SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-K
(Mark One)
(X) ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
For the fiscal year ended March 29, 1998
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)OF THE SECURITIES EXCHANGE
ACT OF 1934
For the transition period from to
Commission file number 1-11056
ADVANCED PHOTONIX, INC.(R)
(Exact name of registrant as specified in its charter)
Delaware 33-0325826
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1240 Avenida Acaso, Camarillo, CA 93012
(Address of principal executive offices) (Zip Code)
(805) 987-0146
(Registrant's telephone number, including area code)
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
None
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
Common Stock, $.001 Par Value
Class A Common Stock
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
As of June 5, 1998, the aggregate market value of the voting stock held by
non-affiliates of the Registrant was approximately $8,100,000.
As of June 5, 1998, there were 10,838,260 shares of Class A Common Stock and
76,135 shares of Class B Common Stock outstanding.
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in any definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. (X)
DOCUMENTS INCORPORATED BY REFERENCE
None
<PAGE>
Item 1. Business
General
Advanced Photonix, Inc.(R) (with its subsidiary, Silicon Detector Corporation, a
California corporation ("SDC"), hereafter referred to together as the
"Company"), is engaged in the development and manufacture of proprietary and
other solid state light and radiation detection devices. The Company was
incorporated under the laws of the State of Delaware on June 22, 1988. The
Company believes that its proprietary Avalanche Photodiode ("APD") technology
represents a leading-edge advancement in photodetection and imaging, and will
become an increasingly important part of its business.
The Company's proprietary technology extends the capability of the traditional
APD by introducing a large surface area silicon device or Large Area Avalanche
Photodiode (the "LAAPD"). The Company believes that the LAAPD is an alternative
to photomultiplier vacuum tubes ("PMT's"), which have been used for many years
as the primary technological solution for highly sensitive light detection in
certain measurement, control and monitoring applications used in industrial,
medical, military, scientific and commercial settings.
The LAAPD and PMT are at the highly complex and engineered end of the spectrum
of activities in the photonics industry, which encompasses all light detection
devices and associated electronic components. Fundamentally, photodetection
devices sense light of varying intensity and convert the light detected to
electronic signals that cause the systems of which they are a part, to respond
in programmed ways. The photonics industry includes other custom-engineered
devices of less complexity than the LAAPD and the PMT such as PIN
(Positive-Intrinsic-Negative) photodiodes. The bulk of the Company's revenues
continue to be derived from the sale of products based on PIN and other
non-proprietary technologies (the "core business").
Products
The Company designs and manufactures optoelectronic semiconductor based
components and hybrid assemblies. The Company's product line includes:
o Spectrally enhanced single and multi-element PIN photodetectors
o Photodetector/preamplifier hybrids
o Military/commercial aerospace products
o Custom optoelectronic products, including visible and non visible
(infrared) light-emitting diodes ("LED's") and LED displays
o FILTRODE(TM) - patented technology integrating spectrally enhanced filters
directly onto photodiode wafers
o Small Area Avalanche photodiodes
o Large Area Avalanche photodiodes (LAAPD's, LAAPD Modules and Cooled Heads)
The Company supplies detectors for military/commercial aerospace and other High
Reliability ("Hi-Rel") applications. Hi-Rel devices are those which are
designed, manufactured, screened and qualified to function under exceptionally
severe levels of environmental stress. The Company has many years of experience
in supplying Hi-Rel devices which require modern wafer fabrication techniques,
dedicated assembly area, and a well equipped test lab. Hi-Rel products
manufactured by the Company include:
o Multi-Element Detector Pre-Amplifier assembly employed on the optical fuse
used on the Rolling Airframe Missile (RAM)
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o Narrow and Wide Field of View detectors used in various TOW Missile
Trackers Common Module LED Arrays qualified with the Center for Night
Vision Electro Optics for use in displaying thermal images in various night
sights
o Quadrant Photodetectors used in the autocollimator for airborne
navigation/FLIR POD's Multi-Element Detector Arrays used in space-based
optical encoders for Space Shuttle Arm Control
The Company's patented FILTRODE(TM) technology integrates optical coatings
directly on photodiode chips, replacing conventional technology that requires a
separate filter glass or pigmented epoxy to be assembled to the top of a
detector. While the technology offers a simpler design and lower cost,
reliability and performance are improved because the integrated design is
resistant to moisture, shock and vibration. Special packaging of this technology
allows for unique applications whereby both front and back detector surfaces can
be utilized for light detection.
The Company's Small Area Avalanche Photodiodes ("SAAPD's" -- see description of
avalanche photodiode below) utilize a chip fabricated with a silicon epiplanar
structure. SAAPD's have been designed for a variety of very low-light level
applications and cover the wavelength from 400 nm to 1000 nm. Typical
applications include optical communication, high-sensitivity bar code reading
and laser range finding.
Large Area Avalanche Photodiode Technology
- ------------------------------------------
An Avalanche Photodiode is a specialized silicon photodiode capable of sensing
very low levels of light through an internal gain phenomenon known as
"avalanching". This fundamental performance characteristic is not present in the
more conventional PIN photodiode technology.
The first APD was developed in the late 1960's and gave promise as a solid state
replacement for the photomultiplier vacuum tube for sensing extremely low levels
of electromagnetic radiation. However, design and manufacturing limitations have
generally restricted APD's to small diameters (5mm or less) that can only be
practically used with optical fiber, thus sharply limiting the range of useful
applications.
The Company has developed and patented various aspects of an LAAPD with
dimensions of up to 25 mm. The LAAPD is a fast pulse detector of low light
levels spanning the near UV (ultraviolet), visible, and near IR (infrared)
spectra, and, when coupled to a scintillator, of x-rays and gamma-rays. It is
also sensitive to electrons accelerated to potentials greater than a few
thousand electron-volts. The LAAPD offers capabilities well beyond those of the
existing primary photodetection devices - the PIN photodiode, the small area APD
and the PMT. Its advantages over PIN photodiodes include higher sensitivity at
higher bandwidths. Its advantages over small area APD's include larger active
areas to collect more light when the source is diffused and greater sensitivity
up to about an order of magnitude. Its advantages over PMT's include greater
counting sensitivity to pulses above 500 photons in the visible and near IR
spectra, higher dynamic range by two orders of magnitude, and a more rugged
structure suitable for operation in harsh environments. LAAPD's feature superior
quantum efficiency in both visible and UV regions that cannot be matched by any
PMT photocathode. Other features which differentiate LAAPD's from PMT's include
greater dynamic range (by two orders of magnitude), open face design for direct
low energy x-ray detection, immunity to higher magnetic fields and ease of
thermal stabilization allowing much more stable operation. In addition, a more
rugged and compact design, and operation requiring far less power, make LAAPD's
more advantageous in many portable applications.
The LAAPD sensitivity in the UV region was greatly enhanced in 1995 when the
Company developed new processing techniques to improve UV quantum efficiency.
This capability is crucial for many applications in high energy and particle
physics (calorimetry). The improvement in the UV sensitivity will also
facilitate
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the design of more powerful imaging and analytical instruments for
medical, chemical and biotechnology markets.
The Company expects, but there is no assurance, that its proprietary APD
technology, employed in the development of the LAAPD, will form the basis for
continuing the investigation and potential commercial development of other lines
of advanced silicon avalanche photonics products which will have a broader range
of commercial and military applications than the PMT and PIN arrays. For
example:
o LAAPD Arrays - the Company's patented technology where the rear surface
of an LAAPD is segmented to create isolated pixels, each with a separate
electronic lead to be accessed in parallel fashion for imaging
applications.
o Vacuum Avalanche Photodiode (VAPD) - another patented technology which
combines a photo cathode and an LAAPD in a vacuum tube and functions as a
detector for high resolution, single photon-counting and low light level
detection.
The Company has identified target markets for its LAAPD products based on
customer evaluations and in-house tests. Evaluation detectors are sold to
original equipment manufacturers ("OEM's"), engineers and scientists who report
information to the Company concerning potential applications and markets, as
well as suggesting improvements and pricing objectives. It is expected, but
there is no assurance, that original equipment manufacturers who can take
advantage of the performance capabilities of LAAPD's will be the source of
repeat business for production quantities. Targeted markets which have been
identified include:
o Ranging, Tracking & Imaging - Smart image surveillance/security cameras,
3D collision avoidance cameras, missile guidance, threat warning,
underwater mine detection, and mapping & salvaging.
o Medical Imaging - Detectors which image human physiology in slices, and
look for pathology. Included in this category are PET scanners, CT
scanners, bone densitometers and gamma cameras.
o Industrial Scanning/Process Control - Industrial CT inspection, aerospace
ice inspection, drum/flat bed scanning, semiconductor wafer defect scanning
and film to video conversion.
o Analytical Chemistry - Analyzing the chemical "recipe" of samples, from
glucose levels in the blood to pesticides in ground water.
o Medical Diagnostics - Human fluids are analyzed to diagnose a medical
pathology or condition. A partial list of conditions which are diagnosed
every day using photonics technology include diabetes, lipid metabolism
disorders, myocardial infarction, gout, liver diseases, renal diseases,
pancreatitis, anemia, and electrolyte disturbances. It is expected that
this list will grow dramatically in the coming years with the explosion of
methods now available to perform immunodiagnostics. Examples of forthcoming
diagnostics include those targeting thyroid and sexually transmitted
disease conditions and wide field retinal visualization.
o Environmental Monitoring - Atmospheric meteorology LIDAR (light detection
and ranging), radiation dose monitors, airborne and liquid particle
measurement, optical air data systems, airport wind shear, atmospheric
pollution monitoring.
o Scientific Research - High energy physics fiber tracking, space particle
experiments and Neutrino experiments.
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The Company's products are primarily sold as components or assemblies to
original equipment manufacturers or other component manufacturers and the
Company does not manufacture any end-user products within the above or any other
markets.
Raw Materials
- -------------
The principal raw materials used by the Company in the manufacture of its
semiconductor chip components and assemblies are silicon wafers, chemicals and
gases used in processing wafers, gold wire, lead frames, metal and plastic
packages that house the chip and the various custom assemblies. All of these raw
materials can be obtained from several suppliers. From time to time,
particularly during periods of increased industry-wide demand, silicon wafers
and other materials have been in short supply. However, the Company has not been
materially affected by such shortages. As is typical in the industry, the
Company allows for a significant lead time between order and delivery of raw
materials.
Research and Development
- ------------------------
The Company undertakes both internally funded and customer funded research and
development programs when they are in support of the Company's development
objectives. The Company has obtained federal government research and development
funding supporting the next generation LAAPD products. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations" for
more detail on these contracts. Since its inception in June 1988, the Company
has incurred material amounts of research and development expenses. During the
fiscal years ended in 1998, 1997 and 1996, research and development expenses
amounted to $1.2 million, $1.9 million and $2.1 million, respectively.
Additional research and development funding will be required for LAAPD arrays
and VAPD's if the Company decides to commercialize these products.
Manufacturing
- -------------
Located in Camarillo, CA, the Company has an approximately 39,000 sq. ft.
manufacturing facility which includes various fully equipped clean room areas
from Class 100 to Class 100,000 for fabrication, processing, handling and
characterizing a number of semiconductor compounds. In-house processes include
photolithography, diffusion, metalization, lapping, oxide growth and parametric
testing and analysis. An extensive library of different photodiode shapes and
sizes is maintained to provide the customer with many options when a custom
device is required. The Company estimates that these facilities, with some
modifications, will be sufficient to accommodate the expected growth in both the
core and LAAPD businesses for the foreseeable future.
The Company has made a significant investment in the area of production
automation for its core business, which has enhanced manufacturing repeatability
and reliability, leading to higher quality and lower cost for finished products.
The automation techniques are employed on many different package configurations,
including PC boards, ceramic substrates, dual in-line and TO style packages.
For high volume/low cost manufacturing, the Company maintains a strategic
alliance with an optoassembly facility in the Pacific Rim. That facility uses
the latest in assembly and test equipment, and employs a Company approved
quality program which includes Statistical Process Control (SPC) and a
preventive maintenance program. The Facility is UL, FDA and ISO 9002 approved.
All Pacific Rim manufactured products are assembled in a Class 100,000 clean
room.
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Environmental Regulations
- -------------------------
The photonics industry, similar to the semiconductor industry, is subject to
governmental regulations for the protection of the environment, including those
that relate to air and water quality, solid and hazardous waste handling and the
promotion of occupational safety.
Various federal, state and local laws and regulations require the Company to
maintain certain environmental permits. The Company believes that it has
obtained all necessary environmental permits to conduct its manufacturing.
Changes in the aforementioned federal and state environmental laws and
regulations or enactment or promulgation of new laws and regulations could
require increases in operating costs and delays or interruptions of operations
and may require additional capital expenditures.
Backlog and Customers
- ---------------------
The Company's sales are made primarily pursuant to standard purchase orders for
delivery of products. However, by industry practice, orders may be canceled or
modified at any time, with the customer being responsible for all finished
goods, all costs, direct and indirect, incurred by the Company and a reasonable
allowance for anticipated profits. No assurance can be given that such amounts
will be received by the Company after cancellation. The Company had
approximately $5.8 million of backlog at the end of fiscal 1998 compared with a
backlog of approximately $5.2 million at the end of fiscal 1997. The Company
expects that approximately $3.8 million of the backlog orders will be filled in
the current fiscal year.
The Company currently supplies core business products in support of satellites,
aircraft and ground vehicle missile guidance and tracking systems. Product sales
to affiliates and divisions of Raytheon, in the aggregate over several programs,
represent approximately 26% of the Company's revenues for the year ended March
29, 1998.
Customers normally purchase the Company's products and incorporate them in
products that they in turn sell into their own markets on an ongoing basis. As a
result, the Company's sales are dependent upon the success of its customers'
products, and its future performance is dependent upon its success in finding
new customers and receiving new orders from existing customers.
Marketing
- ---------
The Company markets its products in the United States and Canada through its own
technical sales staff and through independent sales representatives.
International sales, principally Western Europe and Canada, are conducted
through foreign distributors (see Note 2 to Consolidated Financial Statements).
In marketing LAAPD products, the Company has recognized that it must compete
with producers of PMT's, which have dominated low light level detection markets
for many years. Even if the Company can establish that its LAAPD's are a
potential alternative to PMT's for certain commercial applications, and assuming
that testing of the LAAPD currently being conducted by OEM's and other third
parties proves successful, the ability to successfully market its LAAPD devices
on a volume basis will be substantially dependent upon the willingness of
potential customers who currently use PMT's to incur the substantial expense and
expend the time and effort necessary for the redesign of their products to
accommodate the LAAPD devices.
The Company pursues marketing efforts related to securing government contracts
and subcontracts to fund continued research and product development based on its
APD technology. Such efforts encompass subcontracts with industrial partners as
well as contracts directly with agencies of the federal government. During
fiscal 1998, revenues from these efforts represented approximately 5% of total
revenue.
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Competition
- -----------
The Company competes with a range of companies for the custom optoelectronic and
silicon photodetector requirements of vendors of medical instruments, computer
peripherals, a variety of industrial products and specialized military and
commercial aerospace applications. The Company believes its principal
competitors for sales of custom devices are small to medium size companies.
Because the Company specializes in custom devices requiring a high degree of
engineering expertise to meet the requirements of specific applications, it
generally does not compete to any significant degree with other large United
States, European or Far Eastern manufacturers of standard "off-the-shelf"
optoelectronic components or silicon photodetectors.
The Company believes that the principal competition for its silicon LAAPD
photodetection devices lies with producers of PMT's, the only product currently
available for many of the applications for which the Company's LAAPD products
are designed. The Company believes that there are a number of manufacturers of
PMT's, most of which have significantly greater financial, technological,
marketing and personnel resources than the Company. In addition, several
companies produce solid state detectors based on small area APD technology.
Although a few additional photodetector companies are engaged in developing
APD's, the Company believes that most of these companies are limited by their
technology to small area APD devices which the Company believes are considerably
less useful than the Company's LAAPD devices in broadening the applicability of
APD technology to imaging and the sensing of extremely low light levels. The
Company's LAAPD products have electronic signal gain of up to 300 (one
photoelectron converted to 300 photoelectrons) while typical small area APD
devices have a gain of about 50 and, therefore, are not competitive with the
Company's LAAPD devices in certain applications.
PMT's were first invented in the 1940's. It is possible that existing PMT
manufacturers or other photodetector manufacturers will begin APD development
and eventually manufacture competitive APD devices.
Proprietary Technology
- ----------------------
The Company has been issued patents as follows:
US PATENT NO. DESCRIPTION DATE ISSUED
- ------------- --------------------------------- ----------------------
5,757,057 Large Area Avalanche Array May 1998
5,477,075 Solid State Photodetector with
Light-Responsive Rear Face December 1995
5,311,044 Avalanche Photomultiplier Tube May 1994
5,146,296 Devices for Detecting and/or
Imaging Single Photoelectron September 1992
5,057,892 Light Responsive Avalanche Diode October 1991
5,021,854 Silicon Avalanche Photodiode Array June 1991
4,717,946 Thin Line Junction Photodiode By predecessor company
4,782,382 High Quantum Efficiency
Photodiode Devices By predecessor company
Other patent submissions are currently under review by the U.S. Patent and
Trademark Office. There can be no assurance that the pending patent applications
will issue as patents, that any issued patents will provide the Company with
significant competitive advantages, or that challenges will not be instituted
against the validity or enforceability of any patent owned by the Company or, if
instituted, that such challenges will not be successful. The cost of litigation
to uphold the validity and prevent infringement of a patent could be
substantial. If the Company is unable to obtain patents for its proposed
applications, other entities may exploit the Company's developments in APD
technology. Furthermore, there can be no assurance the Company's APD technology
will not infringe patents or other rights owned by others, licenses to which may
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not be available to the Company. Based on limited patent searches, contacts with
others knowledgeable in the field of APD technology and a review of pertinent
published materials, to the Company's knowledge, its competitors hold no
patents, licenses or other rights to the APD technology which would preclude the
Company from pursuing its intended operations or from obtaining patent
protection for its proposed applications.
In some cases, the Company may rely on trade secrets to protect its innovations.
There can be no assurance that trade secrets will be established, that secrecy
obligations will be honored or that others will not independently develop
similar or superior technology. To the extent that consultants, key employees or
other third parties apply technological information independently developed by
them or by others to Company projects, disputes may arise as to the proprietary
rights to such information which may not be resolved in favor of the Company.
Employees
- ---------
At June 5, 1998, the Company employed 61 full-time employees (including 2
officers), 8 engineering and development personnel, 41 operations personnel, 6
sales and marketing personnel, and 6 general administrative personnel (including
2 officers). The Company may, from time to time, engage personnel to perform
consulting services and to perform research and development under third party
funding. In certain cases, the cost of such personnel may be included in the
direct cost of the contract rather than as payroll expense.
Item 2. Properties
----------
The Company leases its executive offices, research, marketing and manufacturing
facility which consists of approximately 39,000 square feet in a building
complex located at 1240 Avenida Acaso, Camarillo, California. The lease expires
in February 2004. The Company believes that its existing facility is adequate to
meet its needs for the foreseeable future. See "Business - Manufacturing."
Item 3. Legal Proceedings None
-----------------
Item 4. Submission of Matters to a Vote of Security Holders None
---------------------------------------------------
PART II
Item 5. Market for the Registrant's Securities and Related Stockholder Matters
---------------------------------------------------------------------
The Company's Class A Common Stock is traded on the American Stock Exchange
("AMEX") under the symbol "API". The Company's Class B stock is not publicly
traded.
At June 11, 1998, the Company had 90 holders of record for the Class A Common
Stock, representing approximately 1,300 holders owning shares of Class A Common
Stock in street name. On the same date, there were 10 holders of the Class B
Common Stock.
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The following table sets forth high and low closing prices by quarter for fiscal
years 1998 and 1997.
Quarterly Stock Market Data
1st Quarter 2nd Quarter 3rd Quarter 4th Quarter
1998 1997 1998 1997 1998 1997 1998 1997
---- ---- ---- ---- ---- ---- ---- ----
Common Stock (1)
High 2 1/16 4 1/4 2 3/8 4 1/8 2 3 7/8 1 3/4 2 11/16
Low 1 3/16 2 5/8 1 1/8 2 1/2 15/16 2 1 1/8 1 3/4
1 Price ranges on the American Stock Exchange
The Company has not paid any cash dividends on its capital stock. The Company
intends to retain earnings, if any, for use in its business and does not
anticipate that any funds will be available for the payment of cash dividends on
its outstanding shares in the foreseeable future. The holders of Common Stock
will not be entitled to receive dividends in any year until the holders of the
Class A Redeemable Convertible Preferred Stock receive an annual non-cumulative
dividend preference of $.072 per share. As of June 5, 1998, 690,000 shares of
Class A Redeemable Convertible Preferred Stock had been converted into 207,000
shares of Class B Common Stock, leaving outstanding 90,000 shares of Class A
Redeemable Convertible Preferred Stock. The aggregate non-cumulative annual
dividend preference of such Class A Redeemable Convertible Preferred Stock is
$6,480. There is no public market for the Company's Class A Redeemable
Convertible Preferred Stock or Class B Common Stock; however, such stock is
convertible into Class A Common Stock at the option of the holder and upon
transfer by the holder of the Class A Redeemable Convertible Preferred Stock or
Class B Common Stock.
<TABLE>
Item 6. Selected Financial Data
<CAPTION>
1998 1997 1996 1995 1994
- ----------------------------------------- ----------------- ---------------- ----------------- ---------------- -----------------
<S> <C> <C> <C> <C> <C>
Selected Statement of Operations Data:
Revenues $ 7,008,000 $ 6,375,000 $ 7,863,000 $ 6,775,000 $ 6,267,000
Loss from operations (115,000) (2,061,000) (807,000) (2,448,000) (3,944,000)
Net Income (Loss) 10,000 (1,886,000) (654,000) (2,368,000) (3,897,000)
Basic income (loss) per share (1) $0.00 $(0.17) $(0.07) $(0.28) $(0.55)
Weighted average shares outstanding (2) 10,886,000 10,831,000 9,988,000 8,383,000 7,075,000
Selected Balance Sheet Data:
Working capital $ 3,737,000 $ 3,334,000 $ 4,931,000 $ 2,083,000 $ 4,182,000
Total assets 6,366,000 6,165,000 7,706,000 5,580,000 7,835,000
Long term debt, net - - - 26,000 42,000
Accumulated deficit (17,662,000) (17,672,000) (15,786,000) (15,132,000) (12,764,000)
Stockholders' equity 5,045,000 4,948,000 6,806,000 4,438,000 6,785,000
<FN>
1 The impact of dilutive shares is immaterial.
2 See Note 2 to Financial Statements
</FN>
</TABLE>
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Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations
RESULTS OF OPERATIONS
Fiscal year 1998 Compared to Fiscal Year 1997
REVENUES
The Company's revenues for the fiscal year ended March 29, 1998 ("1998") were
$7.0 million, an increase of 10% from revenues of $6.4 million for the fiscal
year ended March 30, 1997 ("1997").
Net product sales of $6.7 million increased $870,000 (15%) in 1998. As detailed
below, this increase reflects higher shipments of military aerospace products,
partially offset by slightly lower shipments of commercial products. Volume in
military aerospace products increased by approximately 54% in 1998 compared to
1997. The increase in military aerospace products was partially offset by
slightly lower shipments of commercial products which decreased by approximately
7% in 1998 compared to 1997. The Company believes that cutbacks in its sales and
marketing efforts during fiscal 1996 impacted its ability to book new orders and
resulted in lower sales during the second half of 1997 and the first half of
1998. These cutbacks were a result of cash conservation measures put in place
prior to the Company completing a private placement in August 1995. After
receiving the additional equity financing, the Company hired and replaced
employees in the sales department and otherwise increased marketing efforts
including additional trade-show attendance and advertising. These efforts have
resulted in an increase in commercial backlog and helped to increase commercial
sales during the fourth quarter of 1998 by approximately 24% compared to the
same period in the prior year. The Company believes that these efforts should
continue to result in higher commercial sales in future periods.
During the fourth quarter of fiscal 1998, shipments of Large Area Avalanche
Photodiode (LAAPD) products (included in net product sales) were the highest in
Company history. While sales from these products represented only 3% of total
net product sales, the Company anticipates increasing volume from sales of LAAPD
products as markets begin to implement this "enabling" technology and as the
Company continues its efforts to further refine and optimize LAAPD manufacturing
process steps and ramp up its sales and marketing efforts to promote this new
technology.
Development contract revenues during 1998 decreased by $237,000 (41%) when
compared to 1997. The Company was awarded a Phase II Department of Energy (DOE)
grant of approximately $750,000 in June 1995, and in December 1995, was awarded
a $1.1 million contract from the Advanced Research Projects Agency of the
Pentagon and the Aircraft Division of the Naval Air Warfare Center (ARPA/NAWC).
These types of government development contracts are typically multi-year awards
and are subject to periodic review and cancellation by the government due to a
variety of reasons including a lack of funding. During the third quarter of
1998, revenues from the DOE contract began to wind down and the contract was
completed. The ARPA/NAWC contract was completed during the fourth quarter. While
the Company has proposals outstanding, it is currently not working on any
government funded development contracts
COSTS AND EXPENSES
Cost of product sales increased by only $20,000 (1%) in 1998 despite the 15%
increase in net product sales (see "Revenues" above). Cost of product sales as a
percent of net product sales decreased by 13% and gross profit margin on net
product sales increased 8 percentage points to 41% compared to 1997. The
improvement is attributable to a number of factors including improvements in
operating efficiencies as well as improved margins on product mix. In line with
the reduction in product shipments which spanned the second half of fiscal 1997
through the first half of fiscal 1998, the Company reduced its workforce from 86
to 69 during fiscal 1997 through attrition and a reduction in force in February
1997. The Company's workforce is currently at 61 full-time employees.
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Research and development ("R&D") costs decreased by $670,000 (35%) to $1.2
million in 1998. The decrease in R&D costs is primarily due to the lower level
of R&D effort on government contracts (see "Revenues" above) as well as a
general reduction in internal R&D efforts as the Company focuses more on the
commercialization/manufacture of the LAAPD. In conjunction with its
commercialization efforts, the Company has consolidated its core business and
LAAPD manufacturing operations which previously had been managed as separate
operational centers. In addition, the Company has better controlled internal R&D
activities. R&D costs have varied significantly in the past, and may continue to
do so, due to the level of activity associated with development contracts as
well as the number and complexity of new process and product development
projects, the qualification of new process developments and customer evaluation
and acceptance of new products.
Marketing and sales expenses decreased by $19,000 (2%) to $978,000 in 1998.
Marketing and sales expenses should increase as the Company continues to pursue
its plan for growth and commercialization of the LAAPD family of products.
General and administrative expenses decreased by $644,000 (40%) to $983,000 in
1998 primarily due to lower labor related costs partially offset by higher
marketing costs. During 1997, the Company recorded a one-time reorganization
charge of approximately $323,000 related to management changes and during the
second quarter of 1998 reversed approximately $100,000 of this accrual. During
1998, general and administrative expenses, before the impact of these
adjustments, decreased by $221,000 (17%) to $1.1 million. These decreases were
due to a number of factors including lower compensation, training, management
systems, amortization and consulting costs.
Interest income in 1998 of $123,000 was $44,000 lower than 1997 as a result of
lower average cash balances and lower available interest rates. In August 1995,
the Company completed a private placement which increased its average cash
balances during Q3 and Q4 of 1996 and all of 1997 (see Liquidity and Capital
Resources).
Fiscal year 1997 Compared to Fiscal Year 1996
REVENUES
The Company's revenues for the fiscal year ended March 30, 1997 ("1997") were
$6.4 million, a decrease of 19% from revenues of $7.9 million for the fiscal
year ended March 31, 1996 ("1996"). The Company believes that cutbacks in its
sales and marketing efforts during fiscal 1996 impacted its ability to book new
orders and resulted in lower sales during 1997 (see "Revenues" in Fiscal year
1998 Compared to Fiscal Year 1997 above).
Net product sales of $5.8 million decreased $1.3 million (18%) in 1997 primarily
due to a lower level of shipments of military aerospace products. Military
shipments were impacted by the winding down of a missile guidance system program
which was approaching the end of its life cycle. During 1997, net product sales
of Large Area Avalanche Photodiode (LAAPD) products increased by $53,000 to
$154,000. During 1996, the Company curtailed LAAPD production because of low
reliability and yields it was obtaining in the manufacturing process. After
considerable research efforts, the Company developed a new manufacturing process
and, in July 1996, the Company filed for a patent seeking protection of the new
manufacturing process.
Development contract revenues decreased by $233,000 (29%). During the third
quarter of 1997, revenues from the DOE contract began to wind down and the
contract was completed. During the second half of 1997, revenues from the
ARPA/NAWC contract were impacted by a delay in funding from the customer.
COSTS AND EXPENSES
Cost of product sales decreased by $566,000 (13%) in 1997 and gross profit
margin on net product sales decreased 4 percentage points to 33% compared to
1996. The decreases are attributable to lower product shipments and a related
decrease in manufacturing volume efficiencies. In line with the reduction in
product shipments, the Company reduced its workforce (permanent and temporary
employees from 86 to 69 during 1997) through attrition and a reduction in force
in February 1997.
11
<PAGE>
Research and development costs decreased by $187,000 (9%) to $1.9 million in
1997. The decrease in R&D costs was primarily due to the lower level of R&D
effort on government contracts (see "Revenues" above) as well as a general
reduction in internal R&D efforts as the Company focused more on the production
of the LAAPD. In addition, the Company better controlled internal R&D
activities.
Marketing and sales expenses increased by $296,000 (42%) to $997,000 in 1997.
The increases were primarily due to increased manpower and higher marketing
costs. This increase was expected, as the Company pursued its plan for growth.
In addition, sales and marketing expenditures had been deferred during 1996
awaiting the successful completion of a private placement offering (See
Liquidity and Capital Resources).
General and administrative expenses increased by $223,000 (16%) to $1.6 million
in 1997 primarily due to a one-time reorganization charge of approximately
$323,000 related to management changes which occurred in October 1996. Other
general and administrative expenses decreased by $111,000 (8%) in 1997 compared
to 1996. The decline was primarily due to lower personnel and insurance costs
(coverages remained constant or were improved).
Interest income in 1997 of $167,000 was $24,000 higher than 1996 as a result of
higher average cash balances. In August 1995, the Company completed a private
placement which increased its average cash balances during Q3 and Q4 of 1996 and
all of 1997 (see Liquidity and Capital Resources).
LIQUIDITY AND CAPITAL RESOURCES
At March 29, 1998, the Company had cash, cash equivalents and short-term
investments of $2.4 million, working capital of $3.7 million and an accumulated
deficit of $17.7 million. The Company's cash, cash equivalents and short-term
investments decreased $313,000 during the twelve months ended March 29, 1998.
Cash expenditures were primarily impacted by $499,000 used to finance inventory
growth related to higher levels of LAAPD inventory as the Company begins to
commercialize the product line and higher material requirements associated with
a change in the Company's product mix. Accounts receivable increased by $324,000
due to a 42% increase in revenues during the fourth quarter of fiscal 1998
compared to the comparable period in 1997. Capital spending during 1998 was
$163,000 compared to $331,000 during 1997.
To enable the Company to meet its capital commitment needs, the Company
historically has supplemented cash provided by operations with proceeds from
private placement equity financing, bank lines of credit and loans from
stockholders. On August 15, 1995, the Company completed a $3,000,000 private
placement in which it issued 2,400,000 shares of Class A Common Stock.
The Company has used the proceeds of its 1995 private placement to implement its
strategic business plan, which focuses on growing the core business, bringing
initial LAAPD products to market and developing proof-of-concept demonstration
LAAPD Arrays which are expected to prove helpful in securing future financing
and strategic partners. Development of LAAPD Arrays beyond the proof-of-concept
phase may require additional funds.
The Company has a revolving line of credit agreement with a bank for the lesser
of $1,000,000 or 75 percent of eligible trade accounts receivable, as defined by
the agreement. The agreement was renewed on July 15, 1997, expires in one year
and provides for interest to be paid monthly at prime plus 1.25 percent. The
Company must adhere to certain requirements and provisions to be in compliance
with the terms of the agreement. Borrowings under the line of credit are secured
by accounts receivable, inventory, equipment and general intangibles. At March
29, 1998, no amounts were outstanding under any bank line of credit and there
were no stockholder loans to the Company.
12
<PAGE>
The Company believes that its current cash and cash equivalents, cash from
operations and availability under its line of credit are sufficient to sustain
operations at least through March 1999. The Company believes that the moderate
rate of inflation over the past few years has not had a significant impact on
the Company's sales or operating results.
YEAR 2000 ISSUES
- ----------------
The Company uses computer software programs purchased from various independent
vendors who may have written their programs using a two digit date field rather
than a four digit field to define the applicable year. Such computer programs
utilizing a two digit date field may recognize a date using "00" as the year
1900 rather than the year 2000 (the "Year 2000 Issue"). The Year 2000 Issue
could potentially result in a system failure or in miscalculations causing
disruptions of operations, including among other things, a temporary inability
to process transactions, send invoices or engage in other similar normal
business activities. The Company has identified Year 2000 Issues in certain
software applications and is in the process of upgrading or replacing such
applications with software which recognizes dates beyond December 31, 1999, thus
addressing a substantial portion of the Year 2000 Issue that may impact the
Company. The cost of this project, as it relates to the Year 2000 Issue, is not
expected to have a material effect on the operations of the Company and will be
funded through operating cash flows.
