, severally and collectively, the members of
the group controlling, controlled by and/or in common control of Borrower,
within the meaning of Section 4001(b) of ERISA.
"CREDIT AGREEMENT": See the Preamble hereto.
"CREDIT DOCUMENTS" means this Credit Agreement, the Note (including
any renewals, extensions and refundings thereof), the Security Documents and any
written agreements, certificates or documents (and with respect to this Credit
Agreement and such other written agreements and documents, any amendments or
supplements thereto or modifications thereof) executed or delivered pursuant to
the terms of this Credit Agreement.
"DEFAULT RATE" means at any time five percent (5%) per annum over the
then applicable interest rate.
"DOLLARS" and the sign "$" mean lawful currency of the United States
of America.
"EBITDA" means Net Income, plus the sum of all amounts deducted for
interest expense, tax expense, depreciation and amortization, in computing such
Net Income.
"EBITDA RATIO" means EBITDA divided by Borrower's interest expense.
"ELIGIBLE ACCOUNTS" means those accounts receivable of ATSI
attributable to the Approved Customers and as Lender in its sole discretion
shall determine are eligible from time to time. Eligible Accounts shall not
include any of the following:
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(a) Account balances over ninety (90) calendar days from the due
date; provided, however, that in no event shall the due date be more
than thirty (30) days after the invoice date.
(b) Accounts with respect to which the account debtor is an
officer, director, shareholder, employee, subsidiary or affiliate of
Borrower.
(c) [Intentionally Deleted.]
(d) [Intentionally Deleted.]
(e) Unless the account debtor is an Approved Customer, accounts
with respect to international transactions unless insured by an
insurance company acceptable to Lender in its sole discretion or
covered by letters of credit issued or confirmed by a bank acceptable
to Lender or unless otherwise acceptable to Lender, in its sole and
absolute discretion.
(f) [Intentionally Deleted.]
(g) Accounts where the account debtor is a seller to Borrower,
whereby a potential offset (contra) exists, to the extent of the
offset.
(h) Consignment or guaranteed sales.
(i) [Intentionally Deleted.]
(j) Contracts receivable.
(k) Progress billings.
(l) Accounts with respect to installment sales to the extent of
amounts not yet due and payable or, if due and payable, balances that
are over sixty (60) calendar days from their due date.
"ELIGIBLE ACCOUNTS AMOUNT" means an amount equal to seventy-five
percent (75.0%) of the Eligible Accounts.
"ELIGIBLE INVENTORY" means that inventory of ATSI that consists of
finished goods and that is located in the United States, all of which shall be
valued at the lower of actual cost or market value in accordance with GAAP.
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"ELIGIBLE INVENTORY AMOUNT" means an amount equal to fifty percent
(50.0%) of the Eligible Inventory.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended, together with all final and permanent regulations issued pursuant
thereto. References herein to sections and subsections of ERISA are deemed to
refer to any successor or substitute provisions therefor.
"EVENT OF DEFAULT": See Section 8.1.
"EXCHANGE ACT" means the Securities Exchange Act of 1934.
"FINANCIAL COVENANTS": See Section 7.10 hereof.
"GAAP" means those generally accepted accounting principles and
practices which are recognized as such by the American Institute of Certified
Public Accountants acting through its Accounting Principles Board or by the
Financial Accounting Standards Board or through other appropriate boards or
committees thereof and which are consistently applied for all periods after the
date hereof so as to properly reflect the financial condition, and the results
of operations and changes in the financial position, of Borrower, including
without limitation accounting rules promulgated pursuant to Regulations SX and
SK, except that any accounting principle or practice required to be changed by
the said Accounting Principles Board or Financial Accounting Standards Board (or
other appropriate board or committee of the said Boards) in order to continue as
a generally accepted accounting principle or practice may be so changed.
"GOVERNMENTAL AUTHORITY" means any government (or any political
subdivision or jurisdiction thereof), court, bureau, agency or other
governmental authority having jurisdiction over Borrower or any of its business,
operations or properties.
"INDEBTEDNESS" of a Person means each of the following (without
duplication): (a) obligations of that Person to any other Person for payment of
borrowed money, (b) capital lease obligations, (c) notes and drafts drawn or
accepted by that Person payable to any other Person, whether or not representing
obligations for borrowed money (but without duplication of indebtedness for
borrowed money), (d) any obligation for the purchase price of property the
payment of which is deferred for more than one year or evidenced by a note or
equivalent instrument, (e) guarantees of Indebtedness of third parties, and (f)
a recourse or nonrecourse payment obligation of any other Person that is secured
by a Lien on any property of the first Person, whether or not assumed by the
first Person, up to the fair market value (from time to time) of such property
(absent manifest evidence to the contrary, the fair market value of such
property shall be the amount determined under GAAP for financial reporting
purposes).
"LENDER": See the Preamble hereto.
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"LIEN" means any lien, mortgage, security interest, tax lien, pledge,
encumbrance, conditional sale or title retention arrangement, or any other
interest in property designed to secure the repayment of Indebtedness whether
arising by agreement or under any statute or law, or otherwise.
"LOAN" or "Loans" means the RLC.
"LOAN FEE": See Section 2.8 hereto.
"MATERIAL ADVERSE EFFECT" means any circumstance or event which (i)
has any material adverse effect upon the validity or enforceability of any
Credit Document, (ii) materially impairs the ability of Borrower to fulfill its
obligations under the Credit Documents, or (iii) causes an Event of Default or
any event which, with notice or lapse of time or both, would become an Event of
Default.
"NET INCOME" means, for any period, the net income of Borrower for
such period in accordance with GAAP, determined on a consolidated basis.
"NOTE" means that Revolving Promissory Note of even date herewith in
the amount of the RLC, executed by Borrower and delivered pursuant to the terms
of this Credit agreement, together with any renewals, extensions, modifications
or replacements thereof.
"OBLIGATION" means all present and future indebtedness, obligations
and liabilities of Borrower to Lender, and all renewals and extensions thereof,
or any part thereof, arising pursuant to this Credit Agreement or represented by
the Note, including without limitation the Loan and all interest accruing
thereon, and attorneys' fees incurred in the enforcement or collection thereof,
regardless of whether such indebtedness, obligations and liabilities are direct,
indirect, fixed, contingent, joint, several or joint and several; together with
all indebtedness, obligations and liabilities of Borrower evidenced or arising
pursuant to any of the other Credit Documents, and all renewals and extensions
thereof, or part thereof.
"PAYMENT DATE" with respect to a Loan means the tenth day of each
month, commencing the tenth day of the first month after the first Advance
applicable to such Loan shall have been made, provided that if any such day is
not a Banking Day, then such Payment Date shall be the next successive Banking
Day.
"PBGC" means the Pension Benefit Guaranty Corporation, and any
successor to all or substantially all of the Pension Benefit Guaranty
Corporation's functions under ERISA.
"PERMITTED LIENS" means:
(a) Liens in Lender's favor.
(b) Liens for taxes not delinquent.
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(c) Liens resulting from or hereafter arising from the TLD
Funding Credit Facility.
(d) Liens resulting from purchase money financing as to the
personal property so financed and any sales proceeds.
"PERSON" includes an individual, a corporation, a joint venture, a
partnership, a trust, a limited liability Borrower, an unincorporated
organization or a government or any agency or political subdivision thereof.
"PLAN" means an employee defined benefit plan or other plan maintained
by Borrower for employees of Borrower and covered by Title IV of ERISA, or
subject to the minimum funding standards under Section 412 of the Code.
"PLEDGE AGREEMENT": See Section 3.1(b) hereof.
"PRIME RATE" means the interest rate per annum publicly announced by
Lender, or its successors, as its "prime rate" as in effect from time to time.
Borrower acknowledges that the Prime Rate is not necessarily the best or lowest
rate offered by Lender and Lender may lend to its customers at rates that are
at, above or below its Prime Rate.
"QUARTERLY END DATE" means each March 31, June 30, September 30 and
December 31.
"REGULATION U" means Regulation U promulgated by the Board of
Governors of the Federal Reserve System, 12 C.F.R. Part 221, or any other
regulation hereafter promulgated by said Board to replace the prior Regulation U
and having substantially the same function.
"REPORTABLE EVENT" means any "reportable event" as described in
Section 4043(b) of ERISA with respect to which the thirty (30) day notice
requirement has not been waived by the PBGC.
"RLC" means that revolving line of credit made available by Lender to
Borrower pursuant to Article 2 hereof.
"RLC ADVANCE" means a disbursement of the proceeds of the RLC.
"RLC COMMITMENT" means Two Million And No/100 Dollars ($2,000,000.00).
"RLC FEE": See Section 2.11 hereof.
"RLC MATURITY DATE" means January 9, 2001.
"SECURITY AGREEMENT": See Section 3.1(a) hereof.
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"SECURITY DOCUMENTS": See Section 3.2 hereof.
"SIGNIFICANT DEBT AGREEMENT" means all documents, instruments and
agreements executed by Borrower, evidencing, securing or ensuring any
Indebtedness of Borrower or any guaranty in excess of $100,000.00 in outstanding
principal (or principal equivalent) amount.
"SITEK": See the Preamble hereto.
"SUBORDINATED DEBT" means Indebtedness of Borrower subordinated to the
payment of the Obligation pursuant to written agreements acceptable to Lender.
"SUBORDINATION AGREEMENT" means a Subordination Agreement
substantially in form attached hereto as Exhibit "D".
"SUBSIDIARY" means any corporation of which more than 50% of the
outstanding shares of capital stock having general voting power under ordinary
circumstances to elect a majority of the board of directors of such corporation,
irrespective of whether or not at the time stock of any other class or classes
shall have or might have voting power by reason of the happening of any
contingency, is at the time directly or indirectly owned by the Borrower, by the
Borrower and one or more other Subsidiaries, or by one or more other
Subsidiaries.
"TLD FUNDING" means TLD Funding Group, Inc., an Arizona corporation.
"TLD FUNDING CREDIT FACILITY" means that certain credit facility
provided to Borrower by TLD Funding in an amount equal to $1,000,000.00 for the
purchase of equipment inventory.
"VARIABLE RATE" means the rate per annum equal to (i) the Prime Rate
per annum as in effect from time to time, plus (ii) four percent (4.0%). The
Variable Rate will change on each day that the "Prime Rate" changes.
1.2 REFERENCES. Capitalized terms shall be equally applicable to both the
singular and the plural forms of the terms therein defined. References to
"Credit Agreement," "this Agreement," "herein," "hereof," "hereunder," or other
like words mean this Credit Agreement as amended, supplemented, restated or
otherwise modified and in effect from time to time.
1.3 ACCOUNTING TERMS. Except as expressly provided to the contrary herein,
all accounting terms shall be interpreted and all accounting determinations
shall be made in accordance with GAAP, except as otherwise specifically provided
for herein. To the extent any change in GAAP affects any computation or
determination required to be made pursuant to this Credit Agreement, such
computation or determination shall be made as if such change in GAAP had not
occurred unless Borrower and Lender agree in writing on an adjustment to such
computation or determination to account for such change in GAAP.
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ARTICLE 2
THE RLC
2.1 COMMITMENT. Subject to the conditions herein set forth, Lender agrees
to make the RLC available to or for the benefit of Borrower, and Borrower agrees
to draw upon the RLC, in the manner and upon the terms and conditions herein
expressed, amounts that shall not exceed the lesser of the RLC Commitment or the
Borrowing Base.
2.2 REVOLVING LINE OF CREDIT.
(a) Subject to the terms and conditions set forth in this Credit
Agreement, the RLC shall be a revolving line of credit, against which RLC
Advances may be made to Borrower, repaid by Borrower and new RLC Advances
made to Borrower, as Borrower may request, provided that (i) no RLC Advance
shall be made if an Event of Default shall be continuing, (ii) no RLC
Advance shall be made that would cause the outstanding principal balance of
the RLC to exceed the lesser of the RLC Commitment or the Borrowing Base,
and (iii) no RLC Advance shall be made on or after the RLC Maturity Date.
(b) The RLC shall be evidenced by the Note.
2.3 RLC ADVANCES. An RLC Advance shall be made by Lender to Borrower upon
written notice from Borrower in substantially the form attached hereto as
Exhibit "A" hereof from an Authorized Officer (which notice Borrower hereby
authorizes Lender to accept by telefacsimile) and shall include the date and the
amount of the requested RLC Advance. If such notice is received by Lender before
noon (Inglewood, California local time) on any Banking Day, Lender agrees to
make such RLC Advance no later than the next Banking Day.
2.4 RLC PAYMENTS. The RLC shall bear interest and be payable to Lender upon
the following terms and conditions:
(a) Interest on an RLC Advance shall accrue at the Variable Rate.
(b) All accrued interest on an RLC Advance shall be due and payable on
each Payment Date.
(c) If any payment of interest and/or principal is not received by
Lender when such payment is due, then in addition to the remedies conferred
upon the Lender under the Credit Documents, a late charge of five percent
(5%) of the amount of the installment due and unpaid will be added to the
delinquent amount to compensate the Lender for the expense of handling the
delinquency for any payment past due, regardless of any notice and cure
period.
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(d) Upon the occurrence of an Event of Default and after maturity,
including maturity upon acceleration, the unpaid principal balance, all
accrued and unpaid interest and all other amounts payable hereunder shall
bear interest at the Default Rate.
(e) The unpaid principal balance, all accrued and unpaid interest and
all other amounts payable hereunder with respect to the RLC shall be due
and payable in full on the RLC Maturity Date.
2.5 PRINCIPAL PREPAYMENTS; EXCESS BALANCE PAYMENT.
(a) Borrower may prepay the outstanding principal balance of the RLC
in whole or in part at any time prior to the RLC Maturity Date without
penalty or premium as stated in such notice by Borrower, provided that such
prepayment also includes accrued interest to the date of such prepayment on
the principal amount prepaid.
(b) There shall be due and payable from Borrower to Lender, and
Borrower shall repay to Lender, within five (5) days of written demand from
Lender, from time to time, any amount by which the outstanding principal
balance of the RLC exceeds the lesser of the RLC Commitment or the
Borrowing Base.
2.6 METHOD OF PAYMENT. All payments of principal of, and interest on, the
Note shall be made to Lender before 2:00 p.m. (Inglewood, California local
time), in immediately available funds. All payments made on the Note shall be
credited, to the extent of the amount thereof, in the following manner: (i)
first, to the payment of costs, fees or other charges incurred in connection
with the RLC; (ii) second, to the payment of accrued interest on the RLC; and
(iii) third, to the reduction of the principal balance of the RLC.
2.7 COLLECTION OF PAYMENT. Borrower authorizes Lender to collect all
interest, fees, costs and/or expenses due under this Agreement by charging
Borrower's demand deposit account with Lender for the full amount thereof.
Should there be insufficient funds in any such demand deposit account to pay all
such sums when due, the full amount of such deficiency shall be immediately due
and payable by Borrower.
2.8 CONDITIONS. Lender shall have no obligation to make any RLC Advance
unless and until all of the conditions and requirements of this Credit Agreement
are fully satisfied. However, Lender in its sole and absolute discretion may
elect to make one or more RLC Advances prior to full satisfaction of one or more
such conditions and/or requirements. Notwithstanding that such an RLC Advance or
RLC Advances are made, such unsatisfied conditions and/or requirements shall not
be waived or released thereby. Borrower shall be and continue to be obligated to
fully satisfy such conditions and requirements, and Lender, at any time, in
Lender's sole and absolute discretion, may stop making RLC Advances until all
conditions and requirements are fully satisfied.
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2.9 OTHER RLC ADVANCES BY LENDER. Lender, after giving fifteen (15) days
prior written notice to Borrower to allow for corrective action, from time to
time, may make RLC Advances in any amount in payment of (i) insurance premiums,
taxes, assessments, liens or encumbrances existing against property encumbered
by the Security Documents, (ii) interest accrued and payable upon the RLC, (iii)
any charges and expenses that are the obligation of Borrower under this Credit
Agreement or any Security Document, and (iv) any charges or matters necessary to
preserve the property encumbered by the Security Documents or to cure any still
existing Event of Default.
2.10 ASSIGNMENT. Borrower shall have no right to the proceeds of the Loan
other than to have the same disbursed by Lender in accordance with the
disbursement provisions contained in this Credit Agreement. Any assignment or
transfer, voluntary or involuntary, of this Credit Agreement or any right
hereunder shall not be binding upon or in any way affect Lender without its
written consent.
2.11 FEES. In connection with the Loan, Borrower agrees to pay to Lender on
the Closing Date a non-refundable fee in the amount of one and one-half percent
(1.50%) of the RLC Commitment (the "RLC Fee").
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ARTICLE 3
SECURITY
3.1 SECURITY. So long as any Loan is outstanding, Borrower shall cause such
Loan and Borrower's obligations under this Credit Agreement to be secured at all
times by the following:
(a) A valid and effective security agreement (the "Security
Agreement"), duly executed and delivered by or on behalf of Borrower,
granting Lender a valid and enforceable security interest in all of its
personal property as described therein, subject to no prior Liens except
for Permitted Liens.
(b) A pledge and irrevocable proxy security agreement from the
Borrower (the "Pledge Agreement"), assigning, transferring, pledging and
delivering to Lender and granting to Lender a security interest in all of
ATSI's common stock.
3.2 SECURITY DOCUMENTS. All of the documents required by this Article 3
shall be in form satisfactory to Lender and Lender's counsel, and, together with
any Financing Statements for filing and/or recording, and any other items
required by Lender to fully perfect and effectuate the liens and security
interests of Lender contemplated by the Security Agreement, and this Credit
Agreement, may heretofore or hereinafter be referred to as the "Security
Documents."
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ARTICLE 4
CONDITIONS PRECEDENT
The obligation of Lender to make any Loan and to make each and any Advance
hereunder is subject to the full prior satisfaction at each such time of each of
the following conditions precedent:
4.1 INITIAL OR ANY SUBSEQUENT ADVANCE. Prior to its making the initial
Advance or any subsequent Advance, Lender shall have received the following each
in form and substance satisfactory to Lender:
(a) THIS CREDIT AGREEMENT. This Credit Agreement, duly executed and
delivered to Lender by Borrower.
(b) THE NOTE. The Note, duly executed, drawn to the order of Lender
and otherwise as provided in Article 2 hereof.
(c) ORGANIZATIONAL DOCUMENTS. A copy of the current organizational
documents of Borrower, including all amendments thereto, certified as
current and complete by the appropriate authority of the state of its
formation, together with evidence of its good standing in its state of
formation.
(d) MEMBER AUTHORIZATION. An authorization signed by its members,
authorizing the RLC, the execution, delivery, and performance of this
Credit Agreement, the Note, the Credit Documents, and all advances of
credit hereunder.
(e) SECURITY AGREEMENT. The Security Agreement, duly executed and
delivered to Lender by Borrower.
(f) PLEDGE AGREEMENT. The Pledge Agreement, duly executed and
delivered to Lender by Borrower.
(g) LENDER'S FEES AND COSTS. Payment of the RLC Fee in the amount of
$30,000.00 plus Lender's other fees and costs.
(h) COMPLIANCE CERTIFICATE. A Compliance Certificate substantially in
the form of Exhibit "B" attached hereto, indicating that Borrower is in
compliance with the Financial Covenants as of September 30, 1999.
(i) FINANCING STATEMENTS. Financing Statements, duly executed and
delivered to Lender by Borrower.
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(j) ACCOUNTS RECEIVABLE. A listing and aging of the accounts
receivable of Borrower as of November 30, 1999.
(k) [INTENTIONALLY DELETED.]
(l) BORROWER'S FINANCIAL STATEMENTS. Borrower's 1999 fiscal year end
financial statements audited by a certified public accountant reasonably
acceptable to Lender.
(m) ADDITIONAL INFORMATION. Such other information and documents as
may reasonably be required by Lender or Lender's counsel.
4.2 NO EVENT OF DEFAULT. No Event of Default known to Borrower shall have
occurred and be continuing, or result from Lender's making of any Loan.
4.3 NO MATERIAL ADVERSE EFFECT. Since the date of the most recent financial
statements provided to Lender by Borrower, no change shall have occurred in the
business or financial condition of Borrower that could have a Material Adverse
Effect.
4.4 REPRESENTATIONS AND WARRANTIES. The representations and warranties
contained in Article 5 hereof shall be true and correct in all material
respects, with the same force and effect as though made on and as of the Closing
Date (other than those of such representations which by their express terms
speak to a date prior to that date, which representations shall, in all material
respects, be true and correct as of such respective date).
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ARTICLE 5
REPRESENTATIONS AND WARRANTIES
To induce Lender to make the Loans, Borrower represents and warrants to
Lender that:
5.1 RECITALS. The recitals and statements of intent appearing in this
Credit Agreement are true and correct.
5.2 ORGANIZATION AND GOOD STANDING. It is duly organized, validly existing
and in good standing in all states and/or countries in which the nature of its
business and property makes such qualifications necessary or appropriate. It has
the legal power and authority to own its properties and assets and to transact
the business in which it is engaged and is or will be qualified in those states
and/or countries wherein the nature of its proposed business and property will
make such qualifications necessary or appropriate in the future.
5.3 AUTHORIZATION AND POWER. It has the power and requisite authority to
execute, deliver and perform this Credit Agreement, the Note and the other
Credit Documents to be executed by it; it is duly authorized to, and has taken
all action, corporate or otherwise, necessary to authorize it to, execute,
deliver and perform this Credit Agreement, the Note and such other Credit
Documents and is and will continue to be duly authorized to perform this Credit
Agreement, the Note and such other Credit Documents.
5.4 SECURITY DOCUMENTS. The liens, security interests and assignments
created by the Security Documents will, when granted, be valid, effective and
enforceable liens, security interests and assignments, except to the extent (if
any) otherwise agreed in writing by Lender.
5.5 NO CONFLICTS OR CONSENTS. Neither the execution and delivery of this
Credit Agreement, the Note or the other Credit Documents to which it is a party,
nor the consummation of any of the transactions herein or therein contemplated,
nor compliance with the terms and provisions hereof or with the terms and
provisions thereof, (a) will materially contravene or conflict with: (i) any
provision of law, statute or regulation to which it is subject, (ii) any
judgment, license, order or permit applicable to it, (iii) any indenture, credit
agreement, mortgage, deed of trust, or other agreement or instrument to which it
is a party or by which it may be bound, or to which it may be subject, or (b)
will violate any provision of its organizational documents. No consent,
approval, authorization or order of any court or Governmental Authority or other
Person is required in connection with the execution and delivery by it of the
Credit Documents or to consummate the transactions contemplated hereby or
thereby, or if required, such consent, approval, authorization or order shall
have been obtained.
5.6 NO LITIGATION. Except for those matters disclosed in Exhibit "E"
attached hereto and by this reference incorporated herein, there are no actions,
suits or legal, equitable, arbitration or administrative proceedings pending, or
to its actual knowledge overtly threatened, against Borrower that would, if
adversely determined, have a Material Adverse Effect.
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5.7 FINANCIAL CONDITION. It has delivered to Lender copies of the
Borrower's most recent financial statements. Such financial statements, in all
material respects, fairly and accurately present the financial position of
Borrower as of such date, have been prepared in accordance with GAAP and neither
contain any untrue statement of a material fact nor fail to state a material
fact required in order to make such financial statement not misleading. Since
the date thereof, Borrower has not discovered any obligations, liabilities or
indebtedness (including contingent and indirect liabilities and obligations or
unusual forward or long-term commitments) which in the aggregate are material
and adverse to the financial position or business of Borrower that should have
been but were not reflected in such financial statements. No changes having a
Material Adverse Effect have occurred in the financial condition or business of
Borrower since the date of such financial statements.
5.8 TAXES. It has filed or caused to be filed all returns and reports which
are required to be filed by any jurisdiction, and has paid or made provision for
the payment of all taxes, assessments, fees or other governmental charges
imposed upon its properties, income or franchises, as to which the failure to
file or pay would have a Material Adverse Effect, except such assessments or
taxes, if any, which are being contested in good faith by appropriate
proceedings.
5.9 NO STOCK PURCHASE. No part of the proceeds of any financial
accommodation made by Lender in connection with this Credit Agreement will be
used to purchase or carry "margin stock," as that term is defined in Regulation
U, or to extend credit to others for the purpose of purchasing or carrying such
margin stock.
5.10 ADVANCES. Each request for an Advance or for the extension of any
financial accommodation by Lender whatsoever shall constitute an affirmation
that the representations and warranties contained herein are true and correct as
of the time of such request. All representations and warranties made herein
shall survive the execution of this Credit Agreement, all advances of proceeds
of the Loans and the execution and delivery of all other documents and
instruments in connection with the Loans and/or this Credit Agreement, so long
as Lender has any commitment to lend hereunder and until the Loans have been
paid in full and all of Borrower's obligations under this Credit Agreement, the
Note and all Security Documents have been fully discharged. Any investigation at
any time made by or on behalf of Lender shall not diminish Lender's right to
rely on the representations and warranties herein.
5.11 ENFORCEABLE OBLIGATIONS. This Credit Agreement, the Note and the other
Credit Documents are the legal, valid and binding obligations of Borrower,
enforceable against Borrower in accordance with their respective terms, except
as limited by bankruptcy, insolvency or other laws or equitable principles of
general application relating to the enforcement of creditors' rights.
5.12 NO DEFAULT. No event or condition has occurred and is continuing that
constitutes an Event of Default.
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5.13 SIGNIFICANT DEBT AGREEMENTS. It is not in default in any material
respect under any Significant Debt Agreement.
5.14 ERISA. (a) No Reportable Event has occurred and is continuing with
respect to any Plan; (b) PBGC has not instituted proceedings to terminate any
Plan; (c) neither the Borrower, any member of the Controlled Group, nor any
duly-appointed administrator of a Plan (i) has incurred any liability to PBGC
with respect to any Plan other than for premiums not yet due or payable or (ii)
has instituted or intends to institute proceedings to terminate any Plan under
Section 4041 or 4041A of ERISA; and (d) each Plan of Borrower has been
maintained and funded in all material respects in accordance with its terms and
in all material respects in accordance with all provisions of ERISA applicable
thereto. Neither the Borrower nor any of its Subsidiaries participates in, or is
required to make contributions to, any Multi-employer Plan (as that term is
defined in Section 3(37) of ERISA).
5.15 COMPLIANCE WITH LAW. It is in substantial compliance with all laws,
rules, regulations, orders, writs, injunctions and decrees that are applicable
to it, or its properties, noncompliance with which would have a Material Adverse
Effect.
5.16 SOLVENT. It (both before and after giving effect to the Loans
contemplated hereby) is solvent, has assets having a fair value in excess of the
amount required to pay its probable liabilities on its existing debts as they
become absolute and matured, and has, and will have, access to adequate capital
for the conduct of its business and the ability to pay its debts from time to
time incurred in connection therewith as such debts mature.
5.17 INVESTMENT BORROWER ACT. It is not, and is not directly or indirectly
controlled by, or acting on behalf of, any person which is, an "Investment
Borrower" within the meaning of the Investment Borrower Act of 1940, as amended.
5.18 TITLE. It has good and marketable title to the Collateral.
5.19 SURVIVAL OF REPRESENTATIONS, ETC. All representations and warranties
by Borrower herein shall survive the making of any Loan and the execution and
delivery of any Note; any investigation at any time made by or on behalf of
Lender shall not diminish Lender's right to rely on the representations and
warranties herein.
5.20 ENVIRONMENTAL MATTERS. Except as previously disclosed to Lender in
writing, it, to the best of its knowledge after due investigation, is in
compliance in all material respects with all applicable environmental, health
and safety statutes and regulations and Borrower does not have any material
contingent liability in connection with any improper treatment, disposal or
release into the environment of any hazardous or toxic waste or substance.
5.21 LICENSES, TRADENAMES. It, as of the date hereof, possesses all
necessary trademarks, tradenames, copyrights, patents, patent rights, and
licenses to conduct its business as now operated, without any known conflict
with valid trademarks, tradenames, copyright patents and license rights of
others.
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ARTICLE 6
AFFIRMATIVE COVENANTS
Until payment in full of the Loan and the complete performance of the
Obligation, Borrower agrees that:
6.1 FINANCIAL STATEMENTS, REPORTS AND DOCUMENTS. It shall deliver, or cause
to be delivered, to Lender each of the following:
(a) ANNUAL STATEMENTS OF BORROWER. As soon as available and in any
event within ninety (90) days after the close of each fiscal year of
Borrower, audited financial statements of Borrower, including its balance
sheet as of the close of such fiscal year and statements of income of
Borrower for such fiscal year, in each case setting forth in comparative
form the figures for the preceding fiscal year, all in reasonable detail
and accompanied by an unqualified opinion thereon of independent public
accountants of recognized national standing selected by Borrower and
acceptable to Lender, to the effect that such financial statements have
been prepared in accordance with GAAP.
(b) MONTHLY STATEMENTS OF BORROWER. As soon as available, and in any
event within thirty (30) days after the end of each month (except for that
at the close of the fiscal year), an aging report as to its accounts
payable as of the end of such month, copies of the balance sheet of
Borrower as of the end of such month and statement of income of Borrower
for that month and for the portion of the fiscal year ending with such
month, prepared on a consolidating and consolidated basis in each case
setting forth in comparative form the figures for the corresponding period
of the preceding fiscal year (commencing with the comparative report for
the month of April 2000), all in reasonable detail and fairly stated,
certified by Borrower and prepared by Borrower in accordance with GAAP.
(c) COMPLIANCE CERTIFICATE OF BORROWER. Within thirty (30) days after
the end of each quarter hereafter and ninety (90) days after the year of
each fiscal year of Borrower, a certificate signed by the chief financial
officer of the Borrower, substantially in the form of Exhibit "B" attached
hereto certifying that after a review of the activities of Borrower during
such period, Borrower has observed, performed and fulfilled each and every
obligation and covenant contained herein and no Event of Default exists
under any of the same or, if any Event of Default shall have occurred,
specifying the nature and status thereof, and stating that all financial
statements of Borrower delivered to Lender during the respective period
pursuant to Sections 6.1(a) and 6.1(b) hereof, to his/her knowledge, fairly
present in all material respect the financial position of the Borrower and
the results of its operations at the dates and for the periods indicated,
and have been prepared in accordance with GAAP, together with a calculation
of the Financial Covenants.
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(d) BORROWING BASE CERTIFICATE. Within ten (10) days after the end of
each month, a Borrowing Base Certificate substantially in the form attached
hereto as Exhibit "C".
(e) OTHER MONTHLY REPORTS. Within ten (10) days after the end of each
month, reports as to its accounts receivable and inventory located in the
United States, except Lender in its sole discretion may not require any of
these reports. Lender's waiver of this requirement for any particular month
shall not constitute a waiver for any subsequent month.
(f) OTHER INFORMATION. Such other information concerning the business,
properties (including customer lists and product detail) or financial
condition of Borrower as Lender shall reasonably request.
6.2 MAINTENANCE OF EXISTENCE AND RIGHTS; CONDUCT OF BUSINESS; MANAGEMENT.
It will preserve and maintain its existence and all of its rights, privileges,
licenses, permits, franchises and other rights necessary or desirable in the
normal conduct of its business, conduct its business in an orderly and efficient
manner consistent with good business practices and maintain professional
management of its business.
6.3 OPERATIONS AND PROPERTIES. It will keep in good working order and
condition, ordinary wear and tear excepted, all of its assets and properties
which are necessary to the conduct of its business.
6.4 AUTHORIZATIONS AND APPROVALS. It will maintain, at its own expense, all
such governmental licenses, authorizations, consents, permits and approvals as
may be required to enable it to comply with its obligations hereunder and under
the other Credit Documents and to operate its businesses as presently or
hereafter duly conducted.
6.5 COMPLIANCE WITH LAW. It will comply with all applicable laws, rules,
regulations, and all final, nonappealable orders of any Governmental Authority
applicable to it or any of its property, business operations or transactions,
including without limitation, any environmental laws applicable to it, a breach
of which could result in a Material Adverse Effect.
6.6 PAYMENT OF TAXES AND OTHER INDEBTEDNESS. It will pay and discharge (i)
all income taxes and payroll taxes, (ii) all taxes, assessments, fees and other
governmental charges imposed upon it or upon its income or profits, or upon any
property belonging to it, before delinquent, which become due and payable, (iii)
all lawful claims (including claims for labor, materials and supplies), which,
if unpaid, might become a Lien upon any of its property and (iv) all of its
Indebtedness as it becomes due and payable, except as prohibited hereunder;
provided, however, that it shall not be required to pay any such tax,
assessment, charge, levy, claims or Indebtedness if and so long as the amount,
applicability or validity thereof shall currently be contested in good faith by
appropriate actions and appropriate accruals and reserves therefor have been
established in accordance with GAAP.
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6.7 COMPLIANCE WITH SIGNIFICANT DEBT AGREEMENTS AND OTHER AGREEMENTS. It
will comply in all material respects with (i) all Significant Debt Agreements,
and (ii) all agreements and contracts to which it is a party, a breach of which
could result in a Material Adverse Effect.
6.8 COMPLIANCE WITH CREDIT DOCUMENTS. It will comply with any and all
covenants and provisions of this Credit Agreement, the Note and all other Credit
Documents.
6.9 NOTICE OF DEFAULT. It will furnish to Lender immediately upon becoming
actually aware of the existence of any event or condition that constitutes an
Event of Default, a written notice specifying the nature and period of existence
thereof and the action which it is taking or proposes to take with respect
thereto.
6.10 OTHER NOTICES. It will promptly notify Lender of (a) any Material
Adverse Effect, (b) any waiver, release or default under any Significant Debt
Agreement, (c) any claim not covered by insurance against Borrower or any of
Borrower's properties, and (d) the commencement of, and any material
determination in, any litigation with any third party or any proceeding before
any Governmental Authority affecting it, except litigation or proceedings which,
if adversely determined, would not have a Material Adverse Effect.
6.11 BOOKS AND RECORDS; ACCESS. Upon three (3) Banking Days notice from
Lender, it will give any authorized representative of Lender access during
normal business hours to, and permit such representative to examine, copy or
make excerpts from, any and all books, records and documents in its possession
of and relating to the Loan, and to inspect any of its properties. It will
maintain complete and accurate books and records of its transactions in
accordance with good accounting practices.