FORWARD LOOKING STATEMENTS
- --------------------------
THIS ANNUAL REPORT INCLUDES FORWARD LOOKING STATEMENTS THAT ARE BASED ON
ASSUMPTIONS THAT MANAGEMENT BELIEVES TO BE REASONABLE BUT ARE SUBJECT TO
INHERENT UNCERTAINTIES AND RISKS INCLUDING, BUT NOT LIMITED TO, UNFORESEEN
TECHNOLOGICAL OBSTACLES WHICH MAY PREVENT OR SLOW THE DEVELOPMENT AND/OR
MANUFACTURE OF NEW PRODUCTS, LIMITED (OR SLOWER THAN ANTICIPATED) CUSTOMER
ACCEPTANCE OF NEW PRODUCTS WHICH HAVE BEEN AND ARE BEING DEVELOPED BY THE
COMPANY (PARTICULARLY ITS LAAPD PRODUCT LINE), AND A DECLINE IN THE GENERAL
DEMAND FOR OPTOELECTRONIC PRODUCTS.
Item 8. Financial Statements and Supplementary Data
-------------------------------------------
The following consolidated financial statements of Advanced Photonix, Inc.
are included in Item 8.
Page
Report of Independent Public Accountants 14
Consolidated Statements of Operations
for each of the three years in the period ended March 29, 1998 15
Consolidated Balance Sheets at March 29, 1998 and March 30, 1997 16-17
Consolidated Statements of Stockholders' Equity
for each of the three years in the period ended March 29, 1998 18
Consolidated Statements of Cash Flows
for each of the three years in the period ended March 29, 1998 19
Notes to Consolidated Financial Statements 20-26
All other schedules for which provisions are made in the applicable accounting
regulations of the Securities and Exchange Commission are not required under the
related instructions, or are disclosed in the consolidated financial statements,
or are inapplicable and, therefore, have been omitted.
13
<PAGE>
ARTHUR ANDERSEN LLP
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Advanced Photonix, Inc.:
We have audited the accompanying consolidated balance sheets of Advanced
Photonix, Inc. (a Delaware Corporation) and Subsidiary as of March 29, 1998 and
March 30, 1997, and the related consolidated statements of operations,
stockholders' equity and cash flows for each of the three years in the period
ended March 29, 1998. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Advanced Photonix, Inc. and
Subsidiary as of March 29, 1998 and March 30, 1997, and the results of their
operations and their cash flows for each of the three years in the period ended
March 29, 1998 in conformity with generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Los Angeles, California
May 21, 1998
14
<PAGE>
<TABLE>
ADVANCED PHOTONIX, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
<CAPTION>
For each of the three years 1998 1997 1996
in the period ended March 29, 1998
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
REVENUES
Net product sales $ 6,662,000 $ 5,792,000 $ 7,047,000
Development contracts 346,000 583,000 816,000
---------------- ---------------- ----------------
7,008,000 6,375,000 7,863,000
---------------- ---------------- ----------------
COST AND EXPENSES
Cost of product sales 3,920,000 3,900,000 4,466,000
Research and development 1,242,000 1,912,000 2,099,000
Marketing and sales 978,000 997,000 701,000
General and administrative 983,000 1,627,000 1,404,000
---------------- ---------------- ----------------
7,123,000 8,436,000 8,670,000
---------------- ---------------- ----------------
LOSS FROM OPERATIONS (115,000) (2,061,000) (807,000)
---------------- ---------------- ----------------
OTHER INCOME (EXPENSE)
Interest expense - - (3,000)
Interest income 123,000 167,000 143,000
Other, net 2,000 8,000 13,000
---------------- ---------------- ----------------
125,000 175,000 153,000
---------------- ---------------- ----------------
NET INCOME (LOSS) - $.00, $(.17), $(.07) per share $ 10,000 $ (1,886,000) $ (654,000)
================ ================ ================
<FN>
See notes to consolidated financial statements.
</FN>
</TABLE>
15
<PAGE>
<TABLE>
ADVANCED PHOTONIX, INC.
CONSOLIDATED BALANCE SHEETS
<CAPTION>
March 29, March 30,
1998 1997
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 1,386,000 $ 1,217,000
Short-term investments 977,000 1,459,000
Accounts receivable, less allowance of $83,000 in 1998 and 1997 966,000 642,000
Inventories 1,573,000 1,074,000
Prepaid expenses and other current assets 84,000 61,000
--------------- ---------------
Total Current Assets 4,986,000 4,453,000
--------------- ---------------
EQUIPMENT AND LEASEHOLD IMPROVEMENTS, at cost 3,387,000 3,331,000
Less accumulated depreciation and amortization (2,689,000) (2,364,000)
--------------- ---------------
698,000 967,000
OTHER ASSETS
Goodwill, net of accumulated amortization of $219,000 in 1998 and
$186,000 in 1997 617,000 650,000
Patents, net of accumulated amortization of $25,000 in 1998 and
$21,000 in 1997 40,000 40,000
Other 25,000 55,000
--------------- ---------------
682,000 745,000
--------------- ---------------
$ 6,366,000 $ 6,165,000
=============== ===============
<FN>
See notes to consolidated financial statements.
</FN>
</TABLE>
16
<PAGE>
<TABLE>
ADVANCED PHOTONIX, INC.
CONSOLIDATED BALANCE SHEETS
<CAPTION>
March 29, March 30,
1998 1997
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $ 518,000 $ 295,000
Accrued expenses:
Salaries and employee benefits 310,000 451,000
Warranty 95,000 95,000
Other 326,000 278,000
---------------- ---------------
Total Current Liabilities 1,249,000 1,119,000
---------------- ---------------
COMMITMENTS AND CONTINGENICES (Notes 7 and 8)
STOCKHOLDERS' EQUITY
Class A Common Stock, par value $.001 per share; authorized
50,000,000 shares;
1998 - 10,838,260 shares issued and outstanding
1997 - 10,717,493 shares issued and outstanding 11,000 11,000
Class B Common Stock, par value $.001 per share; authorized
4,420,113 shares;
1998 - 76,135 shares issued and outstanding
1997 -159,225 shares issued and 137,002 outstanding - -
Convertible Preferred Stock at redemption value; authorized
10,000,000 shares
1998 - 90,000 shares issued and outstanding
1997 - 123,000 shares issued and outstanding 72,000 98,000
Additional paid-in capital 22,696,000 22,659,000
Less cost of 22,223 shares of Class B Common Stock
in Treasury in 1997 - (50,000)
Accumulated Deficit (17,662,000) (17,672,000)
---------------- ---------------
5,117,000 5,046,000
---------------- ---------------
$ 6,366,000 $ 6,165,000
================ ===============
<FN>
See notes to consolidated financial statements.
</FN>
</TABLE>
17
<PAGE>
<TABLE>
ADVANCED PHOTONIX, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
<CAPTION>
For each of the three Additional
years in the period Class A Class B Convertible Paid-in Class B Common
ended March 29, 1998 Common Stock Common Stock Preferred Stock Ca[ital Treasury Stock Accumulated
Shares Amount Shares Amount Shares Amount Amount Shares Amount Deficit Total
------ ------ ------ ------ ------ ------ ------ ------ ------ ------- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
BALANCE AT APRIL 2, 7,056,638 $7,000 1,332,428 $1,000 123,000 98,000 $19,612,000 22,223 $(50,000) $(15,132,000) $4,536,000
1995
Issuance of Class A
Common Stock 2,400,000 2,000 - - - - 2,992,000 - - - 2,994,000
Conversion of Class
B Common Stock 1,161,648 1,000 (1,161,648) (1,000) - - - - - - -
Exercise of Options 12,900 - - - - - 28,000 - - - 28,000
Net loss - - - - - - - - - (654,000) (654,000)
- ------------------------------------------------------------------------------------------------------------------------------------
BALANCE AT MARCH 10,631,186 10,000 170,780 - 123,000 98,000 22,632,000 22,223 (50,000) (15,786,000) 6,904,000
31, 1996
Issuance Costs on
Sale of Class A
Common Stock - - - - - - (18,000) - - - (18,000)
Conversion of Class
B Common Stock 33,778 - (33,778) - - - - - - - -
Exercise of Options 52,529 1,000 - - - - 45,000 - - - 46,000
Net Loss - - - - - - - - - (1,886,000) (1,886,000)
- ------------------------------------------------------------------------------------------------------------------------------------
BALANCE AT MARCH 10,717,493 11,000 137,002 - 123,000 98,000 22,659,000 22,223 (50,000) (17,672,000) 5,046,000
30, 1997
Conversion of
Redeemable Preferred
Stock - - 9,900 - (33,000)(26,000) 26,000 - - - -
Issuance Costs on
Sale of Class A
Common Stock - - - - - - (17,000) - - - (17,000)
Conversion of Class
B Common Stock 70,767 - (70,767) - - - - - - - -
Exercise of Options 50,000 - - - - - 78,000 - - - 78,000
Retirement of
Treasury Shares - - - - - - (50,000)(22,223) 50,000 - -
Net Income - - - - - - - - - 10,000 10,000
- ------------------------------------------------------------------------------------------------------------------------------------
BALANCE AT MARCH
29, 1998 10,838,260 $11,000 76,135 - 90,000 72,000 $22,696,000 - - $(17,662,000) $5,117,000
====================================================================================================================================
<FN>
See notes to consolidated financial statements.
</FN>
</TABLE>
18
<PAGE>
<TABLE>
ADVANCED PHOTONIX, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<CAPTION>
For each of the three years in the period ended March 29, 1998 1998 1997 1996
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss) $ 10,000 $ (1,886,000) $ (654,000)
Adjustment to reconcile net income (loss) to net cash provided by (used in)
operating activities
Depreciation 426,000 524,000 539,000
Amortization 37,000 66,000 55,000
(Gain) loss on disposal of fixed assets 6,000 - (4,000)
Changes in assets and liabilities:
Short-term investments 482,000 (1,459,000) -
Accounts receivable (324,000) 150,000 328,000
Inventories (499,000) (288,000) 219,000
Prepaid expenses and other current assets (23,000) 25,000 (40,000)
Other assets 26,000 2,000 (2,000)
Accounts payable and other accrued expenses 130,000 317,000 (116,000)
Advances - 27,000 (84,000)
------------- -------------- -------------
NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES 271,000 (2,522,000) 241,000
------------- -------------- -------------
CASH FLOWS FROM INVESTING ACTIVITIES
Capital expenditures (163,000) (331,000) (82,000)
------------- -------------- -------------
NET CASH USED IN INVESTING ACTIVITIES (163,000) (331,000) (82,000)
------------- -------------- -------------
CASH FLOWS FROM FINANCING ACTIVITIES
Sales of common stock, net of issuance costs (17,000) (17,000) 2,994,000
Proceeds from exercise of stock options 78,000 45,000 28,000
Repayment of long-term debt - - (42,000)
------------- -------------- -------------
NET CASH PROVIDED BY FINANCING ACTIVITIES 61,000 28,000 2,980,000
------------- -------------- -------------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 169,000 (2,825,000) 3,139,000
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 1,217,000 4,042,000 903,000
------------- -------------- -------------
CASH AND CASH EQUIVALENTS AT END OF YEAR $ 1,386,000 $ 1,217,000 $ 4,042,000
============= ============== =============
<FN>
See notes to consolidated financial statements.
</FN>
</TABLE>
19
<PAGE>
ADVANCED PHOTONIX, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 29, 1998
NOTE 1 - LINE OF BUSINESS AND BUSINESS RISKS
Advanced Photonix, Inc. (together with its subsidiary Silicon Detector
Corporation, the "Company"), designs and manufactures optoelectronic
semiconductor based components and hybrid assemblies (the "core business") and
is engaged in the development and manufacture of proprietary and other solid
state light and radiation detection devices, including proprietary advanced
solid state silicon photodetection devices which utilize Large Area Avalanche
Photodetection ("LAAPD") technology.
The Company has an accumulated deficit of $17,662,000 as of March 29, 1998, and
has incurred losses since inception until the current fiscal year. The Company's
LAAPD technology is still considered to be a new technology and is subject to
risks inherent in the development of products based on new technologies. These
risks include getting the invention out of the laboratory and into actual use in
the field and stepping up production from the prototype (early) stages of
manufacturing. In order to fund these development efforts, the Company
historically has relied upon proceeds from equity financings, bank
lines-of-credit and loans from stockholders. At March 29, 1998, no amounts were
outstanding under any bank line-of-credit and there were no stockholder loans to
the Company.
NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES
Fiscal Year: The Company's fiscal year ends on the last Sunday in March. Fiscal
years in the three-year period ended March 29, 1998, each contain fifty-two
weeks.
Principles of consolidation: The consolidated financial statements include the
accounts of the Company and its wholly-owned subsidiary, SDC. All significant
intercompany accounts and transactions have been eliminated.
Cash, cash equivalents and short-term investments: The Company considers all
highly liquid investments, with an original maturity of three months or less
when purchased, to be cash equivalents. Short-term investments are comprised of
readily marketable debt securities with remaining maturities of more than 90
days at date of purchase. The short-term investments are all considered trading
securities and are bought and held principally for the purpose of selling in the
near term. The fair value of such investments approximated the carrying value as
of March 29, 1998 and March 30, 1997. Cash flows from purchases and sales of
trading securities are classified as cash flows from operating activities.
The Company maintains cash balances at a financial institution that are insured
by the Federal Deposit Insurance Corporation up to $100,000. The Company places
its cash equivalents and short-term investments in investment grade, short-term
debt instruments and limits the amount of credit exposure to any one commercial
issuer. As of March 29, 1998, the Company had cash and cash equivalents at
various financial institutions and in various highly liquid investments which
were in excess of federally insured amounts.
Credit risk: Accounts receivable are unsecured and the Company is at risk to the
extent such amount becomes uncollectible. The Company performs periodic credit
evaluations of its customers' financial condition and generally does not require
collateral. Receivables generally are due within 60 days. A significant portion
of revenues and accounts receivable are with U.S. Government contractors,
including approximately 26%, 19% and 16% of revenues from a major customer for
the fiscal years ending 1998, 1997 and 1996, respectively. In fiscal 1998, the
Company had export sales of approximately $1,047,000 to customers in Australia,
France, Italy, Japan, Mexico, Spain, Switzerland, Canada, Germany, Great Britain
20
<PAGE>
and Sweden (none of which was individually greater than 10% of total revenues).
As of March 29, 1998, one customer comprised 14% of accounts receivable.
Inventories: Inventories, which include material, labor and manufacturing
overhead are stated at the lower of cost (first in, first out) or market.
Inventories consist of the following:
March 29, 1998 March 30, 1997
-------------------- -------------------
Raw materials $ 481,000 $ 336,000
Work in progress 940,000 586,000
Finished products 152,000 152,000
-------------------- -------------------
$ 1,573,000 $ 1,074,000
==================== ===================
Equipment and leasehold improvements: Equipment and leasehold improvements are
stated at cost. Depreciation and amortization are computed using the
straight-line method over the estimated useful lives of the assets or lease term
ranging from five years to eleven years. The Company capitalizes expenditures
that materially increase asset lives and charges ordinary repairs and
maintenance to operations as incurred. When assets are sold or otherwise
disposed of, the cost and related depreciation or amortization are removed from
the accounts and any resulting gain or loss is included in other income
(expense) in the accompanying statements of operations. Equipment and leasehold
improvements consist of the following:
March 29, 1998 March 30, 1997
-------------------- -------------------
Laboratory equipment $ 2,689,000 $ 2,570,000
Furniture, fixtures and office equipment 300,000 365,000
Leasehold improvements 306,000 315,000
Construction in progress 92,000 81,000
-------------------- -------------------
$ 3,387,000 $ 3,331,000
==================== ===================
Patents: Patents represent costs incurred in connection with patent
applications. Such costs are amortized using the straight-line method over the
useful life of the patent once issued, or expensed immediately if any specific
application is unsuccessful. Amortization expense was $4,000, $12,000 and $2,000
for the fiscal years 1998, 1997 and 1996, respectively.
Goodwill: The excess of cost over the purchase price of acquired net assets is
amortized on a straight-line basis over a 25 year period. Amortization expense
was $33,000, $34,000 and $33,000 for the fiscal years 1998, 1997 and 1996,
respectively. The Company continually evaluates the recoverability of goodwill
by assessing whether the recorded value of the goodwill will be recovered
through future expected operating results.
Revenue recognition:
Development contracts - Revenues from research and development cost
reimbursement-type contracts are recorded as costs are incurred based upon the
relationship between actual costs incurred, total estimated costs, and the
amount of the contract or grant award. Estimation of costs are reviewed
periodically and any anticipated losses are recognized in the period in which
they first become determinable.
Product Sales - The Company uses the unit of delivery method for recognizing
sales and cost of sales under production contracts. Provision for estimated
losses, if any, is made in the period in which such losses are determined.
21
<PAGE>
Warranties: The Company typically warrants its products against defects in
material and workmanship for a period of 90 days from the date of shipment. A
provision for estimated future warranty costs is recorded when products are
shipped. To date, warranty costs have not been material.
Net Income (Loss) Per Share: Net income (loss) per share calculations are in
accordance with Statement of Financial Accounting Standards ("SFAS") No. 128,
"Earnings per Share" (SFAS 128). Accordingly, "basic" net income (loss) per
share is computed by dividing net income (loss) by the weighted average number
of shares outstanding for the year. "Diluted" net income (loss) per share has
not been presented as the impact is either not material or anti-dilutive. All
net income (loss) per share amounts for 1997 and 1996 have been restated to
reflect the adoption of SFAS No. 128. Such weighted average shares were
approximately 10,886,000 in 1998, 10,831,000 in 1997 and 9,988,000 in 1996.
Options totaling 2,052,000, 2,512,000 and 2,191,000 in 1998, 1997 and 1996,
respectively, have been excluded from the determination of weighted average
shares outstanding as their affect would be anti-dilutive or not material.
Research and Development Costs: The Company charges all research and development
costs, including costs associated with development contract revenues, to expense
when incurred. Manufacturing costs associated with the development of a new
fabrication process or a new product are expensed until such times as these
processes or products are proven through final testing and initial acceptance by
the customer. Costs related to revenues on non-recurring engineering services
billed to customers are generally classified as cost of product sales.
Use of Estimates: The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Accounting for Stock Option Based Compensation: SFAS No. 123, "Accounting for
Stock Based Compensation" ("SFAS 123"), sets forth accounting and reporting
standards for stock based employee compensation plans. As allowed by SFAS 123,
the Company continues to measure compensation cost under Accounting Principles
Board Opinion No. 25, "Accounting for Stock Issued to Employees" (APB 25) and
complies with the pro forma disclosure requirements of the new standard (see
Note 6). Adoption of SFAS 123 has not affected the Company's results of
operations or financial position.
New Authoritative Pronouncements: In June 1997, the Financial Accounting
Standards Board ("FASB") issued SFAS No. 130, "Reporting Comprehensive Income"
("SFAS 130"). SFAS 130 establishes new standards for the reporting and display
of comprehensive income and its components in a full set of general purpose
financial statements. These new standards require that all items recognized as
components of comprehensive income be reported in a financial statement that is
displayed with the same prominence as other financial statements. SFAS 130 is
effective for fiscal years beginning after December 15, 1997. The adoption of
SFAS 130 will not impact the Company's financial statements.
In June 1997, the FASB issued SFAS No. 11, "Disclosures About Segments of an
Enterprise and Related Information" ("SFAS 131"). SFAS 131 changes the way
public companies report segment information in annual financial statements and
also requires those companies to report selected segment information in interim
financial reports. SFAS 131 is effective for periods beginning after December
15, 1997. The adoption of SFAS 131 will not have a material impact on the
Company's financial statements.
Reclassifications: Certain prior years' amounts have been reclassified to
conform to the current year's presentation.
22
<PAGE>
NOTE 3 - CAPITALIZATION
The Company's Certificate of Incorporation provides for two classes of common
stock, a Class A for which 50,000,000 shares are authorized for issuance and a
Class B for which 4,420,113 shares are authorized for issuance. The par value of
each class is $.001. Subject to certain limited exceptions, shares of Class B
Common Stock are automatically converted into an equivalent number of Class A
shares upon the sale or transfer of the Class B Common Stock by the original
holder. The holder of each share of Class A and Class B Common Stock is entitled
to one vote per share.
Pursuant to a Private Offering Memorandum dated June 15, 1995, the Company
completed a private placement of 2,400,000 shares, from which the Company
received gross proceeds of $3,000,000. The first closing was completed in July
and the final closing in August 1995.
The Company has authorized 10,000,000 shares of Preferred Stock, of which
780,000 shares have been designated Class A Redeemable Convertible Preferred
Stock with a par value of $.001 per share. The number of shares of Class A
Preferred Stock issued and outstanding was 90,000 at March 29, 1998 and 123,000
at March 30, 1997, respectively. The Class A Preferred Stock has a liquidation
preference equal to its issue price ($.80 per share).The Class A Preferred Stock
is convertible at any time, at the option of the holder, into .3 share of Class
B Common Stock for each share of Preferred Stock converted. As of March 29,
1998, there were 27,000 shares of Class B Common Stock reserved for the
potential conversion of the Class A Preferred Stock. The Class A Preferred Stock
is subject to redemption at the Company's option for $.80 per share at any time.
The Company would be required to pay approximately $72,000 to redeem these
shares. The holders of the Class A Preferred Stock are entitled to an annual
non-cumulative dividend preference of $.072 per share when the Company's net
earnings per share of Class A Preferred Stock equals or exceeds $.072. The Class
A Preferred stockholders do not have voting rights except as required by
applicable law.
NOTE 4 - LINE OF CREDIT
The Company has a revolving line of credit agreement with a bank for the lesser
of $1,000,000 or 75 percent of eligible trade accounts receivable, as defined by
the agreement. The agreement expires in July 1998 and provides for interest to
be paid monthly at prime plus 1.25 percent (9.75 percent at March 29, 1998). The
Company must adhere to certain requirements and provisions to be in compliance
with the terms of the agreement. The Company was in compliance with all such
covenants as of March 29, 1998. Borrowings under the line of credit are secured
by accounts receivable, inventory, equipment and general intangibles. There was
no outstanding balance under the line of credit agreement as of March 29, 1998.
NOTE 5 - INCOME TAXES
At March 29, 1998, the Company had net operating loss carry forwards of
approximately $15.7 million for federal tax purposes that expire at various
dates through fiscal year 2012. The tax laws related to the utilization of loss
carryforwards are complex and the amount of the Company's loss carry forward
that will ultimately be available to offset future taxable income may be subject
to annual limitations resulting from changes in the ownership of the Company's
common stock. The Company also has approximately $509,000 in research and
development credit carryovers available for federal tax purposes that expire in
the fiscal years 2004 through 2013.
Under SFAS No. 109, "Accounting for Income Taxes", deferred tax assets may be
recognized for temporary differences that will result in deductible amounts in
future periods and for loss carryforwards. A valuation allowance is recognized
if, based on the weight of available evidence, it is more likely than not that
some portion or all of the deferred tax asset will not be realized. A detail of
the Company's net deferred tax asset as of March 29, 1998 and March 30, 1997
follows:
23
<PAGE>
March 29, 1998 March 30, 1997
--------------------- ----------------------
NOL Carryforwards $ 6,074,000 $ 6,273,000
Inventory obsolescence 549,000 541,000
Warranty 37,000 37,000
Depreciation (54,000) (3,000)
Other 106,000 105,000
--------------------- ----------------------
6,712,000 6,953,000
Less valuation allowance (6,712,000) (6,953,000)
--------------------- ----------------------
Net deferred tax asset $ -0- $ -0-
===================== ======================
Due to the uncertainty surrounding the realization of the favorable tax
attributes of such net operating loss carry forwards in future tax returns, the
Company has recorded a valuation allowance against its otherwise recognizable
deferred tax assets. Accordingly, no deferred tax asset has been reported in the
accompanying balance sheet.
As the Company utilized tax loss carryforwards in fiscal 1998 and incurred
losses in fiscal years 1997 and 1996, the Company has recorded minimum state
taxes of $1,600 in other expense each year in the accompanying statements of
operations.
NOTE 6 - STOCK OPTIONS
The Company has three stock option plans: the 1990 Incentive Stock Option and
Non-Qualified Stock Option Plan, the 1991 Directors' Stock Option Plan ("The
Directors' Plan") and the 1997 Employee Stock Option Plan. The Company measures
compensation for these plans under APB Opinion No. 25, under which no
compensation cost has been recognized. Had compensation expense for these plans
been determined consistent with SFAS No. 123, the Company's net loss and net
loss per share would have increased to the following pro forma amounts:
1998 1997
----------------- ---------------
Net Income (Loss) - as reported $ 10,000 $ (1,886,000)
Net Loss - pro forma $ (309,000) (2,108,000)
Basic Income (Loss) per share - as reported .00 (0.17)
Basic Income (Loss) per share - pro forma (.03) (0.19)
----------------- ---------------
Because the SFAS No. 123 method of accounting has not been applied to options
granted prior to April 3, 1995, the resulting pro forma compensation cost may
not be representative of that to be expected in future years. The fair value of
each option grant is estimated on the date of grant using the Black-Scholes
option pricing model with the following weighted-average assumptions used for
grants in 1998 and 1997, respectively: risk free interest rates of 5.82 percent
and 6.53 percent, expected volatility of 48.57 percent and 63.33 percent, and
expected lives of 10 years in both periods. No dividends were assumed in the
calculations.
The Company's various stock option plans provide for the granting of
non-qualified and incentive stock options to purchase up to 2,200,000 shares of
common stock for periods not to exceed 10 years. As of March 29, 1998, there
were 1,298,000 shares available for future grant under such plans. Options
typically vest at the rate of 25 percent per year over four years, except for
options granted under The Directors' Plan, which typically vest at the rate of
50 percent per year over two years. Under these plans, the option exercise price
24
<PAGE>
equals the stock's market price on the date of grant. Options may be granted to
employees, officers, directors and consultants. The Company has also granted
options, under similar terms as above, under no specific shareholder approved
plan.
<TABLE>
Stock option transactions for 1998, 1997 and 1996 are summarized as follows:
<CAPTION>
1998 1997 1996
---------------------------------------------------------------------------
Shares Wtd Avg Shares Wtd Avg Shares Wtd Avg
(000) Ex Price (000) Ex Price (000) Ex Price
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Outstanding at beginning of year 2,512 $3.41 2,191 $3.52 2,247 $4.16
Granted 90 1.34 530 2.58 550 2.18
Exercised (50) 1.56 (101) 2.13 (13) 2.16
Cancelled (500) 2.18 (108) 2.74 (593) 4.74
Outstanding at end of year 2,052 $3.67 2,512 $3.41 2,191 $3.52
- -------------------------------------------------------------------------------------------------------------------
Exercisable at end of year 1,659 $4.02 1,905 $3.76 1,825 $3.83
- -------------------------------------------------------------------------------------------------------------------
Weighted average fair value of options $0.90 $2.01 $1.76
granted
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
The following table summarizes information about fixed-price stock options
outstanding at March 29, 1998:
<CAPTION>
Options Outstanding Options Exercisable
- -------------------------------------------------------------------------------------------------------------------
Option Price Range Shares Wtd Avg Remaining Wtd Avg Shares Wtd Avg Exercise
Contractual Life Exercise Price Price
- ---------------------- ---------------- ------------------------ ----------------- -------------- -------------------
<S> <C> <C> <C> <C> <C> <C>
$ 6.00 750,000 2.88 years $6.00 750,000 $6.00
$ 4.00-5.75 67,000 4.00 years $4.84 67,000 $4.84
$ 2.25-2.44 979,000 5.85 years $2.37 678,000 $2.32
$ 1.25-1.75 256,000 7.88 years $1.50 163,000 $1.59
</TABLE>
NOTE 7 - COMMITMENTS
The Company leases its manufacturing and office facility under a noncancellable
operating lease. Approximate minimum future lease payments under all
noncancellable operating leases expiring at various dates through fiscal 2004,
are as follows:
Fiscal year ending:
1999 $ 350,000
2000 370,000
2001 372,000
2002 368,000
2003 375,000
Thereafter 342,000
------------
$ 2,177,000
============
Rent expense for the fiscal years ending 1998, 1997 and 1996 was approximately
$353,000, $346,000 and $323,000, respectively.
25
<PAGE>
The Company has employment and termination agreements with certain employees
under which the employees may receive severance pay through the greater of the
end of the term of the contract or up to twelve months. Total compensation under
these agreements in the event of employment through the full term would be
approximately $275,000 for each of the fiscal years ending 1999 and 2000,
respectively.
NOTE 8 - LEGAL
The Company is, from time to time, subject to legal and other matters in the
normal course of its business. While the results of such matters cannot be
predicted with certainty, management does not believe that the final outcome of
any pending matters will have a material effect on the financial position and
results of operations of the Company.
NOTE 9 - EMPLOYEES' RETIREMENT PLAN
The Company maintains a 401(k) Plan which is qualified under the Internal
Revenue Code. All full-time employees are eligible to participate in the Plan.
Employees may make voluntary contributions to the Plan which are matched by the
Company at the rate of $.50 for every $1.00 of employee contribution, subject to
certain limitations. The Company contributions recognized as expense were
approximately $60,000, $69,000, and $68,000 for the fiscal years ending 1998,
1997 and 1996, respectively.
NOTE 10 - SUPPLEMENTAL STATEMENTS OF CASH FLOWS INFORMATION
<TABLE>
<CAPTION>
March 29, 1998 March 30, 1997 March 31, 1996
----------------------------------------------------------------
<S> <C> <C> <C>
Cash paid during the year for:
Interest (net of amount capitalized) $ - $ - $ 2,600
Income taxes 1,600 1,600 5,407
Noncash Transaction:
Issuance of common stock upon the conversion of 26,000 - -
Redeemable Convertible Preferred Stock
</TABLE>
NOTE 11 - VALUATION AND QUALIFYING ACCOUNTS
<TABLE>
<CAPTION>
(000) Balance at Charged to Cost Deductions Balance at End
Beginning of and Expenses of Period
Period
--------------- ----------------- --------------- -----------------
<S> <C> <C> <C> <C>
Year end March 29, 1998 $ 83 $ - $ - $ 83
- -----------------------
Allowance for bad debt
Warranty 95 25 25 95
Year end March 30, 1997 105 - 22 83
- -----------------------
Allowance for bad debt
Warranty 95 39 39 95
Year end March 31, 1996 105 - - 105
- -----------------------
Allowance for bad debt
Warranty 95 - - 95
</TABLE>
26
<PAGE>
Item 9. Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure
None
PART III
Item 10. Directors and Executive Officers
Set forth below is certain information relating to the directors and officers of
the Company.
Name Age Position
Harry Melkonian 48 Chairman of the Board, President and
Chief Executive Officer
Robert G. Allison 41 Director
James A. Gordon 48 Director
Hayden Leason 67 Director
Jon B. Victor 45 Director
Patrick J. Holmes 52 Executive Vice President, Chief
Financial Officer, Secretary & Treasurer
Harry Melkonian, Chairman of the Board, President & Chief Executive Officer
Mr. Melkonian joined the Company in June 1992. He has been President since
November 1996, was elected Chief Executive Officer in October 1997 and Chairman
of the Board in April 1998. He served as General Manager of the Company's PIN
photodiode business from 1993 until November 1996. From 1989 until joining the
Company, Mr. Melkonian operated Melkonian Associates, a consulting firm that
assisted the Company in the acquisition of its subsidiary, Silicon Detector
Corporation. From 1987 until 1989, he was Director of Operations at Simulaser
Corporation; and for six years previously, he held various operations level
positions at Sensor Technology, Inc. Mr. Melkonian holds a Bachelor of Science
degree in Business Administration from Northeastern University.
Robert G. Allison, Director
Mr. Allison became a director in January 1998. He previously served as a
director from October 1996 to June 1997. Mr. Allison is the Managing Partner of
Allison Venture Partners, Inc., a private capital and consulting firm serving
the technology market. Mr. Allison is a partner of Edgewater Private Equity
Fund, LP and Edgewater Private Equity Fund II, LP, limited partnerships formed
for investment purposes. Prior to forming Allison Venture Partners, Mr. Allison
served as the Executive Vice President, Chief Operating Officer and Director of
Aurora Electronics Group, Inc. (AUR-AMEX). Mr. Allison served as Vice President,
Semiconductor Marketing and Assets at Arrow Electronics, Inc. (NASDQ-ARW) and
was the founder, President and CEO of Insight Electronics, Inc., a specialized
semiconductor distributor which was acquired by MEMEC Group, PLC.
James A. Gordon, Director
Mr. Gordon became a director of the Company in August 1992. Since January 1992,
Mr. Gordon has been President of Gordon Management, Inc., which is the general
partner of Edgewater Private Equity Fund, LP
27
<PAGE>
and Edgewater Private Equity Fund II, LP, limited partnerships formed for
investment purposes. In addition, Mr. Gordon has managed Focused Value Equity
portfolios since 1985. Mr. Gordon presently serves as a member of the Boards of
Directors of the following organizations: Grinnell College (also serving as
Chairman of the Investment Committee), IMNET Systems, Inc.; HealthDesk, Inc. and
Microware Systems Corporation. He is currently a Board member of the National
Committee for the Performing Arts of the Kennedy Center. Mr. Gordon served as a
member of the Board of Directors for Des Moines Art Center; Des Moines Ballet;
Des Moines Metro Opera; Governor's United Nations Board; Iowa Society to Prevent
Blindness; Des Moines Parent Teacher Association; Young President's
Organization; and Northwestern University Alumni Board.