6.12 ERISA COMPLIANCE. With respect to its Plans, it shall (a) at all times
comply with the minimum funding standards set forth in Section 302 of ERISA and
Section 412 of the Code or shall have duly obtained a formal waiver of such
compliance from the proper authority; (b) at Lender's request, within thirty
(30) days after the filing thereof, furnish to Lender copies of each annual
report/return (Form 5500 Series), as well as all schedules and attachments
required to be filed with the Department of Labor and/or the Internal Revenue
Service pursuant to ERISA, in connection with each of its Plans for each year of
the plan; (c) notify Lender within a reasonable time of any fact, including, but
not limited to, any Reportable Event arising in connection with any of its
Plans, which constitutes grounds for termination thereof by the PBGC or for the
appointment by the appropriate United States District Court of a trustee to
administer such Plan, together with a statement, if requested by Lender, as to
the reason therefor and the action, if any, proposed to be taken with respect
thereto; and (d) furnish to Lender within a reasonable time, upon Lender's
request, such additional information concerning any of its Plans as may be
reasonably requested.
6.13 FURTHER ASSURANCES. It will make, execute or endorse, and acknowledge
and deliver or file or cause the same to be done, all such notices,
certifications and additional agreements, undertakings or other assurances, and
take any and all such other action, as Lender may, from time to time, deem
reasonably necessary or proper to fully evidence the Loan.
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6.14 INSURANCE. It shall maintain in full force and effect at all times all
insurance coverages required under the terms of this Credit Agreement and/or the
Security Documents to which it is a party. In addition, it shall maintain in
full force and effect at all times:
(a) Policies of all risk coverage insurance covering all tangible
personalty in which Lender has been granted or obtained a security interest
to secure the Obligation, in coverage amounts not less than, from time to
time, the fair market value thereof.
(b) Policies of insurance evidencing personal liability and property
damage liability coverages in amounts not less than $1,000,000.00 (combined
single limit for bodily injury and property damage), and an umbrella excess
liability coverage in an amount not less than $2,000,000.00 shall be in
effect with respect to Borrower.
(c) Policies of workers' compensation insurance in amounts and with
coverages as legally required.
Without limitation of the foregoing, it shall at all times maintain insurance
coverages in scope and amount not less than, and not less extensive than, the
scope and amount of insurance coverages customary in the trades or businesses in
which it is from time to time engaged. All of the aforesaid insurance coverages
shall be issued by insurers reasonably acceptable to Lender.
Copies of all policies of insurance evidencing such coverages in effect
from time to time and showing Lender as an additional insured and/or Lender's
loss payee, as required by Lender, shall be delivered to Lender within fifteen
(15) days of the Closing Date and upon reasonable notice upon issuance of new
policies thereafter. From time to time, promptly upon Lender's request, it shall
provide evidence satisfactory to Lender (i) that required coverage in required
amounts is in effect, and (ii) that Lender is shown as an additional insured
and/or Lender's loss payee, as required by Lender, with respect to all such
coverages, as Lender's interest may appear, by standard (non-attribution) loss
payable endorsement, additional insured endorsement, insurer's certificate or
other means acceptable to Lender in its reasonable discretion. At Lender's
option, it shall deliver to Lender certified copies of all such policies of
insurance in effect from time to time, to be retained by Lender so long as
Lender shall have any commitment to lend hereunder and/or any portion of the
Obligation shall be outstanding or unsatisfied. All such insurance policies
shall provide for at least thirty (30) days prior written notice of the
cancellation or modification thereof to Lender.
6.15 DEPOSITORY ACCOUNTS. Within thirty (30) days of the Closing Date,
Borrower shall establish and maintain its principal depository accounts (other
than payroll accounts) with and utilize cash management services provided by
Lender.
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6.16 EQUIPMENT LOCATED IN UNITED KINGDOM. Within one hundred twenty (120)
days of the Closing Date, it will provide evidence reasonably satisfactory to
Lender that all of the equipment inventory located in the United Kingdom has
been either transferred to the United States or sold. In the event Borrower
fails to comply with the requirements of the previous sentence, Borrower agrees
that it shall pay all reasonable costs and expenses of Lender (including,
without limitation, the attorneys' fees of Lender's legal counsel) incurred by
Lender in perfecting its security interest in the equipment inventory located in
the United Kingdom. Borrower further agrees that it shall execute all documents
reasonably necessary to perfect such security interest.
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ARTICLE 7
NEGATIVE COVENANTS
Until payment in full of the Loan and the performance of the Obligation,
Borrower shall not, without receiving the prior express written consent of
Lender:
7.1 NO DEBT. ATSI shall not become or remain obligated either directly or
as a guarantor or surety for any Indebtedness for borrowed money, or for any
Indebtedness incurred in connection with the acquisition of any property, real
or personal, tangible or intangible including, but not limited to, lease
purchase agreements, except:
(a) Indebtedness to the Lender.
(b) Leases and specific equipment financed by TLD Funding.
(c) Indebtedness secured by liens permitted under Section 7.2 hereof.
Notwithstanding anything contained herein, ATSI may obtain additional financing
for new equipment from TLD Funding pursuant to the TLD Funding Credit Facility
provided that ATSI shall inform Lender in writing of such new financing on the
date of such financing.
7.2 LIENS. On and after the date hereof, Borrower will not create or suffer
to exist Liens upon its property, real or personal, including without limitation
its patents, copyrights and trademarks, except (i) Liens, if any, for the
benefit of Lender, and (ii) Permitted Liens.
7.3 EXISTENCE. Dissolve or liquidate, or merge or consolidate with or into
any other entity, or turn over the management or operation of its property,
assets or business to any other Person or make any substantial change in the
character of its business.
7.4 AMENDMENTS TO ORGANIZATIONAL DOCUMENTS. Amend its organizational
documents if the result thereof could result in the occurrence directly or
indirectly of a Material Adverse Effect.
7.5 MARGIN STOCK. Use any proceeds of the Loans, or any proceeds of any
other or future financial accommodation from Lender for the purpose, whether
immediate, incidental or ultimate, of purchasing or carrying any "margin stock"
as that term is defined in Regulation U or to reduce or retire any indebtedness
undertaken for such purposes within the meaning of said Regulation U, and will
not use such proceeds in a manner that would involve Borrower in a violation of
Regulation U or of any other Regulation of the Board of Governors of the Federal
Reserve System, nor use such proceeds for any purpose not permitted by Section 7
of the Exchange Act, or any of the rules or regulations respecting the
extensions of credit promulgated thereunder.
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7.6 DISTRIBUTIONS. Declare or pay any dividends or make any distribution of
any kind, other than existing debt as of the Closing Date, not to exceed
$150,000.00.
7.7 INDEBTEDNESS; PAYMENTS. With respect to any new Indebtedness that is
not permitted Indebtedness under Section 7.1 herein, Borrower agrees that at
least five (5) Banking Days prior to incurring any such Indebtedness, Borrower
shall inform Lender in writing of any Indebtedness (i) with a Person that is not
an Affiliate of Borrower, or (ii) with a Person that is an Affiliate of Borrower
unless such Indebtedness consists of Subordinated Debt. Borrower shall not make
any payment on its Subordinated Debt in any month unless it is in full
compliance with all Financial Covenants and the Borrowing Base limitation
pursuant to Section 2.5(b), prior to and after giving effect to such payment.
Whenever Borrower incurs any debt with a Person that is an Affiliate of Borrower
which has not previously executed a Subordination Agreement for the benefit of
Lender, Borrower shall cause such Affiliate to execute and deliver to Lender a
Subordination Agreement.
7.8 TRANSFER COLLATERAL. Assign, transfer or convey any of its right, title
and interest in the Collateral; provided, however, that ATSI may transfer cash
to any Subsidiary of Borrower solely for the purpose of funding normal operating
expenses of such Subsidiary provided that no Event of Default and no event, that
with the giving of notice or the passage of time, or both, would be an Event of
Default (including, but not limited to, the failure to make Principal Payments
as provided herein and in the Note), shall have occurred and be continuing on
the date of such transfer of cash.
7.9 MERGER; SALE OF ASSETS. (i) Sell, lease, transfer or dispose of
substantially all of the Collateral to another entity; or (ii) consolidate with
or merge the Collateral into another entity, or permit any transfer of the
ownership of the Collateral, permit any other entity to merge into it or
consolidate with it, or permit any transfer of the ownership or power to
control, Borrower.
7.10 FINANCIAL COVENANTS.
(a) NET INCOME. Permit Borrower's Net Income for any two (2)
consecutive fiscal months for any fiscal year to be less than zero (i.e.
net loss).
(b) INTEREST COVERAGE RATIO. Commencing on March 31, 2000, permit
Borrower's EBITDA Ratio to be less than 3.0 to 1.0 at the end of any
quarter, measured on a rolling four (4) quarter basis.
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ARTICLE 8
EVENTS OF DEFAULT
8.1 EVENTS OF DEFAULT. An "Event of Default" shall exist if any one or more
of the following events (herein collectively called "Events of Default") shall
occur and be continuing:
(a) Borrower shall fail to pay any principal of, or interest on, the
Note when the same shall become due or payable and such failure continues
for five (5) Banking Days after notice thereof to Borrower.
(b) Any failure or neglect to perform or observe any of the covenants,
conditions, provisions or agreements of Borrower contained herein, or in
any of the other Credit Documents (other than a failure or neglect
described in one or more of the other provisions of this Section 8.1) and
such failure or neglect either cannot be remedied or, if it can be
remedied, it continues unremedied for a period of fifteen (15) days after
written notice thereof to Borrower.
(c) Any warranty, representation or statement contained in this Credit
Agreement or any of the other Credit Documents, or which is contained in
any certificate or statement furnished or made to Lender pursuant hereto or
in connection herewith or with the Loan, shall be or shall prove to have
been false when made or furnished.
(d) The occurrence of any material "event of default" or "default" by
Borrower under any Credit Document, or any agreement, now or hereafter
existing, to which Lender or an Affiliate of Lender, and Borrower or an
Affiliate of Borrower are a party.
(e) Borrower shall (i) fail to pay any Indebtedness of Borrower (other
than the Note) due under any Significant Debt Agreement, or any interest or
premium thereon, when due (whether by scheduled maturity, required
prepayment, acceleration, demand, or otherwise) or within any applicable
grace period, (ii) fail to perform or observe any term, covenant, or
condition on its part to be performed or observed under any agreement or
instrument relating to such Indebtedness, within any applicable grace
period when required to be performed or observed, if the effect of such
failure to perform or observe is to accelerate the maturity of such
Indebtedness, or any such Indebtedness shall be declared to be due and
payable, or required to be prepaid (other than by a regularly scheduled
prepayment), prior to the stated maturity thereof, or (iii) allow the
occurrence of any material event of default with respect to such
Indebtedness.
(f) Any one or more of the Credit Documents shall have been determined
to be invalid or unenforceable against Borrower executing the same in
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accordance with the respective terms thereof, or shall in any way be
terminated or become or be declared ineffective or inoperative, so as to
deny Lender the substantial benefits contemplated by such Credit Document
or Credit Documents.
(g) Borrower shall (i) apply for or consent to the appointment of a
receiver, trustee, custodian, intervenor or liquidator of itself or of all
or a substantial part of its assets, (ii) file a voluntary petition in
bankruptcy or admit in writing that it is unable to pay its debts as they
become due, (iii) make a general assignment for the benefit of creditors,
(iv) file a petition or answer seeking reorganization of an arrangement
with creditors or to take advantage of any bankruptcy or insolvency laws,
(v) file an answer admitting the material allegations of, or consent to, or
default in answering, a petition filed against it in any bankruptcy,
reorganization or insolvency proceeding, or (vi) take corporate action for
the purpose of effecting any of the foregoing
(h) An involuntary petition or complaint shall be filed against
Borrower, seeking bankruptcy or reorganization of Borrower, or the
appointment of a receiver, custodian, trustee, intervenor or liquidator of
Borrower, or all or substantially all of its assets, and such petition or
complaint shall not have been dismissed within sixty (60) days of the
filing thereof; or an order, order for relief, judgment or decree shall be
entered by any court of competent jurisdiction or other competent authority
approving a petition or complaint seeking reorganization of Borrower,
appointing a receiver, custodian, trustee, intervenor or liquidator of
Borrower, or all or substantially all of its assets, and such order,
judgment or decree shall continue unstayed and in effect for a period of
sixty (60) days.
(i) Any final judgment(s) (excluding those the enforcement of which is
suspended pending appeal) for the payment of money in excess of the sum of
$100,000 in the aggregate (other than any judgment covered by insurance
where coverage has been acknowledged by the insurer) shall be rendered
against Borrower, and such judgment or judgments shall not be satisfied,
settled, bonded or discharged at least ten (10) days prior to the date on
which any of its assets could be lawfully sold to satisfy such judgment.
(j) Either (i) proceedings shall have been instituted to terminate, or
a notice of termination shall have been filed with respect to, any Plans
(other than a Multi-Employer Pension Plan as that term is defined in
Section 4001(a)(3) of ERISA) by Borrower, any member of the Controlled
Group, PBGC or any representative of any thereof, or any such Plan shall be
terminated, in each case under Section 4041 or 4042 of ERISA, and such
termination shall give rise to a liability of the Borrower or the
Controlled Group to the PBGC or the Plan under ERISA having an effect in
excess of $100,000 or (ii) a Reportable Event, the occurrence of which
would cause the imposition of a lien in excess of $100,000 under Section
4062 of ERISA, shall have occurred with respect to any Plan (other than a
Multi-Employer Pension Plan as that term is defined in Section 4001(a)(3)
of ERISA) and be continuing for a period of sixty (60) days.
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(k) Any of the following events shall occur with respect to any Multi-
Employer Pension Plan (as that term is defined in Section 4001(a)(3) of
ERISA) to which Borrower contributes or contributed on behalf of its
employees and Lender determines in good faith that the aggregate liability
likely to be incurred by Borrower, as a result of any of the events
specified in Subsections (i), (ii) and (iii) below, will have an effect in
excess of $100,000; (i) Borrower incurs a withdrawal liability under
Section 4201 of ERISA; (ii) any such plan is "in reorganization" as that
term is defined in Section 4241 of ERISA; or (iii) any such Plan is
terminated under Section 4041A of ERISA.
(l) The occurrence of a change in the Control of Borrower without the
written consent of Lender, which will not be unreasonably withheld.
(m) The dissolution, liquidation, sale, transfer, lease or other
disposal of all or substantially all of the assets or business of Borrower.
(n) Any failure to observe any of the Financial Covenants.
(o) A substantial change in the duties, responsibilities and/or
authority of either Don M. Jackson or Gloria J. Zemla.
(p) The occurrence of any adverse change in the financial condition of
Borrower that Lender in its reasonable discretion deems material, or if
Lender in good faith shall believe that the prospect of payment or
performance of the Loans is impaired.
8.2 REMEDIES UPON EVENT OF DEFAULT. If an Event of Default shall have
occurred and be continuing, then Lender may, at its sole option, exercise any
one or more of the following rights and remedies, and any other remedies
provided in any of the Credit Documents, as Lender in its sole discretion may
deem necessary or appropriate, all of which remedies shall be deemed cumulative,
and not alternative:
(i) Cease making Advances or extensions of financial
accommodations in any form to or for the benefit of Borrower,
(ii) Declare the principal of, and all interest then accrued on,
the Note and any other liabilities hereunder to be forthwith due and
payable, whereupon the same shall become immediately due and payable
without presentment, demand, protest, notice of default, notice of
acceleration or of intention to accelerate or other notice of any kind
all of which Borrower hereby expressly waives, anything contained
herein or in the Note to the contrary notwithstanding,
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(iii) Reduce any claim to judgment, and/or
(iv) Without notice of default or demand, pursue and enforce any
of Lender' rights and remedies under the Credit Documents, or
otherwise provided under or pursuant to any applicable law or
agreement; provided, however, that if any Event of Default specified
in Sections 8.1(g) and 8.1(h) shall occur, the principal of, and all
interest on, the Note and other liabilities hereunder shall thereupon
become due and payable concurrently therewith, without any further
action by Lender and without presentment, demand, protest, notice of
default, notice of acceleration or of intention to accelerate or other
notice of any kind, all of which Borrower hereby expressly waives.
Upon the occurrence and during the continuance of any Event of Default,
Lender is hereby authorized at any time and from time to time, with five (5)
days notice to Borrower, to setoff and apply any and all moneys, securities or
other property of Borrower and the proceeds therefrom, now or hereafter held or
received by or in transit to Lender or its agents, from or for the account of
Borrower, whether for safe keeping, custody, pledge, transmission, collection or
otherwise, and also upon any and all deposits (general or special) and credits
of Borrower, and any and all claims of Borrower against Lender at any time
existing. Lender agrees promptly to notify Borrower prior to and after any such
setoff and application, provided that the failure to give such notice shall not
affect the validity of such setoff and application. The rights of Lender under
this Section 8.2 are in addition to other rights and remedies (including,
without limitation, other rights of setoff) which Lender may have.
8.3 PERFORMANCE BY LENDER. Should Borrower fail to perform any covenant,
duty or agreement with respect to the payment of taxes, obtaining licenses or
permits, or any other requirement contained herein or in any of the Credit
Documents within the period provided herein, if any, for correction of such
failure, Lender may, with five (5) days prior notice, at its option, perform or
attempt to perform such covenant, duty or agreement on behalf of Borrower. In
such event, Borrower shall, at the request of Lender, promptly pay any amount
expended by Lender in such performance or attempted performance to Lender at its
office in Inglewood, California, together with interest thereon at the Default
Rate, from the date of such expenditure until paid. Notwithstanding the
foregoing, it is expressly understood that Lender does not assume any liability
or responsibility for the performance of any duties of Borrower hereunder or
under any of the Credit Documents or other control over the management and
affairs of Borrower.