Hayden Leason, Director
Mr. Leason became a director of the Company in July 1995. He served as Chairman
of the Board from October 1996 until October 1997 and as Chief Executive Officer
from November 1996 until October 1997. In 1965 Mr. Leason founded Filtertek
Inc., a designer and manufacturer of specialty filtration elements, which
subsequently became a New York Stock Exchange listed company. He served as
Chairman and Chief Executive Officer until 1992 when he sold his interest to
Schawk Inc. Since 1992, Mr. Leason has managed various private investments. Mr.
Leason is a 1954 graduate of Northwestern University where he received his
Bachelor of Science degree in Business Administration.
Jon B. Victor, Director
Mr. Victor became a director of the Company in June 1995. He served as Chairman
of the Board from October 1997 until April 1998. Mr. Victor is the Manager of
Greenwich Ventures, LLC, which is the general partner of Greenwich Ventures, LP
and Vantage Ventures, CV, Investment Partnerships, which he organized in 1996.
He began his career in the equity research and trust departments of the Bank of
New York. From 1978 through 1982 he worked for J. & W. Seligman & Co., where he
was responsible for offshore advisory relationships, and was President of the
firm's broker/dealer subsidiary. Mr. Victor founded Security Capital Management,
Inc., an investment advisory firm, in 1983, and served as its President or
Co-President until 1996. In 1992, Mr. Victor co-founded Gordon Management, Inc.,
the general partner of Edgewater Private Equity Fund, LP, and Edgewater Private
Equity Fund II, LP. Mr. Victor is a 1973 magna cum laude graduate of Washington
University and a 1977 graduate of the George Washington University School of Law
where he earned his J.D. cum laude and completed his M.B.A. course work. Mr.
Victor serves on the Board of Directors of several private investment firms and
acts as an independent arbitrator for the National Futures Association.
Patrick J. Holmes, Executive Vice President, Chief Financial Officer, Corporate
Secretary and Treasurer Mr. Holmes joined the Company in August 1993 and was
named Executive Vice President in November 1996. From 1989 until joining the
Company, Mr. Holmes was a Division Controller for Textron, Inc. From 1985 until
1989, he was Chief Accountant and Financial Operations Manager for two start-up
companies of Lockheed Corporation in Sunnyvale, CA. Previously, Mr. Holmes held
senior financial posts with General Dynamics and Datapoint Corporation. Mr.
Holmes, who is a Certified Public Accountant, received his degree in accounting,
magna cum laude, from the University of Missouri in St. Louis and is a past
recipient of the Missouri Society of CPAs Silver Medal. Directors serve annual
terms until the next annual meeting of stockholders and until their successors
are elected and qualified. Officers serve at the pleasure of the Board of
Directors.
Item 11. Executive Compensation
The following table sets forth compensation paid or accrued by the Company for
services rendered to the Company's Chief Executive Officer and to each of the
other executive officers of the Company whose cash compensation exceeded
$100,000 for services rendered during the last three fiscal years.
28
<PAGE>
<TABLE>
SUMMARY COMPENSATION TABLE
<CAPTION>
Long Term Compensation
--------------------------------------
Annual Compensation Awards Payouts
---------------------------- -------------------------- -------
Restricted Securities
Name and Other Annual Stock Underlying LTIP All Other
Principal Fiscal Salary Bonus Compensation Awards Options Payouts Compensation
Position Year ($) ($) ($) ($) (#) ($) ($)(1)
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Harry Melkonian, 1998 150,000 40,000 - - - - 4,700
Chairman of the Board, 1997 135,000 - - - 140,000 - 3,900
President and Chief 1996 110,000 15,000 - - - - 3,300
Executive Officer (2)
- --------------------------------------------------------------------------------------------------------------------
Hayden Leason 1998 - - - - - - -
Chairman of the Board and 1997 - - - - - - -
Chief Executive Officer (3) 1996 - - - - - - -
- --------------------------------------------------------------------------------------------------------------------
Patrick J. Holmes 1998 125,000 15,000 - - - - 3,900
Executive Vice President, 1997 125,000 - - - 70,000 - 3,300
CFO, Secretary and 1996 125,000 15,000 - - - - 3,800
Treasurer
- --------------------------------------------------------------------------------------------------------------------
<FN>
1 Represents amounts paid by the Company on behalf of the named person in connection with the Company's 401(k) Retirement Plan.
2 Mr. Melkonian was elected Chief Executive Office in October, 1997, and Chairman of the Board in April 1998..
3 Mr. Leason resigned as Chairman of the Board and Chief Executive Officer in October 1997. Options granted as part of plans
provided to outside directors of the Company have been excluded from the table (10,000 in 1998 and 25,000 in 1996).
</FN>
</TABLE>
Employment Agreements
The Company has employment and termination agreements with certain employees,
including Messrs. Melkonian and Holmes under which the employees may receive
severance pay through the end of the term of the contract or up to twelve
months. See Notes to Consolidated Financial Statements - Note 7.
Stock Options
Except as described in the Summary Compensation Table, no options were granted
to executive officers of the Company during fiscal 1998.
The following tables set forth certain information concerning stock options
granted to and exercised by the persons named in the Summary Compensation Table
during the last fiscal year and unexercised stock options held by such persons
at the end of such fiscal year. No options were exercised during the last fiscal
year.
<TABLE>
Aggregated Option Exercises in Last Fiscal Year and FY-End Option Values
<CAPTION>
Value of Unexercised
Number of Securities Underlying In-the-Money Options at
Shares Acquired Unexercised Options at Fiscal Year End (#)Fiscal Year End ($)
Name (1) on Exercise (#) Value Realized Exercisable/Unexercisable Exercisable/Unexercisable
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Harry Melkonian - - 88,000/112,000 -/-
Hayden Leason - - 25,000/10,000 -/-
Patrick J. Holmes - - 74,000/76,000 -/-
- -----------------------------------------------------------------------------------------------------------------------------
<FN>
1 See "Summary Compensation Table" and Item 10 "Directors and Executive Officers" for principal position.
</FN>
</TABLE>
On January 18, 1995 the Board of Directors canceled outstanding options to
purchase an aggregate of 365,000 shares of the Company's Class A Common Stock
and granted to the holders of such options new options to purchase an equivalent
number of shares. These options were the only options of the Company which have
been issued coincident with the cancellation of outstanding options or otherwise
repriced since the Company's inception through March 29, 1998. The Board of
Directors concluded that the subsequent decrease in the market price for the
Company's Class A Common Stock below the exercise price for the
29
<PAGE>
canceled options was due to factors which were principally not all within the
realm of responsibility of the option holders and that the options no longer
provided the incentive to such option holders to perform on behalf of the
Company in the manner contemplated by the Board when the canceled options were
initially granted. On the date of the issuance of the new options and the
cancellation of the outstanding options, the closing sale price for the
Company's Class A Common Stock as reported on the American Stock Exchange was
$1.56. The following table sets forth certain information regarding the
aforementioned canceled and new options:
<TABLE>
Ten-Year Option Repricings
<CAPTION>
Number of Securities Market Price of Exercise Price at Length of Original
Underlying Options Stock at Time of Time of New Option Term Remaining at
Repriced or Repricing or Repricing or Exercise Date of
Name1 Date Amended (#) Amendment ($) Amendment ($) Price ($) Repricing or Amendment
- ---- ---- ----------- ------------- ------------- --------- ----------------------
<S> <C> <C> <C> <C> <C> <C>
Harry Melkonian 1/18/95 60,000 1.56 3.62 1.56 7 years
Patrick J. Holmes 1/18/95 30,000 1.56 4.87 1.56 9 years
30,000 1.56 4.50 1.56 9 years
- ------------------------------------------------------------------------------------------------------------------------------
<FN>
1 See "Summary Compensation Table" and Item 10 "Directors and Executive Officers" for principal position.
</FN>
</TABLE>
Compensation of Directors
Prior to October 1995, each director who is not an employee of the Company or an
affiliate received an annual fee of $10,000, payable in quarterly increments,
and a fee of $1,000 for each meeting attended. Each of the directors who is not
an employee of the Company is eligible for grants of stock options upon their
appointment to the Board of Directors under the 1991 Special Directors Stock
Option Plan and on an annual basis so long as they remain on the Board.
Directors who are also officers of the Company or its affiliates do not receive
cash compensation in consideration for their services as directors. All
directors, however, including employee directors, are reimbursed for reasonable
travel expenses incurred in connection with their attending meetings of the
Board of Directors and committees. In October 1995, the Board of Directors
eliminated the accrual or payment of all fees including all annual fees, meeting
fees and any payment for services as the Chairman or Member of any Committee of
the Board of Directors except for reasonable travel expenses. In addition,
participation in the 1991 Special Directors Stock Option Plan, other than
initial grants for new directors, was suspended. In January 1998, the Board
reinstated participation in the 1991 Special Directors Stock Option Plan and
approved an annual stock option grant in lieu of an annual cash fee. This grant
would be the approximate equivalent of $10,000 calculated using the
Black-Scholes option pricing model.
Compliance with Section 16(a) of the Securities Exchange Act of 1934
Section 16(a) of the Securities Exchange Act of 1934 requires the Company's
officers and directors and persons who own more than ten percent of a registered
class of the Company's equity securities (collectively, the "Reporting Persons")
to file reports of ownership and changes in ownership with the Securities and
Exchange Commission and to furnish the Company with copies of these reports. New
rules governing these reports were adopted in February 1991 and generally became
effective in May 1991. Based upon the Company's review of copies of these
reports received by it, the Company believes that all filings required to be
made by the Reporting Persons during the fiscal year ended March 29, 1998 were
made on a timely basis.
30
<PAGE>
Item 12. Security Ownership of Certain Beneficial Owners and Management
The following table sets forth, as of June 5, 1998, certain information
concerning the holdings of each person who was known by the Company to be the
beneficial owner of more than five percent (5%) of the outstanding shares of
Class A or Class B Common Stock of the Company, by each director and executive
officers and by all directors and officers as a group.
<TABLE>
<CAPTION>
Class A Common Stock Class B Common Stock
-------------------------------------------- ------------------------------------------------------
Shares Under Shares Under
Shares Exercisable Percent of Shares Exercisable Percent of Percent
Owned Options/Warrants(1) Class Owned Options/Warrants Class Voting(2)
<S> <C> <C> <C> <C> <C> <C> <C>
The Dreyfus Corporation(3) 1,497,700 - 13.8 - - - 13.7
Hayden Leason(4) 1,304,100 27,500 12.3 - - - 12.2
The Townsend Group 874,100 - 8.1 - - - 8.0
Advanced Detectors,Inc.(5) - 750,000 6.5 - - - 6.4
J. Morton Davis(6) 656,045 - 6.1 - - - 6.0
James A. Gordon(7) 593,640 33,000 5.5 - - - 5.4
Edgewater Private Equity Fund(8) 593,640 33,000 5.5 - - - 5.4
Robert G. Allison(9) 593,640 33,000 5.5 - - - 5.4
Jon Victor(10) 237,400 27,500 2.4 - - - 2.4
Patrick J. Holmes 52,600 108,000 1.5 - - - 1.5
Harry Melkonian 10,000 116,000 1.2 - - - 1.2
Directors & Officers as 2,197,740 312,000 22.5 - - - 22.5
a Group
- -----------------------------------------------------------------------------------------------------------------------------------
<FN>
1 Includes shares under options/warrants exercisable on June 5, 1998 and options which become exercisable within 60 days thereafter.
2 Represents combined voting power of both Class A and Class B Common Stock,
assuming beneficial owner exercises all exercisable options and warrants.
3 Shareholder is a subsidiary of Mellon Bank, N.A., One Mellon Bank Center, Pittsburgh, PA 15258-0001.
4 The address of this shareholder is Palmas Del Mar, 10 Monte Sol, Humacao, Puerto Rico 00791.
5 Formerly Xsirius, Inc., the last known address of this beneficial owner was 1220 Avenida Acaso, Camarillo, CA 93012.
6 The address of this shareholder is D.H. Blair, 44 Wall Street, New York, NY 10005. Includes 617,760 shares owned by
D.H. Blair Investment Banking Corporation and 38,285 shares owned by Parliament Hill Corporation.
7 The address of this shareholder is c/o Edgewater Private Equity Fund, 666 Grand Avenue, Suite 200, Des Moines, IA 50309.
Includes 593,640 shares owned by Edgewater Private Equity Fund, L.P. ("Edgewater"). Mr. Gordon is the President of Gordon
Management, Inc. which is the general partner of Edgewater. Also includes 2,500 options granted to Mr. Allison. Mr. Allison is
a partner of Edgewater.
8 The address of this shareholder is c/o Edgewater Private Equity Fund, 666 Grand Avenue, Suite 200, Des Moines, IA 50309.
Includes 30,500 options granted to Mr. Gordon (see footnote 7) and 2,500 options granted to Mr. Allison (see footnote 10).
9 The address of this shareholder is c/o Allison Venture Partners, Inc., 103 N. Point Drive, Lake Forest, CA 92630.
Includes 593,640 shares owned by Edgewater Private Equity Fund, L.P. ("Edgewater"). Mr. Allison is the President of Allison
Venture Partners, Inc. which is the general partner of Edgewater.
10 The address of this shareholder is c/o Greenwich Ventures, LLC, 3463 State Street, Santa Barbara, CA 93105.
</FN>
</TABLE>
Item 13. Certain Relationships and Related Transactions
See Item 11. Executive Compensation.
31
<PAGE>
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K
The following is a list of the financial statement schedules and exhibits filed
herewith.
(a) (2) Financial Statement Schedules:
Schedules for which provisions are made in the applicable accounting regulations
of the Securities and Exchange Commission are not required under the related
instructions, or are disclosed in the accompanying consolidated financial
statements, or are inapplicable and, therefore, have been omitted.
(a) (3) Exhibits:
Exhibit
No. Description
3.1 Certificate of Incorporation of the Registrant, as amended. -
incorporated by reference to Exhibit 3.1 to the Registrant's
Registration Statement on Form S-1, filed with the Securities and
Exchange Commission on November 23, 1990.
3.1.1 Amendment to Certificate of Incorporation of the Registrant, dated
October 29, 1992-incorporated by reference to the Registrant's March
31, 1996 Annual Report on Form 10-K.
3.1.2 Amendment to Certificate of Incorporation of the Registrant, dated
September 9, 1992-incorporated by reference to the Registrant's March
31, 1996 Annual Report on Form 10-K.
3.2 By-laws of the Registrant, as amended - incorporated by reference to
the Registrant's March 31, 1996 Annual Report on Form 10-K.
10.1* Advanced Photonix, Inc. 1991 Special Directors Stock Option Plan -
incorporated by reference to Exhibit 10.9 to the Registrant's March
31, 1991 Annual Report on Form 10-K.
10.2* Advanced Photonix, Inc. 1990 Incentive Stock Option and Non-Qualified
Stock Option Plan - incorporated by reference to Exhibit No. 10.11 to
the Registrant's Registration Statement on Form S-1, filed with the
Securities and Exchange Commission on November 23, 1990.
10.3* Advanced Photonix, Inc. 1997 Employee Stock Option Plan - incorporated
by reference to Exhibit 10.13 to the Registrant's March 30, 1997
Annual report on Form 10-K
10.4* Amendment No. 1 to 1997 Employee Stock Option Plan of Advanced
Photonix, Inc. - incorporated by reference to Exhibit 10.14 to the
Registrant's December 28, 1997 Quarterly Report on Form 10-Q
10.5 Employment Agreement dated June 1, 1998, between Advanced Photonix,
Inc. and Patrick J. Holmes.
10.6 Employment Agreement dated June 1, 1998, between Advanced Photonix,
Inc. and Harry Melkonian.
10.7 Form of Non-Qualified Stock Option granted to Advanced Detectors,
Inc., formerly Xsirius, Inc. - incorporated by reference to Exhibit
10.13 to Amendment No. 3 to the Registrant's Registration Statement on
Form S-1, filed with the Securities and Exchange Commission on
February 11, 1991.
32
<PAGE>
10.8 Loan and Security Agreement dated July 15, 1997 between Silicon Valley
Bank and Registrant - incorporated by reference to Exhibit 10.14 to
the Registrant's June 29, 1997 Quarterly Report on Form 10-Q.
10.9 Lease Agreement dated February 23, 1998 between Advanced Photonix,
Inc. and High Tech No. 1, Ltd.
10.10 Form of Indemnification Agreement provided to Directors and Principal
Officers of Advanced Photonix, Inc. -- incorporated by reference to
Exhibit 10.15 to the Registrant's December 28, 1997 Quarterly Report
on Form 10-Q
21 List of Subsidiaries of Registrant - incorporated by reference to
Exhibit 22 to the Registrant's March 31, 1993 Annual Report on Form
10-K.
23.1 Consent of Arthur Andersen LLP, independent public accountants.
*Constitutes a compensation plan or arrangement required to be filed as part of
this report.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
ADVANCED PHOTONIX, INC. By: /s/ Harry Melkonian
--------------------
Harry Melkonian,
President & Chief Executive Officer
Date: June 26, 1998
---------------
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the Registrant in
the capacities and on the dates indicated.
Signature Title Date
/s/ Harry Melkonian Chairman of the Board, President & June 26, 1998
- ------------------- Chief Executive Officer -------------
Harry Melkonian (Principal Executive Officer)
/s/ Robert G. Allison Director June 26, 1998
- ------------------- -------------
Robert G. Allison
/s/ Hayden Leason Director June 26, 1998
- ------------------- -------------
Hayden Leason
/s/ James A. Gordon Director June 26, 1998
- ------------------- -------------
James A. Gordon
/s/ Jon B. Victor Director June 26, 1998
- ------------------- -------------
Jon B. Victor
/s/ Patrick J. Holmes Executive Vice President, Chief June 26, 1998
- ------------------- Financial Officer, Corporate -------------
Patrick J. Holmes Secretary/Treasurer,
(Principal Financial and Accounting Officer)
33
<PAGE>
EXHIBIT 10.5
EMPLOYMENT AGREEMENT
This Agreement, made this 1st day of June, 1998, by and between Advanced
Photonix, Inc., a Delaware corporation (hereinafter called "Company"), and
Patrick J. Holmes, an individual (hereinafter called "Employee").
W I T N E S S E T H :
Company wishes to employ Employee and Employee wishes to enter into the employ
of the Company on the terms and conditions contained in this Agreement.
NOW, THEREFORE, in consideration of the facts, mutual promises and covenants
contained herein and intending to be legally bound hereby, Company and Employee
agree as follows:
1. Employment
Company hereby employs Employee and Employee hereby accepts employment by the
Company for the period and upon the terms and conditions contained in this
Agreement. Both the Company and Employee acknowledge and agree that this
Agreement supercedes all previous Employment Agreements between the parties.
2. Office and Duties
a) Employee shall serve Company generally as Executive Vice President, Chief
Financial Officer and Corporate Secretary & Treasurer. In his capacity, Employee
shall have such authority and such responsibilities as the President and the
Board of Directors reasonably may determine from time to time.
b) Throughout the term of this Agreement, Employee shall devote his entire
working time, energy, skill and best efforts to the performance of his duties
hereunder in a manner which will faithfully and diligently further the business
and interests of the Company. Notwithstanding the foregoing, Employee shall be
permitted to maintain memberships on the Boards of Directors and in
organizations identified to the Company in writing, provided that such
activities shall not, at any time, preclude Company or any Subsidiary (as herein
defined) of the Company, from obtaining contracts from any such company or
organization. Employee shall also be permitted to serve as a director or
consultant of additional organizations and participate in other activities for
the federal government and other groups upon the prior written approval by the
Company, which approval shall not unreasonably be withheld; provided, however,
that no such activities shall, at any time, exclude Company or any subsidiary of
the Company from obtaining contracts from the government or any other
organizations. For purposes of this Agreement, any corporation with respect to
which Company has the ability to control more than fifty percent of the voting
power shall be a "subsidiary" and all such corporations shall be "Subsidiaries".
3. Term
This Agreement shall be for a term of twenty one months, commencing on June 1,
1998, and ending on March 31, 2000, unless sooner terminated as hereinafter
provided. Unless either party elects to terminate this Agreement at the end of
the original or any renewal term by giving the other party notice of such
election at least ninety (90) days before the expiration of the then current
term, this Agreement shall be
Page 1 of 7
<PAGE>
deemed to have been extended for an additional term of one (1) year commencing
on the day after the expiration of the then current term.
4. Compensation and Benefits
a) For all the services rendered by the Employee to the Company, Employee shall
receive a base salary at the rate of $125,000 per year, ("Base Salary"), payable
in reasonable installments in accordance with Company's regular payroll
practices in effect from time to time.
b) Employee shall be eligible for additional salary increases as well as cash
and stock bonuses during the term of this Agreement at the discretion of the
Board of Directors. Incentive cash bonus will be $15,000 or greater on an annual
basis.
c) Benefits to the Employee shall be the same as those customarily provided by
the Company to other employees except employee accrues vacation at a rate of
three weeks per year since original date of employment with the normal
progression as outlined in the Company's employee manual.
5. Expenses
Company will reimburse Employee for all reasonable expenses incurred by Employee
in connection with the performance of the Employee's duties hereunder, upon
receipt of appropriate documentation and in accordance with Company's regular
reimbursement procedures and practices in effect from time to time.
6. Disability
a) If Employee becomes unable to perform his duties hereunder due to partial or
total disability or incapacity resulting from a mental or physical illness,
injury or other cause, Company will continue the payment of Employee's Base
Salary at its current rate for a period of twenty-six (26) weeks following the
date Employee is first unable to perform his duties due to such disability or
incapacity. Thereafter, Company shall have no obligation for Base Salary or
other compensation payments to Employee during the continuance of such
disability of incapacity.
b) If Employee is unable to perform his duties hereunder due to partial or total
disability or incapacity resulting from a mental or physical illness, injury or
any other cause for a period of twenty-six (26) consecutive weeks or for a
cumulative period of twenty-six (26) weeks during any twelve month period,
Company shall have the right to terminate this Agreement thereafter, in which
event company shall have no further obligations or liabilities hereunder after
the date of such termination.
7. Death
If Employee dies, all payments hereunder shall cease at the end of the month in
which Employee's death shall occur and Company shall have no further obligations
or liabilities hereunder to Employee's estate or legal representative or
otherwise.
Page 2 of 7
<PAGE>
8. Discharge for Cause
Company may discharge Employee at any time for criminal conduct (whether or not
related to Employee's employment), intoxication or drug addiction (if either of
these conditions impairs the Employee's ability to perform his duties),
insubordination, gross negligence, any violation of any express direction or any
reasonable rule or regulation established by the Company from time to time
regarding the conduct of its business, any misrepresentation made in this
Agreement, or any violation by Employee of the terms and conditions of this
Agreement, in which event Company shall have no further obligations or
liabilities hereunder after the date of such discharge.
9. Termination of Employment
(a) In the event Company shall terminate Employee's employment during the term
of this agreement (the "termination date"), other than as a result of disability
as set forth in Paragraph 6 or for cause as set forth in Paragraph 8, at any
time prior to the expiration date of this Agreement as set forth in Paragraph 3,
Company shall be obligated to continue Employee's compensation and benefits set
forth in Paragraph 4 and 5 hereof until the later of the expiration date of this
Agreement or nine months from the termination date. In either such event, (i)
Company's liability to Employee as a result of any such termination shall be
limited as set forth above and (ii) Employee shall have the obligation to
mitigate his damages by using his best efforts to seek employment for which he
is suitably trained and experienced elsewhere. In the event Employee's
compensation from any such employment during the applicable period in which he
is entitled to receive compensation and benefits as set forth in this paragraph
shall be less than that available to him under this Agreement, Company shall pay
Employee any such difference. Employment from consulting activities defined in
Paragraph 2.b) and identified to the Company in writing will not be considered
for purposes of this section.
(b) In the event Company terminates Employee's employment after termination of
this agreement, other than as a result of disability or for cause, Company shall
continue compensation and medical benefits for a period of nine months after
such termination. Employee shall have the obligation to mitigate his damages by
using his best efforts to seek employment for which he is suitably trained and
experienced elsewhere. In the event Employee's compensation from any such
employment during the applicable period in which he is entitled to receive
compensation and benefits as set forth in this paragraph shall be less than that
available to him under this Agreement, Company shall pay Employee any such
difference. Employment from consulting activities identified to the Company in
writing will not be considered for purposes of this section.
10. Company Property
All research, technology developed or being developed, advertising, sales,
manufacturers' and other materials or article or information, including without
limitation data processing reports, customer sales analyses, invoices, price
lists or information, samples or any other materials or data of any kind
furnished to Employee by Company, learned by Employee from Company's direction
or for Company's use or otherwise in connection with Employee's employment
hereunder, are and shall remain the sole and confidential property of Company;
provided, however, the foregoing shall not apply to any such material in the
public domain other than by reason of a breach of this Paragraph 10. If the
Company requests the return of such materials at any time during or at or after
the termination of Employee's employment, Employee shall immediately deliver the
same to Company.
Page 3 of 7
<PAGE>
11. Noncompetition, Trade Secrets, Etc.
a) During the term of this Agreement and for a period of one year after the
termination of his employment with the Company for any reason whatsoever,
Employee shall not, directly or indirectly, solicit, induce, encourage or
attempt to influence any client, customer, salesman or supplier of Company to
cease to do business with or to terminate his employment with Company and shall
not utilize for any such purpose any names and addresses of customers or clients
of Company or any data on or relating to past, present or prospective (at the
time of termination of Employee's employment) customers or clients of Company.
b) During the term of this Agreement, Employee shall not engage in (as a
principal, partner, director, officer, agent, employee, consultant or otherwise)
or be financially interested in any business operating within the United States,
which is involved in business activities which are the same as the business
activities carried on by Company, or being definitely planned by Company,
including exploitation of the technology developed by Company or being developed
by Company at the time of the termination of Employee's employment. However,
nothing contained in this paragraph 11 shall prevent Employee from holding for
investment no more than five percent (5%) of any class of equity securities of a
company whose securities are traded on a national securities exchange.
c) During the term of this Agreement and at all times thereafter, Employee shall
not use for his personal benefit, or disclosure, communicate or divulge to, or
use for the direct or indirect benefit of any person, firm, association or
company other than Company, any material referred to in this paragraph 11 or any
confidential information regarding the business methods, business policies,
procedures, techniques, research or development projects or results, trade
secrets, or other knowledge or processes of or developed by Company or any names
and addresses of customers or clients or any data on or relating to past,
present or prospective customers or clients or any other confidential
information relating to or dealing with the business operations or activities of
Company, made known to Employee or learned or acquired by Employee while in the
employ of Company.
d) Any and all writings, inventions, improvements, processes, procedures and/or
techniques which Employee may make, conceive, discover or develop, either solely
or jointly with any other person or persons, at any time during the term of this
Agreement, whether during working hours or at any other time and whether at the
request or upon the suggestion of the Company or otherwise, which relate to or
are useful in connection with any business now or hereafter carried on or
contemplated by the Company, including developments or expansions of its present
fields of operations, shall be the sole and exclusive property of Company.
Employee shall make full disclosure to Company of all such writings, inventions,
improvements, processes, procedures and techniques, and shall do everything
necessary or desirable to vest the absolute title thereto in Company. Employee
shall write and prepare all specifications and procedures regarding such
inventions, improvements, processes, procedures and techniques and otherwise aid
and assist Company so the Company can prepare and present applications for
copyright or Letters of Patent wherever possible, as well as reissues, renewals,
and extensions thereof in all countries in which it may desire to have copyright
or patent protection. Employee shall not be entitled to any additional or
special compensation or reimbursement regarding any and all such writings,
inventions, improvements, processes, procedures and techniques.
e) Employee acknowledges that the restrictions contained in the foregoing
subparagraphs a), b), and c), in view of the nature of the business in which
Company is engaged are reasonable and necessary in order
Page 4 of 7
<PAGE>
to protect the legitimate interests of Company, and that any violation thereof
would result in irreparable injuries to Company, and Employee therefore
acknowledges that, in the event of his violation of any of these restrictions,
Company shall be entitled to obtain from any court of competent jurisdiction
preliminary and permanent injunctive relief as well as damages and an equitable
accounting of all earnings, profits and other benefits arising from such
violation, which rights shall be cumulative and in addition to any other rights
or remedies to which Company may be entitled.
f) If the period of time or the area specified in subparagraphs a) or b) above
should be adjudged unreasonable in any proceeding, then the period of time shall
be reduced by such number of months or the area shall be reduced by the
elimination of such portion thereof or both so that such restrictions may be
enforced in such area and for such time as is adjusted to be reasonable. If
Employee violates any of the restrictions extended for that period beginning at
the time of the commencement of any such violation and running until such time
as such violation shall be cured by Employee to the satisfaction of Company, on
a day to day basis.
12. Prior Agreements
Employee represents to Company a) that there are no restrictions, agreements or
understandings whatsoever to which Employee is a party which would prevent or
make unlawful his execution of this Agreement and his employment hereunder shall
not constitute a breach of any contract, agreement or understanding, oral or
written, to which he is a party or by which he is bound and b) that he is free
and able to execute this Agreement and to enter into employment by Company.
13. Personal Rights and Obligations
This Agreement and all rights and obligations hereunder are personal and shall
not be assignable by either party except as provided in this subparagraph, and
any purported assignment in violation thereof shall be null and void. Any
person, firm or corporation succeeding to the business of Company (or that
portion of the business with which Employee is involved) by merger,
consolidation, purchase of assets or otherwise, must assume by contract or
operation of law the obligations of Company hereunder and in such a case
Employee shall continue to honor this Agreement with such person, firm or
corporation substituted for Company as the employer; provided, however, that
Company shall, if it still exists as a separate entity, notwithstanding such
assumption and/or assignment, remain liable and responsible for the fulfillment
of the terms and conditions of this Agreement on the part of the Company.
14. Miscellaneous
a) Indulgences, Etc.
Neither the failure nor any delay on the part of either party to exercise any
right, remedy, power or privilege under this Agreement shall operate as a waiver
thereof, nor shall any single or partial exercise of any right, remedy, power or
privilege preclude any other or further exercise of the same or any other right,
remedy, power or privilege, nor shall any waiver of any right, remedy, power or
privilege with respect to any occurrence be construed as a waiver of such right,
remedy, power or privilege with respect to any other occurrence. No waiver shall
be effective unless it is in writing and is signed by the party asserted to have
granted such waiver.
Page 5 of 7
<PAGE>
b) Notices
All notices, requests, demands and other communications required or permitted
under this Agreement shall be in writing and shall be deemed to have been duly
given, made and received only when delivered (personally, by courier service
such as Federal Express, or by other messenger) or when deposited in the United
States mails, registered or certified mail, postage prepaid, return receipt
requested, addressed as set forth below:
(i) if to Employee: (ii) if to Company:
Patrick J. Holmes Advanced Photonix, Inc.
259 High Meadow St. 1240 Avenida Acaso
Simi Valley, CA 93065 Camarillo, CA 93012
In addition, notice by mail shall be by air mail if posted outside of the
continental United States.
Any party may alter the address to which communications or copies are to be sent
by giving notice of such change of address in conformity with the provisions of
this paragraph for the giving of notice.
c) Binding Nature of Agreement
This Agreement shall be binding upon and inure to the benefit of Company and its
successors and assigns and shall be binding upon Employee, his heirs and legal
representatives.
d) Execution in Counterparts
This Agreement may be executed in any number of counterparts, each of which
shall be deemed to be an original as against any party whose signature appears
thereon, and all of which shall together constitute one and the same instrument.
This Agreement shall become binding when one or more counterparts hereof,
individually or taken together, shall bear the signatures of all of the parties
reflected hereon as the signatories.
e) Provisions Separable
The provisions of this Agreement are independent of and separable from each
other, and no provision shall be affected or rendered invalid or unenforceable
by virtue of the fact that for any reason any other or others of them may be
invalid or unenforceable in whole or in part.
f) Entire Agreement
This Agreement contains the entire understanding among the parties hereto with
respect to the subject matter hereof, and supersedes all prior and
contemporaneous agreements and understandings, inducements or conditions,
express or implied, oral or written, except as herein contained. The express
terms hereof control and supersede any course of performance and/or usage of the
trade inconsistent with any of the terms hereof. This Agreement may not be
modified or amended other than by agreement in writing.
Page 6 of 7
<PAGE>
g) Paragraph Headings
The paragraph headings in this Agreement are for convenience only; they form no
part of this Agreement and shall not affect its interpretation.
h) Gender, Etc.
Words used herein, regardless of the number and gender specifically used, shall
be deemed and construed to include any other number, singular or plural, and any
other gender, masculine, feminine or neuter, as the context indicates is
appropriate.
i) Number of Days
In computing the number of days for purposes of this Agreement, all days shall
be counted, including Saturdays, Sundays and holidays; provided, however, that
if the final day of any time period falls on a Saturday, Sunday or holiday on
which federal banks are or may elect to be closed, then the final day shall be
deemed to be the next day which is not a Saturday, Sunday or holiday.