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ARTICLE 9
MISCELLANEOUS
9.1 MODIFICATION. All modifications, consents, amendments or waivers of any
provision of any Credit Document, or consent to any departure by Borrower
therefrom, shall be effective only if the same shall be in writing and accepted
by Lender.
9.2 WAIVER. No failure to exercise, and no delay in exercising, on the part
of Lender, any right hereunder shall operate as a waiver thereof, nor shall any
single or partial exercise thereof preclude any other further exercise thereof
or the exercise of any other right. The rights of Lender hereunder and under the
Credit Documents shall be in addition to all other rights provided by law. No
modification or waiver of any provision of this Credit Agreement, the Note or
any Credit Documents, nor consent to departure therefrom, shall be effective
unless in writing and no such consent or waiver shall extend beyond the
particular case and purpose involved. No notice or demand given in any case
shall constitute a waiver of the right to take other action in the same, similar
or other instances without such notice or demand.
9.3 PAYMENT OF EXPENSES. Borrower shall pay all costs and expenses of
Lender (including, without limitation, the attorneys' fees of Lender's legal
counsel) incurred by Lender in connection with the documentation of the Loans,
and the preservation and enforcement of Lender's rights under this Credit
Agreement, the Note, and/or the other Credit Documents; provided, however, that
notwithstanding the aforesaid, with respect to any legal action between the
parties hereto that is pursued to judgment the prevailing party only shall be
reimbursed by the other party for all costs and expenses (including, without
limitation, reasonable attorneys' fees and costs) incurred in connection with
the preservation and enforcement of its rights under this Credit Agreement, the
Note and/or other Credit Documents. In addition, Borrower shall pay all costs
and expenses of Lender in connection with the negotiation, preparation,
execution and delivery of any and all amendments, modifications and supplements
of or to this Credit Agreement, the Note or any other Credit Document. Borrower
shall receive a written estimate of all legal fees and related legal costs and
will have an opportunity to review all such estimates prior to its approval,
which shall not be unreasonably withheld.
9.4 NOTICES. Except for telephonic notices permitted herein, any notices or
other communications required or permitted to be given by this Credit Agreement
or any other documents and instruments referred to herein must be (i) given in
writing and personally delivered or mailed by prepaid certified or registered
mail or sent by overnight delivery service, or (ii) made by telefacsimile
delivered or transmitted, to the party to whom such notice or communication is
directed, to the address of such party as follows:
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Borrower: SITEK, Incorporated
1817 West 4th Street
Tempe, Arizona 85281
Attention: Gloria Zemla - CFO
Telecopier: (602) __________
with a copy to: Robert S. Bornhoft, Esq.
Quarles & Brady
One East Camelback Road
Suite 400
Phoenix, Arizona 85012
Telecopier: (602) __________
Lender: Imperial Bank
9920 South La Cienega Boulevard
Suite 636
Inglewood, California 90301
Attention: Lending Services
Telecopier: (310) 417-5695
With a copy to: Imperial Bank
400 East Van Buren
Suite 900
Phoenix, Arizona 85004
Attention: Edmund Ozorio
Telecopier: (602) 261-7881
Any notice to be personally delivered may be delivered to the
principal offices (determined as of the date of such delivery) of the
party to whom such notice is directed. Any such notice or other
communication shall be deemed to have been given (whether actually
received or not) on the day it is personally delivered as aforesaid;
or, if mailed, on the third day after it is mailed as aforesaid; or,
if transmitted by telefacsimile, on the day that such notice is
transmitted as aforesaid. Any party may change its address for
purposes of this Credit Agreement by giving notice of such change to
the other parties pursuant to this Section 9.4.
9.5 GOVERNING LAW; JURISDICTION, VENUE; WAIVER OF JURY TRIAL. The Loan
Documents shall be governed by and construed in accordance with the substantive
laws (other than conflict laws) of the State of California, except to the extent
Lender has greater rights or remedies under Federal law, whether as a national
bank or otherwise, in which case such choice of California law shall not be
deemed to deprive Lender of any such rights and remedies as may be available
under Federal law. Subject to the provisions of Section 9.6 hereof, each party
consents to the personal jurisdiction and venue of the state courts located in
Los Angeles, State of California in connection with any controversy related to
this Agreement, waives any argument that venue in any such forum is not
convenient and agrees that any litigation initiated by any of them in connection
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with this Agreement shall be venued in the Superior Court of Los Angeles County,
California. The parties waive any right to trial by jury in any action or
proceeding based on or pertaining to this Agreement or any of the Credit
Documents.
9.6 REFERENCE PROVISION.
(a) Each controversy, dispute or claim ("Claim") between the parties
arising out of or relating to this Agreement and/or any of the Credit
Documents, which is not settled in writing within ten days after the "Claim
Date" (defined as the date on which a party gives written notice to all
other parties that a controversy, dispute or claim exists), will be settled
by a reference proceeding in Los Angeles, California, in accordance with
the provisions of Section 638 ET SEQ. of the California Code of Civil
Procedure, or their successor section ("CCP"), which shall constitute the
exclusive remedy for the settlement of any Claim, including whether such
Claim is subject to the reference proceeding and the parties waive their
rights to initiate any legal proceedings against each other in any court or
jurisdiction other than the Superior Court of Los Angeles (the "Court").
The referee shall be a retired Judge selected by mutual agreement of the
parties, and if they cannot so agree with in thirty days (30) after the
Claim Date, the referee shall be selected by the Presiding Judge of the
Court. The referee shall be appointed to sit as a temporary judge, as
authorized by law. The referee shall (a) be requested to set the matter for
hearing within sixty (60) days after the Claim Date and (b) try any and all
issues of law or fact and report a statement of decision upon them, if
possible, within ninety (90) days of the Claim Date. Any decision rendered
by the referee will be final, binding and conclusive and judgment shall be
entered pursuant to CCP 644 in the Court. All discovery permitted by this
Agreement shall be completed no later than fifteen (15) days before the
first hearing date established by the referee. The referee may extend such
period in the event of a party's refusal to provide requested discovery for
any reason whatsoever, including, without limitation, legal objections
raised to such discovery or unavailability of a witness due to absence or
illness. No party shall be entitled to "priority" in conducing discovery.
Depositions may be taken by either party upon seven (7) days written
notice, and, request for production of inspection of documents shall be
responded to within ten (10) days after service. All disputes relating to
discovery which cannot be resolved by the parties shall be submitted to the
referee whose decision shall be final and binding upon the parties.
(b) The referee shall be required to determine all issues in
accordance with existing case law and the statutory laws of the State of
California. The rules of evidence applicable to proceedings at law in the
State of California will be applicable to the reference proceeding. The
referee shall be empowered to enter equitable as well as legal relief, to
provide all temporary and/or provisional remedies and to enter equitable
orders that will be binding upon the parties. The referee shall issue a
single judgment at the close of the reference proceeding which shall
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dispose of all of the claims of the parties that are the subject to the
reference. The parties hereto expressly reserve the right to contest or
appeal from the final judgment or any appealable order or appealable
judgment entered by the referee. The parties expressly reserve the right to
findings of fact, conclusions of law, a written statement of decision, and
the right to move for a new trial or a different judgment, which new trial,
if granted, is also to be a reference proceeding under this provision.
(c) No provision of Paragraphs (a) or (b) of this Section 9.6,
however, shall limit the right of Lender to bring action for possession of
any collateral in any jurisdiction, wherever located, in accordance with
the provisions of the Security Documents.
9.7 INVALID PROVISIONS. If any provision of any Credit Document is held to
be illegal, invalid or unenforceable under present or future laws during the
term of this Credit Agreement, such provision shall be fully severable; such
Credit Document shall be construed and enforced as if such illegal, invalid or
unenforceable provision had never comprised a part of such Credit Document; and
the remaining provisions of such Credit Document shall remain in full force and
effect and shall not be affected by the illegal, invalid or unenforceable
provision or by its severance from such Credit Document. Furthermore, in lieu of
each such illegal, invalid or unenforceable provision there shall be added as
part of such Credit Document a provision mutually agreeable to Borrower and
Lender as similar in terms to such illegal, invalid or unenforceable provision
as may be possible and be legal, valid and enforceable.
9.8 BINDING EFFECT. The Credit Documents shall be binding upon and inure to
the benefit of Borrower and Lender and their respective successors, assigns and
legal representatives; provided, however, that Borrower may not, without the
prior written consent of Lender, assign any rights, powers, duties or
obligations thereunder.
9.9 ENTIRETY. The Credit Documents embody the entire agreement between the
parties and supersede all prior agreements and understandings, if any, relating
to the subject matter hereof and thereof.
9.10 HEADINGS. Section headings are for convenience of reference only and
shall in no way affect the interpretation of this Credit Agreement.
9.11 SURVIVAL. All representations and warranties made by Borrower herein
shall survive delivery of the Note and the making of the Loan.
9.12 NO THIRD PARTY BENEFICIARY. The parties do not intend the benefits of
this Credit Agreement to inure to any third party, nor shall this Credit
Agreement be construed to make or render Lender liable to any materialman,
supplier, contractor, subcontractor, purchaser or lessee of any property owned
by Borrower, or for debts or claims accruing to any such persons against
Borrower. Notwithstanding anything contained herein or in the Note, or in any
other Credit Document, or any conduct or course of conduct by any or all of the
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parties hereto, before or after signing this Credit Agreement or any of the
other Credit Documents, neither this Credit Agreement nor any other Credit
Document shall be construed as creating any right, claim or cause of action
against Lender, or any of its officers, directors, agents or employees, in favor
of any materialman, supplier, contractor, subcontractor, purchaser or lessee of
any property owned by Borrower, nor to any other person or entity other than
Borrower.
9.13 TIME. Time is of the essence hereof.
9.14 SCHEDULES AND EXHIBITS INCORPORATED. All schedules and exhibits
attached hereto, if any, are hereby incorporated into this Credit Agreement by
each reference thereto as if fully set forth at each such reference.
9.15 COUNTERPARTS. This Credit Agreement may be executed in multiple
counterparts, each of which, when so executed, shall be deemed an original but
all such counterparts shall constitute but one and the same agreement.
IN WITNESS WHEREOF, the undersigned have executed this Credit Agreement as
of the day and year first above written.
SITEK, INCORPORATED, a Delaware
corporation
By:
------------------------------------
Name:
----------------------------------
Title:
---------------------------------
ADVANCED TECHNOLOGY SERVICES, INC.,
an Arizona corporation
By:
------------------------------------
Name:
----------------------------------
Title:
---------------------------------
IMPERIAL BANK, a California banking
corporation
By:
------------------------------------
Name:
----------------------------------
Title:
---------------------------------
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EXHIBIT "A"
FORM OF ADVANCE NOTICE
Imperial Bank
400 East Van Buren
Suite 900
Phoenix, Arizona 85004
Attention: Edmund Ozorio Date:______________
Telecopier: (602) 261-7881
Time:______________
Dear Ladies and Gentlemen:
The undersigned ("Borrower") refers to the Credit Agreement dated as of
January 10, 2000 (as it may hereafter be amended, modified, extended or restated
from time to time, the "Credit Agreement"), between SITEK, Incorporated, a
Delaware corporation and Advanced Technology Services, Inc., an Arizona
corporation (together, the "Borrower"), and Imperial Bank. Capitalized terms
used herein and not otherwise defined herein shall have the meanings assigned to
such terms in the Credit Agreement.
The Borrower hereby gives notice that it requests an Advance pursuant to
Section 2.3 of the Credit Agreement and sets forth below the terms of such
requested Advance:
A. Date of Advance
--------------------
B. Principal Amount of Advance
--------------------
Sincerely,
SITEK INCORPORATED, a Delaware
corporation
By:
------------------------------------
Name:
----------------------------------
Title:
---------------------------------
ADVANCED TECHNOLOGY SERVICES, INC.,
an Arizona corporation
By:
------------------------------------
Name:
----------------------------------
Title:
---------------------------------
<PAGE>
EXHIBIT "B"
COMPLIANCE CERTIFICATE
FOR PERIOD ENDING
------------------
("REPORTING PERIOD")
Imperial Bank Arizona
400 East Van Buren
Suite 900
Phoenix, Arizona 85004
Attention: Edmund Ozorio
Telecopier: (602) 261-7881 Date:_____________(1)
Dear Ladies and Gentlemen:
This Compliance Certificate refers to the Credit Agreement dated as of
January 10, 2000 (as it may hereafter be amended, modified, extended or restated
from time to time, the "Credit Agreement"), between SITEK, Incorporated, a
Delaware corporation and Advanced Technology Services, Inc., an Arizona
corporation (together, the "Borrower") and Imperial Bank, a California banking
corporation. Capitalized terms used and not otherwise defined herein shall have
the meanings assigned to such terms in the Credit Agreement.
Pursuant to Section 6.1 of the Credit Agreement, the undersigned, hereby
certifies that:
1. To the best of the undersigned's knowledge, after a review of the
activities of Borrower during the Reporting Period, Borrower has observed,
performed and fulfilled each and every obligation and covenant contained in the
Credit Agreement and no "Event of Default" thereunder exists [or if so,
specifying the nature and extent thereof and any corrective actions taken or to
be taken].
- ----------
(1) To be submitted within 30 days after the end of each quarter.
<PAGE>
2. All financial statements of Borrower delivered to Lender during the
Reporting Period, to the undersigned's knowledge, fairly present in all material
respect the financial position of the Borrower and the results of its operations
at the dates and for the periods indicated and have been prepared in accordance
with GAAP.
3. As of the last Reporting Period, the computations below were true and
correct:
Section 7.10 - Financial Covenants
(a) INTEREST COVERAGE RATIO.
Numerator: EBITDA A $_______
Denominator: Interest Expense B $_______
A divided by B equals A/B _______x
Minimum 3.0 to 1.0x
(b) NET INCOME. The Borrower _____ satisfies _____ does not satisfy
the requirement that the Borrower not incur a net loss in any two (2)
consecutive quarters or any fiscal year.
SITEK, INCORPORATED, a Delaware
corporation
By:
------------------------------------
Name:
----------------------------------
Its:
-----------------------------------
ADVANCED TECHNOLOGY SERVICES, INC.,
an Arizona corporation
By:
------------------------------------
Name:
----------------------------------
Its:
-----------------------------------
-2-
<PAGE>
EXHIBIT "C"
BORROWING BASE CERTIFICATE
<PAGE>
EXHIBIT "D"
SUBORDINATION AGREEMENT
TO: IMPERIAL BANK
The undersigned ("We") are interested in the financial success of SITEK,
INCORPORATED, a Delaware corporation and ADVANCED TECHNOLOGY SERVICES, INC., an
Arizona corporation (together, the "Borrower"), and agree that financial
accommodations from IMPERIAL BANK ("Bank" or "You") to Borrower pursuant to that
Credit Agreement dated as of January 10, 2000 (the "Credit Agreement") are
necessary, and we accordingly request that you grant to or renew for Borrower
such financial accommodation as you may deem proper, and for the purpose of
inducing you to grant, renew or extend such financial accommodation, we hereby
severally agree as follows:
All claims of each of the undersigned against Borrower now or hereafter
existing, whether matured or not (subject to the maximum if specified below),
are and shall be at all times subordinate and subject to any and all claims on
your part against Borrower now or hereafter existing, whether matured or not, so
long as any such claim on your part against Borrower shall remain unpaid, in
whole or in part, and each of the undersigned agrees not to sue upon, or to
collect, or to receive payment upon, by setoff or in any other manner, any claim
or claims on his/hers or its part against Borrower now or hereafter existing,
nor to sell, assign, transfer, pledge, or give a security interest in the same
(except subject expressly to this Agreement), nor to enforce or apply any
security now or hereafter existing, nor to join in any petition in bankruptcy or
any assignment for the benefit of creditors or any creditors agreement, nor to
take any lien or security on any of Borrower's property, real or personal, nor
to incur any obligation to nor receive any loans, advances or gifts from
Borrower, so long as any such claim on your part against Borrower shall exist or
so long as you are committed or otherwise obligated to make any loans to, or
grant any credit to, Borrower. In addition, so long as any claim on your part
against Borrower shall remain unpaid, in whole or in part, Bank shall have a
prior security interest in the assets of Borrower consisting of Collateral (as
defined in the Credit Agreement), now owned or hereafter acquired by Borrower
and each of the undersigned hereby subordinates any security interest, including
without limitation any purchase money security interest, which each of the
undersigned now has or hereafter acquires in the Collateral to all security
interests which Bank now has or hereafter acquires in the Collateral.
All claims on your part against Borrower now or hereafter existing shall be
first paid by Borrower before any payment shall be made by Borrower to any of
the undersigned unless Borrower is in full compliance with all Financial
Covenants (as defined in the Credit Agreement) contained in the Credit
Agreement, prior to and after giving effect to such payment. Said priority of
payment shall apply during the ordinary course of Borrower's business and in
case of any assignment by Borrower for the benefit of Borrower's creditors, and
in case of any bankruptcy proceedings instituted by or against Borrower, and in
case of the appointment of any receiver for Borrower or Borrower's business or
<PAGE>
assets, and in case of any dissolution or other winding up of the affairs of
Borrower, or of Borrower's business, and in all such cases respectively, the
officers of Borrower and any assignee, trustee in bankruptcy, receiver, and
other person or persons in charge, are hereby directed to pay to you the full
amount of your claims against Borrower before making any payment to any of the
undersigned, and so far as may be necessary for that purpose, each of the
undersigned hereby transfers and assigns to you all of his/her or its rights to
any payment or distribution which might otherwise be coming to him/her or it.
You are hereby irrevocably constituted and appointed the attorney-in-fact of
each of the undersigned to file any and all proofs of claim and any other
documents and to take all other action, either in your name, or in the name of
the undersigned, or any of them, which in your opinion is necessary or desirable
to enable you to obtain all such payments.
Each of the undersigned agrees that if part or all of any claim of the
undersigned shall be evidenced by a promissory note or other instrument, the
undersigned shall cause to be placed thereon a legend stating that the payment
thereof is subordinate to the payment of all claims on your part against
Borrower pursuant to the terms of this Subordination Agreement, and each of the
undersigned agrees to mark all books of account in such manner to indicate that
payment thereof is subordinated pursuant to the terms of this Subordination
Agreement.
Each of the undersigned further agrees that in case he, she or it should
take or receive any security interest in, or lien by way of attachment,
execution, or otherwise on any of the property, real or personal, of Borrower,
or should take or join in any other measure or advantage contrary to this
Agreement, while any claim exists on your part against Borrower, you shall be
entitled to have the same vacated, dissolved and set aside by such proceedings
at law, or otherwise, as you may deem proper, and this Agreement shall be and
constitute full and sufficient ground therefor and shall entitle you to be and
become a party to any proceedings at law, or otherwise, initiated by you or by
any other party, in or by which you may deem it proper to protect your interest
hereunder, and the party so violating this Agreement shall be liable to you for
all loss and damage sustained by you by reason of such breach, including
attorney's fees in any such legal action.
If the undersigned, or any of them, shall receive any payment or property
in violation of this Agreement, such payment of property shall be received by
such undersigned in trust for you and forthwith will be delivered and
transferred to you.
No subordination of obligations of Borrower to the undersigned have
previously been executed by the undersigned for the benefit of anyone else, and
any such subordinations hereafter executed will be, and shall be expressed to be
subject and subordinate to the effect hereof. This Agreement shall be continuing
in effect, it shall not be cancelled or otherwise rendered ineffective by the
payment or discharge at any time of all of Borrower's obligations to you, and it
shall apply to any and all financial accommodations subsequently granted,
-2-
<PAGE>
renewed or extended by you for Borrower, unless the undersigned shall deliver to
you a written notice of revocation as to future transactions, at a time when
Borrower is no longer obligated to you in any way, and while you are not
committed or otherwise obligated to make any loans to, or grant any credit to,
Borrower.
----------------------------------------
----------------------------------------
By:
------------------------------------
Name:
----------------------------------
Its:
-----------------------------------
-3-
<PAGE>
ACCEPTANCE OF SUBORDINATION AGREEMENT BY BORROWER
The undersigned, being the Borrower named in the foregoing Subordination
Agreement, hereby accepts and consents thereto and agrees to be bound by all of
the provisions thereof and to recognize all priorities and other rights granted
thereby to IMPERIAL BANK, and to pay said Bank in accordance therewith.
Dated ________________________
SITEK, INCORPORATED, a Delaware
corporation
By:
------------------------------------
Name:
----------------------------------
Title:
---------------------------------
ADVANCED TECHNOLOGY SERVICES, INC.,
an Arizona corporation
By:
------------------------------------
Name:
----------------------------------
Title:
---------------------------------
-4-
COMMERCIAL LEASE
(Triple Net)
This lease entered into January 20, 2000 between Fairmont Commerce Center, LLC,
("Lessor") and Sitek, Incorporated, a Delaware Corporation ("Lessee").
WITNESSETH:
1. PREMISES.
In consideration of the rents and covenants herein set forth, Lessor hereby
leases to Lessee and Lessee hereby rents from Lessor the premises shown outlined
on Exhibit "A" attached hereto (hereinafter referred to as the "Premises"). The
Premises is located at 1919 West Fairmont Suites 1 through 6, in Tempe, Arizona
as part of Fairmont Commerce Center, 1919 West Fairmont, Tempe AZ 85282
hereinafter referred to as the "Project". The Premises is comprised of
approximately 29,181 square feet of rentable area. The lease of the Premises
shall be for the term, upon the rentals and subject to the terms and conditions
set forth in this Lease Agreement and Exhibits hereto.
2. TERM.
With respect to Suites 1, 2, 3 and 4, the term of this Lease shall be for 36
months, commencing on June 1, 2000, and terminating on May 31, 2003. With
respect to Suite 5, the term of this Lease shall commence on March 1, 2000 and
terminate on May 31, 2003. With respect to Suite 6, the term of this Lease shall
commence as soon as the new demising wall between Suite 6 and the adjacent Suite
7 is completed and a Certificate of Occupancy is obtained for Suite 6 from the
City of Tempe, whichever is the last to occur and terminate on May 31, 2003.
3. RENT.
3.1 Lessee shall pay to Lessor as rent for the Premises monthly payments, in
advance, on the first day of each month during the term of this Lease Agreement
as follows:
RENTS PRIOR TO JUNE 1, 2000
From March 1, 2000 to May 31, 2000 the rent for Suite 5 shall be 00.00 per
month.
From date of delivery of Suite 6 to May 31, 2000, the rent for Suite 6
shall be 00.00 per month.
RENTS FROM AND AFTER JUNE 1, 2000
From June 1, 2000 to May 31, 2001 the rent shall be $15,000.00 per month
From June 1, 2001 to May 31, 2002 the rent shall be $16,000.00 per month
From June 1, 2002 to May 31, 2003 the rent shall be $17,000.00 per month
In addition, Lessee shall pay any privilege, excise, sales, gross receipts, rent
or other tax levied or assessed by any governmental authority against Lessor in
respect to the rent or other charges due under this lease or as a result of
Lessor's receipt of such rents or other charges.
3.2 Rent for any period during the term hereof which is for less than one month
shall be a pro rata portion of the monthly installment. Rent shall be payable in
lawful money of the United States to Lessor at the address referred to in
paragraph 30 hereof or to such other persons or at such other places as Lessor
may designate in writing. Rent shall be payable without notice, demand,
deduction or any offset whatever.
1
<PAGE>
3.3 In the event Lessee fails to make any installment payment of rent within
five (5) days of the date due, without written demand or notice for payment,
then Lessee shall, the next day, pay to Lessor a late charge equal to five
percent (5%) of the amount due. In addition, such delinquent amount and the late
charge shall bear interest from the due date of the rent as provided herein at
the rate of twenty percent (20%), per annum, until paid.
4. SECURITY DEPOSIT.
4.1 Lessor acknowledges that Lessee has already paid a $6,780.00 security
deposit under Lessee's current Lease. Lessee hereby agrees to pay an additional
$10,220.00 to bring the total security deposit to $17,000.00. Lessee shall pay
to Lessor upon execution hereof the sum of $10,220.00 as additional security for
the faithful performance and observance by Lessee of the terms of this Lease
Agreement. It is agreed that in the event Lessee defaults in respect of any of
the terms of this Lease Agreement, including, but not limited to, the payment of
rent and additional rent, Lessor may, in addition to any other rights and
remedies it may have, use, apply or retain the whole or any part of the security
so deposited to the extent required for the payment of any rent and additional
rent or any other sum as to which Lessor may expend or be required to expend by
reason of Lessee's default in respect of any of the terms of this Lease
Agreement. If Lessor applies any part of said deposit to cure any default of
Lessee, Lessee shall upon demand deposit with Lessor the amount so applied so
that Lessor shall have the full deposit on hand at all times during the terms of
this Lease Agreement.
4.2 In the event that Lessee shall fully and faithfully comply with all of the
terms and conditions of this Lease Agreement, the security shall be returned to
Lessee without interest after the date fixed as of the end of the term of this
Lease Agreement and after delivery of the entire possession of the Premises to
Lessor. In the event of a sale or lease of the Project, Lessor shall have the
right to transfer the security to the vendee or lessee and Lessor shall
thereupon be released by Lessee from all liability for the return of such
security, and Lessee agrees to look solely to the new landlord for the return of
said security, and it is agreed that all of the provisions hereof shall apply to
every transfer or assignment made of the security to a new landlord.
5. USES AND SUITABILITY.
5.1 Use. The Premises shall be used and occupied by Lessee for only the
following purposes and for no other purposes whatsoever, without obtaining the
prior written consent of Lessor which consent shall not be unreasonably
withheld: General office and assembly, manufacture, storage and use of
electronic and semiconductor equipment and related activities.
5.2 Suitability. The acceptance of possession of the Premises by Lessee shall be
deemed to conclusively establish that Lessee has accepted the Premises as
complete for all purposes. In any event this Lease Agreement shall be subject to
all applicable zoning ordinances and to any municipal, county and state laws and
regulations governing and regulating the use of the Premises. Lessee
acknowledges that neither Lessor nor Lessor's agent has made any representation
or warranty as to the suitability or condition of the Premises for the conduct
of Lessee's business.
5.3 Uses Prohibited.
5.3.1 Lessee shall not do or permit anything to be done in or about the
Premises which will increase the existing rate of insurance upon the building in
which the Premises are contained (unless Lessee shall pay any increased premium
as a result of such use or acts) or cause the cancellation of any insurance
policy covering said Premises or any building, nor shall Lessee sell or permit
to be kept, used or sold in or about said Premises any articles which may be
prohibited by a standard form of policy of fire insurance.
5.3.2 Lessee shall not do or permit anything to be done in or about the
Premises which will in any way obstruct or interfere with the rights of other
Lessees or occupants of the Project or injure or annoy them or use or allow the
Premises to be used for any unlawful or objectionable purposes, nor shall Lessee
cause, maintain or permit any nuisance in, on or about the Premises. Lessee
shall not commit or suffer to be committed any waste in or upon the Premises.
2
<PAGE>
5.3.3 Lessee shall not use the Premises or permit anything to be done in or
about the Premises which will in any way conflict with any law, statute, zoning
restriction, ordinance or governmental rule or regulation or requirements of
duly constituted public authorities now in force or which may hereafter be
enacted or promulgated. Without the prior written consent of Lessor, which
consent must not be unreasonably withheld, Lessee shall not (either with or
without negligence) cause or permit the escape, generation, manufacture,
storage, disposal or release of any hazardous substances or materials in, on or
about the Premises or Project. With respect to any such hazardous substances or
materials which have been approved by Lessor in writing, Lessee shall not allow
the storage or use of such substances or materials in any manner not sanctioned
by law and by the highest standards prevailing in the industry for the storage
and use of such substances or materials, nor allow to be brought into the
Project any such materials or substances except to use in the ordinary course of
Lessee's business, and then only in quantities approved by Lessor in writing.
Without limitation, hazardous substances and materials shall include those
described in the Comprehensive Environmental Response, Compensation and
Liability Act of 1980, as amended, 42 U.S.C. Section 9601 et seq., the Resource
Conservation and Recovery Act, as amended, 42 U.S. C. Section 6901 et seq., any
applicable state or local laws and the regulations adopted under these acts. In
all events, Lessee shall indemnify Lessor in the manner elsewhere provided in
this Lease Agreement from any release of hazardous materials on the Premises
occurring while Lessee is in possession, if caused by Lessee or persons acting
under Lessee. The within covenants shall survive the expiration or earlier
termination of the term of this Lease Agreement.
6. REAL PROPERTY TAXES AND COMMON AREA EXPENSES.
6.1 For purposes of this Lease, the following terms shall be defined as follows:
(a) The term "Common Areas" shall be defined to mean those areas to be used
in common with others entitled thereto, except the Premises and all similar
areas leased to others or reserved to Lessor's exclusive use. The Common Areas
include, without limitation, parking areas, service roads and areas, loading and
dock facilities, sidewalks, courtyards, gardens, and such other common
additional areas and facilities as may be REASONABLY designated as a part of the
Common Areas from time to time by Lessor.
(b) The term "Common Area Expenses" shall be defined to mean the total cost
and expense incurred by Lessor or Lessor's agents in operating and maintaining
the Common Areas actually used or available for use by Lessee and Lessee's
employees, agents, servants, customers and other invitees, excluding only items
of expense commonly known and designated as carrying charges, but specifically
including, without limitation, all sums expended by Lessor for gardening,
repairing, repaving, painting, restriping, cleaning, sweeping, planting and
landscaping, janitorial services, pest control, traffic control, security guards
or systems, repairs, preventive and routine maintenance, line painting, lighting
and other utilities, directional signs and other markers and bumpers, sanitary
control, including, without limitation, all costs of maintaining and operating
any air conditioning and heating, sewer, septic, or waste disposal
installations, removal of garbage, trash and other refuse, depreciation on
machinery and equipment used in such maintenance, cost of all utilities and
services consumed or performed on the Common Areas, required fees or charges
levied pursuant to any governmental authority, and a management fee (which may
be payable to Lessor or its affiliates), not to exceed current market rates.
Lessor shall also have the right to include the cost of public liability and
property damage insurance on the Common Areas as part of the Common Area
Expenses or to separate such cost and bill Lessee separately for its pro rata
share thereof.
(c) The term "Real Property Taxes" shall be defined to mean all taxes and
assessments imposed upon the real property and permanent improvements thereto
comprising the Project, or applicable to the Premises and Common Areas or any
portion thereof, but shall not include personal income taxes, personal property
taxes, inheritance taxes or franchise taxes levied upon the Lessor, but not
directly against said real property, even though such taxes may or shall become
alien against said real property. Any such Real Property Taxes for the year in
which this Lease commences or ends shall be apportioned and adjusted
accordingly. With respect to any assessment which may be levied against or upon
the Project or the Premises and which, under the laws then in force, may be
evidenced by improvements or other bonds payable in annual installments, only
the annual payments on such assessments shall be included in computing Lessee's
obligation for Real Property Taxes.
(d) Lessee's pro rata share of Real Property Taxes and Common Area Expenses
shall be determined based upon the ratio of the gross floor area of the Premises
to the gross floor area of the building and/or complex of buildings comprising
the Project. In this regard, the parties agree that Lessee's pro rata share for
Suite 5 is 5.5% and Lessee's pro rata share for Suites 5 and 6 is 12.9%. In this
regard, the parties hereby agree that commencing June 1, 2000, Lessee's pro rata
3
<PAGE>
share for Suites 1 through 6 shall be thirty-four point one percent (34.1%)
based upon application of the above formula to the facts prevailing at the date
hereof. The "gross floor area" is the area measured in square feet to the center
of all party walls and the exterior face of all other exterior walls. Changes in
any gross floor area occurring during any monthly period shall be effective on
the first day of the next succeeding month, and the amount of any gross floor
area in effect for the whole of any monthly period shall be the average of the
total amounts in effect on the first day of each calendar month.
(e) Notwithstanding the foregoing, any expense incurred by Lessor or
Lessor's agents in maintaining the Common Area that exceeds the sum of
$50,000.00 shall be amortized over the succeeding sixty (60) month period.
Lessee shall pay its pro rata share for such Common Area Expense in sixty (60)
equal consecutive monthly installments commencing the month immediately
following the month in which such expense was incurred, provided, however Lessee
shall not be liable for any such installments which first become payable after
May 31, 2003.
6.2 Throughout the term of this Lease, Lessee shall pay to Lessor, as additional
rent, the following:
(a) All Real Property Taxes applicable to the Premises during the term of
this Lease together with Lessee's pro rata share of Real Property Taxes
applicable to the Common Areas; provided, however, in the event the Real
Property Taxes applicable to the Premises are not separately assessed and
identified by separate tax bill or otherwise, the amount due from Lessee
hereunder shall be Lessee's pro rata share of Real Property Taxes applicable to
the Project; and
(b) Lessee's pro rata share of Common Area Expenses. Such additional rent
shall be computed annually, but may be estimated by Lessor and collected from
Lessee on a monthly basis, together with the rent provided in paragraph 3
hereof. Lessor shall provide Lessee with a reconciliation of Lessee's
contributions toward Real Property Taxes and Common Area Expenses on an annual
basis. If such reconciliation shall determine that Lessee's contributions are
insufficient to satisfy Lessee's obligations hereunder, as finally determined
and actually incurred by Lessor for such period, Lessee shall immediately pay to
Lessor any such deficiency. Any contributions by Lessee in excess of such actual
expenses shall be credited to any amounts owed by Lessee under this Lease, or
refunded to Lessee, at Lessor's election.
7. PERSONAL PROPERTY TAXES.
Lessee shall pay prior to delinquency all taxes assessed or levied upon Lessee's
occupancy of the Premises or upon Lessee's trade fixtures, furniture, equipment
and all other personal property of Lessee contained in the Premises or
elsewhere. When possible, Lessee shall cause said trade fixtures, furnishings,
equipment and all other personal property to be assessed and billed separately
from the real property of Lessor.
8. UTILITIES.
All utilities shall be separately metered for the Premises, and Lessee shall pay
when billed and before delinquent all charges for gas (if available),
electricity, air conditioning, heating, telephone, janitorial services and other
utilities or services furnished to the Premises or to Lessee during the term of
this Lease Agreement. Lessee shall keep the Premises free of any liens created
by Lessee's failure to make such payments. If any utility is not separately
metered, Lessee agrees to promptly pay when billed, as additional rent, a
reasonable portion to be determined by Lessor of all charges jointly metered.
9. DAMAGE OR DESTRUCTION.
9.1 Except as otherwise provided in this Lease Agreement, in the event that the
Premises or the Project is damaged by fire or other casualty fully covered by
Lessor's insurance, such damage shall be repaired by and at the expense of
Lessor. Until such repairs are completed, and except to the extent such damage
is caused by Lessee or its agent or employees, the rent payable hereunder shall
be abated in proportion to the portion of the Premises which is rendered
unusable by Lessee in the conduct of its business. In no event shall Lessor be
obligated to spend more than the net insurance proceeds received by Lessor on
account of any casualty in order to repair or restore the Premises.