IN WITNESS WHEREOF, the parties have executed and delivered this Agreement as of
the date first above written.
ADVANCED PHOTONIX, Inc.
By: /s/ Harry Melkonian
- -----------------------
Harry Melkonian
President & Chief Executive Officer
EMPLOYEE
By: /s/P. J. Holmes
- -------------------
Patrick J. Holmes
Attest:
/s/Robert G. Allison
- --------------------
Robert G. Allison
Chairman, Compensation Committee
Page 7 of 7
<PAGE>
EXHIBIT 10.6
EMPLOYMENT AGREEMENT
This Agreement, made this 1st day of June, 1998 by and between Advanced
Photonix, Inc., a Delaware corporation (hereinafter called "Company"), and Harry
Melkonian, an individual (hereinafter called "Employee").
W I T N E S S E T H :
Company wishes to employ Employee and Employee wishes to enter into the employ
of the Company on the terms and conditions contained in this Agreement.
NOW, THEREFORE, in consideration of the facts, mutual promises and covenants
contained herein and intending to be legally bound hereby, Company and Employee
agree as follows:
1. Employment
Company hereby employs Employee and Employee hereby accepts employment by the
Company for the period and upon the terms and conditions contained in this
Agreement. Both the Company and individual acknowledge and agree that this
Agreement supercedes all previous Employment Agreements between the parties.
2. Office and Duties
a) Employee shall serve Company generally as President and Chief Executive
Officer. In his capacity, Employee shall have such authority and such
responsibilities as the Board of Directors reasonably may determine from time to
time.
b) Throughout the term of this Agreement, Employee shall devote his entire
working time, energy, skill and best efforts to the performance of his duties
hereunder in a manner which will faithfully and diligently further the business
and interests of the Company. Notwithstanding the foregoing, Employee shall be
permitted to maintain memberships on the Boards of Directors and in
organizations identified to the Company in writing, provided that such
activities shall not, at any time, preclude Company or any Subsidiary (as herein
defined) of the Company, from obtaining contracts from any such company or
organization. Employee shall also be permitted to serve as a director or
consultant of additional organizations and participate in other activities for
the federal government and other groups upon the prior written approval by the
Company, which approval shall not unreasonably be withheld; provided, however,
that no such activities shall, at any time, exclude Company or any subsidiary of
the Company from obtaining contracts from the government or any other
organizations. For purposes of this Agreement, any corporation with respect to
which Company has the ability to control more than fifty percent of the voting
power shall be a "subsidiary" and all such corporations shall be "Subsidiaries".
3. Term
This Agreement shall be for a term of twenty one months, commencing on June 1,
1998, and ending on March 31, 2000, unless sooner terminated as hereinafter
provided. Unless either party elects to terminate this Agreement at the end of
the original or any renewal term by giving the other party notice of such
election at least ninety (90) days before the expiration of the then current
term, this Agreement shall be
Page 1 of 7
<PAGE>
deemed to have been extended for an additional term of one (1) year commencing
on the day after the expiration of the then current term.
4. Compensation and Benefits
a) For all the services rendered by the Employee to the Company, Employee shall
receive a base salary at the rate of $150,000 per year, ("Base Salary"), payable
in reasonable installments in accordance with Company's regular payroll
practices in effect from time to time.
b) Employee shall be eligible for additional salary increases as well as cash
and stock bonuses during the term of this Agreement at the discretion of the
Board of Directors. Incentive cash bonus will be $25,000 or greater on an annual
basis.
c) Benefits to the Employee shall be the same as those customarily provided by
the Company to other employees except employee shall continue to accrue vacation
at three weeks per year from November 1, 1996 (as provided in prior employment
agreement) and follow the normal progression as outlined in the Company's
employee manual.
5. Expenses
Company will reimburse Employee for all reasonable expenses incurred by Employee
in connection with the performance of the Employee's duties hereunder, upon
receipt of appropriate documentation and in accordance with Company's regular
reimbursement procedures and practices in effect from time to time.
6. Disability
a) If Employee becomes unable to perform his duties hereunder due to partial or
total disability or incapacity resulting from a mental or physical illness,
injury or other cause, Company will continue the payment of Employee's Base
Salary at its current rate for a period of twenty-six (26) weeks following the
date Employee is first unable to perform his duties due to such disability or
incapacity. Thereafter, Company shall have no obligation for Base Salary or
other compensation payments to Employee during the continuance of such
disability of incapacity.
b) If Employee is unable to perform his duties hereunder due to partial or total
disability or incapacity resulting from a mental or physical illness, injury or
any other cause for a period of twenty-six (26) consecutive weeks or for a
cumulative period of twenty-six (26) weeks during any twelve month period,
Company shall have the right to terminate this Agreement thereafter, in which
event company shall have no further obligations or liabilities hereunder after
the date of such termination.
7. Death
If Employee dies, all payments hereunder shall cease at the end of the month in
which Employee's death shall occur and Company shall have no further obligations
or liabilities hereunder to Employee's estate or legal representative or
otherwise.
Page 2 of 7
<PAGE>
8. Discharge for Cause
Company may discharge Employee at any time for criminal conduct (whether or not
related to Employee's employment), intoxication or drug addiction (if either of
these conditions impairs the Employee's ability to perform his duties),
insubordination, gross negligence, any violation of any express direction or any
reasonable rule or regulation established by the Company from time to time
regarding the conduct of its business, any misrepresentation made in this
Agreement, or any violation by Employee of the terms and conditions of this
Agreement, in which event Company shall have no further obligations or
liabilities hereunder after the date of such discharge.
9. Termination of Employment
(a) In the event Company shall terminate Employee's employment during the term
of this agreement (the "termination date"), other than as a result of disability
as set forth in Paragraph 6 or for cause as set forth in Paragraph 8, at any
time prior to the expiration date of this Agreement as set forth in Paragraph 3,
Company shall be obligated to continue Employee's compensation and benefits set
forth in Paragraph 4 and 5 hereof until the later of the expiration date of this
Agreement or twelve months from the termination date. In either such event, (i)
Company's liability to Employee as a result of any such termination shall be
limited as set forth above and (ii) Employee shall have the obligation to
mitigate his damages by using his best efforts to seek employment for which he
is suitably trained and experienced elsewhere. In the event Employee's
compensation from any such employment during the applicable period in which he
is entitled to receive compensation and benefits as set forth in this paragraph
shall be less than that available to him under this Agreement, Company shall pay
Employee any such difference. Employment from consulting activities defined in
Paragraph 2.b) and identified to the Company in writing will not be considered
for purposes of this section.
(b) In the event Company terminates Employee's employment after termination of
this agreement, other than as a result of disability or for cause, Company shall
continue compensation and medical benefits for a period of twelve months after
such termination. Employee shall have the obligation to mitigate his damages by
using his best efforts to seek employment for which he is suitably trained and
experienced elsewhere. In the event Employee's compensation from any such
employment during the applicable period in which he is entitled to receive
compensation and benefits as set forth in this paragraph shall be less than that
available to him under this Agreement, Company shall pay Employee any such
difference. Employment from consulting activities identified to the Company in
writing will not be considered for purposes of this section.
10. Company Property
All research, technology developed or being developed, advertising, sales,
manufacturers' and other materials or article or information, including without
limitation data processing reports, customer sales analyses, invoices, price
lists or information, samples or any other materials or data of any kind
furnished to Employee by Company, learned by Employee from Company's direction
or for Company's use or otherwise in connection with Employee's employment
hereunder, are and shall remain the sole and confidential property of Company;
provided, however, the foregoing shall not apply to any such material in the
public domain other than by reason of a breach of this Paragraph 10. If the
Company requests the return of such materials at any time during or at or after
the termination of Employee's employment, Employee shall immediately deliver the
same to Company.
Page 3 of 7
<PAGE>
11. Noncompetition, Trade Secrets, Etc.
a) During the term of this Agreement and for a period of one year after the
termination of his employment with the Company for any reason whatsoever,
Employee shall not, directly or indirectly, solicit, induce, encourage or
attempt to influence any client, customer, salesman or supplier of Company to
cease to do business with or to terminate his employment with Company and shall
not utilize for any such purpose any names and addresses of customers or clients
of Company or any data on or relating to past, present or prospective (at the
time of termination of Employee's employment) customers or clients of Company.
b) During the term of this Agreement, Employee shall not engage in (as a
principal, partner, director, officer, agent, employee, consultant or otherwise)
or be financially interested in any business operating within the United States,
which is involved in business activities which are the same as the business
activities carried on by Company, or being definitely planned by Company,
including exploitation of the technology developed by Company or being developed
by Company at the time of the termination of Employee's employment. However,
nothing contained in this paragraph 11 shall prevent Employee from holding for
investment no more than five percent (5%) of any class of equity securities of a
company whose securities are traded on a national securities exchange.
c) During the term of this Agreement and at all times thereafter, Employee shall
not use for his personal benefit, or disclosure, communicate or divulge to, or
use for the direct or indirect benefit of any person, firm, association or
company other than Company, any material referred to in this paragraph 11 or any
confidential information regarding the business methods, business policies,
procedures, techniques, research or development projects or results, trade
secrets, or other knowledge or processes of or developed by Company or any names
and addresses of customers or clients or any data on or relating to past,
present or prospective customers or clients or any other confidential
information relating to or dealing with the business operations or activities of
Company, made known to Employee or learned or acquired by Employee while in the
employ of Company.
d) Any and all writings, inventions, improvements, processes, procedures and/or
techniques which Employee may make, conceive, discover or develop, either solely
or jointly with any other person or persons, at any time during the term of this
Agreement, whether during working hours or at any other time and whether at the
request or upon the suggestion of the Company or otherwise, which relate to or
are useful in connection with any business now or hereafter carried on or
contemplated by the Company, including developments or expansions of its present
fields of operations, shall be the sole and exclusive property of Company.
Employee shall make full disclosure to Company of all such writings, inventions,
improvements, processes, procedures and techniques, and shall do everything
necessary or desirable to vest the absolute title thereto in Company. Employee
shall write and prepare all specifications and procedures regarding such
inventions, improvements, processes, procedures and techniques and otherwise aid
and assist Company so the Company can prepare and present applications for
copyright or Letters of Patent wherever possible, as well as reissues, renewals,
and extensions thereof in all countries in which it may desire to have copyright
or patent protection. Employee shall not be entitled to any additional or
special compensation or reimbursement regarding any and all such writings,
inventions, improvements, processes, procedures and techniques.
e) Employee acknowledges that the restrictions contained in the foregoing
subparagraphs a), b), and c), in view of the nature of the business in which
Company is engaged are reasonable and necessary in order
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to protect the legitimate interests of Company, and that any violation thereof
would result in irreparable injuries to Company, and Employee therefore
acknowledges that, in the event of his violation of any of these restrictions,
Company shall be entitled to obtain from any court of competent jurisdiction
preliminary and permanent injunctive relief as well as damages and an equitable
accounting of all earnings, profits and other benefits arising from such
violation, which rights shall be cumulative and in addition to any other rights
or remedies to which Company may be entitled.
f) If the period of time or the area specified in subparagraphs a) or b) above
should be adjudged unreasonable in any proceeding, then the period of time shall
be reduced by such number of months or the area shall be reduced by the
elimination of such portion thereof or both so that such restrictions may be
enforced in such area and for such time as is adjusted to be reasonable. If
Employee violates any of the restrictions extended for that period beginning at
the time of the commencement of any such violation and running until such time
as such violation shall be cured by Employee to the satisfaction of Company, on
a day to day basis.
12. Prior Agreements
Employee represents to Company a) that there are no restrictions, agreements or
understandings whatsoever to which Employee is a party which would prevent or
make unlawful his execution of this Agreement and his employment hereunder shall
not constitute a breach of any contract, agreement or understanding, oral or
written, to which he is a party or by which he is bound and b) that he is free
and able to execute this Agreement and to enter into employment by Company.
13. Personal Rights and Obligations
This Agreement and all rights and obligations hereunder are personal and shall
not be assignable by either party except as provided in this subparagraph, and
any purported assignment in violation thereof shall be null and void. Any
person, firm or corporation succeeding to the business of Company (or that
portion of the business with which Employee is involved) by merger,
consolidation, purchase of assets or otherwise, must assume by contract or
operation of law the obligations of Company hereunder and in such a case
Employee shall continue to honor this Agreement with such person, firm or
corporation substituted for Company as the employer; provided, however, that
Company shall, if it still exists as a separate entity, notwithstanding such
assumption and/or assignment, remain liable and responsible for the fulfillment
of the terms and conditions of this Agreement on the part of the Company.
14. Miscellaneous
a) Indulgences, Etc.
Neither the failure nor any delay on the part of either party to exercise any
right, remedy, power or privilege under this Agreement shall operate as a waiver
thereof, nor shall any single or partial exercise of any right, remedy, power or
privilege preclude any other or further exercise of the same or any other right,
remedy, power or privilege, nor shall any waiver of any right, remedy, power or
privilege with respect to any occurrence be construed as a waiver of such right,
remedy, power or privilege with respect to any other occurrence. No waiver shall
be effective unless it is in writing and is signed by the party asserted to have
granted such waiver.
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b) Notices
All notices, requests, demands and other communications required or permitted
under this Agreement shall be in writing and shall be deemed to have been duly
given, made and received only when delivered (personally, by courier service
such as Federal Express, or by other messenger) or when deposited in the United
States mails, registered or certified mail, postage prepaid, return receipt
requested, addressed as set forth below:
(i) if to Employee: (ii) if to Company:
Patrick J. Holmes Advanced Photonix, Inc.
259 High Meadow St. 1240 Avenida Acaso
Simi Valley, CA 93065 Camarillo, CA 93012
In addition, notice by mail shall be by air mail if posted outside of the
continental United States.
Any party may alter the address to which communications or copies are to be sent
by giving notice of such change of address in conformity with the provisions of
this paragraph for the giving of notice.
c) Binding Nature of Agreement
This Agreement shall be binding upon and inure to the benefit of Company and its
successors and assigns and shall be binding upon Employee, his heirs and legal
representatives.
d) Execution in Counterparts
This Agreement may be executed in any number of counterparts, each of which
shall be deemed to be an original as against any party whose signature appears
thereon, and all of which shall together constitute one and the same instrument.
This Agreement shall become binding when one or more counterparts hereof,
individually or taken together, shall bear the signatures of all of the parties
reflected hereon as the signatories.
e) Provisions Separable
The provisions of this Agreement are independent of and separable from each
other, and no provision shall be affected or rendered invalid or unenforceable
by virtue of the fact that for any reason any other or others of them may be
invalid or unenforceable in whole or in part.
f) Entire Agreement
This Agreement contains the entire understanding among the parties hereto with
respect to the subject matter hereof, and supersedes all prior and
contemporaneous agreements and understandings, inducements or conditions,
express or implied, oral or written, except as herein contained. The express
terms hereof control and supersede any course of performance and/or usage of the
trade inconsistent with any of the terms hereof. This Agreement may not be
modified or amended other than by agreement in writing.
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g) Paragraph Headings
The paragraph headings in this Agreement are for convenience only; they form no
part of this Agreement and shall not affect its interpretation.
h) Gender, Etc.
Words used herein, regardless of the number and gender specifically used, shall
be deemed and construed to include any other number, singular or plural, and any
other gender, masculine, feminine or neuter, as the context indicates is
appropriate.
i) Number of Days
In computing the number of days for purposes of this Agreement, all days shall
be counted, including Saturdays, Sundays and holidays; provided, however, that
if the final day of any time period falls on a Saturday, Sunday or holiday on
which federal banks are or may elect to be closed, then the final day shall be
deemed to be the next day which is not a Saturday, Sunday or holiday.
IN WITNESS WHEREOF, the parties have executed and delivered this Agreement as of
the date first above written.
ADVANCED PHOTONIX, Inc. EMPLOYEE
By: /s/Robert G. Allison By: /s/Harry Melkonian
- ------------------------ ----------------------
Robert G. Allison Harry Melkonian
Chairman of Compensation Committee
Attest:
/s/Patrick J. Holmes
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Patrick J. Holmes
Executive Vice President
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EXHIBIT 10.9
STANDARD INDUSTRIAL/COMMERCIAL MULTI-TENANT LEASE--MODIFIED NET
AMERICAN INDUSTRIAL REAL ESTATE ASSOCIATION
1. BASIC PROVISIONS ("BASIC PROVISIONS").
1.1 PARTIES: This Lease ("Lease"), dated for reference purposes only, March
11, 1997, is made by and between High Tech No. 1, LTD. ("LESSOR") and Advanced
Photonix, Inc. ("LESSEE"), (collectively the "PARTIES," or individually a
"PARTY").
1.2(a) PREMISES: That Building, including all improvements therein or to be
constructed and provided by Lessor under the terms of this Lease, commonly known
by the street address of1240 Avenida Acaso, located In the City of Camarillo ,
County of Ventura, State of California , with zip code 93012, as outlined on
Exhibit A attached hereto ("PREMISES"). The "BUILDING" is that certain building
containing the Premises and generally described as (describe briefly the nature
of the Building): Approximately 38,948 sq. ft., a potion of a larger
approximately 67,203 sq. ft. M-1 building further described in Exhibit A
attached hereto and made a part hereof by this reference. In addition to
Lessee's rights to use and occupy the Premises as hereinafter specified, Lessee
shall have non-exclusive rights to the Common Areas (as defined in Paragraph 2.7
below) as hereinafter specified, but shall not have any rights to the roof,
exterior walls or utility raceways of the Building or to any other buildings in
the Industrial Center. The Premises, the Building, the Common Areas, the land
upon which they are located, along with all other buildings and improvements
thereon, are herein collectively referred to as the "INDUSTRIAL CENTER." (Also
see Paragraph 2.)
1.2(b) PARKING: One Hundere (100) unreserved vehicle parking spaces
("UNRESERVED PARKING SPACES"); and 0 reserved vehicle parking spaces ("Reserved
Parking Spaces"). (Also see Paragraph 2.6.)
1.3 TERM: 6 years and 0 months ("ORIGINAL TERM") commencing March 1, 1998
("COMMENCEMENT DATE") and ending February 29, 2004 ("EXPIRATION DATE"). (Also
see Paragraph 3.)
1.5 BASE RENT: $24,686.29 per month ("BASE RENT"), payable on the 1st day of
each month commencing March 1, 1998. (Also see Paragraph 4.)
[x] If this box is checked, this Lease provides for the Base Rent to be adjusted
per Addendum 1 attached hereto.
1.6(a) BASE RENT PAID UPON EXECUTION: n/a as Base Rent for the period
March 1, 1998 - March 31, 1998.
1.6(b) LESSEE'S SHARE OF COMMON AREA OPERATING EXPENSES: fifty-seven and
96/100 percent (57.96%)("LESSEE'S SHARE") as determined by [x] prorata square
footage of the Premises as compared to the total square footage of the Building
or [ ] other criteria as described in Addendum __________.
1.7 SECURITY DEPOSIT: $23,564.00 ("SECURITY DEPOSIT"). (Also see Paragraph 5.)
1.8 PERMITTED USE: Optical sensor, general manufacturing, general office
purposes and related activities ("PERMITTED USE") (Also see Paragraph 6.)
1.9 INSURING PARTY. Lessor is the "INSURING PARTY." (Also see Paragraph 8.)
1.12 ADDENDA AND EXHIBITS. Attached hereto is an Addendum consisting of
paragraphs 49 through 52 and Exhibits A through B, all of which constitute a
part of this Lease.
2. PREMISES, PARKING AND COMMON AREAS.
2.1 LETTING. Lessor hereby leases to Lessee, and Lessee hereby leases from
Lessor, the Premises, for the term, at the rental, and upon all of the terms,
covenants and conditions set forth in this Lease. Unless otherwise provided
herein, any statement of square footage set forth in this Lease, or that may
have been used in calculating rental and/or Common Area Operating Expenses, is
an approximation which Lessor and Lessee agree is reasonable and the rental and
Lessee's Share (as defined in Paragraph 1.6(b)) based thereon is not subject to
revision whether or not the actual square footage is more or less.
2.2 CONDITION. Lessor shall deliver the Premises to Lessee clean and free of
debris on the Commencement Date and warrants to Lessee that the existing
plumbing, electrical systems, fire sprinkler system, lighting, air conditioning
and heating systems and loading doors, if any, in the Premises, other than those
constructed by Lessee, shall be in good operating condition on the Commencement
Date. If a non-compliance with said warranty exists as of the Commencement Date,
Lessor shall, except as otherwise provided in this Lease, promptly after receipt
of written notice from Lessee setting forth with specificity the nature and
extent of such non-compliance, rectify same at Lessor's expense. If Lessee does
not give Lessor written notice of a non-compliance with this warranty within
thirty (30) days after the Commencement Date, correction of that non-compliance
shall be the obligation of Lessee at Lessee's sole cost and expense.
2.3 COMPLIANCE WITH COVENANTS, RESTRICTIONS AND BUILDING CODE. Lessor
warrants that any improvements (other than those constructed by Lessee or at
Lessee's direction) on or in the Premises which have been constructed or
installed by Lessor or with Lessor's consent or at Lessor's direction shall
comply with all applicable covenants or restrictions of record and applicable
building codes, regulations and ordinances in effect on the Commencement Date.
Lessor further warrants to Lessee that Lessor has no knowledge of any claim
having been made by any governmental agency that a violation or violations of
applicable building codes, regulations, or ordinances exist with regard to the
Premises as of the Commencement Date. Said warranties shall not apply to any
Alterations or Utility Installations (defined In Paragraph 7.3(a)) made or to be
made by Lessee. If the Premises do not comply with said warranties, Lessor
shall, except as otherwise provided in this Lease, promptly after receipt of
written notice from Lessee given within six (6) months following the
Commencement Date and setting forth with specificity the nature and extent of
such non-compliance, take such action, at Lessor's expense, as may be reasonable
or appropriate to rectify the non-compliance. Lessor makes no warranty that the
Permitted Use in Paragraph 1.8 is permitted for the Premises under Applicable
Laws (as defined in Paragraph 2.4).
2.4 ACCEPTANCE OF PREMISES. Lessee hereby acknowledges: (a) that it has
satisfied itself with respect to the condition of the Premises (including but
not limited to the electrical and fire sprinkler systems, security,
environmental aspects, seismic and earthquake requirements, and compliance with
the Americans with Disabilities Act and applicable zoning, municipal, county,
state and federal laws, ordinances and regulations and any covenants or
restrictions of record (collectively, "APPLICABLE LAWS") and the present and
future suitability of the Premises for Lessee's intended use; (b) that Lessee
has made such investigation as it deems necessary with reference to such
matters, is satisfied with reference thereto, and assumes all responsibility
therefore as the same relate to Lessee's occupancy of the Premises and/or the
terms of this Lease; and (c) that neither Lessor, nor any of Lessor's agents,
has made any oral or written representations or warranties with respect to said
matters other than as set forth in this Lease.
2.5 LESSEE AS PRIOR OWNER/OCCUPANT. The warranties made by Lessor in this
Paragraph 2 shall be of no force or effect if immediately prior to the date set
forth in Paragraph 1.1 Lessee was the owner or occupant of the Premises. In such
event, Lessee shall, at Lessee's sole cost and expense, correct any non-
compliance of the Premises with said warranties.
Initials: PH
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(C) American Industrial Real Estate Assocaition 1993 MULTI-TENANT--MODIFIED NET
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2.6 VEHICLE PARKING. Lessee shall be entitled to use the number of Unreserved
Parking Spaces and Reserved Parking Spaces specified in Paragraph 1.2(b) on
those portions of the Common Areas designated from time to time by Lessor for
parking. Lessee shall not use more parking spaces than said number. Said parking
spaces shall be used for parking by vehicles no larger than full-size passenger
automobiles or pick-up trucks, herein called "Permitted Size Vehicles." Vehicles
other than Permitted Size Vehicles shall be parked and loaded or unloaded as
directed by Lessor in the Rules and Regulations (as defined in Paragraph 40)
issued by Lessor. (Also see Paragraph 2.9.)
(a) Lessee shall not permit or allow any vehicles that belong to or are
controlled by Lessee or Lessee's employees, suppliers, shippers, customers,
contractors or invitees to be loaded, unloaded, or parked in areas other than
those designated by Lessor for such activities.
(b) If Lessee permits or allows any of the prohibited activities
described in this Paragraph 2.6, then Lessor shall have the right, without
notice, in addition to such other rights and remedies that it may have, to
remove or tow away the vehicle involved and charge the cost to Lessee, which
cost shall be immediately payable upon demand by Lessor.
(c) Lessor shall at the Commencement Date of this Lease, provide the
parking facilities required by Applicable Law.
2.7 COMMON AREAS - DEFINITION. The term "Common Areas" is defined as all
areas and facilities outside the Premises and within the exterior boundary line
of the Industrial Center and interior utility raceways within the Premises that
are provided and designated by the Lessor from time to time for the general non-
exclusive use of Lessor, Lessee and other lessees of the Industrial Center and
their respective employees, suppliers, shippers, customers, contractors and
invitees, including parking areas, loading and unloading areas, trash areas,
roadways, sidewalks, walkways, parkways, driveways and landscaped areas.
2.8 COMMON AREA - LESSEE'S RIGHTS. Lessor hereby grants to Lessee, for the
benefit of Lessee and its employees, suppliers, shippers, contractors, customers
and invitees, during the term of this Lease, the non-exclusive right to use, in
common with others entitled to such use, the Common Areas as they exist from
time to time, subject to any rights, powers, and privileges reserved by Lessor
under the terms hereof or under the terms of any rules and regulations or
restrictions governing the use of the Industrial Center. Under no circumstances
shall the right herein granted to use the Common Areas be deemed to include the
right to store any property, temporarily or permanently, in the Common Areas.
Any such storage shall be permitted only by the prior written consent of Lessor
or Lessor's designated agent, which consent may be revoked at any time. In the
event that any unauthorized storage shall occur then Lessor shall have the
right, without notice, in addition to such other rights and remedies that it may
have, to remove the property and charge the cost to Lessee, which cost shall be
immediately payable upon demand by Lessor.
2.9 COMMON AREAS - RULES AND REGULATIONS. Lessor or such other person(s) as
Lessor may appoint shall have the exclusive control and management of the Common
Areas and shall have the right, from time to time, to establish, modify, amend
and enforce reasonable Rules and Regulations with respect thereto in accordance
with Paragraph 40. Lessee agrees to abide by and conform to all such Rules and
Regulations, and to cause its employees, suppliers, shippers, customers,
contractors and invitees to so abide and conform. Lessor shall not be
responsible to Lessee for the non-compliance with said rules and regulations by
other lessees of the Industrial Center.
2.10 COMMON AREAS - CHANGES. Lessor shall have the right, in Lessor's sole
discretion, from time to time:
(a) To make changes to the Common Areas, including, without limitation,
changes in the location, size, shape and number of driveways, entrances, parking
spaces, parking areas, loading and unloading areas, ingress, egress, direction
of traffic, landscaped areas, walkways and utility raceways;
(b) To close temporarily any of the Common Areas for maintenance purposes
so long as reasonable access to the Premises remains available;
(c) To designate other land outside the boundaries of the Industrial
Center to be a part of the Common Areas;
(d) To add additional buildings and improvements to the Common Areas;
(e) To use the Common Areas while engaged in making additional
improvements, repairs or alterations to the Industrial Center, of any portion
thereof; and
(f) To do and perform such other acts and make such other changes in, to
or with respect to the Common Areas and Industrial Center as Lessor may, in the
exercise of sound business judgment, deem to be appropriate.
3. TERM.
3.1 TERM. The Commencement Date, Expiration Date and Original Term of this
Lease are as specified in Paragraph 1.3.
3.2 EARLY POSSESSION. If an Early Possession Date is specified in Paragraph
1.4 and if Lessee totally or partially occupies the Premises after the Early
Possession Date but prior to the Commencement Date, the obligation to pay Base
Rent shall be abated for the period of such early occupancy. All other terms of
this Lease, however, (including but not limited to the obligations to pay
Lessee's Share of Common Area Operating Expenses and to carry the insurance
required by Paragraph 8) shall be in effect during such period. Any such early
possession shall not affect nor advance the Expiration Date of the Original
Term.
3.3 DELAY IN POSSESSION. If for any reason Lessor cannot deliver possession
of the Premises to Lessee by the Early Possession Date, if one is specified in
Paragraph 1.4, or if no Early Possession Date is specified, by the Commencement
Date, Lessor shall not be subject to any liability therefor, nor shall such
failure affect the validity of this Lease, or the obligation of Lessee
hereunder, or extend the term hereof, but in such case, Lessee shall not,
except as otherwise provided herein, be obligated to pay rent or perform any
other obligation of Lessee under the terms of this Lease until Lessor delivers
possession of the Premises to Lessee. If possession of the Premises is not
delivered to Lessee within sixty (60) days after the Commencement Date, Lessee
may, at its option, by notice in writing to Lessor within ten (10) days after
the end of said sixty (60) day period, cancel this Lease, in which event the
parties shall be discharged from all obligations hereunder; provided further,
however, that if such written notice of Lessee is not received by Lessor within
said ten (10) day period, Lessee's right to cancel this Lease hereunder shall
terminate and be of no further force or effect. Except as may be otherwise
provided, and regardless of when the Original Term actually commences, if
possession is not tendered to Lessee when required by this Lease and Lessee does
not terminate this Lease, as aforesaid, the period free of the obligation to pay
Base Rent, if any, that Lessee would otherwise have enjoyed shall run from the
date of delivery of possession and continue for a period equal to the period
during which the Lessee would have otherwise enjoyed under the terms hereof, but
minus any days of delay caused by the acts, changes or omissions of Lessee.
4. RENT.
4.1 BASE RENT. Lessee shall pay Base Rent and other rent or charges, as the
same may be adjusted from time to time, to Lessor in lawful money of the United
States, without offset or deduction, on or before the day on which it is due
under the terms of this Lease. Base Rent and all other rent and charges for any
period during the term hereof which is for less than one full month shall be
prorated based upon the actual number of days of the month involved. Payment of
Base Rent and other charges shall be made to Lessor at its address stated herein
or to such other persons or at such other addresses as Lessor may from time to
time designate in writing to Lessee.
4.2 COMMON AREA OPERATING EXPENSES. Lessee shall pay to Lessor during the
term hereof, in addition to the Base Rent, Lessee's Share (as specified in
Paragraph 1.6(b)) of all Common Area Operating Expenses, as hereinafter defined,
during each calendar year of the term of this Lease, in accordance with the
following provisions:
(a) "Common Area Operating Expenses" are defined, for purposes of this
Lease, as all costs incurred by Lessor relating to the ownership and operation
of the Industrial Center, including, but not limited to, the following:
(i) The operation, repair and maintenance, in neat, clean, good order
and condition, of the following:
(aa) The Common Areas, including parking areas, loading and
unloading areas, trash areas, roadways, sidewalks, walkways, parkways,
driveways, landscaped areas, striping, bumpers, irrigation systems, Common
Area lighting facilities, fences and gates and roof.
(bb) Exterior signs and any tenant directories.
(cc) Fire detection and sprinkler systems.
(ii) The cost of water, gas, electricity and telephone to service the
Common Areas.
(iii)security services and the costs of any environmental inspections.
(iv) Reserves set aside for maintenance and repair of Common Areas.
(v) Real Property Taxes (as defined in Paragraph 10.2) to be paid by
Lessor for the Building and the Common Areas under Paragraph 10 hereof.
(vi) The cost of the premiums for the insurance policies maintained by
Lessor under Paragraph 8 hereof.
(vii) Any deductible portion of an insured loss concerning the
Building or the Common Areas.
(viii) Any other services to be provided by Lessor that are stated
elsewhere in this Lease to be a Common Area Operating Expense.
(b) Any Common Area Operating Expenses and Real Property Taxes that are
specifically attributable to the Building or to any other building in the
Industrial Center or to the operation, repair and maintenance thereof, shall be
allocated entirely to the Building or to such other building. However, any
Common Area Operating Expenses and Real Property Taxes that are not specifically
attributable to the Building or to any other building or to the operation,
repair and maintenance thereof, shall be equitably allocated by Lessor to all
buildings in the Industrial Center.
(c) The inclusion of the improvements, facilities and services set forth in
Subparagraph 4.2(a) shall not be deemed to impose an obligation upon Lessor to
either have said improvements or facilities or to provide those services unless
the Industrial Center already has the same, Lessor already provides the
services, or Lessor has agreed elsewhere in this Lease to provide the same or
some of them.
(d) Lessee's Share of Common Area Operating Expenses shall be payable by
Lessee within ten (10) days after a reasonably detailed statement of actual
expenses is presented to Lessee by Lessor. At Lessor's option, however, an
amount may be estimated by Lessor from time to time of Lessee's Share of annual
Common Area Operating Expenses and the same shall be payable monthly or
quarterly, as Lessor shall designate, during each 12-month period of the Lease
term, on the same day as the Base Rent is due hereunder. Lessor shall deliver to
Lessee within sixty (60) days after the expiration of each calendar year a
reasonably detailed statement showing Lessee's Share of the actual Common Area
Operating Expenses incurred during the preceding year. If Lessee's payments
under this Paragraph 4.2(d) during said preceding year exceed Lessee's Share as
indicated on said statement, Lessee shall be credited the amount of such over-
Initials: PH
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(C) American Industrial Real Estate Association 1993 MULTI-TENANT--MODIFIED NET
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<PAGE>
payment against Lessee's Share of Common Area Operating Expenses next becoming
due. If Lessee's payments under this Paragraph 4.2(d) during said preceding year
were less than Lessee's Share as indicated on said statement, Lessee shall pay
to Lessor the amount of the deficiency within ten (10) days after delivery by
Lessor to Lessee of said statement.