4
<PAGE>
9.2 In the event such repairs cannot, in the reasonable opinion of Lessor, be
substantially completed within sixty (60) days after the occurrence of such
damage (without the payment of overtime or other premiums), Lessor may, at its
option, exercisable by giving reasonable notice to Lessee, make such repairs
with due diligence. In such event, this Lease Agreement shall continue in full
force and effect and the rent payable by Lessee hereunder shall be reduced as
above set forth until such repairs are completed.
9.3 In the event Lessor determines in its reasonable opinion that such repairs
cannot be substantially completed within such sixty (60) day period and does not
elect to make such repairs during a reasonable time in excess of such 60-day
period, then either Lessor or Lessee may, by written notice given to the other
within ten (10) additional days, terminate this Lease Agreement effective as of
the date of the occurrence of such damage.
9.4 With respect to any damage which Lessor is obligated to repair or elects to
repair, Lessee waives the provisions of Arizona Revised Statutes, Section 33-343
(which section deals with Lessee's rights to termination in the event of damage
or destruction of the Premises).
9.5 Lessor shall not under any circumstances be required to make any repairs to
or replacements of any paneling, decoration, office fixtures, railing, ceiling
or floor covering, partitions or any other property installed in the Premises by
Lessee.
9.6 Notwithstanding anything to the contrary above, in the event of damage to or
destruction of all or any portion of the Premises or the Project to the extent
of five percent (5%) or more of the then insurable replacement value of the
Project, Lessor shall have the right to terminate this Lease Agreement by
written notice to Lessee, given within thirty (30) days after the date of such
damage, destruction or declaration. Upon the giving of any such notice, this
Lease Agreement shall terminate.
9.7 In the event that the damage or cost of repair is less than five percent
(5%) of the replacement value, or in the event Lessor does not elect to
terminate this Lease Agreement, the Lease Agreement shall remain in full force
and effect and the Premises shall be repaired and rebuilt in accordance with the
other provisions of this Lease Agreement.
10. LIABILITY INSURANCE.
10.1 During the term of this Lease Agreement, Lessee shall at Lessee's expense,
maintain general public liability insurance against claims for injury, wrongful
death or property damage occurring upon, in or about the Premises with companies
and in form acceptable to Lessor, with minimum limits of One Million Dollars
($1,000,000.00) on account of bodily injuries to or death of one person, Three
Million Dollars ($3,000,000) on account of bodily injuries to or death of more
than one person as the result of any one accident or disaster, and property
damage insurance with minimum limits of One Hundred Thousand Dollars
($100,000.00). Lessee shall add the name of Lessor to the policies and agrees to
insure the interest of Lessor so long as this Lease Agreement is in effect.
Lessee shall file proof of insurance with Lessor prior to Lessee's possession of
the Premises. Lessee hereby releases and waives any and all rights of
subrogation against Lessor, and Lessee shall ensure that such policy or policies
of insurance shall contain a waiver of subrogation clause as to Lessor.
10.2 During the entire term of this Lease, Lessor shall, at the expense of
Lessee as set forth below, procure and maintain the following policies of
insurance:
(a) Commercial general liability insurance for personal injury, death and
property damage occurring on the Common Areas, the limits of liability thereof
to be in such amounts as Lessor may reasonably require under the circumstances
existing from time to time; and
(b) "Special Form" property coverage insurance against loss due to fire,
vandalism, malicious mischief, sprinkler leakage and special extended perils in
an amount adequate to cover the full cost of replacement of the Premises. Said
insurance shall provide for payment of loss thereunder to Lessor or to the
holders of mortgages or deeds of trust on the Premises. Lessee shall pay to
Lessor, as additional rent, the cost of the insurance to be carried by Lessor
pursuant hereto; provided, however, if the cost applicable to the Premises
5
<PAGE>
cannot otherwise be separately identified, the amount(s) payable by Lessee
hereunder shall be determined based upon the ratio of the gross floor area of
the Premises to the gross floor area of the building and/or complex of buildings
comprising the Project, in a manner consistent with paragraph 6.1(d) hereof.
Lessee agrees to pay to Lessor such amount(s) within ten (10) days after written
demand is sent by Lessor to Lessee accompanied by the insurance premium
notice(s) and evidence of the amount due. Notwithstanding the foregoing, Lessor
shall have the option to include the cost of the insurance on the Common Areas
set forth in subparagraph (a) hereof as part of the Common Area Expenses
pursuant to paragraph 6 hereof, instead of billing Lessee separately for such
cost.
11. LIABILITY AND INDEMNIFICATION.
11.1 Lessee shall indemnify and hold Lessor harmless from and against all
liabilities, obligations, losses, damages, penalties, claims, actions, suits,
costs, charges and expenses, including reasonable attorneys' fees, which may be
imposed upon or incurred by or asserted against Lessor arising from any breach
or default by Lessee, from any use, non-use or condition of the Premises created
by or attributable to Lessee or Lessee's employees, customers, agents, invitees,
licensees, guests or lessees, and from any negligence, act or omission
attributable to Lessee or Lessee's employees, customers, agents, invitees,
licensees, guests or lessees. In the event that any action or proceeding shall
be brought against Lessor by reason of any claim referred to in this paragraph
11.1, Lessee, upon written notice from Lessor, shall at Lessee's sole cost and
expense resist or defend the same through counsel selected by Lessor. Lessor
shall not be liable for any damage to or theft of any personal property, goods,
commodities or materials in or about the Premises. Lessee agrees that Lessor and
Lessor's agents, employees and servants shall not be liable, and Lessee waives
all claims for damage to property and business sustained during the term of this
Lease Agreement by Lessee occurring in or about the Project, resulting directly
or indirectly from any existing or future condition, defect, matter or thing in
the Premises, the Project or any part thereof, or from equipment or
appurtenances becoming out of repair or from accident, or from any occurrence,
act or omission of Lessor, Lessor's agents, employees or servants, any tenant or
occupant of the Project or any other person.
11.2 The term "Lessor" as used in this Lease Agreement so far as covenants or
obligations on the part of Lessor are concerned shall be limited to mean and
include only the owner or owners of the Project at the time in question, and in
event of any transfer or conveyance the then grantor shall be automatically
freed and released from all personal liability accruing from and after the date
of such transfer or conveyance as respects the performance of any covenant or
obligation on the part of Lessor contained in this Lease Agreement to be
performed, it being intended hereby that the covenants and obligations contained
in this Lease Agreement on the part of Lessor shall be binding on the then
Lessor only during and in respect to its period of ownership. In the event of a
sale or conveyance by Lessor of the Project, the same shall operate to release
Lessor from any future liability upon any of the covenants or conditions herein
contained and in such event Lessee agrees to look solely to the responsibility
of the successor in interest of Lessor in and to this Lease Agreement. This
Lease Agreement shall not be affected by any such sale or conveyance, and Lessee
agrees to attorn to the purchaser or grantee, which purchaser or grantee shall
be personally obligated on this Lease Agreement only so long as it is the owner
of Lessor's interest in and to this Lease Agreement. Furthermore, Lessee agrees
to look solely to Lessor's interest in the Project for the recovery of any
judgment from Lessor, it being agreed that Lessor and each of its general
partners shall never be personally liable for any such judgment.
12. EMINENT DOMAIN.
If the Premises shall be taken, or if a substantial portion thereof shall be
taken, which shall prevent Lessee from conducting its business under this Lease
Agreement, by proper authority for public or quasi-public use, Lessee may
terminate this Lease Agreement by giving Lessor written notice of such
termination within two (2) months after such taking and the rent shall abate
during the unexpired portion of this Lease Agreement, effective from the date
when possession of the part so taken shall be required for the use and purpose
for which it has been taken. If only a part of the Premises is so taken and the
part not so taken shall be sufficient for the reasonable use of the remainder
for the purpose of Lessee's business under this Lease Agreement, this Lease
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Agreement shall remain in full force and effect, except that the rent shall be
reduced in proportion of Project square footage to which the Premises so taken
bears to the Premises originally leased. All compensation awarded for any such
taking shall belong to and be the property of Lessor.
13. REPAIRS.
13.1 Lessor shall make all necessary repairs to the exterior walls, roof,
structural components, plumbing, electrical wiring and air conditioning system
of the Project of which the Premises are a part except exterior glass, windows
and doors. Lessor also shall maintain and keep in good repair the exterior
lighting, parking areas, docks and sidewalks appurtenant to the Project.
Notwithstanding anything to the contrary, any damage caused or permitted by
Lessee, or by Lessee's employees, agents or invitees, to the Premises or to the
Project shall be repaired by Lessee, or at Lessor's election, Lessor may repair
such damage at the expense of Lessee and Lessee shall promptly reimburse Lessor
for such expense upon Lessor's demand.
13.2 Lessee, at Lessee's expense, shall maintain and keep the Premises in as
good order, condition and repair, including doors, windows and interior glass,
as they were at the time Lessee took possession of the same, reasonable wear and
tear excepted. Lessee shall keep the Premises in a neat and sanitary condition.
All repairs, restorations and replacements shall be in quality and class equal
to the original work.
13.3 Lessee agrees to notify Lessor promptly of any defective condition known to
Lessee which Lessor is required to repair, and the failure to report such
defects shall make Lessee responsible to Lessor for any additional liability,
cost or expense incurred by Lessor by reason of Lessee's failure to notify
Lessor of such defect. Lessor shall be under no duty to inspect the Premises.
14. LIENS.
If the Premises, or any part thereof, or Lessee's leasehold interest
therein, shall at any time during the term of the Lease Agreement become subject
to the lien of any vendor, mechanic, laborer or materialman based upon the
furnishing of materials or labor to Lessee or the Premises and contracted for by
Lessee, Lessee shall cause the same, at Lessee's expense, to be discharged
within fifteen (15) days after notice thereof.
15. NUISANCE.
15.1 Notwithstanding anything in this Lease Agreement to the contrary, including
without limitation the use by Lessee of the Premises in accordance with
paragraph 5 hereunder, Lessee shall not commit or permit any nuisance or other
act, whether noise, odor, smoke, sewerage, chemical waste or otherwise, which
may disturb the quiet enjoyment of any other tenants of Lessor in the Project.
15.2 Lessee shall not obstruct or cause to be obstructed any public or private
roadways, sidewalks or common areas appurtenant to the Project, or any parking
areas or docking areas of other tenants of Lessor in the Project. In the event
Lessee commits or permits any nuisance or act set forth in this paragraph, the
same shall be a material breach of this Lease Agreement.
16. ASSIGNMENT AND SUBLETTING.
16.1 Lessee shall not voluntarily or by operation of law assign, transfer,
mortgage or encumber this Lease Agreement, or any interest therein, and shall
not sublet the Premises or any part thereof or suffer any other person (other
than the employees and agents of Lessee) to occupy or use the Premises or any
portion thereof, without obtaining Lessor's prior written consent.
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16.2 Regardless of Lessor's consent, no subletting or assignment shall release
Lessee from Lessee's obligations or alter the primary liability of Lessee to pay
the rent and to perform all other obligations to be performed by Lessee
hereunder. The acceptance of rent by Lessor from any other person shall not be
deemed a waiver by Lessor of any provision hereof. Consent to one assignment or
subletting shall not be deemed consent to any subsequent assignment or
subletting. In the event of default by any assignee of Lessee or any successor
of Lessee, in the performance of any of the terms hereof, Lessor may proceed
directly against Lessee without the necessity of exhausting remedies against
said assignee. Lessor may consent to subsequent assignments or subletting of
this Lease or amendments or modifications to this Lease with assignees of
Lessee, without notifying Lessee, or any successor of Lessee, and without
obtaining its or their consent thereto and such action shall not relieve Lessee
of liability under this Lease.
16.3 In the event Lessee shall assign or sublet the Premises or request the
consent of Lessor to any assignment or subletting, or if Lessee shall request
the consent of Lessor for any act Lessee proposes to do, the Lessee shall pay
Lessor's reasonable attorneys' fees incurred in connection therewith.
17. SURRENDER OF PREMISES AND HOLDING OVER.
17.1 Except as provided hereinafter, upon the expiration or earlier termination
of this Lease, Lessee shall quit and surrender the Premises, "broom-clean," in
good condition and repair (reasonable wear and tear excepted). If the Premises
are not surrendered at the end of the Lease term, Lessee shall indemnify Lessor
against loss or liability resulting from delay by Lessee in so surrendering the
Premises, including, without limitation, any claims made by any succeeding
tenant based on such delay.
17.2 If Lessee or any successor in interest of Lessee, should remain in
possession of the Premises after the expiration of the Lease term without
executing a new lease, then such holding over shall be construed as a tenancy
from month to month, subject to all the covenants, terms, provisions and
obligations of this Lease except Minimum Monthly Rent, which shall be subject to
an automatic increase of twenty-five percent (25%), over and above the amount
paid in the last full calendar month of the Lease term. Nothing contained herein
shall be construed as Lessor's permission for Lessee to hold over.
18. DEFAULT.
18.1 If Lessee fails to pay any rents when due within ten (10) days of the due
date, or if Lessee commits a breach under paragraph 17 hereof, or if Lessee
defaults in the performance of any other term or covenant of this Lease
Agreement, and any such default is not cured within five (5) days after written
notice thereof from Lessor to Lessee, then, in any such event Lessor may, at
Lessor's option, terminate this Lease Agreement and/or re-enter the Premises and
remove all persons and all or any property therefrom either by summary
dispossess proceedings or by any other suitable action or proceeding at law or
by force or otherwise, without being guilty of trespass or liable to indictment,
prosecution or damage therefor, and repossess and enjoy the Premises, together
with all improvements, additions, alterations, installations and fixtures,
without such re-entry and repossession working a forfeiture or waiver of the
rents to be paid and the covenants to be performed by Lessee during the full
term of this Lease Agreement, and upon such termination or re-entry, Lessee will
quit and surrender the Premises to Lessor, but Lessee shall remain liable as
hereinafter provided. Upon termination of this Lease Agreement or expiration of
Lessee's right to occupy the Premises by reason of the happening of any of the
foregoing events, or in any other manner or circumstances whatsoever, whether
with or without legal proceedings, by reason of or based upon or arising out of
a default or breach of this Lease Agreement on the part of Lessee, or upon the
happening of any default hereunder, Lessor may, at its option, at any time and
from time to time, relet the Premises or any part or parts thereof, for the
account of Lessee or otherwise, and receive and collect the rent therefor,
applying the same first to the payment of such expenses as Lessor may have
incurred in recovering possession of the Premises, including attorneys' fees and
expenses for putting the same into good order and condition or preparing or
altering the same for re-rental to the extent Lessor deems necessary or
desirable and all other expenses, commissions and charges paid, assumed or
incurred by Lessor in or about reletting the Premises and then to the
fulfillment of the covenants of Lessee hereunder. Any such reletting herein
provided for may be for the remainder of the term of this Lease Agreement, as
originally granted, or for a longer or shorter period. Lessor shall have the
right to change the character and use made of the Premises, and Lessor shall not
be required to accept any substitute tenant offered by Lessee or to observe any
instructions given by Lessee up to the later of the time of such termination of
this Lease Agreement or of such recovery of possession of the Premises by
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Lessor, as the case may be, and thereafter, except in a case in which liability
of Lessee as hereinafter provided arises by reason of the happening of the
insolvency of Lessee, Lessee covenants and agrees, if required by Lessor, to pay
to Lessor until the end of the initial term of this Lease Agreement, and/or any
renewal term, as the case may be, the equivalent of the amount of all rent
reserved hereunder, and all other charges required to be paid by Lessee, less
the net proceeds of reletting, if any. Lessor shall have the election in place
of and instead of holding Lessee so liable forthwith to recover against Lessee
as damages for loss of the bargain and not as a penalty, an aggregate sum which
at the time of such termination of this Lease Agreement or of such recovery of
possession of the Premises by Lessor, as the case may be, represents the then
present worth of the excess, if any, of the aggregate of the rent and all other
charges payable by Lessee hereunder that would have accrued for the balance of
the initial term, and/or any renewal term, as the case may be, over the then
present worth of the fair market rents and all other charges for the Premises
for the balance of such term. In addition, upon any default hereunder, Lessor
shall have the right to exercise in connection therewith or separately any other
rights or remedies provided by law.
18.2 The rights and remedies of Lessor shall include, but are not limited to,
enforcement of any rights and privileges hereunder by mandatory injunction,
restraining order or other equitable relief. In the event of re-entry by Lessor
as hereinabove provided, Lessor shall not be or become responsible for or incur
any liability to Lessee or other persons for any personal property, goods,
commodities or materials in or about the Premises at the time of re-entry, the
Lessor may store or dispose of such personal property, goods, commodities or
materials at the expense of Lessee with payment therefore to be made by Lessee
upon demand of Lessor.
19. INSOLVENCY.
In addition to any other rights or remedies of Lessor hereunder, if Lessee, at
any time during the term of this Lease Agreement, shall be or become insolvent,
or if Lessee shall compound Lessee's debts or sign over Lessee's estate or
effects for payment thereof, or if any sheriff, marshal, constable or any other
officer take possession of the Premises by virtue of any execution or
attachment, or if any receiver or trust is appointed of any property of Lessee,
or in the event Lessee shall be adjudged bankrupt, then and in any such event it
shall be lawful for Lessor at Lessor's election to enter into and upon the
Premises, or any part thereof, and to have, hold and possess and enjoy the same
as in the Lessor's former estate, discharged from these presents, and this Lease
Agreement shall thereupon be terminated, anything herein contained to the
contrary notwithstanding.
20. LEGAL EXPENSES.
In the event of any suit instituted by either Lessor or Lessee against the other
in any way connected with this Lease Agreement, or for the recovery of rent or
possession of the Premises, the successful party to any such action shall
recover from the other party reasonable attorneys' fees and Court costs in
connection with said suit.
21. LESSOR'S RIGHT.
In the event that Lessee does not pay before delinquent any taxes, assessments
or other charges to be paid hereunder by Lessee, Lessor shall have the right to
make such payment and to thereupon charge Lessee for the amount of such payment,
together with interest thereon from the date of such payment to the date of
repayment by Lessee to Lessor at the rate of twenty percent (20%), per annum.
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22. SUBORDINATION.
22.1 This Lease Agreement and the estate granted hereby shall be subject and
subordinate to the lien of any mortgage or mortgages which now or hereafter may
constitute alien on the Premises, and to any agreements at any time made,
modifying, supplementing, extending or renewing any such mortgages; provided,
however, that Lessor shall attempt to obtain from the mortgagee under any such
mortgage an agreement in substance that, so long as Lessee shall not be in
default in the terms of this Lease Agreement, this Lease Agreement and the
estate hereby granted shall not be terminated. The provisions for the
subordination of this Lease Agreement and the estate hereby granted shall be
self operative and no further instruments shall be required to effect such
subordination; provided, that the parties hereto shall, upon request by any
mortgagee at any time or times, execute and deliver any and all instruments that
may be reasonably necessary or proper to effect such subordination or to confirm
or evidence the same.
22.2 Lessee shall at any time upon not less than ten (10) days prior written
notice from Lessor execute, acknowledge and deliver to Lessor a statement in
writing: (a) certifying that this Lease Agreement is unmodified and in full
force and effect (or, if modified stating the nature of such modification and
certifying that this Lease Agreement as so modified in full force and effect)
and the date to which the rent and other charges are paid in advance, if any;
(b) acknowledging that there are not any uncured defaults on the part of the
Lessor hereunder, or specifying such defaults if any are claimed. Any such
statement may be conclusively relied upon by a prospective purchaser or
encumbrancer of the Premises. Lessee's failure to deliver such statement within
such time shall be deemed Lessee's acknowledgment that: (i) This Lease Agreement
is in full force and effect, without modification except as may be represented
by Lessor; (ii) There are no uncured defaults in Lessor's performance; and (iii)
Not more than one month's rent has been paid in advance. If Lessor desires to
sell, finance or refinance the Premises, or any part thereof, Lessee hereby
agrees to deliver to any purchaser or lender designated by Lessor sce# THE MOST
RECENTLY AVAILABLE financial statements of Lessee. All such financial statements
shall be received by Lessor in confidence and shall be used only for the
purposes therein set forth.
23. SIGNS.
No signs, advertisements or notices shall be placed by Lessee visible from the
outside of the Project, whether walls, roofs, windows, sidewalks, doors or
otherwise, except such as shall first be approved in writing by Lessor, which
approval shall not be unreasonably withheld. If such approval by Lessor is
given, such signs, advertisements or notices shall be installed and maintained
at Lessee's expense and shall conform to all applicable governmental laws, rules
and regulations. The standard sign criteria for the Premises is set forth on
Exhibit "D" which is attached hereto and incorporated herein by this reference.
24. PROJECT RULES.
Lessee shall abide by all rules and regulations of the Project imposed by Lessor
for the cleanliness, good appearance, proper maintenance, good order and
reasonable use of the Premises and the Project by all the tenants of the Project
and their clients, customers and employees. The rules and regulations, a copy of
which are attached hereto as Exhibit " C" and made a part hereof, may be changed
from time to time on reasonable notice to Lessee. A breach of Project rules and
regulations shall be a material breach of this Lease Agreement.
25. RIGHT OF ENTRY.
Lessor may, during the term of this Lease Agreement, at all reasonable times and
during usual business hours, enter upon the Premises for the purpose of
inspection of same or for the purpose of showing same to prospective lenders and
purchasers, and in addition, may, at any time within the last six (6) months of
the term of this Lease Agreement show, the Premises to prospective lessees.
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26. SURRENDER.
Upon the expiration of the term of this Lease Agreement, or upon the early
termination of this Lease Agreement, Lessee shall surrender up peaceable
possession of the Premises in the same condition as the Premises are at the
commencement of this Lease Agreement, reasonable wear and tear is excepted.
27. CERTAIN RIGHTS RESERVED BY LESSOR.
Lessor reserves the following rights exercisable without notice and without
liability to Lessee and without effecting an eviction, constructive or actual,
or disturbance of Lessee's use or possession, or giving rise to any claim for
set off or abatement of rent: (a) to control, install, affix and maintain any
and all signs on the property, or on the exterior of the Project and in the
corridors, entrances and other common areas thereof, except those signs within
the Premises not visible from outside the Premises; (b) to reasonably designate,
limit, restrict and control any service in or to the Project, including but not
limited to the designation of sources from which Lessee may obtain sign painting
and lettering; any restriction, designation, limitation or control imposed by
reason of this subparagraph shall be imposed uniformly on Lessee and other
tenants occupying space in the Project; (c) to retain at all times and to use in
appropriate instances keys to all doors within and into the Premises; no locks
shall be changed without the prior written consent of Lessor; this provision
shall not apply to Lessee's safes or other areas maintained by Lessee for the
safety and security of monies, securities, negotiable instruments or like items;
(d) to make repairs, improvements, alterations, additions or installations,
whether structural or otherwise, in and about the Project, or any part thereof,
and for such purposes to enter upon the Premises, and during the continuation of
any of said work, to temporarily close doors, entryways, public spaces and
corridors in the Project and to interrupt or temporarily suspend services and
facilities; and (e) to approve the size and location of safes and other heavy
equipment and articles in and about the Premises and the Project and to require
all such items to be moved into and out of the Project and the Premises only at
such times and in such manner as Lessor shall direct in writing.
28. NOTICES.
28.1 Any notice required or permitted to be given or served by either party to
this Lease Agreement shall be deemed to have been given or served when made in
writing, by certified or registered mail, addressed as follows:
LESSOR: Fairmont Commerce Center, LLC
525 Broadway Suite 203
Santa Monica, CA 90401
LESSEE: Sitek, Incorporated
Attn: Chief Financial Officer
1919 West Fairmont Suite 2
Tempe, Arizona
28.2 All rental payments shall be made to Lessor at the above address. The
addresses may be changed from time to time by either party by serving notice as
above provided. All notices shall be effective if mailed as aforesaid on the
second business day following deposit in the mail, or otherwise upon actual
receipt by the recipient.
29. DELAYS; DEFAULT BY LESSOR.
29.1 Lessor shall not be responsible for any delay or failure in the observance
or performance of any term or condition of this Lease Agreement to be observed
or performed by Lessor to the extent that such delay results from action or
order of governmental authorities civil commotion, strikes, fires, acts of God
or the public enemy act or default of any tenant in the Project, the inability
to procure labor, material, fuel, electricity, or other forms of energy or any
other cause beyond the reasonable control of Lessor, whether or not similar to
the matters herein specifically enumerated. Any delay shall extend by like time
any period of performance by Lessor and shall not be deemed a breach of or
failure to perform this Lease Agreement or any provisions hereof.
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29.2 In the event of any default under this Lease Agreement by Lessor, Lessee,
before exercising any rights that it may have at law to cancel this Lease
Agreement, shall have given written notice of such default to Lessor and shall
have offered Lessor a reasonable opportunity to correct and cure the default.
Lessee also agrees to give the holders of any mortgages or deeds of trust
("mortgagees") by registered mail, a copy of any notice of default served upon
Lessor, provided that prior to such notice Lessee has been notified in writing
(by way of Notice of Assignment of Rents and Leases, or otherwise) of the
addresses of such mortgagees. Lessee further agrees that if Lessor shall have
failed to cure such default within the aforesaid time limit, then the mortgagees
shall have an additional twenty (20) days within which to cure such default or
if such default cannot be cured within that time, then such additional time as
may be necessary, if within such twenty (20) days any mortgagee has commenced
and is diligently pursuing the remedies necessary to cure such default
(including but not limited to commencement of foreclosure proceedings if
necessary to effect such cure) in which event this Lease Agreement shall not be
terminated while such remedies are being so diligently pursued.
30. PARKING.
30.1 Lessee also acknowledges that there are unreserved surface parking spaces
in an uncovered parking area adjoining the building. Lessee and visitors of the
Project may park in such spaces without charge on a non-exclusive basis.
33.2 Lessee's use of all parking areas shall be subject to any rules and
regulations relating thereto included from time to time in the Project Rules and
Regulations, including regulations governing the designation of specific parking
spaces for use by the Lessee and its guests and invites, the hours during which
such parking spaces may be used, the size of such parking spaces, and the
traffic flow in the parking areas. Lessor shall not be responsible for any
vandalism or other damages from any cause occurring to automobiles or their
contents while located in such parking spaces or moving in the parking area.
31. NO WAIVER.
Any waiver by any of the parties hereto of any breach of this Lease Agreement,
or of any right of any party, must be in writing, and in any event shall not
constitute a waiver of any other breach or of any other right.
32. ENTIRE AGREEMENT.
This Lease Agreement contains the entire agreement between the parties hereto
and no term or provision hereof may be changed, waived, discharged or terminated
unless the same be in writing executed by both parties hereto.
33. APPLICABLE LAW.
The laws of Arizona shall govern the construction, performance and enforcement
of this Lease Agreement.
34. TIME OF ESSENCE.
Time shall be of the essence in the performance of every term, covenant and
condition of this Lease Agreement.
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35. HEADINGS.
The paragraph headings contained herein are inserted only for convenience of
reference and are in no way to be construed as a part of this Lease Agreement or
as a limitation on the scope of the particular paragraphs to which they refer.
36. BENEFITS.
Subject to paragraph 18 hereof, this Lease Agreement shall inure to the benefit
of and be binding upon the parties hereto and their respective heirs, executors,
administrators, legal representatives, successors and assigns.
37. SEVERABILITY.
If any term or provision of this Lease Agreement shall, to any extent, be
determined by a court of competent jurisdiction to be invalid or unenforceable,
the remainder of this Lease Agreement shall not be affected thereby, and each
other term and provision of this Lease Agreement shall be valid and be
enforceable to the fullest extend permitted by law.
38. ABANDONMENT.
Lessee shall not vacate or abandon Premises at any time during the term of this
Lease Agreement, nor permit the Premises to remain unoccupied for a period
longer than fifteen (15) consecutive days during the term of this Lease
Agreement; and if Lessee shall abandon, vacate or surrender the Premises, or be
dispossessed by process of law, or otherwise, any personal property belonging to
Lessee and left on the Premises shall be deemed abandoned.
39. LESSEE AUTHORITY.
Lessee shall furnish to Lessor a corporate resolution, proof of due
authorization of partners, or other appropriate documentation reasonably
requested by Lessor evidencing the due authorization of Lessee to enter into
this Lease Agreement.
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40. ADDITIONAL TERMS AND CONDITIONS.
Additional terms and conditions which apply to this Lease Agreement, if any, are
set forth on Exhibit "D" which is attached hereto and incorporated herein by
this reference. The attached Exhibit "D" will be effective when the same is
signed by both parties hereto.
IN WITNESS WHEREOF, the parties have executed this Lease Agreement as of the day
and year first above written.
LESSOR: Fairmont Commerce Center, LLC LESSEE: Sitek, Incorporated
- ----------------------------------- ---------------------------------------
By: DMC Investment Co, LLC, Manager By: Gloria Zemla, Chief Financial
Avrom Green, Manager Officer, Vice President and
Treasurer
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EXHIBIT "A"
THE PREMISES
[FAIRMONT COMMERCE CENTER FLOORPLAN]
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EXHIBIT "B"
OUTLINE SPECIFICATIONS FOR IMPROVEMENTS TO BE PAID FOR BY LESSOR
See the provisions in Exhibit "D" of this lease.
- -------------------------- --------------------------
Lessor's Initials Lessee's Initials
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EXHIBIT "C"
PROJECT RULES AND REGULATIONS
1. Any sign, lettering, picture, notice or advertisement installed on or in any
part of the leased premises and visible from the exterior of the Project, or
visible from the exterior of the Premises, shall be installed at Lessee's sole
cost and expense, and in such manner, character and style as Lessor may approve
in writing which approval shall not be unreasonably withheld. In the event of a
violation of the foregoing by Lessee, Lessor may remove the same without any
liability and may charge the expense incurred by such removal to Lessee.
2. No awning or other projection shall be attached to the outside walls of the
Project. No curtains, blinds, shades or screens visible from the exterior of the
Project or visible from the exterior of the Premises, shall be attached to or
hung in, or used in connection with any window or door of the Premises without
the prior written consent of Lessor. Such curtains, blinds, shades, screens or
other fixtures must be of a quality, type, design and color, and attached in a
manner approved by Lessor.
3. Lessee, its servants, employees, customers, invitees and guests shall not
obstruct sidewalks, entrances, passages, corridors, vestibules, halls, in and
about the Project which are used in common with other tenants and their
servants, employees, customers, guests and invitees, and which are not a part of
the Premises of Lessee. Lessee shall not place objects against glass partitions
or doors or windows which would be unsightly from the exterior of the Project,
and will promptly remove any such objects upon notice from Lessor.
4. Lessee shall not make excessive noises, cause disturbances or vibrations or
use or operate any electrical or mechanical devices that emit excessive sound or
other waves or disturbances or create obnoxious odors any of which may be
offensive to the other tenants and occupants of the Project, or that would
interfere with the operation of any device, equipment, radio, television
broadcasting or reception from or within the Project or elsewhere and shall not
place or install any projections, antennas, aerials or similar devices inside or
outside of the Premises or on the Project.
5. Lessee shall not waste electricity, water or air conditioning and shall
cooperate fully with Lessor it insure the most efficient operation of the
Project's heating and air conditioning systems.
6. Lessee assumes full responsibility for protecting its space from theft,
robbery and pilferage, which includes keeping doors locked and other means of
entry to the Premises closed and secured after normal business hours.
7. Lessee shall comply with all applicable federal, state and municipal laws,
ordinances and regulations, and Project Rules and shall not directly or
indirectly make any use of the Premises which may be prohibited by any of the
foregoing or which may be dangerous to persons or property or may increase the
cost of insurance or require additional insurance coverage.
8. Lessor shall have the right to prohibit any advertising by Lessee which in
Lessor's reasonable opinion tends to impair the reputation or character of the
Project, and upon written notice from Lessor, Lessee shall refrain from or
discontinue such advertising.
9. The Premises shall not be used for cooking (as opposed to heating of food),
lodging, sleeping or for any immoral or illegal purpose.
10. Any carpeting cemented down by Lessee shall be installed with a releasable
adhesive. In the event of a violation of the foregoing by Lessee, Lessor may
charge the expense incurred by such removal to Lessee.
11. The water and wash closets, drinking fountains and other plumbing fixtures
shall not be used for any purpose other than those for which they were
constructed, and no sweepings, rubbish, rags, coffee grounds, or other
substances shall be thrown therein. All damages resulting from any misuse of the
fixtures shall be borne by the Lessee who or whose servants, employees, agents,
visitors, or licensees, shall have caused same. No person shall waste water by
interfering with the faucets or otherwise.
17
<PAGE>
12. No electric circuit for any purpose shall be brought into the Premises
without Lessor's written permission specifying the manner in which same may be
done.
13. Based upon reasonable structural /imitations in the Premises, Lessee may
limit the weight, size and position of all safes, fixtures and other equipment
or machinery used in the Premises. In the event Lessee shall require extra heavy
equipment or machinery, Lessee shall notify Lessor of such fact, and shall pay
the cost of structural bracing to accommodate same. All damage done to the
Premises or Project by installing, removing or maintaining extra heavy equipment
or machinery shall be repaired at the expense of the Lessee.
14. Canvassing, soliciting and peddling in the Project is prohibited and each
tenant of the Project shall cooperate to prevent the same.
15. Lessee shall not mark, drive nails, screw or drill into, paint or in any way
deface the exterior walls, roof, foundations, bearing walls or pillars without
the prior written consent of Lessor. No boring or cutting for wires shall be
allowed, except with the prior written consent of Lessor.
16. Lessee, its servants, employees, customers, invitees and guests shall, when
using the common parking facilities in and around the Project observe and obey
all signs regarding fire lanes and no parking zones, and when parking always
park between the designated lines. Lessor reserves the right to tow away, at the
expense of the owner, any vehicles which in improperly parked or parked in a no
parking zone. All vehicles shall be parked at the sole risk of the owner, and
Lessor assumes no responsibility for any damage to or loss of vehicles. No
vehicles shall be parked overnight.
17. Wherever in these Project Rules and Regulations the word "Lessee" occurs, it
is understood and agreed that it shall mean Lessee's associates, agents, clerks,
servants and visitors. Wherever the word "Lessor" occurs, it is understood and
agreed that it shall mean Lessor's assigns, agents, clerks, servants, and
visitors.
18. Lessor reserves the right at any time to change or rescind any one or more
of these rules and regulations as in Lessor's judgment may from time to time may
be necessary for the management, safety, care and cleanliness of the Project.