6. USE
6.1 PERMITTED USE.
(a) Lessee shall use and occupy the Premises only for the Permitted Use
set forth in Paragraph 1.8, or any other legal use which is reasonably
comparable thereto, and for no other purpose. Lessee shall not use or permit the
use of the Premises in a manner that is unlawful, creates waste or a nuisance,
or that disturbs owners and/or occupants of, or causes damage to the Premises or
neighboring premises or properties.
(b) Lessor hereby agrees to not unreasonably withhold or delay its
consent to any written request by Lessee, Lessee's assignees or subtenants, and
by prospective assignees and subtenants of Lessee, its assignees and subtenants,
for a modification of said Permitted Use, so long as the same will not impair
the structural integrity of the improvements on the Premises or in the Building
or the mechanical or electrical systems therein, does not conflict with uses by
other lessees, is not significantly more burdensome to the Premises or the
Building and the improvements thereon, and is othewise permissible pursuant to
this Paragraph 6. If Lessor elects to withhold such consent, Lessor shall within
five (5) business days after such request give a written notification of same,
which notice shall include an explanation of Lessor's reasonable objections to
the change in use.
6.2 HAZARDOUS SUBSTANCES.
(a) REPORTABLE USES REQUIRE CONSENT. The term "HAZARDOUS SUBSTANCE" as
used in this Lease shall mean any product, substance, chemical, material or
waste whose presence, nature, quantity and/or intensity of existence, use,
manufacture, disposal, transportation, spill, release or effect, either by
itself or in combination with other materials expected to be on the Premises, is
either: (i) potentially injurious to the public health, safety or welfare, the
environment, or the Premises; (ii) regulated or monitored by any governmental
authority; or (iii) a basis for potential liability of Lessor to any
governmental agency or third party under any applicable statute or common law
theory. Hazardous Substance shall include, but not be limited to, hydrocarbons,
petroleum, gasoline, crude oil or any products or by-products thereof. Lessee
shall not engage in any activity in or about the Premises which constitutes a
Reportable Use (as hereinafter defined) of Hazardous Substances without the
express prior written consent of Lessor and compliance in a timely manner (at
Lessee's sole cost and expense) with all Applicable Requirements (as defined in
Paragraph 6.3). "Reportable Use" shall mean (i) the installation or use of any
above or below ground storage tank, (ii) the generation, possession, storage,
use, transportation, or disposal of a Hazardous Substance that requires a permit
from, or with respect to which a report, notice, registration or business plan
is required to be filed with, any governmental authority, and (iii) the presence
in, on or about the Premises of a Hazardous Substance with respect to which any
Applicable Laws require that a notice be given to persons entering or occupying
the Premises or neighboring properties. Notwithstanding the foregoing, Lessee
may, without Lessor's prior consent, but upon notice to Lessor and in compliance
with all Applicable Requirements, use any ordinary and customary materials
reasonably required to be used by Lessee in the normal course of the Permitted
Use, so long as such use is not a Reportable Use and does not expose the
Premises or neighboring properties to any meaningful risk of contamination or
damage or expose Lessor to any liability therefor. In addition, Lessor may (but
without any obligation to do so) condition its consent to any Reportable Use of
any Hazardous Substance by Lessee upon Lessee's giving Lessor such additional
assurances as Lessor, in its reasonable discretion, deems necessary to protect
itself, the public, the Premises and the environment against damage,
contamination or injury and/or liability therefor, including but not limited to
the installation (and, at Lessor's option, removal on or before Lease expiration
or earlier termination) of reasonably necessary protective modifications to the
Premises (such as concrete encasements) and/or the deposit of an additional
Security Deposit under Paragraph 5 hereof.
(b) DUTY TO INFORM LESSOR. If Lessee knows, or has reasonable cause to
believe, that a Hazardous Substance has come to be located in, on, under or
about the Premises or the Building, other than as previously consented to by
Lessor (see Exhibit B), Lessee shall give Lessor written notice thereof, in
accordance with the reporting requirements of Paragraph 6.3, Lessee;s Compliance
with Requirements
(c) INDEMNIFICATION. Lessee shall indemnify, protect, defend and hold
Lessor, its agents, employees, lenders and ground lessor, if any, and the
Premises, harmless from and against any and all damages, liabilities, judgments,
costs, claims, liens, expenses, penalties, loss of permits and attorneys' and
consultants' fees arising out of or involving any Hazardous Substance brought
onto the Premises by or for Lessee or by anyone under Lessee's control. Lessee's
obligations under this Paragraph 6.2(c) shall include, but not be limited to,
the effects of any contamination or injury to person, property or the
environment created or suffered by Lessee, and the cost of investigation
(including consultants' and attorneys' fees and testing), removal, remediation,
restoration and/or abatement thereof, or of any contamination therein involved,
and shall survive the expiration or earlier termination of this Lease. No
termination, cancellation or release agreement entered into by Lessor and Lessee
shall release Lessee from its obligations under this Lease with respect to
Hazardous Substances, unless specifically so agreed by Lessor in writing at the
time of such agreement.
6.3 LESSEE'S COMPLIANCE WITH REQUIREMENTS. Lessee shall, at Lessee's sole
cost and expense, fully, diligently and in a timely manner, comply with all
"APPLICABLE REQUIREMENTS," which term is used in this Lease to mean all laws,
rules, regulations, ordinances, directives, covenants, easements and
restrictions of record, permits, the requirements of any applicable fire
insurance underwriter or rating bureau, and the recommendations of Lessor's
engineers and/or consultants, relating in any manner to the Premises
(including but not limited to matters pertaining to (i) industrial hygiene,
(ii) environmental conditions on, in, under or about the Premises, including
soil and groundwater conditions, and (iii) the use, generation, manufacture,
production, installation, maintenance, removal, transportation, storage, spill,
or release of any Hazardous Substance), now in effect or which may hereafter
come into effect. Lessee shall, within five (5) days after receipt of Lessor's
written request, provide Lessor with copies of all documents and information,
including but not limited to permits, registrations, manifests, applications,
reports and certificates, evidencing Lessee's compliance with any Applicable
Requirements specified by Lessor, and shall immediately upon receipt, notify
Lessor in writing (with copies of any documents involved) of any threatened or
actual claim, notice, citation, warning, complaint or report pertaining to or
involving failure by Lessee or the Premises to comply with any Applicable
Requirements.
6.4 INSPECTION; COMPLIANCE WITH LAW. Lessor, Lessor's agents, employees,
contractors and designated representatives, and the holders of any mortgages,
deeds of trust or ground leases on the Premises ("Lenders") shall have the right
to enter the Premises at any time in the case of an emergency, and otherwise at
reasonable times upon prior reasonable notice to Lessee for the purpose of
inspecting the condition of the Premises and for verifying compliance by Lessee
with this Lease and all Applicable Requirements (as defined in Paragraph 6.3),
and Lessor shall be entitled to employ experts and/or consultants in connection
therewith to advise Lessor with respect to Lessee's activities, including but
not limited to Lessee's installation, operation, use, monitoring, maintenance,
or removal of any Hazardous Substance on or from the Premises. The costs and
expenses of any such inspections shall be paid by the party requesting same,
unless a Default or Breach of this Lease by Lessee or a violation of Applicable
Requirements or a contamination, caused or materially contributed to by Lessee,
is found to exist or to be imminent, or unless the inspection is requested or
ordered by a governmental authority as the result of any such existing or
imminent violation or contamination. In such case, Lessee shall upon request
reimburse Lessor or Lessor's Lender, as the case may be, for the costs and
expenses of such inspections.
7. MAINTENANCE, REPAIRS, UTILITY INSTALLATIONS, TRADE FIXTURES AND ALTERATIONS.
7.1 LESSEE'S OBLIGATIONS.
(a) Subject to the provisions of Paragraphs 2.2 (Condition), 2.3 (Compliance
with Covenants, Restrictions and Building Code), 7.2 (Lessor's Obigations), 9
(Damage or Destruction), and 14 (Condemnation), Lessee shall, at Lessee's sole
cost and expense and at all times, keep the Premises and every part thereof in
good order, condition and repair (whether or not such portion of the Premises
requiring repair, or the means of repairing the same, are reasonably or readily
accessible to Lessee, and whether or not the need for such repairs occurs as a
result of Lessee's use, any prior use, the elements or the age of such portion
of the Premises), including, without limiting the generality of the foregoing,
all equipment or facilities specifically serving the Premises, such as plumbing,
heating, air conditioning, ventilating, electrical, lighting facilities,
boilers, fired or unfired pressure vessels, fire hose connections if within the
Premises, fixtures, interior walls, interior surfaces of exterior walls,
ceilings, floors, windows, doors, plate glass, and skylights, but excluding any
items which are the responsibility of Lessor pursuant to Paragraph 7.2 below.
Lessee, in keeping the Premises in good order, condition and repair, shall
exercise and perform good maintenance practices. Lessee's obligations shall
include restorations, replacements or renewals when necessary to keep the
Premises and all improvements thereon or a part thereof in good order, condition
and state of repair.
(b) Lessee shall, at Lessee's sole cost and expense, procure and maintain a
contract, with copies to Lessor, in customary form and substance for and with a
contractor specializing and experienced in the inspection, maintenance and
service of the heating, air conditioning and ventilation system for the
Premises. However, Lessor reserves the right, upon notice to Lessee, to procure
and maintain the contract for the heating, air conditioning and ventilating
systems, and if Lessor so elects, Lessee shall reimburse Lessor, upon demand,
for the cost thereof.
(c) If Lessee fails to perform Lessee's obligations under this Paragraph 7.1,
Lessor may enter upon the Premises after ten (10) days' prior written notice to
Lessee (except in the case of an emergency, in which case no notice shall be
required), perform such obligations on Lessee's behalf, and put the Premises
in good order, condition and repair, in accordance with Paragraph 13.2 below.
7.2 LESSOR'S OBLIGATIONS. Subject to the provisions of Paragraphs 2.2
(Condition), 2.3 (Compliance with Covenants, Restrictions and Building Code),
4.2 (Common Area Operating Expenses), 6 (Use), 7.1 (Lessee's Obligations),
9 (Damage or Destruction) and 14 (Condemnation), Lessor, subject to
reimbursement pursuant to Paragraph 4.2, shall keep in good order, condition and
repair the foundations, exterior walls, structural condition of interior bearing
walls, exterior roof, fire sprinkler and/or standpipe and hose (if located in
the Common Areas) or other automatic fire extinguishing system including fire
alarm and/or smoke
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detection systems and equipment, fire hydrants, parking lots, walkways,
parkways, driveways, landscaping, fences, signs and utility systems serving the
Common Areas and all parts thereof, as well as providing the services for which
there is a Common Area Operating Expense pursuant to Paragraph 4.2. Lessor shall
not be obligated to paint the exterior or interior surfaces of exterior walls
nor shall Lessor be obligated to maintain, repair or replace windows, doors or
plate glass of the Premises. Lessee expressly waives the benefit of any statute
now or hereafter in effect which would otherwise afford Lessee the right to make
repairs at Lessor's expense or to terminate this Lease because of Lessor's
failure to keep the Building, Industrial Center or Common Areas in good order,
condition and repair.
7.3 UTILITY INSTALLATIONS, TRADE FIXTURES, ALTERATIONS.
(a) DEFINITIONS; CONSENT REQUIRED. The term "UTILITY INSTALLATIONS" is
used in this Lease to refer to all air lines, power panels, electrical
distribution, security, fire protection systems, communications systems,
lighting fixtures, heating, ventilating and air conditioning equipment,
plumbing, and fencing in, on or about the Premises. The term "TRADE FIXTURES"
shall mean Lessee's machinery and equipment which can be removed without doing
material damage to the Premises. The term "ALTERATIONS" shall mean any
modification of the improvements on the Premises which are provided by Lessor
under the terms of this Lease, other than Utility Installations or Trade
Fixtures. "LESSEE-OWNED ALTERATIONS AND/OR UTILITY INSTALLATIONS" are defined as
Alterations and/or Utility Installations made by Lessee that are not yet owned
by Lessor pursuant to Paragraph 7.4(a). Lessee shall not make nor cause to be
made any Alterations or Utility Installations in, on, under or about the
Premises without Lessor's prior written consent. Lessee may, however, make non-
structural Utility Installations to the interior of the Premises (excluding the
roof) without Lessor's consent but upon notice to Lessor, so long as they are
not visible from the outside of the Premises, do not involve puncturing,
relocating or removing the roof or any existing walls, or changing or
interfering with the fire sprinkler or fire detection systems and the cumulative
cost thereof during the term of this Lease as extended does not exceed
$2,500.00.
(b) CONSENT. Any Alterations or Utility Installations that Lessee shall
desire to make and which require the consent of the Lessor shall be presented to
Lessor in written form with detailed plans. All consents given by Lessor,
whether by virtue of Paragraph 7.3(a) or by subsequent specific consent, shall
be deemed conditioned upon: (i) Lessee's acquiring all applicable permits
required by governmental authorities; (ii) the furnishing of copies of such
permits together with a copy of the plans and specifications for the Alteration
or Utility Installation to Lessor prior to commencement of the work thereon; and
(iii) the compliance by Lessee with all conditions of said permits in a prompt
and expeditious manner. Any Alterations or Utility Installations by Lessee
during the term of this Lease shall be done in a good and workmanlike manner,
with good and sufficient materials, and be in compliance with all Applicable
Requirements. Lessee shall promptly upon completion thereof furnish Lessor with
as-built plans and specifications therefor. Lessor may, (but without obligation
to do so) condition its consent to any requested Alteration or Utility
Installation that costs $2,500.00 or more upon Lessee's providing Lessor with a
lien and completion bond in an amount equal to one and one-half times the
estimated cost of such Alteration or Utility Installation.
(c) LIEN PROTECTION. Lessee shall pay when due all claims for labor or
materials furnished or alleged to have been furnished to or for Lessee at or for
use on the Premises, which claims are or may be secured by any mechanic's or
materialmen's lien against the Premises or any interest therein. Lessee shall
give Lessor not less than ten (10) days' notice prior to the commencement of any
work in, on, or about the Premises, and Lessor shall have the right to post
notices of non-responsibility in or on the Premises as provided by law. If
Lessee shall, in good faith, contest the validity of any such lien, claim or
demand, then Lessee shall, at its sole expense, defend and protect itself,
Lessor and the Premises against the same and shall pay and satisfy any such
adverse judgment that may be rendered thereon before the enforcement thereof
against the Lessor or the Premises. If Lessor shall require, Lessee shall
furnish to Lessor a surety bond satisfactory to Lessor in an amount equal to one
and one-half times the amount of such contested lien claim or demand,
indemnifying Lessor against liability for the same, as required by law for the
holding of the Premises free from the effect of such lien or claim. In addition,
Lessor may require Lessee to pay Lessor's attorneys' fees and costs in
participating in such action if Lessor shall decide it is to its best interest
to do so.
7.4 OWNERSHIP, REMOVAL, SURRENDER, AND RESTORATION.
(a) OWNERSHIP. Subject to Lessor's right to require their removal and to
cause Lessee to become the owner thereof as hereinafter provided in this
Paragraph 7.4, all Alterations and Utility Installations made to the Premises by
Lessee shall be the property of and owned by Lessee, but considered a part of
the Premises. Lessor may, at any time and at its option, elect in writing to
Lessee to be the owner of all or any specified part of the Lessee-Owned
Alterations and Utility Installations. Unless otherwise instructed per
Subparagraph 7.4(b) hereof, all Lessee-Owned Alterations and Utility
Installations shall, at the expiration or earlier termination of this Lease,
become the property of Lessor and remain upon the Premises and be surrendered
with the Premises by Lessee.
(b) REMOVAL. Unless otherwise agreed in writing, Lessor may require that
any or all Lessee Owned Alterations or Utility Installations be removed by the
expiration or earlier termination of this Lease, notwithstanding that their
installation may have been consented to by Lessor. Lessor may require the
removal at any time of all or any part of any Alterations or Utility
Installations made without the required consent of Lessor.
(c) SURRENDER/RESTORATION. Lessee shall surrender the Premises by the end
of the last day of the Lease term or any earlier termination date, clean and
free of debris and in good operating order, condition and state of repair,
ordinary wear and tear excepted. Ordinary wear and tear shall not include any
damage or deterioration that would have been prevented by good maintenance
practice or by Lessee performing all of its obligations under this Lease. Except
as otherwise agreed or specified herein, the Premises, as surrendered, shall
include the Alterations and Utility Installations. The obligation of Lessee
shall include the repair of any damage occasioned by the installation,
maintenance or removal of Lessee's Trade Fixtures, furnishings, equipment, and
Lessee-Owned Alterations and Utility Installations, as well as the removal of
any storage tank installed by or for Lessee, and the removal, replacement, or
remediation of any soil, material or ground water contaminated by Lessee, all as
may then be required by Applicable Requirements and/or good practice. Lessee's
Trade Fixtures shall remain the property of Lessee and shall be removed by
Lessee subject to its obligation to repair and restore the Premises per this
Lease.
8. INSURANCE; INDEMNITY.
8.1 PAYMENT OF PREMIUMS. The cost of the premiums for the insurance policies
maintained by Lessor under this Paragraph 8 shall be a Common Area Operating
Expense pursuant to Paragraph 4.2 hereof. Premiums for policy periods commencing
prior to, or extending beyond, the term of this Lease shall be prorated to
coincide with the corresponding Commencement Date or Expiration Date.
8.2 LIABILITY INSURANCE.
(a) CARRIED BY LESSEE. Lessee shall obtain and keep in force during the
term of this Lease a Commercial General Liability policy of insurance protecting
Lessee, Lessor and any Lender(s) whose names have been provided to Lessee in
writing (as additional insureds) against claims for bodily injury, personal
injury and property damage based upon, involving or arising out of the
ownership, use, occupancy or maintenance of the Premises and all areas
appurtenant thereto. Such insurance shall be on an occurrence basis providing
single limit coverage in an amount not less than $1,000,000 per occurrence with
an "Additional Insured-Managers or Lessors of Premises" endorsement and contain
the "Amendment of the Pollution Exclusion" endorsement for damage caused by
heat, smoke or fumes from a hostile fire. The policy shall not contain any
intra-insured exclusions as between insured persons or organizations, but shall
include coverage for liability assumed under this Lease as an "INSURED CONTRACT"
for the performance of Lessee's indemnity obligations under this Lease. The
limits of said insurance required by this Lease or as carried by Lessee shall
not, however, limit the liability of Lessee nor relieve Lessee of any obligation
hereunder. All insurance to be carried by Lessee shall be primary to and not
contributory with any similar insurance carried by Lessor, whose insurance shall
be considered excess insurance only.
(b) CARRIED BY LESSOR. Lessor shall also maintain liability insurance
described in Paragraph 8.2(a) above, in addition to and not in lieu of, the
insurance required to be maintained by Lessee. Lessee shall not be named as an
additional insured therein.
8.3 PROPERTY INSURANCE-BUILDING, IMPROVEMENTS AND RENTAL VALUE.
(a) BUILDING AND IMPROVEMENTS. Lessor shall obtain and keep in force
during the term of this Lease a policy or policies in the name of Lessor, with
loss payable to Lessor and to any Lender(s), insuring against loss or damage to
the Premises. Such insurance shall be for full replacement cost, as the same
shall exist from time to time, or the amount required by any Lender(s), but in
no event more than the commercially reasonable and available insurable value
thereof if, by reason of the unique nature or age of the improvements involved,
such latter amount is less than full replacement cost. Lessee-Owned Alterations
and Utility Installations, Trade Fixtures and Lessee's personal property shall
be insured by Lessee pursuant to Paragraph 8.4. If the coverage is available and
commercially appropriate, Lessor's policy or policies shall insure against all
risks of direct physical loss or damage (except the perils of flood and/or
earthquake unless required by a Lender), including coverage for any additional
costs resulting from debris removal and reasonable amounts of coverage for the
enforcement of any ordinance or law regulating the reconstruction or replacement
of any undamaged sections of the Building required to be demolished or removed
by reason of the enforcement of any building, zoning, safety or land use laws as
the result of a covered loss, but not including plate glass insurance. Said
policy or policies shall also contain an agreed valuation provision in lieu of
any co-insurance clause, waiver of subrogation, and inflation guard protection
causing an increase in the annual property insurance coverage amount by a factor
of not less than the adjusted U.S. Department of Labor Consumer Price Index for
All Urban Consumers for the city nearest to where the Premises are located.
(b) RENTAL VALUE. Lessor shall also obtain and keep in force during the
term of this Lease a policy or policies in the name of Lessor, with loss payable
to Lessor and any Lender(s), insuring the loss of the full rental and other
charges payable by all lessees of the Building to Lessor for one year (including
all Real Property Taxes, insurance costs, all Common Area Operating Expenses and
any scheduled rental increases). Said insurance may provide that in the event
the Lease is terminated by reason of an insured loss, the period of indemnity
for such coverage shall be extended beyond the date of the completion of repairs
or replacement of the Premises, to provide for one full year's loss of rental
revenues from the date of any such loss. Said insurance shall contain an agreed
valuation provision in lieu of any co-insurance clause, and the amount of
coverage shall be adjusted annually to reflect the projected rental income, Real
Property Taxes, insurance premium costs and other expenses, if any, otherwise
payable, for the next 12-month period. Common Area Operating Expenses shall
include any deductible amount in the event of such loss.
(c) ADJACENT PREMISES. Lessee shall pay for any increase in the premiums
for the property insurance of the Building and for the Common Areas or other
buildings in the Industrial Center if said increase is caused by Lessee's acts,
omissions, use or occupancy of the Premises.
(d) LESSEE'S IMPROVEMENTS. Since Lessor is the Insuring Party, Lessor
shall not be inquired to insure Lessee-Owned Alterations and Utility
Installations unless the item in question has become the property of Lessor
under the terms of this Lease.
8.4 LESSEE'S PROPERTY INSURANCE. Subject to the requirements of Paragraph
8.5, Lessee at its cost shall either by separate policy or, at Lessor's option,
by endorsement to a policy already carried, maintain insurance coverage on all
of Lessee's personal property, Trade Fixtures and Lessee-Owned Alterations and
Utility Installations in, on, or about the Premises similar in coverage to that
carried by Lessor as the Insuring Party under Paragraph 8.3(a). Such insurance
shall be full replacement cost coverage with a deductible not to exceed $1,000
per occurrence. The proceeds from any such insurance shall be used by Lessee for
the replacement of personal property and the restoration of Trade Fixtures and
Lessee-Owned Alterations and Utility Installations. Upon request from Lessor,
Lessee shall provide Lessor with written evidence that such insurance is in
force.
8.5 INSURANCE POLICIES. Insurance required hereunder shall be in companies
duly licensed to transact business in the state where the Premises are located,
and maintaining during the policy term a "General Policyholders Rating" of at
least B+, V, or such other rating as may be required by a Lender, as set forth
in the most current issue of "Best's Insurance Guide." Lessee shall not do or
permit to be done anything which shall invalidate the insurance policies
referred to in
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this Paragraph 8. Lessee shall cause to be delivered to Lessor, within seven (7)
days after the earlier of the Early Possession Date or the Commencement Date,
certified copies of, or certificates evidencing the existence and amounts of,
the insurance required under Paragraph 8.2(a) and 8.4. No such policy shall be
cancelable or subject to modification except after thirty (30) days' prior
written notice to Lessor. Lessee shall at least thirty (30) days prior to the
expiration of such policies, furnish Lessor with evidence of renewals or
"insurance binders" evidencing renewal thereof, or Lessor may order such
insurance and charge the cost thereof to Lessee, which amount shall be payable
by Lessee to Lessor upon demand.
8.6 WAIVER OF SUBROGATION. Without affecting any other rights or remedies,
Lessee and Lessor each hereby release and relieve the other, and waive their
entire right to recover damages (whether in contract or in tort) against the
other, for loss or damage to their property arising out of or incident to the
perils required to be insured against under Paragraph 8. The effect of such
releases and waivers of the right to recover damages shall not be limited by the
amount of insurance carried or required, or by any deductibles applicable
thereto. Lessor and Lessee agree to have their respective insurance companies
issuing property damage insurance waive any right to subrogation that such
companies may have against Lessor or Lessee, as the case may be, so long as the
insurance is not invalidated thereby.
8.7 INDEMNITY. Except for Lessor's negligence and/or breach of express
warranties, Lessee shall indemnify, protect, defend and hold harmless the
Premises, Lessor and its agents, Lessor's master or ground lessor, partners and
Lenders, from and against any and all claims, loss of rents and/or damages,
costs, liens, judgments, penalties, loss of permits, attorneys' and consultants'
fees, expenses and/or liabilities arising out of, involving, or in connection
with, the occupancy of the Premises by Lessee, the conduct of Lessee's business,
any act, omission or neglect of Lessee, its agents, contractors, employees or
invitees, and out of any Default or Breach by Lessee in the performance in a
timely manner of any obligation on Lessee's part to be performed under this
Lease. The foregoing shall include, but not be limited to, the defense or
pursuit of any claim or any action or proceeding involved therein, and whether
or not (in the case of claims made against Lessor) litigated and/or reduced to
judgment. In case any action or proceeding be brought against Lessor by reason
of any of the foregoing matters, Lessee upon notice from Lessor shall defend the
same at Lessee's expense by counsel reasonably satisfactory to Lessor and Lessor
shall cooperate with Lessee in such defense. Lessor need not have first paid any
such claim in order to be so indemnified.
8.8 EXEMPTION OF LESSOR FROM LIABILITY. Lessor shall not be liable for injury
or damage to the person or goods, wares, merchandise or other property of
Lessee, Lessee's employees, contractors, invitees, customers, or any other
person in or about the Premises, whether such damage or injury is caused by or
results from fire, steam, electricity, gas, water or rain, or from the breakage,
leakage, obstruction or other defects of pipes, fire sprinklers, wires,
appliances, plumbing, air conditioning or lighting fixtures, or from any other
cause, whether said injury or damage results from conditions arising upon the
Premises or upon other portions of the Building of which the Premises are a
part, from other sources or places, and regardless of whether the cause of such
damage or injury or the means of repairing the same is accessible or not. Lessor
shall not be liable for any damages arising from any act or neglect of any other
lessee of Lessor nor from the failure by Lessor to enforce the provisions of any
other lease in the Industrial Center. Notwithstanding Lessor's negligence or
breach of this Lease, Lessor shall under no circumstances be liable for injury
to Lessee's business or for any loss of income or profit therefrom.
9. DAMAGE OR DESTRUCTION.
9.1 DEFINITIONS.
(a) "PREMISES PARTIAL DAMAGE" shall mean damage or destruction to the
Premises, other than Lessee-Owned Alterations and Utility Installations, the
repair cost of which damage or destruction is less than fifty percent (50%) of
the then Replacement Cost (as defined in Paragraph 9.1(d)) of the Premises
(excluding Lessee-Owned Alterations and Utility Installations and Trade
Fixtures) immediately prior to such damage or destruction.
(b) "PREMISES TOTAL DESTRUCTION" shall mean damage or destruction to the
Premises, other than Lessee-Owned Alterations and Utility Installations, the
repair cost of which damage or destruction is fifty percent (50%) or more of the
then Replacement Cost of the Premises (excluding Lessee-Owned Alterations and
Utility Installations and Trade Fixtures) immediately prior to such damage or
destruction. In addition, damage or destruction to the Building, other than
Lessee-Owned Alterations and Utility Installations and Trade Fixtures of any
lessees of the Building, the cost of which damage or destruction is fifty
percent (50%) or more of the then Replacement Cost (excluding Lessee-Owned
Alterations and Utility Installations and Trade Fixtures of any lessees of the
Building) of the Building shall, at the option of Lessor, be deemed to be
Premises Total Destruction.
(c) "INSURED LOSS" shall mean damage or destruction to the Premises,
other than Lessee-Owned Alterations and Utility Installations and Trade
Fixtures, which was caused by an event required to be covered by the insurance
described in Paragraph 8.3(a) irrespective of any deductible amounts or coverage
limits involved.
(d) "REPLACEMENT COST" shall mean the cost to repair or rebuild the
improvements owned by Lessor at the time of the occurrence to their condition
existing immediately prior thereto, including demolition, debris removal and
upgrading required by the operation of applicable building codes, ordinances or
laws, and without deduction for depreciation.
(e) "HAZARDOUS SUBSTANCE CONDITION" shall mean the occurrence or
discovery of a condition involving the presence of, or a contamination by, a
Hazardous Substance as defined in Paragraph 6.2(a), in, on, or under the
Premises.
9.2 PREMISES PARTIAL DAMAGE - INSURED LOSS. If Premises Partial Damage that
is an Insured Loss occurs, then Lessor shall, at Lessor's expense, repair such
damage (but not Lessee's Trade Fixtures or Lessee-Owned Alterations and Utility
Installations) as soon as reasonably possible and this Lease shall continue in
full force and effect. In the event, however, that there is a shortage of
insurance proceeds and such shortage is due to the fact that, by reason of the
unique nature of the improvements in the Premises, full replacement cost
insurance coverage was not commercially reasonable and available, Lessor shall
have no obligation to pay for the shortage in insurance proceeds or to fully
restore the unique aspects of the Premises unless Lessee provides Lessor with
the funds to cover same, or adequate assurance thereof, within ten (10) days
following receipt of written notice of such shortage and request therefor. If
Lessor receives said funds or adequate assurance thereof within said ten (10)
day period, Lessor shall complete them as soon as reasonably possible and this
Lease shall remain in full force and effect. If Lessor does not receive such
funds or assurance within said period, Lessor may nevertheless elect by written
notice to Lessee within ten (10) days thereafter to make such restoration and
repair as is commercially reasonable with Lessor paying any shortage in
proceeds, in which case this Lease shall remain in full force and effect. If
Lessor does not receive such funds or assurance within such ten (10) day period,
and if Lessor does not so elect to restore and repair, then this Lease shall
terminate sixty (60) days following the occurrence of the damage or destruction.
Unless otherwise agreed, Lessee shall in no event have any right to
reimbursement from Lessor for any funds contributed by Lessee to repair any such
damage or destruction. Premises Partial Damage due to flood or earthquake shall
be subject to Paragraph 9.3 rather than Paragraph 9.2, notwithstanding that
there may be some insurance coverage, but the net proceeds of any such insurance
shall be made available for the repairs if made by either Party.
9.3 PARTIAL DAMAGE - UNINSURED LOSS. If Premises Partial Damage that is not
an Insured Loss occurs, unless caused by a negligent or willful act of Lessee
(in which event Lessee shall make the repairs at Lessee's expense and this Lease
shall continue in full force and effect), Lessor may at Lessor's option, either
(i) repair such damage as soon as reasonably possible at Lessor's expense, in
which event this Lease shall continue in full force and effect, or (ii) give
written notice to Lessee within thirty (30) days after receipt by Lessor of
knowledge of the occurrence of such damage of Lessor's desire to terminate this
Lease as of the date sixty (60) days following the date of such notice. In the
event Lessor elects to give such notice of Lessor's intention to terminate this
Lease, Lessee shall have the right within ten (10) days after the receipt of
such notice to give written notice to Lessor of Lessee's commitment to pay for
the repair of such damage totally at Lessee's expense and without reimbursement
from Lessor, Lessee shall provide Lessor with the required funds or satisfactory
assurance thereof within thirty (30) days following such commitment from Lessee.
In such event this Lease shall continue in full force and effect, and Lessor
shall proceed to make such repairs as soon as reasonably possible after the
required funds are available. If Lessee does not give such notice and provide
the funds or assurance thereof within the times specified above, this Lease
shall terminate as of the date specified in Lessor's notice of termination.
9.4 TOTAL DESTRUCTION. Notwithstanding any other provision hereof, if
Premises Total Destruction occurs (including any destruction required by any
authorized public authority), this Lease shall terminate sixty (60) days
following the date of such Premises Total Destruction, whether or not the damage
or destruction is an Insured Loss or was caused by a negligent or willful act of
Lessee. In the event, however, that the damage or destruction was caused by
Lessee, Lessor shall have the right to recover Lessor's damages from Lessee
except as released and waived in Paragraph 9.7.
9.5 DAMAGE NEAR END OF TERM. If at any time during the last six (6) months of
the term of this Lease there is damage for which the cost to repair exceeds one
month's Base Rent, whether or not an Insured Loss, Lessor may, at Lessor's
option, terminate this Lease effective sixty (60) days following the date of
occurrence of such damage by giving written notice to Lessee of Lessor's
election to do so within thirty (30) days after the date of occurrence of such
damage. Provided, however, if Lessee at that time has an exercisable option to
extend this Lease or to purchase the Premises, then Lessee may preserve this
Lease by (a) exercising such option, and (b) providing Lessor with any shortage
in insurance proceeds (or adequate assurance thereof) needed to make the repairs
on or before the earlier of (i) the date which is ten (10) days after Lessee's
receipt of Lessor's written notice purporting to terminate this Lease, or (ii)
the day prior to the date upon which such option expires. If Lessee duly
exercises such option during such period and provides Lessor with funds (or
adequate assurance thereof) to cover any shortage in insurance proceeds, Lessor
shall, at Lessor's expense repair such damage as soon as reasonably possible and
this Lease shall continue in full force and effect. If Lessee fails to exercise
such option and provide such funds or assurance during such period, then this
Lease shall terminate as of the date set forth in the first sentence of this
Paragraph 9.5.
9.6 ABATEMENT OF RENT; LESSEE'S REMEDIES.
(a) In the event of (i) Premises Partial Damage or (ii) Hazardous
Substance Condition for which Lessee is not legally responsible, the Base Rent,
Common Area Operating Expenses and other charges, if any, payable by Lessee
hereunder for the period during which such damage or condition, its repair,
remediation or restoration continues, shall be abated in proportion to the
degree to which Lessee's use of the Premises is impaired, but not in excess of
proceeds from insurance required to be carried under Paragraph 8.3(b). Except
for abatement of Base Rent, Common Area Operating Expenses and other charges, if
any, as aforesaid, all other obligations of Lessee hereunder shall be performed
by Lessee, and Lessee shall have no claim against Lessor for any damage suffered
by reason of any such damage, destruction, repair, remediation or restoration.
(b) If Lessor shall be obligated to repair or restore the Premises under
the provisions of this Paragraph 9 and shall not commence, in a substantial and
meaningful way, the repair or restoration of the Premises within ninety (90)
days after such obligation shall accrue, Lessee may, at any time prior to the
commencement of such repair or restoration, give written notice to Lessor and to
any Lenders of which Lessee has actual notice of Lessee's election to terminate
this Lease on a date not less than sixty (60) days following the giving of such
notice. If Lessee gives such notice to Lessor and such Lenders and such repair
or restoration is not commenced within thirty (30) days after receipt of such
notice, this Lease shall terminate as of the date specified in said notice. If
Lessor or a Lender commences the repair or restoration of the Premises within
thirty (30) days after the receipt of such notice, this Lease shall continue in
full force and effect. "Commence" as used in this Paragraph 9.6 shall mean
either the unconditional authorization of the preparation of the required plans,
or the beginning of the actual work on the Premises, whichever occurs first.
9.7 HAZARDOUS SUBSTANCE CONDITIONS. If a Hazardous Substance Condition
occurs, unless Lessee is legally responsible therefor (in which case Lessee
shall make the investigation and remediation thereof required by Applicable
Requirements and this Lease shall continue in tull force and effect, but subject
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to Lessor's rights under Paragraph 6.2(c) and Paragraph 13), Lessor may at
Lessor's option either (i) investigate and remediate such Hazardous Substance
Condition, if required, as soon as reasonably possible at Lessor's expense, in
which event this Lease shall continue in full force and effect, or (ii) if the
estimated cost to investigate and remediate such condition exceeds twelve (12)
times the then monthly Base Rent or $100,000 whichever is greater, give written
notice to Lessee within thirty (30) days after receipt by Lessor of knowledge of
the occurrence of such Hazardous Substance Condition of Lessor's desire to
terminate this Lease as of the date sixty (60) days following the date of such
notice. In the event Lessor elects to give such notice of Lessor's intention to
terminate this Lease, Lessee shall have the right within ten (10) days after the
receipt of such notice to give written notice to Lessor of Lessee's commitment
to pay for the excess costs of (a) investigation and remediation of such
Hazardous Substance Condition to the extent required by Applicable Requirements,
over (b) an amount equal to twelve (12) times the then monthly Base Rent or
$100,000, whichever is greater. Lessee shall provide Lessor with the funds
required of Lessee or satisfactory assurance thereof within thirty (30) days
following said commitment by Lessee. In such event this Lease shall continue in
full force and effect, and Lessor shall proceed to make such investigation and
remediation as soon as reasonably possible after the required funds are
available. If Lessee does not give such notice and provide the required funds or
assurance thereof within the time period specified above, this Lease shall
terminate as of the date specified in Lessor's notice of termination.
9.8 TERMINATION - ADVANCE PAYMENTS. Upon termination of this Lease pursuant
to this Paragraph 9, Lessor shall return to Lessee any advance payment made by
Lessee to Lessor and so much of Lessee's Security Deposit as has not been, or is
not then required to be, used by Lessor under the terms of this Lease.
9.9 WAIVER OF STATUTES. Lessor and Lessee agree that the terms of this Lease
shall govern the effect of any damage to or destruction of the Premises and the
Building with respect to the termination of this Lease and hereby waive the
provisions of any present or future statute to the extent it is inconsistent
herewith.
10. REAL PROPERTY TAXES.
10.1 PAYMENT OF TAXES. Lessor shall pay the Real Property Taxes, as defined
in Paragraph 10.2, applicable to the Industrial Center, and except as otherwise
provided in Paragraph 10.3, any such amounts shall be included in the
calculation of Common Area Operating Expenses in accordance with the provisions
of Paragraph 4.2.
10.2 REAL PROPERTY TAX DEFINITION. As used herein, the term "REAL PROPERTY
TAXES" shall include any form of real estate tax or assessment, general,
special, ordinary or extraordinary, and any license fee, commercial rental tax,
improvement bond or bonds, levy or tax (other than inheritance, personal income
or estate taxes) imposed upon the Industrial Center by any authority having the
direct or indirect power to tax, including any city, state or federal
government, or any school, agricultural, sanitary, fire, street, drainage, or
other improvement district thereof, levied against any legal or equitable
interest of Lessor in the Industrial Center or any portion thereof, Lessor's
right to rent or other income therefrom, and/or Lessor's business of leasing the
Premises. The term "REAL PROPERTY TAXES" shall also include any tax, fee, levy,
assessment or charge, or any increase therein, imposed by reason of events
occurring, or changes in Applicable Law taking effect, during the term of this
Lease, including but not limited to a change in the ownership of the Industrial
Center or in the improvements thereon, the execution of this Lease, or any
modification, amendment or transfer thereof, and whether or not contemplated by
the Parties. In calculating Real Property Taxes for any calendar year, the Real
Property Taxes for any real estate tax year shall be included in the calculation
of Real Property Taxes for such calendar year based upon the number of days
which such calendar year and tax year have in common.
10.3 ADDITIONAL IMPROVEMENTS. Common Area Operating Expenses shall not
include Real Property Taxes specified in the tax assessor's records and work
sheets as being caused by additional improvements placed upon the Industrial
Center by other lessees or by Lessor for the exclusive enjoyment of such other
lessees. Notwithstanding Paragraph 10.1 hereof, Lessee shall, however, pay to
Lessor at the time Common Area Operating Expenses are payable under Paragraph
4.2, the entirety of any increase in Real Property Taxes if assessed solely by
reason of Alterations, Trade Fixtures or Utility Installations placed upon the
Premises by Lessee or at Lessee's request.
10.4 JOINT ASSESSMENT. If the Building is not separately assessed, Real
Property Taxes allocated to the Building shall be an equitable proportion of the
Real Property Taxes for all of the land and improvements included within the tax
parcel assessed, such proportion to be determined by Lessor from the respective
valuations assigned in the assessor's work sheets or such other information as
may be reasonably available. Lessor's reasonable determination thereof, in good
faith, shall be conclusive.
10.5 LESSEE'S PROPERTY TAXES. Lessee shall pay prior to delinquency all
taxes assessed against and levied upon Lessee-Owned Alterations and Utility
Installations, Trade Fixtures, furnishings, equipment and all personal property
of Lessee contained in the Premises or stored within the Industrial Center. When
possible, Lessee shall cause its Lessee-Owned Alterations and Utility
Installations, Trade Fixtures, furnishings, equipment and all other personal
property to be assessed and billed separately from the real property of Lessor.
If any of Lessee's said property shall be assessed with Lessor's real property,
Lessee shall pay Lessor the taxes attributable to Lessee's property within ten
(10) days after receipt of a written statement setting forth the taxes
applicable to Lessee's property.
11. UTILITIES. Lessee shall pay directly for all utilities and services
supplied to the Premises, including but not limited to electricity, telephone,
security, gas and cleaning of the Premises, together with any taxes thereon. If
any such utilities or services are not separately metered to the Premises or
separately billed to the Premises, Lessee shall pay to Lessor a reasonable
proportion to be determined by Lessor of all such charges jointly metered or
billed with other premises in the Building, in the manner and within the time
periods set forth in Paragraph 4.2(d).
12. ASSIGNMENT AND SUBLETTING.
12.1 LESSOR'S CONSENT REQUIRED.
(a) Lessee shall not voluntarily or by operation of law assign,
transfer, mortgage or otherwise transfer or encumber (collectively, "assign")
or sublet all or any part of Lessee's interest in this Lease or in the Premises
without Lessor's prior written consent given under and subject to the terms of
Paragraph 36.
(c) The involvement of Lessee or its assets in any transaction,
or series of transactions (by way of merger, sale, acquisition, financing,
refinancing, transfer, leveraged buy-out or otherwise), whether or not a formal
assignment or hypothecation of this Lease or Lessee's assets occurs, which
results or will result in a reduction of the Net Worth of Lessee, as hereinafter
defined, by an amount equal to or greater than twenty-five percent(25%) of such
Net Worth of Lessee as it was represented to Lessor at the time of full
execution and delivery of this Lease or at the time of the most recent
assignment to which Lessor has consented, or as it exists immediately prior to
said transaction or transactions constituting such reduction, at whichever time
said Net Worth of Lessee was or is greater, shall be considered an assignment of
this Lease by Lessee to which Lessor may reasonably withhold its consent. "Net
Worth of Lessee" for purposes of this lease shall be the net worth of Lessee
(excluding any Guarantors) established under generally accepted accounting
principles consistently applied.
(d) An assignment or subletting of Lessee's interest in this Lease
without Lessor's specific prior written consent shall, at Lessor's option, be a
Default curable after notice per Paragraph 13.1. or a non-curable Breach without
the necessity of any notice and grace period. If Lessor elects to treat such
unconsented to assignment or subletting as a non-curable Breach, Lessor shall
have the right to either: (i) terminate this Lease, or (ii) upon thirty (30)
days' written notice ("LESSOR'S NOTICE"), increase the monthly Base Rent for the
Premises to the greater of the then fair market rental value of the Premises, as
reasonably determined by Lessor, or one hundred ten percent (110%) of the Base
Rent then in effect. Pending determination of the new fair market rental value,
if disputed by Lessee, Lessee shall pay the amount set forth in Lessor's Notice,
with any overpayment credited against the next installment(s) of Base Rent
coming due, and any underpayment for the period retroactively to the effective
date of the adjustment being due and payable immediately upon the determination
thereof. Further, in the event of such Breach and rental adjustment, (i) the
purchase price of any option to purchase the Premises held by Lessee shall be
subject to similar adjustment to the then fair market value as reasonably
determined by Lessor (without the Lease being considered an encumbrance or any
deduction for depreciation or obsolescence, and considering the Premises at its
highest and best use and in good condition) or one hundred ten percent (110%) of
the price previously in effect, (ii) any index-oriented rental or price
adjustment formulas contained in this Lease shall be adjusted to require that
the base index be determined with reference to the index applicable to the time
of such adjustment, and (iii) any fixed rental adjustments scheduled during the
remainder of the Lease term shall be increased in the same ratio as the new
rental bears to the Base Rent in effect immediately prior to the adjustment
specified in Lessor's Notice.
(e) Lessee's remedy for any breach of this Paragraph 12.1 by Lessor
shall be limited to compensatory damages and/or injunctive relief.
12.2 TERMS AND CONDITIONS APPLICABLE TO ASSIGNMENT AND SUBLETTING.
(a) Regardless of Lessor's consent, any assignment or subletting shall
not (i) be effective without the express written assumption by such assignee or
sublessee of the obligations of Lessee under this Lease, (ii) release Lessee of
any obligations hereunder, nor (iii) alter the primary liability of Lessee for
the payment of Base Rent and other sums due Lessor hereunder or for the
performance of any other obligations to be performed by Lessee under this Lease.
(b) Lessor may accept any rent or performance of Lessee's obligations
from any person other than Lessee pending approval or disapproval of an
assignment. Neither a delay in the approval or disapproval of such assignment
nor the acceptance of any rent for performance shall constitute a waiver or
estoppel of Lessor's right to exercise its remedies for the Default or Breach by
Lessee of any of the terms, covenants or conditions of this Lease.
(c) The consent of Lessor to any assignment or subletting shall not
constitute a consent to any subsequent assignment or subletting by Lessee or to
any subsequent or successive assignment or subletting by the assignee or
sublessee. However, Lessor may consent to subsequent sublettings and assignments
of the sublease or any amendments or modifications thereto without notifying
Lessee or anyone else liable under this Lease or the sublease and without
obtaining their consent, and such action shall not relieve such persons from
liability under this Lease or the sublease.
(d) In the event of any Default or Breach of Lessee's obligation under
this Lease, Lessor may proceed directly against Lessee, any Guarantors or anyone
else responsible for the performance of the Lessee's obligations under this\
Lease, including any sublessee, without first exhausting Lessor's remedies
against any other person or entity responsible therefor to Lessor, or any
security held by Lessor.
(e) Each request for consent to an assignment or subletting shall be
in writing, accompanied by information relevant to Lessor's determination as to
the financial and operational responsibility and appropriateness of the proposed
assignee or sublessee, including but not limited to the intended use and/or
required modification of the Premises, if any, together with a non-refundable
deposit of $1000.00 or ten percent (10%) of the monthly Base Rent applicable to
the portion of the portion of the premises which is the subject of the proposed
assignment or sublease, whichever is greater as reasonable consideration for
Lessor's considering and processing the request for consent. Lessee agrees to
provide lessor with such other or additional information and/or documentation as
may be reasonably requested by Lessor.
(f) Any assignee of, or sublessee under, this Lease shall, by reason
of accepting such assignment or entering into such sublease, be deemed, for the
benefit of Lessor, to have assumed and agreed to conform and comply with each
and every term, covenant, condition and obligation herein to be observed or
performed by Lessee during the term of said assignment or sublease, other than
such obligations as are contrary to or inconsistent with provisions of an
assignment or sublease to which Lessor has specifically consented in writing.
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(g) the occurrence of a transaction described in paragraph 12.2(c)
shall give lessor the right (but not the obligation) to require that the
security deposit be increased by an amount equal to six (6) times the then
monthly Base Rent, and Lessor may make the actual receipt by Lessor of the
Security Deposit increase a condition to Lessor's consent to such transaction.
(h) Lessor, as a condition to giving its consent to any assignment or
subletting, may require that the amount and adjustment schedule of the rent
payable under this Lease be adjusted to what is then the market value and/or
adjustment schedule for property similar to the Premises as then constituted, as
determined by Lessor.
12.3 ADDITIONAL TERMS AND CONDITIONS APPLICABLE TO SUBLETTING. The following
terms and conditions shall apply to any subletting by Lessee of all or any part
of the Premises and shall be deemed included in all subleases under this Lease
whether or not expressly incorporated therein:
(a) Lessee hereby assigns and transfers to Lessor all of Lessee's
interest in all rentals and income arising from any sublease of all or a portion
of the Premises heretofore or hereafter made by Lessee, and Lessor may collect
such rent and income and apply same toward Lessee's obligations under this
Lease; provided, however, that until a Breach (as defined in Paragraph 13.1)
shall occur in the performance of Lessee's obligations under this Lease, Lessee
may, except as otherwise provided in this Lease, receive, collect and enjoy the
rents accruing under such sublease. Lessor shall not, by reason of the foregoing
provision or any other assignment of such sublease to Lessor, nor by reason of
the collection of the rents from a sublessee, be deemed liable to the sublessee
for any failure of Lessee to perform and comply with any of Lessee's obligations
to such sublessee under such Sublease. Lessee hereby irrevocably authorizes and
directs any such sublessee, upon receipt of a written notice from Lessor stating
that a Breach exists in the performance of Lessee's obligations under this
Lease, to pay to Lessor the rents and other charges due and to become due under
the sublease. Sublessee shall rely upon any such statement and request from
Lessor and shall pay such rents and other charges to Lessor without any
obligation or right to inquire as to whether such Breach exists and
notwithstanding any notice from or claim from Lessee to the contrary. Lessee
shall have no right or claim against such sublessee, or, until the Breach has
been cured, against Lessor, for any such rents and other charges so paid by said
sublessee to Lessor.
(b) In the event of a Breach by Lessee in the performance of its
obligations under this Lease, Lessor, at its option and without any obligation
to do so, may require any sublessee to attorn to Lessor, in which event Lessor
shall undertake the obligations of the sublessor under such sublease from the
time of the exercise of said option to the expiration of such sublease;
provided, however, Lessor shall not be liable for any prepaid rents or security
deposit paid by such sublessee to such sublessor or for any other prior defaults
or breaches of such sublessor under such sublease.
(c) Any matter or thing requiring the consent of the sublessor under a
sublease shall also require the consent of Lessor herein.
(d) No sublessee under a sublease approved by Lessor shall further
assign or sublet all or any part of the Premises without Lessor's prior written
consent.
(e) Lessor shall deliver a copy of any notice of Default or Breach by
Lessee to the sublessee, who shall have the right to cure the Default of Lessee
within the grace period, if any, specified in such notice. The sublessee shall
have a right of reimbursement and offset from and against Lessee for any such
Defaults cured by the sublessee.
13. DEFAULT; BREACH; REMEDIES.
13.1 DEFAULT; BREACH. Lessor and Lessee agree that if an attorney is
consulted by Lessor in connection with a Lessee Default or Breach (as
hereinafter defined), $350.00 is a reasonable minimum sum per such occurrence
for legal services and costs in the preparation and service of a notice of
Default, and that Lessor may include the cost of such services and costs in said
notice as rent due and payable to cure said default. A "DEFAULT" by Lessee is
defined as a failure by Lessee to observe, comply with or perform any of the
terms, covenants, conditions or rules applicable to Lessee under this Lease. A
"BREACH" by Lessee is defined as the occurrence of any one or more of the
following Defaults, and, where a grace period for cure after notice is specified
herein, the failure by Lessee to cure such Default prior to the expiration of
the applicable grace period, and shall entitle Lessor to pursue the remedies set
forth in Paragraphs 13.2 and/or 13.3:
(a) The vacating of the Premises without the intention to reoccupy
same, or the abandonment of the Premises.
(b) Except as expressly otherwise provided in this Lease, the failure
by Lessee to make any payment of Base Rent, Leesee's Share of Common Area
Operating Expenses, or any other monetary payment required to be made by Lessee
hereunder as and when due, the failure by Lessee to provide Lessor with
reasonable evidence of insurance or surety bond required under this Lease, or
the failure of Lessee to fulfill any obligation under this Lease which endangers
or threatens life or property, where such failure continues for a period of
three (3) days following written notice thereof by or on behalf of Lessor to
Lessee.
(c) Except as expressly otherwise provided in this Lease, the failure
by Lessee to provide Lessor with reasonable written evidence (in duly executed
original form, if applicable) of (i) compliance with Applicable Requirements per
Paragraph 6.3, (ii) the inspection, maintenance and service contracts required
under Paragraph 7.1(b), (iii) the rescission of an unauthorized assignment or
subletting per Paragraph 12.1, (iv) a Tenancy Statement per Paragraphs 16 or 37,
(v) the subordination or non-subordination of this Lease per Paragraph 30,
(vi) the guaranty of the performance of Lessee's obligations under this Lease if
required under Paragraphs 1.11 and 37, (vii) the execution of any document
requested under Paragraph 42 (easements), or (viii) any other documentation or
information which Lessor may reasonably require of Lessee under the terms of
this lease, where any such failure continues for a period of ten (10) days
following written notice by or on behalf of Lessor to Lessee.
(d) A Default by Lessee as to the terms, covenants, conditions or
provisions of this Lease, or of the rules adopted under Paragraph 40 hereof that
are to be observed, complied with or performed by Lessee, other than those
described in Subparagraphs 13.1(a), (b) or (c), above, where such Default
continues for a period of thirty (30) days after written notice thereof by or on
behalf of Lessor to Lessee: provided, however, that if the nature of Lessee's
Default is such that more than thirty (30) days are reasonably required for its
cure, then it shall not be deemed to be a Breach of this Lease by Lessee if
Lessee commences such cure within said thirty (30) day period and thereafter
diligently prosecutes such cure to completion.
(e) The occurrence of any of the following events: (i) the making by
Lessee of any general arrangement or assignment for the benefit of creditors;
(ii) Lessee's becoming a "debtor" as defined in 11 U.S. Code Section 101 or any
successor statute thereto (unless, in the case of a petition filed against
Lessee, the same is dismissed within sixty (60) days); (iii) the appointment of
a trustee or receiver to take possession of substantially all of Lessee's assets
located at the Premises or of Lessee's interest in this Lease, where possession
is not restored to Lessee within thirty (30) days; or (iv) the attachment,
execution or other judicial seizure of substantially all of Lessee's assets
located at the Premises or of Lessee's interest in this Lease, where such
seizure is not discharged within thirty (30) days; provided, however, in the
event that any provision of this Subparagraph 13.1(e) is contrary to any
applicable law, such provision shall be of no force or effect, and shall not
affect the validity of the remaining provisions.
(f) The discovery by Lessor that any financial statement of Lessee or
of any Guarantor, given to Lessor by Lessee or any Guarantor, was materially
false.
(g) If the performance of Lessee's obligations under this Lease is
guaranteed: (i) the death of a Guarantor, (ii) the termination of a Guarantor's
liability with respect to this Lease other than in accordance with the terms of
such guaranty, (iii) a Guarantor's becoming insolvent or the subject of a
bankruptcy filing, (iv) a Guarantor's refusal to honor the guaranty, or (v) a
Guarantor's breach of its guaranty obligation on an anticipatory breach basis,
and Lessee's failure, within sixty (60) days following written notice by or on
behalf of Lessor to Lessee of any such event, to provide Lessor with written
alternative assurances of security, which, when coupled with the then existing
resources of Lessee, equals or exceeds the combined financial resources of
Lessee and the Guarantors that existed at the time of execution of this Lease.
13.2 REMEDIES. If Lessee fails to perform any affirmative duty or obligation
of Lessee under this Lease, within ten (10) days after written notice to Lessee
(or in case of an emergency, without notice), Lessor may at its option (but
without obligation to do so), perform such duty or obligation on Lessee's
behalf, including but not limited to the obtaining of reasonably required bonds,
insurance policies, or governmental licenses, permits or approvals. The costs
and expenses of any such performance by Lessor shall be due and payable by
Lessee to Lessor upon invoice therefor. If any check given to Lessor by Lessee
shall not be honored by the bank upon which it is drawn, Lessor, at its own
option, may require all future payments to be made under this Lease by Lessee to
be made only by cashier's check. In the event of a Breach of this Lease by
Lessee (as defined in Paragraph 13.1), with or without further notice or demand,
and without limiting Lessor in the exercise of any right or remedy which Lessor
may have by reason of such Breach, Lessor may:
(a) Terminate Leesee's right to possession of the Premises by any
lawful means, in which case this Lease and the term hereof shall terminate and
Lessee shall immediately surrender possession of the Premises to Lessor. In such
event Lessor shall be entitled to recover from Lessee: (i) the worth at the time
of the award of the unpaid rent which had been earned at the time of
termination; (ii) the worth at the time of award of the amount by which the
unpaid rent which would have been earned after termination until the time of
award exceeds the amount of such rental loss that the Lessee proves could have
been reasonably avoided; (iii) the worth at the time of award of the amount by
which the unpaid rent for the balance of the term after the time of award
exceeds the amount of such rental loss that the Lessee proves could be
reasonably avoided; and (iv) any other amount necessary to compensate Lessor for
all the detriment proximately caused by the Lessee's failure to perform its
obligations under this Lease or which in the ordinary course of things would be
likely to result therefrom, including but not limited to the cost of recovering
possession of the Premises, expenses of reletting, including necessary
renovation and alteration of the Premises, reasonable attorneys' fees, and that
portion of any leasing commission paid by Lessor in connection with this Lease
applicable to the unexpired term of this Lease. The worth at the time of award
of the amount referred to in provision (iii) of the immediately preceding
sentence shall be computed by discounting such amount at the discount rate of
the Federal Reserve Bank of San Francisco or the Federal Reserve Bank District
in which the Premises are located at the time of award plus one percent (1%).
Efforts by Lessor to mitigate damages caused by Lessee's Default or Breach of
this Lease shall not waive Lessor's right to recover damages under this
Paragraph 13.2. If termination of this Lease is obtained through the provisional
remedy of unlawful detainer, Lessor shall have the right to recover in such
proceeding the unpaid rent and damages as are recoverable therein, or Lessor may
reserve the right to recover all or any part thereof in a separate suit for such
rent and/or damages. If a notice and grace period required under Subparagraph
13.1(b), (c) or (d) was not previously given, a notice to pay rent or quit, or
to perform or quit, as the case may be, given to Lessee under any statute
authorizing the forfeiture of leases for unlawful detainer shall also constitute
the applicable notice for grace period purposes required by Subparagraph 13.1
(b),(c) or (d). In such case, the applicable grace period under the unlawful
detainer statute shall run concurrently after the one such statutory notice, and
the failure of Lessee to cure the Default within the greater of the two (2) such
grace periods shall constitute both an unlawful detainer and a Breach of this
Lease entitling Lessor to the remedies provided for in this Lease and/or by said
statute.
(b) Continue the Lease and Lessee's right to possession in effect (in
California under California Civil Code Section 1951.4) after Lessee's Breach and
recover the rent as it becomes due, provided Lessee has the right to sublet or
assign, subject only to reasonable limitations. Lessor and Lessee agree that the
limitations on assignment and subletting in this Lease are reasonable. Acts of
maintenance or preservation, efforts to relet the Premises, or the appointment
of a receiver to protect the Lessor's interest under this Lease, shall not
constitute a termination of the Lessee's right to possession.
(c) Pursue any other remedy now or hereafter available to Lessor under
the laws or judicial decisions of the state wherein the Premises are located.
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(d) The expiration or termination of this Lease and/or the termination
of Lessee's right to possession shall not relieve Lessee from liability under
any indemnity provisions of this Lease as to matters occurring or accruing
during the term hereof or by reason of Lessee's occupancy of the Premises.
13.3 INDUCEMENT RECAPTURE IN EVENT OF BREACH. Any agreement by Lessor for
free or abated rent or other charges applicable to the Premises, or for the
giving or paying by Lessor to or for Lessee of any cash or other bonus,
inducement or consideration for Lessee's entering into this Lease, all of which
concessions are hereinafter referred to as "INDUCEMENT PROVISIONS" shall be
deemed conditioned upon Lessee's full and faithful performance of all of the
terms, covenants and conditions of this Lease to be performed or observed by
Lessee during the term hereof as the same may be extended. Upon the occurrence
of a Breach (as defined in Paragraph 13.1) of this Lease by Lessee, any such
Inducement Provision shall automatically be deemed deleted from this Lease and
of no further force or effect, and any rent, other charge, bonus, inducement or
consideration theretofore abated, given or paid by Lessor under such an
Inducement Provision shall be immediately due and payable by Lessee to Lessor,
and recoverable by Lessor, as additional rent due under this Lease,
notwithstanding any subsequent cure of said Breach by Lessee. The acceptance by
Lessor of rent or the cure of the Breach which initiated the operation of this
Paragraph 13.3 shall not be deemed a waiver by Lessor of the provisions of this
Paragraph 13.3 unless specifically so stated in writing by Lessor at the time of
such acceptance.
13.4 LATE CHARGES. Lessee hereby acknowledges that late payment by Lessee to
Lessor of rent and other sums due hereunder will cause Lessor to incur costs not
contemplated by this Lease, the exact amount of which will be extremely
difficult to ascertain. Such costs include, but are not limited to, processing
and accounting charges, and late charges which may be imposed upon Lessor by the
terms of any ground lease, mortgage or deed of trust covering the Premises.
Accordingly, if any installment of rent or other sum due from Lessee shall not
be received by Lessor or Lessor's designee within ten (10) days after such
amount shall be due, then, without any requirement for notice to Lessee, Lessee
shall pay to Lessor a late charge equal to six percent (6%) of such overdue
amount. The parties hereby agree that such late charge represents a fair and
reasonable estimate of the costs Lessor will incur by reason of late payment by
Lessee. Acceptance of such late charge by Lessor shall in no event constitute a
waiver of Lessee's Default or Breach with respect to such overdue amount, nor
prevent Lessor from exercising any of the other rights and remedies granted
hereunder. In the event that a late charge is payable hereunder, whether or not
collected, for three (3) consecutive installments of Base Rent, then
notwithstanding Paragraph 4.1 or any other provision of this Lease to the
contrary, Base Rent shall, at Lessor's option, become due and payable quarterly
in advance.
13.5 BREACH BY LESSOR. Lessor shall not be deemed in breach of this Lease
unless Lessor fails within a reasonable time to perform an obligation required
to be performed by Lessor. For purposes of this paragraph 13.5, a reasonable
time shall in no event be less than thirty (30) days after receipt by Lessor,
and by any Lender(s) whose name and address shall have been furnished to Lessee
in writing for such purpose, of written notice specifying wherein such
obligation of Lessor has not been performed; provided, however, that if the
nature of Lessor's obligation is such that more than thiry (30) days after such
notice are reasonably required for its performance, then Lessor shall not be in
breach of this Lease if performance is commenced within such thirty (30) day
period and thereafter diligently pursued to completion.
14. CONDEMNATION. If the Premises or any portion thereof are taken under
the power of eminent domain or sold under the threat of the exercise of said
power (all of which are herein called "condemnation"), this Lease shall
terminate as to the part so taken as of the date the condemning authority takes
title or possession, whichever first occurs. If more than ten percent (10%) of
the floor area of the Premises, or more than twenty-five percent (25%) of the
portion of the Common Areas designated for Lessee's parking, is taken by
condemnation, Lessee may, at Lessee's option, to be exercised in writing within
ten (10) days after Lessor shall have given Lessee written notice of such taking
(or in the absence of such notice, within ten (10) days after the condemning
authority shall have taken possession) terminate this Lease as of the date the
condemning authority takes such possession. If Lessee does not terminate this
Lease in accordance with the foregoing, this Lease shall remain in full force
and effect as to the portion of the Premises remaining, except that the Base
Rent shall be reduced in the same proportion as the rentable floor area of the
Premises taken bears to the total rentable floor area of the Premises. No
reduction of Base Rent shall occur if the condemnation does not apply to any
portion of the Premises. Any award for the taking of all or any part of the
Premises under the power of eminent domain or any payment made under threat of
the exercise of such power shall be the property of Lessor, whether such award
shall be made as compensation for diminution of value of the leasehold or for
the taking of the fee, or as severance damages; provided, however, that Lessee
shall be entitled to any compensation, separately awarded to Lessee for Lessee's
relocation expenses and/or loss of Lessee's Trade Fixtures. In the event that
this Lease is not terminated by reason of such condemnation, Lessor shall to the
extent of its net severance damages received, over and above Lessee's Share of
the legal and other expenses incurred by Lessor in the condemnation matter,
repair any damage to the Premises caused by such condemnation authority. Lessee
shall be responsible for the payment of any amount in excess of such net
severance damages required to complete such repair.
15. BROKERS' FEES
15.4 REPRESENTATIONS AND WARRANTIES. Lessee and Lessor each represent and
warrant to the other that it has had no dealings with any person, firm, broker
or finder in connection with the negotiation of this Lease and/or the
consummation of the transaction contemplated hereby, and that no broker or other
person, firm or entity other than said named Broker(s) is entitled to any
commission or finder's fee in connection with said transaction. Lessee and
Lessor do each hereby agree to indemnify, protect, defend and hold the other
harmless from and against liability for compensation or charges which may be
claimed by any such unnamed broker, finder or other similar party by reason of
any dealings or actions of the indemnifying Party, including any costs,
expenses, and/or attorneys' fees reasonably incurred with respect thereto.
16. TENANCY AND FINANCIAL STATEMENTS.
16.1 TENANCY STATEMENT. Each Party (as "RESPONDING PARTY") shall within
ten (10) days after written notice from the other Party (the "REQUESTING PARTY")
execute, acknowledge and deliver to the Requesting Party a statement in writing
in a form similar to the then most current "TENANCY STATEMENT" form published by
the American Industrial Real Estate Association, plus such additional
information, confirmation and/or statements as may be reasonably requested by
the Requesting Party.
16.2 FINANCIAL STATEMENT. If Lessor desires to finance, refinance, or sell
the Premises or the Building, or any part thereof, Lessee and all Guarantors
shall deliver to any potential lender or purchaser designated by Lessor such
financial statements of Lessee and such Guarantors as may be reasonably required
by such lender or purchaser, including but not limited to Lessee's financial
statements for the past three (3) years. All such financial statements shall be
received by Lessor and such lender or purchaser in confidence and shall be used
only for the purposes herein set forth.