Lessor shall not be responsible to Lessee or to any other person for the
non-observance or violation of these rules and regulations by any other Lessee
or other person.
18
<PAGE>
EXHIBIT "D"
CONSTRUCTION PROVISIONS FOR LESSEE IMPROVEMENTS TO PREMISES
1. SCOPE OF WORK. These provisions define the scope of work to be provided by
Lessor and Lessee in the Premises under the terms of the Lease. Words and
phrases used herein which are defined in the Lease have the meanings set forth
therein unless provided otherwise.
2. INTENT OF EXHIBIT. It is the intent of these provisions that Lessee shall be
permitted freedom in the interior design and layout of its space so long as same
is consistent with Lessor's policies and structural requirements, applicable
building codes, and with sound architectural and construction practices. Any
additional cost of design, construction, operation, insurance, maintenance,
taxes, fees or utilities which results there from shall be charged to Lessee and
paid for by Lessee in accordance with the provisions hereof and of the Lease.
3. LESSOR'S ALLOWANCE. Lessor hereby grants Lessee a construction allowance not
to exceed One Hundred Thousand Dollars ($100,000) ("Construction Allowance"),
which shall be used only as a credit towards the cost of improvements to Suites
4, 5 and 6 of the Premises.
4. LESSEE'S COSTS. All costs incurred in excess of the foregoing allowance for
improvements, services or materials required by Lessee in or for the Premises
shall be for the account of Lessee and at Lessee's sole cost and expense.
5. SPACE PLAN. Lessee shall prepare a space layout and working drawings and
specifications for all construction work in the Premises. Interior design, and
details and specifications for improvements, shall be for the account of Lessee
and shall be paid by Lessee upon invoice therefor. Lessee shall develop complete
working drawings and specifications (the "Plans") for construction of
improvements in the Premises, showing thereon partitions, doors, electrical and
telephone outlets, light fixture locations, wall finishes, floor coverings and
special requirements (if any) for Lessor's review and approval. Failure of
Lessor to approve the Plans within the time limit specified in Section 7 hereof
shall be deemed approval.
6. COST ESTIMATE AND PAYMENTS.
6.1 COST ESTIMATES. As soon as practicable after Lessor's approval of the
Plans, Lessee will advise Lessor of the total estimated cost for the
improvements (including architectural and engineering, administrative fees and
preinstalled work) together with supporting evidence as Lessor shall require
from Lessee (e.g., the contractor bid). Lessor will have no obligation
whatsoever to make any disbursement from the Construction Allowance until Lessee
has complied with the provisions of this Section 6.1.
6.2 PAYMENTS. During the course of construction of the Improvement Work
(defined below), Lessor shall make progress payments to Lessee from the
Construction Allowance less a fifty percent (50%) retainage. Progress payments
shall be made within ten (10) days after receipt by Lessor of the following: (i)
a draw request; (ii) substantiation of the construction costs to be paid; (iii)
a statement as to the percentage of work completed; and (iv) conditional partial
lien releases on account of the work completed. Upon completion of construction
of the Improvement Work, Lessor shall pay to Lessee the final installment of the
Construction Allowance (including the retainage), provided Lessee has supplied
the following items to Lessor: (i) The "Certificate of Occupancy"; (ii) A copy
of Lessee's recorded "Notice of Completion"; (iii) A copy of all TI Contractor
(as hereinafter defined) paid invoices totaling or in excess of the Construction
Allowance; (iv) copy of all construction lien releases or other lien releases on
account of such construction work, including an affidavit from TI Contractor
that no liens exist; (v) A copy of all building permits with all sign-offs
executed; (vi) An architect's certification that the Premises were constructed
per plans and specifications and are one hundred percent (100%) complete in
accordance with this EXHIBIT "D"; (vii) Any and all insurance certificates
required under the Lease; (viii) One (1) set of "as built" drawings; and (ix)
Copies of all manufacturer's warranties, owner's manuals, etc., for equipment or
materials installed by TI Contractor and a warranty statement, naming Lessor as
the beneficiary of such warranty, from the general contractor guaranteeing all
improvements for at least one (1) year from the date of substantial completion
of the Premises.
19
<PAGE>
7. TIME LIMITS. The following maximum time periods shall be allowed for the
indicated matters: (i) Lessor approves (or disapproves with explanation) the
working drawings - 5 business days; Lessor approves (or disapproves with
explanation) the TI Contractor - 5 business days. In the event that Lessor fails
to provide its approval in the time frames required in (i) or (ii) above, and
does not provide written notification of its reason for any disapproval (which
disapproval must be reasonable), such item is hereby deemed to be approved by
Lessor. Lessee may commence with that portion of the work that is not
disapproved.
8. CONSTRUCTION BY TI CONTRACTOR. All construction work in the Premises
(sometimes referred to herein as "Improvement Work") shall be performed by the
tenant improvement contractor ("TI Contractor") retained by Lessee. The TI
Contractor shall perform such work in a good and workmanlike manner and shall
construct the Improvement Work substantially in accordance with the Plans. All
Improvement Work shall be performed in accordance with all laws, ordinances and
requirements of government agencies having jurisdiction therefor. The following
conditions shall apply to Lessee's selection and use of the TI Contractor:
8.1 CONTRACTOR SELECTION. Subject to the provisions of this EXHIBIT "D",
Lessee may select any contractor for the construction of Improvement Work,
provided such contractor is bondable and has received the prior written approval
of Lessor. Within five (5) days after the receipt by Lessor of a written request
by Lessee to approve a contractor, Lessor shall either approve or disapprove of
such contractor. In the event Lessor fails to approve or disapprove of a
contractor within such five (5) day period, such contractor shall be deemed
approved.
8.2 INDEMNITY. Lessee hereby indemnifies and holds Lessor harmless from and
against any and all costs arising out of or in connection with damage to the
Project caused by Lessee's contractors.
8.3 SPECIAL CONDITIONS. Lessee agrees that the provisions set forth below
shall be incorporated as "Special Conditions" into the contract between Lessee
and TI Contractor for the benefit of Lessor, and agrees that as to such
provisions, Lessor shall have the rights of enforcement of a third party
beneficiary (with a copy of the contract to be furnished Lessor prior to the
commencement of the Improvement Work):
8.3.1 Prior to starting any of the Improvement Work, TI Contractor
shall also deliver to Lessor duplicate originals of insurance policies (or
certificates of insurance if such certificates shall, in Lessor's sole judgment,
provide clear and unambiguous evidence of insurance). The insurance provided
Lessor by TI Contractor pursuant to this paragraph 8.3.1 shall be primary
insurance without the right of contribution from any insurance maintained by the
Lessor and shall name Lessor and Lessor's agent as additional insured. The
insurance required shall be written for not less than the following (or such
amount required by law, if the same is greater than the following):
8.3.1.1 WORKER'S COMPENSATION:
(a) State Statutory Requirements
(b) Applicable Federal Statutory Requirements
(c) Employer's Liability $1,000,000
8.3.1.2 COMPREHENSIVE GENERAL LIABILITY: (including
Premises-Operations; Independent Contractor's Protective;
Products and Completed Operations; Broad Form Property Damage:
(a) Combined Single Limits for Bodily Injury and Property
Damage: $1,000,000 Each Occurrence.
(b) Products and Completed Operations to be maintained:
(c) Property Damage Liability Insurance shall provide X, C,
or U coverage.
8.3.1.3 CONTRACTUAL LIABILITY:
(a) Combined Single Limits for Bodily Injury and Property
Damage: $1,000,000 Each Occurrence.
8.3.1.4 PERSONAL INJURY, WITH EMPLOYMENT EXCLUSION DELETED:
1,000,000 Annual Aggregate.
20
<PAGE>
8.3.1.5 COMPREHENSIVE AUTOMOBILE LIABILITY:
(a) Combined Single Limits for Bodily Injury and Property
Damage: $1,000,000 Each Occurrence.
8.3.1.6 UMBRELLA EXCESS LIABILITY: $3,000,000
8.3.2 TI Contractor shall be responsible for, and shall pay the cost,
the repair, replacement or clean-up of any damage done by it to other
contractors' work, which specifically includes access ways to the Premises which
may be concurrently used by others.
8.3.3 Under no circumstances shall TI Contractor cause or permit
anything to be hung from or supported by any duct work or piping above the
Premises. All suspended ceilings and other fixtures and improvements shall be
installed in a proper manner and in accordance with applicable building codes.
8.3.4 TI Contractor shall contain the storage of its materials and its
operations within the Premises and such other space, if any, as he may be
assigned by Lessor. Should TI Contractor be assigned space outside of the
Premises, he shall move to such other space as Lessor shall direct from time to
time to avoid interference or delays with other work. In no event shall
materials be stored in corridors in the Common Area. No flammable materials
shall be stored or kept in the Premises or anywhere else in the Project, except
that which is to be used during the single day of construction that it is there.
8.3.5 All trash and surplus construction materials shall be stored
within the Premises and shall be promptly removed from the Project. TI
Contractor shall confirm with Lessor on the placement of any trash bin prior to
placing the same on site.
8.3.6 At Lessor's option, Lessor may provide trash removal services
for TI Contractor (who shall purchase such services by use of Lessor's form of
Lessee work order), and Lessee shall cause the cost thereof to be reimbursed to
Lessor within ten (10) days after demand. Failure by Lessee to cause any such
payment to be made shall be deemed a default under the Lease the same as a
failure to pay Rent.
8.3.7 TI Contractor shall provide Lessor prior written notice of any
planned work to be done on weekends or during other than normal job hours for
the purpose of obtaining Lessor's consent thereto. TI Contractor shall also
refrain during normal building hours, as such hours are determined by Lessor,
from proceeding with construction that impacts, or may create an annoyance for,
any tenant or any tenant's use of its premises, for example, work that causes
excessive noise (such as floor coring) or creates fumes or odors (such as wall
covering preparation, painting, millwork and door or wood finishing).
8.3.8 Lessee and TI Contractor are responsible for compliance with all
applicable codes and regulations of duly constituted authorities having
jurisdiction insofar as the performance of the work and completed improvements
are concerned for all work performed by Lessee or TI Contractor, and with all
applicable safety regulations established by the general contractor for the
Project. Lessee further agrees to save and hold Lessor harmless for said work as
provided in the Lease.
8.3.9 Neither TI Contractor nor the subcontractors shall post signs on
any part of the Project or on the Premises.
8.3.10 TI Contractor shall agree that the contract between Lessee and
TI Contractor is solely for the benefit of Lessee and TI Contractor, except for
the provisions referred to above as being for the benefit of Lessor (as to which
provisions Lessor shall have the rights of enforcement of a third party
beneficiary). TI Contractor shall further agree that it and its subcontractors
shall look only to Lessee for payment of any sums due under its contract with
Lessee. TI Contractor, for itself and its subcontractors, shall waive any and
all claims or actions (including mechanics' or materialmen's lien rights) that
it or its subcontractors may have against Lessor for amounts owing to it or its
subcontractors under the contract between TI Contractor and Lessee.
8.4 ELECTRICAL POWER. Upon written notice from TI Contractor that it needs
temporary electrical power, Lessor shall make same available. Lessee shall
reimburse Lessor for the cost thereof, together with a charge for Lessor's
direct and indirect administrative costs related thereto, within ten (10) days
after the demand. Failure by Lessee to make any such payment shall be deemed a
21
<PAGE>
default under the Lease the same as a failure to pay Rent. Unless TI Contractor
shall notify Lessor in writing that such temporary power is no longer needed by
it, Lessor may continue to make such temporary power available until the
Premises shall open for business, and Lessee shall pay Lessor therefor as above
provided.
8.5 NOTICE OF COMPLETION AND LIENS. Lessee shall be responsible for and
shall (a) obtain and record a Notice of Completion promptly following completion
of Lessee's Work and promptly forward a copy to Lessor, (b) post a Notice of
Completion on the Premises and promptly forward a copy to Lessor, (c) obtain
executed lien waiver for all work performed by TI Contractor and an executed
affidavit from TI Contractor that no liens exist, and shall provide the
originals thereof to Lessor promptly upon substantial completion of the
Improvement Work, (d) obtain a Certificate of Occupancy for the Premises and
provide Lessor with a duplicate original thereof promptly after substantial
completion of the Improvement Work, (e) obtain from TI Contractor a copy of the
contract with TI Contractor and a list of all components of construction in the
Premises, broken down into items and the cost of each item, and provide the
original thereof to Lessor promptly upon substantial completion of the
Improvement Work, (f) provide Lessor with one (1) set of "as -built drawings
within thick-j (3% days following substantial completion of the Improvement
Work, (g) obtain a copy of all building permits with sign-offs executed and
provide copies thereof to Lessor promptly upon substantial completion, (h)
obtain an architect's certification that the Improvement Work was constructed in
accordance with this EXHIBIT "D", and (i) obtain and deliver to Lessor copies of
any owner's manuals for any equipment or other improvements. The failure of
Lessee to provide to Lessor with any one (1) or more of the foregoing items
within thirty (30) days after request therefor by Lessor, shall be a default
under the Lease.
8.6 WARRANTIES. Lessee shall assign any and all warranties and guaranties
provided by TI Contractor and subcontractors to Lessor immediately upon
completion of Improvement Work. All improvements shall be guaranteed or
warrantied for a period of at least one (1) year.
8.7 RESPONSIBILITY FOR LESSEE'S MATERIALS. All materials, work,
installations and decorations of any nature whatsoever brought on or installed
in the Premises before the commencement of the term of the Lease shall be at
Lessee's risk, and neither Lessor nor any party acting on Lessor's behalf shall
be responsible for any damage thereto or loss or destruction thereof.
9. LESSEE COORDINATOR. Lessor has designated a "Lessee Coordinator" who shall be
responsible for the management and coordination of all work to be performed in
the Premises and coordination with Lessee on all matters governed by the
provisions contained in this EXHIBIT "D". Lessee Coordinator will furnish Lessee
with notices of substantial completion, Lessor's approval or disapproval of
Plans and changes thereto, and other similar notices. Lessee shall deliver any
payments that may be required hereunder to be paid to Lessor to the Lessee
Coordinator unless written notice is given by Lessor to the contrary.
10. CHANGES. If Lessee requests or necessitates any change, addition or deletion
to the Premises after approval of the Plans, as described in Section 7 above, a
request for the change shall be submitted to the Lessee coordinator accompanied
by revised plans prepared by Lessor's space planner at Lessee's sole expense.
11. INCORPORATION BY REFERENCE. This EXHIBIT "D" is and shall be incorporated by
reference in the Lease, and all of the terms and provisions of the Lease are
incorporated herein by this reference.
12. ATTORNEYS' FEES. In the event of any action or proceeding initiated by a
party hereto for the enforcement or interpretation of the provisions contained
herein, the prevailing party shall be entitled to recover its costs incurred in
connection therewith, including its reasonable attorneys' fees.
AGREED:
LESSOR: Fairmont Commerce Center, LLC LESSEE: Sitek, Incorporated
- ----------------------------------- ---------------------------------------
By: DMC Investment Co, LLC, Manager By: Gloria Zemla, Chief Financial
Avrom Green, Manager Officer, Vice President and
Treasurer
22
<PAGE>
EXHIBIT "E"
ADDENDUM RELATING TO THE EXTENSION OF TERMS
This ADDENDUM (the "Addendum") is entered into this December 9, 1999 between
Fairmont Commerce Center, L.L.C. ("Lessor") and Sitek, Incorporated ("Lessee"),
and modifies and supplements that certain Commercial Lease (as it may have been
amended, the "Lease") between Lessor and Lessee dated January 20, 2000.
1. Lessee shall have one option to extend the term of the Lease by 36 months
(the "Extension Term"), commencing on the day following the expiration date of
the original term of the Lease or the first option, by giving Lessor written
notice, at least four (4) months prior to the expiration of the original term of
the Lease or the first option, of Lessee's election to extend; provided,
however, that the option granted herein shall automatically and forever
terminate if not exercised by written notice in a timely manner or if Lessee is
in breach of the Lease at the time the notice of extension is given or at the
time of the expiration date of the original term of the Lease.
2. The amount of the monthly installments of rent due during the Extension Term
shall be the greater of: (a) the monthly rental installments in effect
immediately prior to the expiration date of the original term of the Lease, or
(b) the then current market rental rate (under prevailing market conditions) for
similar space in the Building as reasonably determined by Lessor. Lessor shall,
upon Lessee's request within the one- month period preceding the deadline for
the giving of Lessee's notice (or otherwise at such time as Lessee delivers to
Lessor Lessee's written notice of election), make a reasonable determination
with respect to the market rental rate that would be applicable to the Leased
Premises during the Extension Term.
3. Upon the termination of the Lease, abandonment of the Leased Premises or
termination of Lessee's right to possession of the Leased Premises, Lessee shall
not thereafter be entitled to exercise its option to extend under this Addendum.
4. Except as specifically modified by this Addendum, all of the provisions of
the Lease (and any other addendum or amendment thereto not inconsistent
herewith) shall remain in full force and effect.
IN WITNESS WHEREOF, the parties have executed this Lease as of the day and year
first above written.
LESSOR: Fairmont Commerce Center, LLC LESSEE: Sitek, Incorporated
- ----------------------------------- ---------------------------------------
By: DMC Investment Co, LLC, Manager By: Gloria Zemla, Chief Financial
Avrom Green, Manager Officer, Vice President and
Treasurer
23
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