17. LESSOR'S LIABILITY. The term "LESSOR" as used herein shall mean the owner
or owners at the time in question of the fee title to the Premises. In the event
of a transfer of Lessor's title or interest in the Premises or in this Lease,
Lessor shall deliver to the transferee or assignee (in cash or by credit) any
unused Security Deposit held by Lessor at the time of such transfer or
assignment. Except as provided in Paragraph 15.3, upon such transfer or
assignment and delivery of the Security Deposit, as aforesaid, the prior Lessor
shall be relieved of all liability with respect to the obligations and/or
covenants under this Lease thereafter to be performed by the Lessor. Subject to
the foregoing, the obligations and/or covenants in this Lease to be performed by
the Lessor shall be binding only upon the Lessor as hereinabove defined.
18. SEVERABILITY. The invalidity of any provision of this Lease, as determined
by a court of competent jurisdiction, shall in no way affect the validity of any
other provision hereof.
19. INTEREST ON PAST-DUE OBLIGATIONS. Any monetary payment due Lessor
hereunder, other than late charges, not received by Lessor within ten (10) days
following the date on which it was due, shall bear interest from the date due
at the prime rate charged by the largest state chartered bank in the state in
which the Premises are located plus four percent (4%) per annum, but not
exceeding the maximum rate allowed by law, in addition to the potential late
charge provided for in Paragraph 13.4.
20. TIME OF ESSENCE. Time is of the essence with respect to the performance
of all obligations to be performed or observed by the Parties under this Lease.
21. RENT DEFINED. All monetary obligations of Lessee to Lessor under the
terms of this Lease are deemed to be rent.
22. NO PRIOR OR OTHER AGREEMENTS This Lease contains
all agreements between the Parties with respect to any matter mentioned herein,
and no other prior or contemporaneous agreement or understanding shall be
effective. Lessor and Lessee each represents and warrants to the Brokers that it
has made, and is relying solely upon, its own investigation as to the nature,
quality, character and financial responsibility of the other Party to this Lease
and as to the nature, quality and character of the Premises.
23. NOTICES.
23.1 NOTICE REQUIREMENTS. All notices required or permitted by this Lease
shall be in writing and may be delivered in person (by hand or by messenger or
courier service) or may be sent by regular, certified or registered mail or U.S.
Postal Service Express Mail, with postage prepaid, or by facsimile transmission
during normal business hours, and shall be deemed sufficiently given if served
in a manner specified in this Paragraph 23. The addresses noted adjacent to a
Party's signature on this Lease shall be that Party's address for delivery or
mailing of notice purposes. Either Party may by written notice to the other
specify a different address for notice purposes, except that upon Lessee's
taking possession of the Premises, the Premises shall constitute Lessee's
address for the purpose of mailing or delivering notices to Lessee. A copy of
all notices required or permitted to be given to Lessor hereunder shall be
concurrently transmitted to such party or parties at such addresses as Lessor
may from time to time hereafter designate by written notice to Lessee.
23.2 DATE OF NOTICE. Any notice sent by registered or certified mail, return
receipt requested, shall be deemed given on the date of delivery shown on the
receipt card, or if no delivery date is shown, the postmark thereon. If sent by
regular mail, the notice shall be deemed given forty-eight (48) hours after the
same is addressed as required herein and mailed with postage prepaid. Notices
delivered by United States Express Mail or overnight courier that guarantees
next day
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delivery shall be deemed given twenty-four (24) hours after delivery of the same
to the United States Postal Service or courier. If any notice is transmitted by
facsimile transmission or similar means, the same shall be deemed served or
delivered upon telephone or facsimile confirmation of receipt of the
transmission thereof, provided a copy is also delivered via delivery or mail. If
notice is received on a Saturday or a Sunday or a legal holiday, it shall be
deemed received on the next business day.
24. WAIVERS. No waiver by Lessor of the Default or Breach of any term, covenant
or condition hereof by Lessee, shall be deemed a waiver of any other term,
covenant or condition hereof, or of any subsequent Default or Breach by Lessee
of the same or any other term, covenant or condition hereof. Lessor's consent
to, or approval of, any such act shall not be deemed to render unnecessary the
obtaining of Lessor's consent to, or approval of, any subsequent or similar act
by Lessee, or be construed as the basis of an estoppel to enforce the
provision or provisions of this Lease requiring such consent. Regardless of
Lessor's knowledge of a Default or Breach at the time of accepting rent, the
acceptance of rent by Lessor shall not be a waiver of any Default or Breach by
Lessee of any provision hereof. Any payment given Lessor by Lessee may be
accepted by Lessor on account of moneys or damages due Lessor, notwithstanding
any qualifying statements or conditions made by Lessee in connection therewith,
which such statements and/or conditions shall be of no force or effect
whatsoever unless specifically agreed to in writing by Lessor at or before the
time of deposit of such payment.
25. RECORDING. Either Lessor or Lessee shall, upon request of the other,
execute, acknowledge and deliver to the other a short form memorandum of this
Lease for recording purposes. The Party requesting recordation shall be
responsible for payment of any fees or taxes applicable thereto.
26. NO RIGHT TO HOLDOVER. Lessee has no right to retain possession of the
Premises or any part thereof beyond the expiration or earlier termination of
this Lease. In the event that Lessee holds over in violation of this Paragraph
26 then the Base Rent payable from and after the time of the expiration or
earlier termination of this Lease shall be increased to two hundred
percent (200%) of the Base Rent applicable during the month immediately
preceding such expiration or earlier termination. Nothing contained herein shall
be construed as a consent by Lessor to any holding over by Lessee.
27. CUMULATIVE REMEDIES. No remedy or election hereunder shall be deemed
exclusive but shall, wherever possible, be cumulative with all other remedies at
law or in equity.
28. COVENANTS AND CONDITIONS. All provisions of this Lease to be observed or
performed by Lessee are both covenants and conditions.
29. BINDING EFFECT; CHOICE OF LAW. This Lease shall be binding upon the
Parties, their personal representatives, successors and assigns and be governed
by the laws of the State in which the Premises are located. Any litigation
between the Parties hereto concerning this Lease shall be initiated in the
county in which the Premises are located.
30. SUBORDINATION; ATTORNMENT; NON-DISTURBANCE.
30.1 SUBORDINATION. This Lease and any Option granted hereby shall be
subject and subordinate to any ground lease, mortgage, deed of trust, or other
hypothecation or security device (collectively, "SECURITY DEVICE"), now or
hereafter placed by Lessor upon the real property of which the Premises are a
part, to any and all advances made on the security thereof, and to all renewals,
modifications, consolidations, replacements and extensions thereof. Lessee
agrees that the Lenders holding any such Security Device shall have no duty,
liability or obligation to perform any of the obligations of Lessor under this
Lease, but that in the event of Lessor's default with respect to any such
obligation, Lessee will give any Lender whose name and address have been
furnished Lessee in writing for such purpose notice of Lessor's default pursuant
to Paragraph 13.5. If any Lender shall elect to have this Lease and/or any
Option granted hereby superior to the lien of its Security Device and shall give
written notice thereof to Lessee, this Lease and such Options shall be deemed
prior to such Security Device, notwithstanding the relative dates of the
documentation or recordation thereof.
30.2 ATTORNMENT. Subject to the non-disturbance provisions of Paragraph
30.3, Lessee agrees to attorn to a Lender or any other party who acquires
ownership of the Premises by reason of a foreclosure of a Security Device, and
that in the event of such foreclosure, such new owner shall not: (i) be liable
for any act or omission of any prior lessor or with respect to events occurring
prior to acquisition of ownership, (ii) be subject to any offsets or defenses
which Lessee might have against any prior lessor, or (iii) be bound by
prepayment of more than one month's rent.
30.3 NON-DISTURBANCE. With respect to Security Devices entered into by
Lessor after the execution of this lease, Lessee's subordination of this Lease
shall be subject to receiving assurance (a "non-disturbance agreement") from the
Lender that Lessee's possession and this Lease, including any options to extend
the term hereof, will not be disturbed so long as Lessee is not in Breach hereof
and attorns to the record owner of the Premises.
30.4 SELF-EXECUTING. The agreements contained in this Paragraph 30 shall be
effective without the execution of any further documents; provided, however,
that upon written request from Lessor or a Lender in connection with a sale,
financing or refinancing of Premises, Lessee and Lessor shall execute such
further writings as may be reasonably required to separately document any such
subordination or non-subordination, attornment and/or non disturbance agreement
as is provided for herein.
31. ATTORNEYS' FEES. If any Party brings an action or proceeding
to enforce the terms hereof or declare rights hereunder, the Prevailing Party
(as hereafter defined) in any such proceeding, action, or appeal thereon, shall
be entitled to reasonable attorneys' fees. Such fees may be awarded in the same
suit or recovered in a separate suit, whether or not such action or proceeding
is pursued to decision or judgment. The term "PREVAILING PARTY" shall include,
without limitation, a Party who substantially obtains or defeats the
relief sought, as the case may be, whether by compromise, settlement, judgment,
or the abandonment by the other Party of its claim or defense. The
attorneys' fee award shall not be computed in accordance with any court fee
schedule, but shall be such as to fully reimburse all attorneys' fees reasonably
incurred. Lessor shall be entitled to attorneys' fees, costs and expenses
incurred in preparation and service of notices of Default and consultations in
connection therewith, whether or not a legal action is subsequently commenced in
connection with such Default or resulting Breach.
32. LESSOR'S ACCESS; SHOWING PREMISES; REPAIRS. Lessor and Lessor's agents
shall have the right to enter the Premises at any time, in the case of an
emergency, and otherwise at reasonable times for the purpose of showing the same
to prospective purchasers, lenders, or lessees, and making such alterations,
repairs, improvements or additions to the Premises or to the Building, as Lessor
may reasonably deem necessary. Lessor may at any time place on or about the
Premises or Building any ordinary "For Sale" signs and Lessor may at any time
during the last one hundred eighty (180) days of the term hereof place on or
about the Premises any ordinary "For Lease" signs. All such activities of Lessor
shall be without abatement of rent or liability to Lessee.
33. AUCTIONS. Lessee shall not conduct, nor permit to be conducted, either
voluntarily or involuntarily, any auction upon the Premises without first having
obtained Lessor's prior written consent. Notwithstanding anything to the
contrary in this Lease, Lessor shall not be obligated to exercise any standard
of reasonableness in determining whether to grant such consent.
34. SIGNS. Lessee shall not place any sign upon the exterior of the Premises
or the Building, except that Lessee may, with Lessor's prior written consent,
install (but not on the roof) such signs as are reasonably required to advertise
Lessee's own business so long as such signs are in a location designated by
Lessor and comply with Applicable Requirements and the signage criteria
established for the Industrial Center by Lessor. The installation of any sign on
the Premises by or for Lessee shall be subject to the provisions of Paragraph 7
(Maintenance, Repairs, Utility Installations, Trade Fixtures and Alterations).
Unless otherwise expressly agreed herein, Lessor reserves all rights to the use
of the roof of the Building, and the right to install advertising signs on the
Building, including the roof, which do not unreasonably interfere with the
conduct of Lessee's business; Lessor shall be entitled to all revenues from such
advertising signs.
35. TERMINATION; MERGER. Unless specifically stated otherwise in writing by
Lessor, the voluntary or other surrender of this Lease by Lessee, the mutual
termination or cancellation hereof, or a termination hereof by Lessor for Breach
by Lessee, shall automatically terminate any sublease or lesser estate in the
Premises; provided, however, Lessor shall, in the event of any such surrender,
termination or cancellation, have the option to continue any one or all of any
existing subtenancies. Lessor's failure within ten (10) days following any such
event to make a written election to the contrary by written notice to the holder
of any such lesser interest, shall constitute Lessor's election to have such
event constitute the termination of such interest.
36. CONSENTS.
(a) Except for Paragraph 33 hereof (Auctions) or as otherwise provided
herein, wherever in this Lease the consent of a Party is required to an act by
or for the other Party, such consent shall not be unreasonably withheld or
delayed. Lessor's actual reasonable costs and expenses (including but not
limited to architects', attorneys', engineers' and other consultants' fees)
incurred in the consideration of, or response to, a request by Lessee for any
Lessor consent pertaining to this Lease or the Premises, including but not
limited to consents to an assignment a subletting or the presence or use of a
Hazardous Substance, shall be paid by Lessee to Lessor upon receipt of an
invoice and supporting documentation therefor. In addition to the deposit
described in Paragraph 12.2(e), Lessor may, as a condition to considering any
such request by Lessee, require that Lessee deposit with Lessor an amount of
money (in addition to the Security Deposit held under Paragraph 5) reasonably
calculated by Lessor to represent the cost Lessor will incur in considering and
responding to Lessee's request. Any unused portion of said deposit shall be
refunded to Lessee without interest. Lessor's consent to any act, assignment of
this Lease or subletting of the Premises by Lessee shall not constitute an
acknowledgment that no Default or Breach by Lessee of this Lease exists, nor
shall such consent be deemed a waiver of any then existing Default or Breach,
except as may be otherwise specifically stated in writing by Lessor at the time
of such consent.
(b) All conditions to Lessor's consent authorized by this Lease are
acknowledged by Lessee as being reasonable. The failure to specify herein any
particular condition to Lessor's consent shall not preclude the impositions by
Lessor at the time of consent of such further or other conditions as are then
reasonable with reference to the particular matter for which consent is being
given.
37. GUARANTOR.
37.1 FORM OF GUARANTY. If there are to be any Guarantors of this Lease per
Paragraph 1.11, the form of the guaranty to be executed by each such Guarantor
shall be in the form most recently published by the American Industrial Real
Estate Association, and each such Guarantor shall have the same obligations as
Lessee under this lease, including but not limited to the obligation to provide
the Tenancy Statement and information required in Paragraph 16.
37.2 ADDITIONAL OBLIGATIONS OF GUARANTOR. It shall constitute a Default of
the Lessee under this Lease if any such Guarantor fails or refuses, upon
reasonable request by Lessor to give: (a) evidence of the due execution of the
guaranty called for by this Lease, including the authority of the Guarantor (and
of the party signing on Guarantor's behalf) to obligate such Guarantor on said
guaranty, and resolution of its board of directors authorizing the making of
such guaranty, together with a certificate of incumbency showing the signatures
of the persons authorized to sign on its behalf, (b) current financial
statements of Guarantor as may from time to time be requested by Lessor, (c) a
Tenancy Statement, or (d) written confirmation that the guaranty is still in
effect.
38. QUIET POSSESSION. Upon payment by Lessee of the rent for the Premises
and the performance of all of the covenants, conditions and provisions on
Lessee's part to be observed and performed under this Lease, Lessee shall have
quiet possession of the Premises for the entire term hereof subject to all of
the provisions of this Lease.
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39. OPTIONS
39.1 DEFINITION. As used in this Lease, the word "OPTION" has the following
meaning: (a) the right to extend the term of this Lease or to renew this Lease
or to extended or renew any lease that Lessee has on other property of Lessor;
(b) the right of first refusal to lease the Premises or the right of first offer
to lease the Premises or the right of first refusal to lease other property of
Lessor or the right of first offer to lease other property of Lessor; (c) the
right to purchase the Premises, or the right of first refusal to purchase the
Premises, or the right of first offer to purchase the Premises, or the right to
purchase other property of Lessor, or the right of first refusal to purchase
other property of Lessor, or the right of first offer to purchase other property
of Lessor.
39.2 OPTIONS PERSONAL TO ORIGINAL LESSEE. Each Option granted to Lessee in
this Lease is personal to the original Lessee named in Paragraph 1.1 hereof, and
cannot be voluntarily or involuntarily assigned or exercised by any person or
entity other than said original Lessee while the original Lessee is in full and
actual possession of the Premises and without the intention of thereafter
assigning or subletting. The Options, if any, herein granted to Lessee are not
assignable, either as a part of an assignment of this Lease or separately or
apart therefrom, and no Option may be separated from this Lease in any manner,
by reservation or otherwise.
39.3 MULTIPLE OPTIONS. In the event that Lessee has any multiple Options to
extend or renew this Lease, a later option cannot be exercised unless the prior
Options to extend or renew this Lease have been validly exercised.
39.4 EFFECT OF DEFAULT ON OPTIONS.
(a) Lessee shall have no right to exercise an Option, notwithstanding
any provision in the grant of Option to the contrary: (i) during the period
commencing with the giving of any notice of Default under Paragraph 13.1 and
continuing until the noticed Default is cured, or (ii) during the period of time
any monetary obligation due Lessor from Lessee is unpaid (without regard to
whether notice thereof is given Lessee), or (iii) during the time Lessee is in
Breach of this Lease, or (iv) in the event that Lessor has given to Lessee three
(3) or more notices of separate Defaults under Paragraph 13.1 during the twelve
(12) month period immediately preceding the exercise of the Option, whether or
not the Defaults are cured.
(b) The period of time within which an Option may be exercised shall
not be extended or enlarged by reason of Lessee's inability to exercise an
Option because of the provisions of Paragraph 39.4(a)
(c) All rights of Lessee under the provisions of an Option shall
terminate and be of no further force or effect, notwithstanding Lessee's due and
timely exercise of the Option, if, after such exercise and during the term of
this Lease, (i) Lessee fails to pay to Lessor a monetary obligation of Lessee
for a period of thirty (30) days after such obligation becomes due (without any
necessity of Lessor to give notice thereof to Lessee), or (ii) Lessor gives to
Lessee three (3) or more notices of separate Defaults under Paragraph 13.1
during any twelve (12) month period, whether or not the Defaults are cured, or
(iii) if Lessee commits a Breach of this Lease.
40. RULES AND REGULATIONS. Lessee agrees that it will abide by, and keep and
observe all reasonable rules and regulations ("Rules and Regulations") which
Lessor may make from time to time for the management, safety, care, and
cleanliness of the grounds, the parking and unloading of vehicles and the
preservation of good order, as well as for the convenience of other occupants or
tenants of the Building and the Industrial Center and their invitees.
41. SECURITY MEASURES. Lessee hereby acknowledges that the rental payable to
Lessor hereunder does not include the cost of guard service or other security
measures, and that Lessor shall have no obligation whatsoever to provide same.
Lessee assumes all responsibility for the protection of the Premises, Lessee,
its agents and invitees and their property from the acts of third parties.
42. RESERVATIONS. Lessor reserves the right, from time to time, to grant,
without the consent or joinder of Lessee, such easements, rights of way,
utility raceways, and dedications that Lessor deems necessary, and to cause the
recordation of parcel maps and restrictions, so long as such easements, rights
of way, utility raceways, dedications, maps and restrictions do not reasonably
interfere with the use of the Premises by Lessee. Lessee agrees to sign any
documents reasonably requested by Lessor to effectuate any such easement
rights, dedication, map or restrictions.
43. PERFORMANCE UNDER PROTEST. If at any time a dispute shall arise as to
any amount or sum of money to be paid by one Party to the other under the
provisions hereof, the Party against whom the obligation to pay the money is
asserted shall have the right to make payment "under protest" and such payment
shall not be regarded as a voluntary payment and there shall survive the right
on the part of said Party to institute suit for recovery of such sum. If it
shall be adjudged that there was no legal obligation on the part of said Party
to pay such sum or any part thereof, said Party shall be entitled to recover
such sum or so much thereof as it was not legally required to pay under the
provisions of this Lease.
44. AUTHORITY. If either Party hereto is a corporation, trust, or general or
limited partnership, each individual executing this Lease on behalf of such
entity represents and warrants that he or she is duly authorized to execute and
deliver this Lease on its behalf. If Lessee is a corporation, trust or
partnership, Lessee shall, within thirty (30) days after request by Lessor,
deliver to Lessor evidence satisfactory to Lessor of such authority.
45. CONFLICT. Any conflict between the printed provisions of this Lease and
the typewritten or handwritten provisions shall be controlled by the typewritten
or handwritten provisions.
46. OFFER. Preparation of this Lease by either Lessor or Lessee or Lessor's
agent or Lessee's agent and submission of same to Lessee or Lessor shall not be
deemed an offer to lease. This Lease is not intended to be binding until
executed and delivered by all Parties hereto.
47. AMENDMENTS. This Lease may be modified only in writing, signed by the
parties in interest at the time of the modification. The Parties shall amend
this Lease from time to time to reflect any adjustments that are made to the
Base Rent or other rent payable under this Lease. As long as they do not
materially change Lessee's obligations hereunder, Lessee agrees to make such
reasonable non-monetary modifications to this Lease as may be reasonably
required by an institutional insurance company or pension plan Lender in
connection with the obtaining of normal financing or refinancing of the property
of which the Premises are a part.
48. MULTIPLE PARTIES. Except as otherwise expressly provided herein, if more
than one person or entity is named herein as either Lessor or Lessee, the
obligations of such multiple parties shall be the joint and several
responsibility of all persons or entities named herein as such Lessor or Lessee.
Initials: PH
-----
RG
-----
(C) American Industrial Real Estate Assoiation 1993 MULTI-TENTANT--MODIFIED NET
-10-
<PAGE>
LESSOR AND LESSEE HAVE CAREFULLY READ AND REVIEWED THIS LEASE AND EACH TERM AND
PROVISION CONTAINED HEREIN, AND BY THE EXECUTION OF THIS LEASE SHOW THEIR
INFORMED AND VOLUNTARY CONSENT THERETO. THE PARTIES HEREBY AGREE THAT, AT THE
TIME THIS LEASE IS EXECUTED, THE TERMS OF THIS LEASE ARE COMMERCIALLY REASONABLE
AND EFFECTUATE THE INTENT AND PURPOSE OF LESSOR AND LESSEE WITH RESPECT TO THE
PREMISES.
IF THIS LEASE HAS BEEN FILLED IN, IT HAS BEEN PREPARED FOR YOUR ATTORNEY'S
REVIEW AND APPROVAL. FURTHER, EXPERTS SHOULD BE CONSULTED TO EVALUATE THE
CONDITION OF THE PROPERTY FOR THE POSSIBLE PRESENCE OF ASBESTOS,
UNDERGROUND STORAGE TANKS OR HAZARDOUS SUBSTANCES. NO REPRESENTATION OR
RECOMMENDATION IS MADE BY THE AMERICAN INDUSTRIAL REAL ESTATE ASSOCIATION
OR BY THE REAL ESTATE BROKERS OR THEIR CONTRACTORS, AGENTS OR EMPLOYEES AS
TO THE LEGAL SUFFICIENCY, LEGAL EFFECT, OR TAX CONSEQUENCES OF THIS LEASE
OR THE TRANSACTION TO WHICH IT RELATES; THE PARTIES SHALL RELY SOLELY UPON
THE ADVICE OF THEIR OWN COUNSEL AS TO THE LEGAL AND TAX CONSEQUENCES OF
THIS LEASE. IF THE SUBJECT PROPERTY IS IN A STATE OTHER THAN CALIFORNIA, AN
ATTORNEY FROM THE STATE WHERE THE PROPERTY IS LOCATED SHOULD BE CONSULTED.
The parties hereto have executed this Lease at the place and on the dates
specified above their respective signatures.
Executed at: CAMARILLO, CA Executed at: CAMARILLO, CA
--------------------- -----------------------------
on: 3-13-98 on:
------------------------------ ------------------------------
By LESSEE: By LESSEE:
High Tech No. 1, Ltd. Advanced Photonix, Inc.
- - ------------------------------- ---------------------------------
- - ------------------------------- ---------------------------
By: /s/ Rod Gilbert By: /s/ P. J. Holmes
----------------------------- -------------------------------
Name Printed: Rod Gilbert Name Printed: Patrick J. Holmes
------------------- -------------------------------
Title: Vice President Title: Executive Vice President
------------------------- ---------------------------------
Address: 621 Via Alondra, Suite 602 Address: 1240 Avenida Acaso
---------------------------- --------------------------------
Camarillo, CA 93012-8095 Camarillo, CA 93012
---------------------------- --------------------------------
Telephone: (805) 388-4757 Telephone: (805) 987-0146
--------------------------- --------------------------------
Facsimile: (905) 388-9037 Facsimile: (805) 484-9935
--------------------------- --------------------------------
NOTE: These forms are often modified to meet changing requirements of law and
needs of the industry. Always write or call to make sure you are utilizing the
most current form: AMERICAN INDUSTRIAL REAL ESTATE ASSOCIATION, 345 So. Figueroa
St., M-1, Los Angeles, CA 90071. (213) 687-8777.
Initials: PH
-----
RG
-----
(C) American Industrial Real Estate Association 1993 MULTI-TENANT--MODIFIED NET
<PAGE>
ADDENDUM ONE TO STANDARD INDUSTRIAL/COMMERCIAL MULTI-TENANT LEASE-MODIFIED NET,
DATED FEBRUARY 23, 1998, BY AND BETWEEN HIGH TECH NO. 1, LTD., A CALIFORNIA
LIMITED PARTNERSHIP, AS LESSOR, AND ADVANCED PHOTONIX, INC., A DELAWARE
CORPORATION, AS LESSEE, FOR THE PROPERTY LOCATED AT 1240 AVENIDA ACASO,
CAMARILLO, CALIFORNIA
Paragraph 1.5 (Continued) Base Rent:
The Base Rent for the Premises shall be as follows:
March 1, 1998-March 31, 1998 $24,686.29 per month
April 1, 1998-April 30, 1998 $1,122.29 per month
May 1, 1998-August 31, 1998 $24,686.29 per month
September 1, 1998-February 28, 1999 $23,564.00 per month
March 1, 1999-February 29, 2000 $24,153.00 per month
March 1, 2000-February 28, 2001 $24,757.00 per month
March 1, 2001-February 28, 2002 $25,376.00 per month
March 1, 2002-February 28, 2003 $26,010.00 per month
March 1, 2003-February 29, 2004 $26,661.00 per month
Paragraph 6.2( c ) (Continued) Indemnification
Notwithstanding anything to the contrary contained in Paragraph 6.2( c ), this
indemnity shall apply to Lessee's occupancy of the Premises commencing October
1, 1992.
Paragraph 7.1 (a) (Continued) Lessee's Obligations
The following items shall be not be the responsibility of the Lessee hereunder:
1. Depreciation, interest and principal payments on mortgages, and other debt
costs, if any;
2. Expenses directly resulting from the negligence of Lessor, its agents,
servants or employees;
3. Legal fees, space planners' fees, real estate brokers' leasing commissions,
and advertising expenses incurred in connection with the original development or
original leasing of the Building;
4. Costs for which Lessor is reimbursed by its insurance carrier (to the extent
that Lessee is not responsible for such insured loss) or Lessee's insurance
carrier;
5. Any bad debt loss, rent loss, or reserves for bad debts or rent loss suffered
by Lessor relative to other tenants in the Building;
6. The expense of extraordinary services provided exclusively to other tenants
in the Building; 7. The wages of any employee who does not devote substantially
all of his or her time to the Building; 8. Fines, penalties and interest to the
extent that they do not result due to Lessee's actions or negligence; Page 2
9. Amounts paid as ground rental by Lessor;
10. Costs, including permit, license and inspection costs, incurred with respect
to the installation of tenant improvements made for new tenants (other than
Lessee) in the Building or incurred in renovating or otherwise improving,
decorating, painting or redecorating vacant space for tenants or other occupants
of the Building. This does not include any costs associated with the Common
Areas;
11. Expenses in connection with services or other benefits which are not
provided to Lessee or for which Lessee is charged directly but which are
provided to another tenant or occupant of the Building.
<PAGE>
12. Lessee shall not be responsible for the replacement of the heating, air
conditioning and ventilation system. However, Lessee shall be responsible for
the cost of a maintenance contract as provided under paragraph 7.1 (b) as well
as any repairs as specified in paragraph 7.1 (a).
13. Lessee shall not be responsible for the replacement of the roof. However,
Lessee shall be responsible for roof maintenance and repair costs subject to a
$5,000 annual maximum in any calendar year.
Paragraph 11 (Continued) Utilities
A 3,749 square foot portion of the approximately 38,948 square feet that
comprise the Premises is serviced by separate water/sewer and electricity meters
that also service other space in the Building. Accordingly, Lessor and Lessee
agree that for proration purposes, the Lessee's share shall be 11.71% for
water/sewer and electricity as it applies to this 3,749 square foot portion of
the Premises. Gas is not provided to this 3,749 square foot portion.
Therefore, Lessee will not be separately charged its prorata share hereunder.
The remaining 35,199 square foot space has its own separate meters for water,
gas, and electricity.
Paragraph 49 Tenant Improvement Allowance
Lessor shall provide a retrofit improvement allowance of $79,436.00 to Lessee
for use in modifying the Premises. Such improvements to the Premises shall be
subject to Lessor's reasonable prior approval as further detailed in Paragraph
7.3 of the Lease. Such allowance paid to Lessee shall be funded based on actual
work completed and in place.
Paragraph 50 Option to Terminate Early
Provided that Lessee is not in Default under any of the terms, conditions, or
covenants of this Lease, Lessee shall have the right to cancel this Lease
effective August 31, 2002 based on the Lessor receiving (1) written notice from
Lessee of its intent to cancel pursuant to this paragraph 50 at least six months
prior, and (2) a cancellation payment equal to the unamortized portion of the
sum of $23,564.00 and the amount of the Page 3
Tenant Improvement Allowance provided in paragraph 49 that is actually funded by
Lessor to Lessee based on the following:
a. 9% discount rate;
b. total amortization term of sixty months beginning
September 1, 1998, and;
c. early termination period of forty eight-months.
As an example, if the entire Tenant Improvement Allowance is actually funded to
Lessee, the cancellation payment would be equal to $33,295.26.
Paragraph 51 Right of First Refusal
Beginning in the thirteenth (13th) month of the Lease and provided Lessee is not
in Default under any of the terms, conditions, or covenants of this Lease,
Lessor shall notify Lessee in writing of such lease proposals that Lessor is
prepared to accept on contiguous space in the Building. Lessee shall have three
(3) business days after receipt of Lessor's notice to accept or reject such
lease proposal in writing.
<PAGE>
Paragraph 52 Termination of Existing Leases
The existing leases dated October 26, 1987 and September 12, 1994, by and
between High Tech No. 1, Ltd. and Advanced Photonix, Inc. (successor to Silicon
Detector Corporation) for the Premises shall be terminated simultaneous to the
Commencement Date. The existing security deposits for each lease, $50,000 and
$3,712 , shall be refunded to Lessee less the Security Deposit ($23,564.00)
referenced in Paragraph 1.7 hereunder.
LESSOR: LESSEE:
HIGH TECH NO. 1, LTD., A ADVANCED PHOTONIX, INC.,
CALIFORNIA LIMITED PARTNERSHIP A DELAWARE CORPORATION
/s/Roderick F. Gilbert /s/ P. J. Holmes
By: Roderick F. Gilbert By:Patrick J. Holmes
Vice President Title:Executive Vice President
TOLD Corporation
General Partner
<PAGE>
Exhibit A Page 1 of 2
Site Summary
Picture of Site Plan
<PAGE>
Exhibit A Page 2 of 2
Portion of 1st Floor of Bldg 1120 Avenida Acaso, Camarillo, Ca
Premises of Advanced Photonix shown in Diagonal Line Hatching //////
<PAGE>
EXHIBIT B
ADVANCED PHOTONIX INCORPORATED PROPRIETARY DOCUMENT
**********DO NOT DUPLICATE**********
DOCUMENT NO. PAGE
931-01-009 1
REV. NC A B C D E
P R O C E D U R E S P E C I F I C A T I O N
DATE: July 22, 1988
TITLE:
MSDS LIST
PURPOSE:
To list all MSDS sheets on file for stock items.
DESCRIPTION:
To define all MSDS(s) on file by vendor and current revision level and to
define areas of use for those associated stock items.
R E V I S I O N S
REV DATE PAGES ECO INCORP. DESCRIPTION APPRV
NC 7-22-88 All -- New release.
A 6-27-89 All -- Update for current information
B 3-16-92 ALL -- Update
C 2-10-94 All -- Complete update
D 10-31-94 All -- Update
E 12.21.95 All 6306 Add new MSDS; Update.
/s/R. Dowell 1-4-96 /s/R.Forrest 1-4-96 /s/R. Forrest 1-4-96
----------------- --------------------------- -------------------------
PREPARED BY DATE ENGINEERING DATE MANUFACTURING DATE
/s/ P. Sharman 1-4-96 R. Dowell 1-4-96
-------------------------- ----------------------------
Q.A. DATE SAFETY OFFICER DATE
FORM # 400-10-001 MSDSLIST.Pg1
<PAGE>
MSDS CODED LIST FOR MANUFACTURING OPERATING SUPPLIES
Legend
A Ashland Chemical KS Kester Solder
AB Ablestik Labs KTI KTI
AH American Hoechst Corp.
AS Allied Signal L Leeds & Northrup Inst.
AZ AZ Photoresist LD Lord Chemical Products
LO Loctite
B J.T. Baker M 3M
BTI Big Three Industries MA Mallinckrodt
BS Brewer Science MC Morton Coatings
MG M.G. Industries
MI Microse, Inc.
C Carborundum MK Markem Corp
CE Cerac MR Materials Research
CG Ciba-Geigy MU Multicore Solders, Inc.
CH Chempure MWS MWS Wire Industries
CL Colonial
CP Chem-Pac NP Norland Products
CRT Courtaulds NSS National Sanitary Supply
D Devcon OH Olin Hunt Specialties
DU DuPont Electronics OI Owens Illinois
DX Dexter Electronics OL Olin
DY Dymax Corp. O Oakite
EC Emerson & Cuming Inc. P Pfizer
EL Electro-Lite Corp PO Polaroid
EM EM Science PRC Products Reserach & Chemical
EP Eppley Labs PT Products Techniques Inc.
ESP ESP Solder Plus PX Polytronix
ESPI Eslectronic Space Products Int.
ET Epoxy Technology SCH Schumacher
SL Summers Lab
F Film Microelectronic SLI Sta-Lube Inc.
FMC FMC Corp.
T Testor Corp.
G Gast Mfg. Corp. TR Transene Co.
GE G.E. Silicones
VW Van Waters & Rogers
HS Humiseal
WD WD40 Co.
ICA Indium Corp of America WRG WR Grace & Co.
IM Insulating Materials
IV Inland Vacuum Industries
LOCATION CODES
WF Wafer Fabrication SR Stockroom
ASSY Commercial Assembly MNT Maintenance
MIL Military Assembly SO Safety Officer
APD APD Research/Assembly
<PAGE>
1.0 REAGENTS (201-XX-XXX) SERIES
1.1 Acids (201-10-XXX)
INVENTORY NO. LOCATION DESCRIPTION MSDS
201-10-001 SR, APD, MNT, Blue Indicating Gel WRG 1/1/90
MIL, SO,ASSY,
WF
201-10-010 SR, APD, MNT, Nitric Acid, MOS Grade B 11/3/95
SO, ASSY, MIL,
WF
201-10-020 SR, APD, MIL, Sulphuric Acid, MOS Grade B 9/9/86
MNT, SO, ASSY,
WF
201-10-030 SR, APD, MIL, Hydrofluoric Acid, MOS Grade B 5/1/89
MNT, SO, ASSY,
WF
201-10-031 SR, APD, MIL, 6-1 Buffered Hydrofluoric B 5/1/89
MNT, SO, ASSY, Etchant, MOS Grade
WF
201-10-040 SR, APD, MIL, Hydrochloric Acid, MOS Grade B 5/1/89
MNT, SO, ASSY,
WF
201-10-050 SR, APD, MIL, Phosphoric Acid, MOS Grade B 5/1/89
MNT, SO, ASSY
WF
201-10-060 SR, APD, MIL, Acetic Acid, CMOS Grade B 3-9-92
MNT, SO, ASSY,
WF
201-10-070 SR, APD, MNT, Fluoboric Acid B 1/15/94
SO, ASSY, MIL,
WF
1.2 Basic Reagents (201-20-XXX)
201-20-001 SR, APD, MIL, Ammonium Hydroxide, MOS Grade B 9/7/89
MNT, SO, ASSY, MA 4/6/89
WF
201-20-002 SR, APD, MIL, Ceric Sulphate
MNT, SO, ASSY,
WF
<PAGE>
201-20-004 SR, APD, MIL, Potassium Hydroxide EM 1/14/91
MNT, SO, ASSY,
WF
201-20-005 SR, APD, MNT, Potassium Nitrate JM 2/19/91
SO, ASSY, MIL,
WF
1.3 Oxidizing Reagents (201-30-XXX)
201-30-001 SR, APD, MNT, Hydrogen Peroxide, OH 5/26/87
SO, ASSY, MIL, MOS grade B 5/1/89
WF
201-30-002 SR, APD, MNT, Hydrogen Peroxide, B 3/9/92
SO, ASSY, MIL, 3-3.5%
WF
201-40-001 SR, APD, MNT, Team Acid Neutralizer B 1/16/94
SO, ASSY, MIL,
WF
201-40-002 SR, APD, MNT, Solusorb-solvent Absorbant B 4/9/94
SO, ASSY, MIL,
WF
201-40-003 SR, APD, MNT, Bucaim Caustic Neutralizer B 1/16/94
SO, ASSY, MIL,
WF
2.0 ORGANIC LIQUIDS (202-XX-XXX) SERIES
2.1 Organic Solvents (202-10-XXX)
INVENTORY NO. LOCATION DESCRIPTION MSDS
202-10-001 SR, APD, MIL, Acetone, MOS Grade B 9/6/89
ASSY, MNT, SO
WF
202-10-002 SR, APD, MIL, N-Methyl-2-Pyrrolidone OH 1/9/91
SO, ASSY, MNT,
WF
202-10-010 SR, APD, MIL, Methyl Alcohol, MOS Grade B 5/1/89
MNT, SO, ASSY, (Methanol)
WF
<PAGE>
202-10-011 SR, APD, ASSY, Isopropyl Alcohol B 4/10/90
MIL, MNT, SO
WF
202-10-012 SR, ASSY, MIL Ethyl Alcohol (Ethanol) B 10/24/85
MNT, SO, APD,
WF
202-10-013 SR, APD, MNT, Ethylene Glycol B 3/3/95
SO, ASSY, MIL,
WF
202-10-014 SR, APD, MIL, Chlorobenzene
MNT, ASSY, SO,
WF
202-10-016 SR, ASSY, MIL Monoethanolamine B 3/9/92
MNT, SO, APD,
WF
202-10-017 SR, APD, MIL, Trichloroethane E200D in
MNT, SO, ASSY, Bubbler
WF
202-10-020 SR, APD, MIL, Trichloroethane SCH 2/85
ASSY, MNT, SO,
WF
202-10-022 SR, ASSY, MIL 2-Butoxyethanol B 3/17/92
MNT, SO, APD,
WF
202-10-028 SR, ASSY, APD, Genesolv 2004 AS 3/93
MIL, MNT, SO
WF
202-10-031 SR, SO, ASSY, Electronic Liquid FC-40, M 5/31/93
MIL, MNT, APD, Fluorinert
WF
202-10-032 SR, ASSY, APD, Flux, Mildly Activated (RMA) KS 1/1/92
MIL, MNT, SO
WF
202-10-033 SR, ASSY, APD, Electronic Liquid FC-77, M 11/19/92
MIL, MNT, SO Fluorinert
WF
<PAGE>
202-10-034 SR, ASSY, APD, Electronic Liquid FC-6046 M 11/27/91
MIL, MNT, SO Fluorinert
WF
202-10-035 SR, ASSY, APD, Electronic Liquid FC-70 M 7/14/93
MIL, MNT, SO Fluorinert
WF
202-10-036 SR, APD, MNT, SPI-129 Polymide Silicone M 6/14/93
SO, ASSY, MIL, Solution
WF
2.2 Photoresist, Developer and Strippers (202-20-XXX)
202-20-002 SR, WF, ASSY, AZ 1350-SF J Photoresist HC 1/20/95
MNT, SO, APD,
MIL
202-20-003 SR, WF, MIL, PTX 207 Opaque Coating PX 9/85
MNT, SO, APD,
ASSY
202-20-004 SR, WF, MIL, Microstrip OL 1/1/93
MNT, SO, APD,
ASSY
202-20-012 SR, WF, MIL, Resin Solution Red BS 6/88
MNT, SO, APD,
ASSY
202-20-013 SR, WF, MIL, Resin Solution Red BS 7/89
MNT, SO, APD,
ASSY
202-20-015 SR, WF, MIL, Poly (amin acid) Resin BS 3/88
MNT, SO, APD,
ASSY
202-20-017 SR, WF, MIL, Clear Polyimide PI 2570 DU 1/12/93
MNT, SO, APD,
ASSY
202-20-022 SR, WF, MIL, AZ Adhesion Promotor AH 1/10/89
MNT, SO, APD,
ASSY
202-20-030 SR, WF, MIL, MF 312 Developer AH 3/4/91
MNT, SO, APD,
ASSY
202-20-031 SR, WF, APD, Photoresist Stripper PRS-1000 B 4/22/92
MNT, SO, MIL, AH 7/17/89
ASSY
<PAGE>
202-20-032 SR, APD, MNT, Polyimide Siloxane Copolymer MI 6/14/93
SO, ASSY, MIL,
WF
202-20-033 SR, APD, MNT, AZ 300T Photoresist Stripper HC 5/15/95
SO, ASSY, MIL,
WF
202-20-034 SR, APD, MNT, SPI-1000H Silicone Polymide M 8/9/90
SO, ASSY, MIL, Solution
WF
202-20-035 SR, APD, MNT, AZ Developer HC 7/14/94
SO, ASSY, MIL,
WF
202-20-036 SR, APD, MNT, AZ 4620 Photoresist HC 2/13/95
SO, ASSY, MIL,
WF
2.3 Marking Ink and Solvents (202-30-XXX)
202-30-001 SR, ASSY, APD, Markem Ink, Black 7133 MK 1/22/939
MIL, MNT, SO
WF
202-30-002 SR, ASSY, APD, Markem Ink, White 7224 MK 12/15/92
MIL, MNT, SO
WF
202-30-003 SR, ASSY, APD, Markem Ink, Black 7254 MK 12/27/91
MIL, MNT, SO
WF
202-30-004 SR, ASSY, APD, Markem Ink, White 7132 MK 7/10/90
MNT, SO, MIL,
WF
202-30-005 SR, APD, MNT, AZ 1518 Photoresist HC 5/22/95
SO, ASSY, MIL,
WF
202-30-006 SR, ASSY, MIL, Markem Ink, White 7254 MK 12/27/91
MNT, SO, APD,
WF
202-30-010 SR, ASSY, APD, Markem Solvent, Cleaner 320 MK 7/20/90
MIL, MNT, SO
WF
202-30-020 SR, ASSY, APD, Auto probe Ink, Red 611-C MK 5/15/91
MNT, MIL, SO,
WF
<PAGE>
202-30-021 SR, ASSY, APD, Aqueous Ink Black L 5/72
MNT, MIL, SO,
WF
202-30-022 SR, ASSY, APD Aqueous Ink Black L 5/72
MNT, MIL, SO,
WF
202-30-023 SR, MIL, ASSY, Auto Probe Ink, Thinner
MNT, SO, APD,
WF
202-30-030 SR, MIL, ASSY, Matte Black Epoxy Ink DX 9/19/91
MNT, SO, APD, (Wornow 50-700R)
WF
202-30-031 SR, MIL, ASSY, Matte White Epoxy Ink DX 6/10/92
MNT, SO, APD, (Wornow 50-100R)
WF
202-30-032 SR, APD, MNT, 50-100 R Hysol Epoxy D 5/23/94
SO, ASSY, MIL,
WF
202-30-033 SR, ASSY, MIL AD 2003 Thinner for Wornow Inks DX 1/23/90
MNT, SO, APD,
WF
202-30-034 SR, MIL, ASSY, Purple Marking Ink DX 2-7-94
MNT, SO, APD,
WF
202-30-035 SR, ASSY, MIL Catalyst 9 (used with Hysol DX 6/10/92
MNT, SO, APD, Cat-L-Inks)
WF
202-30-036 SR, ASSY, MIL Hysol M-9-N (XX0018) DX 7/28/93
MNT, SO, APD,
WF
202-30-037 SR, APD, MNT, Hysol MG18-5112 Lt. red Epoxy D 11/11/95
SO, ASSY, MIL, Resin Compound
WF
###-##-#### SR, ASSY, MIL, Brushing Enamel, Gloss,
MNT, SO, APD, Assorted Colors
WF
2.4 Metal Etches (202-40-XXX)
202-40-001 SR, APD, ASSY, Gold Film Etchant CP 5/12/89
MNT, SO, MIL,
WF
<PAGE>
202-40-002 SR, ASSY, MIL, Chrome Etch #51-01 A 6-8-92
MNT, SO, APD, TR 6/8/92
WF
2.5 Dopants, Solid (202-50-XXX)
INVENTORY NO. LOCATION DESCRIPTION MSDS
202-50-001 SR, ASSY, MIL, Boron Plus Source 2-" OI 9/6/85
SO, MNT, APD,
WF
202-50-002 SR, ASSY, MIL, Phosphorous Plus Source 2-" C 4/7/89
MNT, SO, APD,
WF
202-50-003 SR, ASSY, MIL, Boron Plus Source 3" C 1/27/89
SO, MNT, APD,
WF
202-50-004 SR, ASSY, MIL, Phosphorous Plus Source 3" C 4/7/89
MNT, SO, APD,
WF
202-50-005 SR, ASSY, MIL, Boron Plus Source 4" C 1/27/89
SO, MNT, APD,
WF
202-50-006 SR, ASSY, MIL, Phosphorous Plus Source 4" C 4/7/89
MNT, SO, APD,
WF
202-50-007 SR, APD, MNT, Phosphorus Oxychloride T 8/8/87
SO, ASSY, MIL,
WF
202-50-008 SR, APD, MNT, PH-950 Phosphorus Planar C 5/5/95
SO, ASSY, MIL, Diffusion Source
WF
202-50-009 SR, APD, MNT, Boron Plus GS-139 T 3/5/94
SO, ASSY, MIL,
WF
2.6 Miscellaneous Operating Supplies (202-60-XXX)
202-60-002 SR, ASSY, MIL, Flocon, anti-scalant FMC 12/7/92
SO, MNT, APD,
WF
202-60-003 SR, ASSY, MIL, ARC Cleaner BS 3/86
MNT, SO, APD,
WF
<PAGE>
202-60-004 SR, ASSY, MIL, APX-1 BS 3/86
MNT, SO, APD,
WF
202-606-005 SR, ASSY, MIL, Safestrip BS 1/91
MNT, SO, APD,
WF
202-60-010 SR, ASSY, MIL, Humiseal, Acrylic Conformal HS 12/8/92
MNT, SO, APD, Coating Aerosol (1B15 H, 1B73)
WF
202-60-012 SR, ASSY, MIL Ecostrip 93 Epoxy Remover EC 3/8/93
MNT, SO, APD,
WF
3.0 GASES (203-XX-XXX) SERIES
3.1 Nitrogen (203-10-XXX)
INVENTORY NO. LOCATION DESCRIPTION MSDS
203-10-001 SR, ASSY, MIL, Bulk Liquid Nitrogen BTI 8/24/89
APD, MNT, SO
WF
203-10-002 SR, MIL, ASSY, Nitrogen 95%/Hydrogen 5% BTI 10/1/85
MNT, SO, APD, Standard Grade
WF
203-10-003 SR, ASSY, MIL, Nitrogen, UHP Grade BTI 10/1/85
MNT, SO, APD,
WF
3.2 Oxygen (203-20-XXX)
203-20-002 SR, ASSY, MIL, Oxygen, UHP Grade BTI 4/1/84
MNT, SO, APD,
WF
203-20-003 SR, ASSY, MIL, Oxygen, Commercial Grade BTI 4/1/84
MNT, SO, APD,
WF
3.3 Doping Gases (203-30-XXX)
3.4 Other Miscellaneous Gases (203-40-XXX)
203-40-002 SR, ASSY, MIL, Hydrogen, Ultra High Purity MG 11/25/85
MNT, SO, APD,
WF
<PAGE>
203-40-003 SR, ASSY, MIL, Helium BTI 8/23/89
MIL, MNT, SO
WF
203-40-004 SR, ASSY, MIL, Liquid Carbon Dioxide BTI 4/1/84
MNT, SO, APD,
WF
203-40-005 SR, ASSY, MIL, Argon, UHP BTI 4/1/84
MNT, SO, APD,
WF
4.0 ADHESIVES AND POTTING MATERIALS (204-XX-XXX) SERIES
4.1 Non-Conductive Epoxy Pastes (204-10-XXX)
INVENTORY NO. LOCATION DESCRIPTION MSDS
204-10-003 SR, ASSY, MIL, Devcon 5-min. Epoxy, D 1/7/88 (A)
SO, MNT, APD, 2-part kit 2/7/89 (B)
204-10-004 SR, ASSY, MIL, Ablebond 84-3 G.T.L.T.C. AB 1/8/88
MNT, SO, APD,
WF
204-10-005 SR, ASSY, MIL, Epon 828 Epoxy Resin w/Versamid AB 3/2/88 MNT,
SO, APD, 125 Hardener, 3 cc syringes WF
204-10-006 SR, ASSY, MIL, HIPEC R6101 DC 1/24/89
MNT, SO, APD,
WF
204-10-007 SR, ASSY, MIL, Ablebond 240-2 AB 12/1/89
MNT, SO, APD,
WF
204-10-008 SR, ASSY, MIL, Ablebond 342-3.5
MNT, SO, APD,
WF
204-10-012 SR, ASSY, MIL, Ablebond 74-1 Epoxy, AB 6/12/86
MNT, APD, SO, 3 cc syringe
WF
204-10-017 SR, ASSY, MIL Loctite 00206 LO 1/1/93
MNT, SO, APD,
WF
204-10-018 SR, ASSY, MIL, Norland 61 NP 9/29/88
MNT, SO, APD,
WF
<PAGE>
204-10-019 SR, ASSY, MIL, Summers Labs M62 Optically SL 5/8/92
MNT, SO, APD, Clear Cement, 4 oz. Kit
WF
204-10-020 SR, ASSY, MIL, ELC 4481 UV Curing Adhesive EL 5/22/86
MNT, SO, APD,
WF
204-10-021 SR, ASSY, MIL Summers Lab UV-74 SL 5/8/92
MNT, SO, APD,
WF
204-10-022 SR, ASSY, MIL, Summers Labs F-65 Lens Bond SL 5/8/92
MNT, SO, APD, Optically Clear Cement,
WF
204-10-023 SR, ASSY, APD, 3M 2216 Epoxy, Gray, M 4/18/92
MIL, MNT, SO 2-part kit (was ###-##-####)
WF
204-10-024 SR, ASSY, MIL, 3M 2216 Epoxy, Transparent M 8/7/92
MNT, SO, APD, 2-part kit
WF
204-10-025 SR, ASSY, MIL, Epo-Tek 730, Unfilled ET 7/15/91
MNT, SO, APD,
WF
204-10-026 SR, ASSY, APD, Epo-Tek H54 Epoxy ET 3/24/89 (A)
MIL, MNT, SO 3/13/90 (B)
WF
204-10-028 SR, ASSY, MIL, Epo-Tek H-70E Epoxy ET 5/24/91
MNT, SO, APD,
WF
204-10-030 SR, ASSY, APD, Epo-Tek H77 ET 3/27/89
MIL, MNT, SO
WF
204-10-033 SR, ASSY, MIL, Epo-Tek 320-4 ET 7/6/89
MNT, SO, APD,
WF
204-10-034 SR, ASSY, MIL, Eccobond 45 EC 5/25/93
MNT, SO, APD,
WF
204-10-036 SR, ASSY, MIL, Epo-Tek 920 ET 4/20/89
MTN, SO, APD,
WF
204-10-037 SR, ASSY, MIL, Norland 123 NP 10/4/91
MNT, SO, APD,
WF
<PAGE>
204-10-038 SR, ASSY, MIL Ablebond 342-3 Black AB 4/9/90
MNT, SO, APD,
WF
204-10-039 SR, ASSY, MIL, Epo-Tek 301 ET 2/26/93
MNT, SO, APD,
WF
204-10-040 SR, ASSY, MIL, Epo-Tek 301-2 ET 3/27/89
MNT, SO, APD,
WF
204-10-041 SR, MIL, ASSY, Ablebond 862-7 AB 9/15/89
MNT, SO, APD,
WF
204-10-042 SR, MIL, ASSY Ablebond 872-3 AB 6/7/87
MNT, SO, APD,
WF
204-10-043 SR, ASSY, MIL, Norland 68, optically clear NP 10/4/91
MNT, SO, APD, adhesive, 1 lb. bottle
WF
204-10-044 SR, ASSY, APD, Ablebond 789-3 AB 2/4/88
MIL, MNT, SO
WF
204-10-048 SR, MIL, ASSY, Loctite 290 adhesive sealant LO 1/1/93
MNT, SO, APD, 250 ml bottle
WF
204-10-049 SR, ASSY, MIL, Epo-Tek H77-S ET 10/31/90
MNT, SO, APD,
WF
204-10-051 SR, ASSY, MIL, Ablebond 724-5 (CFM) AB 5/2/89
MNT, SO, APD,
WF
204-10-052 SR, ASSY, MIL, Takpak 444 LO 3/1/92
MNT, SO, APD,
APD
204-10-053 SR, ASSY, MIL, Accelerator 710 LO 3/1/92
MNT, SO, APD,
WF
204-10-054 SR, APD, MNT, Ablebond 84-3 GTLTC A 8/12/94
SO, ASSY, MIL,
WF
<PAGE>
204-10-055 SR, APD, MNT, Powerbond 922 N 4/9/94
SO, ASSY, MIL,
WF
4.2 Non-Conductive Epoxy Preforms (204-20-XXX)
204-20-001 SR, APD, MNT, SO, Ablefilm 539IA
ASSY, MIL, WF
204-20-003 SR, APD, MNT, SO, Ablefilm 566, 9.50 X .250 AB 1/8/88
ASSY, MIL, WF (was 204-20-13580-2)
204-20-004 SR, APD, MNT, SO, Ablefilm 550 AB 8/18/93
ASSY, MIL, WF
204-20-005 SR, APD, MNT, SO, Ablefilm 568 A 12/3/93
ASSY, MIL, WF
204-20-006 SR, APD, MNT, SO, Ablefilm 550 2x6x.003 AB 8/18/93
ASSY, MIL, WF
204-20-007 SR, APD, MNT, SO, Ablefilm 5020 AB 8/13/93
ASSY, MIL, WF
204-20-008 SR, APD, MNT, SO, High Temp Flexible Mask TC-533
ASSY, MIL, WF
204-20-009 SR, APD, MNT, SO, Ablebond 9070D AM 1/30/92
ASSY, MIL, WF
###-##-#### SR, APD, MNT, SO, Ablefilm 561-1-.003
ASSY, MIL, WF
4.3 Conductive Epoxy Paste (204-30-XXX)
204-30-006 SR, APD, MNT, SO, H-20E Silver-filled Epoxy ET 3/15/90
ASSY, MIL, WF 2-part Kit
204-30-007 SR, APD, MNT, SO, E-Solder 3022/Hardener #18 IM 7/19/93
ASSY, MIL, WF
204-30-008 SR, APD, MNT, SO, 84-1LMIT Electrically conductive AB 3/13/91
ASSY, MIL, WF adhesive
204-30-009 SR, APD, MNT, SO, Epo-Tek H-31 ET 2/25/91
ASSY, MIL, WF
204-30-010 SR, APD, MNT, SO, Ablebond 967-3 A 5/18/90
MIL, ASSY, WF
204-30-011 SR, APD, MNT, SO, Hysol MG18-5124 D 7/1/94
MIL, ASSY, WF
<PAGE>
204-30-012 SR, APD, MNT, SO, 85-1 Conductive Adehesive A 7/22/93
MIL, ASSY, WF
204-30-013 SR, APD, MNT, SO, Epoxy Resin D 5/1/92
MIL, ASSY, WF
4.5 Potting Compounds (204-50-XXX)
204-50-002 SR, APD, MNT, SO, Dow Corning R-6100 Semiconductor DC 3/16/88
ASSY, MIL, WF Junction Coating, 2 part
204-50-004 SR, APD, MNT, SO, Proseal 799 Potting Compound PRC 6/5/86
ASSY, MIL, WF Black, Type I, CLass A
204-50-006 SR, APD, MNT, SO, Chemglaze Z306 Black Flex LD 3/11/93
ASSY, MIL, WF
204-50-008 SR, APD, MNT, SO, PR 1422B/2 Sealing Compound CRT 10/25/93
ASSY, MIL, WF 2 part
204-50-009 SR, APD, MNT, SO, Dow Corning 93-500 DC 11/11/92
ASSY, MIL, WF
204-50-010 SR, APD, MNT, SO, Dow Corning 732 RTV DC 11/11/92
ASSY, MIL, WF
204-50-012 SR, APD, MNT, SO, G.E. 630 RTV GE 1/22/92
ASSY, MIL, WF
204-50-013 SR, APD, MNT, SO, G.E. 566 Red RTV GE 1/14/92
ASSY, MIL, WF
204-50-014 SR, APD, MNT, SO, G.E. Primer SS4155 GE 9/2/93
ASSY, MIL, WF
204-50-015 SR, APD, MNT, SO, Epocast 87491-A-117/87491-B CG 1/16/90
ASSY, MIL, WF
204-50-016 SR, APD, MNT, SO, Clear Rubber Conformal Coating
ASSYM, MIL, WF 3140
204-50-021 SR, APD, MNT, SO, Silicone Rubber Mixture GE 10/5/93
MIL, ASSY, WF
4.6 Paints (204-60-XXX)
204-60-001 SR, APD, MNT, SO, PT 401D Resin Coating, 2 part PT 10/90
ASSY, MIL, WF w/H11 Catalyst
204-60-003 SR, APD, MNT, SO, Eppley Parsons Black Lacquer M 11/21/90
ASSY, MIL, WF Topcoat and Thinner
<PAGE>
204-60-004 SR, APD, MNT, SO, PT 1002 Thinner PT 11/2/93
ASSY, MIL, WF
204-60-005 SR, APD, MNT, SO, Testors Paint (red, white, T 6/24/87
thru 010 ASSY, MIL, WF blue, green, brown, black)
4.7 Primers (204-61-XXX)
204-61-001 SR, APD, MNT, SO, Resin Coating Primer, 2 part, PT 1/85 (A)
ASSY, MIL, WF PT 402 with H-15 Catalyst 10/86 (B)
204-61-002 SR, APD, MNT, SO, 5301-6001 Polyamine Rust-oleum R 10/25/93
MIL, ASSY, WF
204-61-003 SR, APD, MNT, SO, Thinner #1045 for use with PT 11/85
ASSY, MIL, WF PT 402 Primer
5.0 METALS (205-XX-XXX) SERIES
5.1 Wire (205-10-XXX)
205-10-011 SR, APD, MNT, SO, Titanium Wire Slugs ESPI 1/90
ASSY, MIL, WF
205-10-013 SR, APD, MNT, SO, Silver Wire Slugs MR 8/7/91
ASSY, MIL, WF
205-10-021 SR, APD, MNT, SO, Silicon Monoxide Granules CE 2/11/92
ASSY, MIL, WF
205-10-022 SR, APD, MNT, SO, Sn63 Bar Solder
ASSY, MIL, WF
205-10-024 SR, APD, MNT, SO, Solder, Sn63, Tin-Lead- KS 6/1/92
ASSY, MIL, WF Antimony, 63/36/.35,
0.020" dia., #58 Core,
WRMAP, Mildly Activated Flux
205-10-025 SR, APD, MNT, SO, Solder, Sn62, Tin-Lead- KS 6/1/92
ASSY, MIL, WF Antimony-Silver, 62/35/.35/2,
0.020" dia., #58 Core, WRMAP
Mildly Activated Flux
205-10-026 SR, APD, MNT, SO, Solder, Sn60, Tin-Lead- KS 6/1/92
ASSY, MIL, WF Antimony, 60/40/.35, 0.020"
dia., #58 Core, WRMAP, Mildly
Activated Flux
205-10-027 SR, APD, MNT, SO, Solder, Sn96, Tin-Silver, 96/4 KS 1/1/92
ASSY, MIL, WF 0.020" dia., #58 Core, WRMAP
Mildly Activated Flux
<PAGE>
205-10-031 SR, APD, MNT, SO, 60/40 Tin-Lead Solder Ribbon
ASSY, MIL, WF
205-10-032 SR, APD, MNT, SO, Solder, Bar, Sn96
ASSY, MIL, WF
205-10-033 SR, APD, MNT, SO, Kovar Ribbon MWS 12/85
ASSY, MIL, WF
205-10-034 SR, APD, MNT, SO, Nickel Ribbon MWS 12/85
ASSY, MIL, WF
205-10-035 SR, APD, MNT, SO, Gold Ribbon
ASSY, MIL, WF
205-10-042 SR, APD, MNT, SO, Copper wire (gold plated)
ASSY, MIL, WF
205-30-001 SR, APD, MNT, SP, Solder Cream, Sn62 KS 5/29/86
ASSY, MIL, WF
205-30-002 SR, APD, MNT, SO, Solder Cream, Sn96 ESP 1/7/91
ASSY, MIL, WF
205-40-001 SR, APD, MNT, SO, Solder Preform
ASSY, MIL, WF
205-40-002 SR, APD, MNT, SO, Solder Preform, Indalloy #7 ICA 8/18/86
ASSY, MIL, WF
205-40-003 SR, APD, MNT, SO, Copper Powder A 1/15/95
MIL, ASSY, WF
205-40-004 SR, APD, MNT, SO, PD1001 Aluminum Oxide C 6/93
MIL, ASSY, WF
205-40-005 SR, APD, MNT, SO, 57 Alundum El N 6/15/90
MIL, ASSY, WF
205-40-006 SR, APD, MNT, SO, Gold/Beryllium W 11/91
MIL, ASSY, WF
205-40-007 SR, APD, MNT, SO, Gold/Silicon W 7/91
MIL, ASSY, WF
205-40-008 SR, APD, MNT, SO, Platinum wire A 3/30/95
MIL, ASSY, WF
205-40-009 SR, APD, MNT, SO, Mercury D 10/95
MIL, ASSY, WF
205-40-010 SR, APD, MNT, SO, Metal Elements W 11/15/93
MIL, ASSY, WF
<PAGE>
205-40-011 SR, APD, MNT, SO, Regular Stopyt Liquid W 5/8/92
MIL, ASSY, WF
205-40-012 SR, APD, MNT, SO, Chromium Trioxide M 10/11/95
MIL, ASSY, WF
205-40-013 SR, APD, MNT, SO, Aluminum Powder M 10/11/95
MIL, ASSY, WF
6.0 MISCELLANEOUS CHEMICALS (206-XX-XXX) SERIES
206-10-001 SR, APD, MNT, SO, Lemon Go-Jo Cleaner G 12/4/90
MIL, ASSY, WF
206-10-003 SR, APD, MNT, SO, Quick Freeze
ASSY, MIL, WF
206-10-004 SR, APD, MNT, SO, Oakite 33 OK 1/2/90
ASSY, MIL, WF
10.0 GENERAL OPERATING SUPPLIES (210-XX-XXX) SERIES
10.8 Lubricants (210-70-XXX)
210-70-001 SR, APD, MNT, SO, Vacuum grease, Krytox LVP
ASSY, MIL, WF
210-70-002 SR, APD, MNT, SO, Dow Corning #704 Diffusion DC 9/25/85
ASSY, MIL, WF Pump Fluid
210-70-003 SR, APD, MNT, SO, Mech. Pump Oil, High Vac IV 5/31/76
ASSY, MIL, WF
210-70-005 SR, APD, MNT, SO, Gast Pump Flushing Solvent G 4/26/90
ASSY, MIL, WF
210-70-006 SR, APD, MNT, SO, Non-Detergent 10W Oil SLI 12/10/87
ASSY, MIL, WF Rotary Vane
210-70-007 SR, APD, MNT, SO, Dow Corning, High Vacuum Grease
ASSY, MIL, WF
210-70-008 SR, APD, MNT, SO, Octoil, Diffusion Pump Oil
ASSY, MIL, WF
210-70-009 SR, APD, MNT, SO, Nondetergent SAE 50W Oil
ASSY, MIL, WF (for Air Compressor)
210-70-010 SR, APD, MNT, SO, Busch R-530 Oil B 11/8/94
MIL, ASSY, WF
<PAGE>
10.10 Camera Film
210-90-001 SR, APD, MNT, SO, Polaroid Film, Black/White PO 2/10/86
ASSY, MIL, WF
11.0 JANITORIAL SUPPLIES
300-10-001 SR, APD, MNT, SO, Polisher, Lemon Shine, Aerosol NSS 11/85
ASSY, MIL, WF
300-10-007 SR, APD, MNT, SO, "Wind-O-Clean" Window Spray
ASSY, MIL, WF Cleaner NSS 11/25/85
300-10-010 SR, APD, MNT, SO, Toilet Bowl Cleaner, Rim NSS 11/25/85
ASSY, MIL, WF
300-10-011 SR, APD, MNT, SO, Surface Disinfectant, D-Fen NSS 11/85
ASSY, MIL, WF
300-10-012 SR, APD, MNT, SO, Stainless Steel Cleaner/Polish NSS 11/85
ASSY, MIL, WF
300-20-001 SR, APD, MNT, SO, Carpet Cleaner, Spot Remover NSS 11/8/89
ASSY, MIL, WF
300-20-006 SR, APD, MNT, SO, Floor Wax Stripper NSS 11/25/85
ASSY, MIL, WF
300-20-007 SR, APD, MNT, SO, Time mist N 8-3-93
MIL, ASSY, WF
300-20-008 SR, APD, MNT, SO, Gentle scrub N 1-5-93
MIL, ASSY, WF
300-20-009 SR, APD, MNT, SO, Super shine N 10-2-92
MIL, ASSY, WF
300-20-011 SR, APD, MNT, SO, Bleach N 9-19-94
MIL, ASSY, WF
300-20-012 SR, APD, MNT, SO, Windex N 2-24-92
MIL, ASSY, WF
300-20-013 SR, APD, MNT, SO, Degreaser N 11-30-89
MIL, ASSY, WF
300-20-014 SR, APD, MNT, SO, Good sense freshner N 10-5-92
MIL, ASSY, WF
12.0 MISCELLANEOUS MSDS (NO STOCK NUMBER)
400-000-001 SR, APD, MNT, SO, Nalco 2360 silica N 10-95
MIL, ASSY, WF
<PAGE>
EXHIBIT 23.1
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation of our
report included in this Form 10-K into the Company's previously filed
Registration Statement File No. 33-45462, No. 33-45463 and No. 33-85274.
ARTHUR ANDERSEN LLP
Los Angeles, California
June 26, 1998
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