<PAGE>
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED SEPTEMBER 30, 1998
COMMISSION FILE NUMBER 1-11512
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SATCON TECHNOLOGY CORPORATION
(Exact Name of Registrant as Specified in its Charter)
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DELAWARE 04-2857552
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification Number)
161 FIRST STREET, CAMBRIDGE,
MASSACHUSETTS 02142
(Address of Principal Executive (Zip Code)
Offices)
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(617) 661-0540
(Registrant's Telephone Number, Including Area Code)
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SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT: NONE.
SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT
Title of Class
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COMMON STOCK, $.01 PAR VALUE
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Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. Yes [X] No [_]
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to
the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [_]
The aggregate market value of the Registrant's Common Stock, $.01 par value
per share, held by non-affiliates of the Registrant was $29,524,529, based on
the last reported sale price of the Registrant's Common Stock on the Nasdaq
National Market as of the close of business on December 31, 1998 ($5.6875).
There were 9,018,549 shares of Common Stock outstanding as of December 31,
1998.
DOCUMENTS INCORPORATED BY REFERENCE: Portions of the Registrant's Proxy
Statement for its 1999 Annual Meeting of Stockholders are incorporated by
reference into Part III of this Form 10-K.
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<PAGE>
PART I
ITEM 1. BUSINESS
GENERAL
SatCon Technology Corporation (the "Company" or "SatCon") was organized as a
Massachusetts corporation in February 1985 and reincorporated in Delaware in
1992. SatCon itself and through its subsidiaries designs, develops,
manufactures and sells hardware and software systems relating to energy
storage, energy conversion and power management with an emphasis on
environmentally friendly approaches.
The Company's Technology Center, located at the Company's headquarters near
the Massachusetts Institute of Technology in Cambridge, Massachusetts, is the
technical engine that expands the technology base of the Company and drives
the development of new products. The range of products currently under
development at the Technology Center includes products applicable to military,
industrial automation, power management, distributed power, automotive,
electric vehicles, hybrid-electric vehicles, fuel cell power conversion,
medical diagnostics and food safety.
Acquired in January 1997, K&D MagMotor Corp., now called the MagMotor
Division ("MagMotor") provides key motor and magnetic assembly manufacturing
capabilities. MagMotor manufactures brush and brushless motors for industrial
automation products and electric vehicle applications. It also manufactures
magnetic levitation systems for semiconductor equipment manufacturers. These
systems operate in extreme conditions in ultra-clean environments and provide
high reliability, debris-free operation while increasing throughput and
decreasing down time.
Acquired in April 1997, SatCon Film Microelectronics, Inc. ("FMI") designs
and manufactures microelectronic circuits and inter-connect devices. Among its
products are standard and custom multi-chip modules for the communications,
industrial, military, medical and aerospace markets. FMI's product line
includes hybrid microcircuits, multi-chip modules, microwave pin diode drivers
and solid state relays. FMI also manufactures "thin film" microcircuits and
resistors in a variety of material coatings including beryllium oxide ("BeO")
free components. These custom and standard thin film products can be
integrated into structures or devices that have unique capabilities, such as
FMI's multi-chip modules, or devices requiring small, precise circuitry such
as cellular phones and wireless telecommunications devices. FMI has a line of
power electronic building block products that are currently used in aerospace
applications and have the potential to play a significant role in future
automotive, electric vehicles, hybrid-electric vehicles and fuel cell power
conversion applications.
Beacon Power Corporation ("Beacon") is currently marketing its flywheel-
based uninterruptible power systems to the telecommunications, cable broadband
providers and wireless telecommunications industry. Its product candidate, the
20C1000 Cable/Telecom Flywheel System, is a high-reliability, long-life, low-
maintenance, and environmentally safe alternative to lead acid batteries.
Field trials of this system are currently underway.
STRATEGY
The transition to a new generation of products being developed by SatCon is
being fueled by a combination of market demand for higher performance and
improved efficiency and by the potential to satisfy these needs made possible
by advances in materials and electronic technologies. It is the Company's
strategy to accelerate its technological developments by continuing to expand
its externally funded contract research and development from both government
and commercial sources and to acquire manufacturing capabilities to support
its product development efforts and product line expansion. The Company
believes that this funding can be used to develop products that can be sold to
government agencies and transitioned into viable commercial products. In most
instances, individual components have multiple applications across multiple
markets.
2
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DEVELOPMENTS DURING 1998
During 1998 the Company initiated several actions in order to advance its
strategy of commercializing its products.
The Company completed the development and received a production order for
SatCon's Integrated Suspension and Motor system ("ISAM") product for the
semiconductor equipment industry that is manufactured at MagMotor. The ISAM
system is designed for semiconductor processing applications and can eliminate
unwanted debris, provide higher throughput potential and is easier to maintain
than existing mechanical systems. The production line is complete and the
Company plans to begin shipping these units in the first quarter of fiscal
year 1999.
FMI entered into a distribution agreement with Falcon Electronics, Inc. This
agreement provides the vehicle for FMI to sell and distribute a line of linear
regulators manufactured without the use of the hazardous BeO. In addition to
linear regulators, FMI is developing a new motor controller line based on the
SAT-32 Digital Signal Processor ("DSP") motor control technology that is
currently used in the Company's ISAM product. FMI also increased its
manufacturing capability in thin film, the foundation on which all of FMI's
hybrid microcircuits are built, with the installation of a unique direct laser
chrome mask maker.
SatCon developed a new brushless DC servo motor line designed to provide the
highest possible torque utilizing the smallest amount of space. This new
product line incorporates traditional SatCon technology to create higher power
density than traditional brushless motors. This product line will be
manufactured at MagMotor.
The Technology Center continued to participate in several funded research
and development efforts with various commercial customers to develop product
improvements and new products. These efforts include an improved performance
alternator for commercial vehicles, control electronics for power regulation
of a turbine for alternative fuel vehicles, and an open frame, submersible
propulsor, capable of operation at ocean depths of up to 20,000 feet. In
addition, the Technology Center is developing low-cost, high-efficiency drive
trains for electric and hybrid-electric vehicles, a thermal management scheme
for induction motors, an electric motor drive system for Navy ships, high
speed motor drives for high efficiency rooftop air conditioning systems, a
flywheel integrated power system and a high temperature magnetic bearing for
advanced gas turbine engines. The Company is also working with several other
agencies on the development of high power density electronics modules called
Power Electronic Building Blocks or PEBB's.
COMMERCIALIZATION
The Company intends to continue directing its commercialization efforts in
the following product areas:
Power Electronics
SatCon has developed proprietary high-voltage hybrid modules based on
advanced power semiconductor technology at a fraction of the weight of
conventional packages. The high-density topology and innovative cooling
schemes utilized allow for higher throughput in smaller, lighter weight
packages. These electronics support SatCon's high-speed drive and flywheel
product development.
FMI has also developed a new hermetic amplifier product line that is
manufactured without the use of hazardous BeO. In addition to the amplifiers,
FMI is developing a new motor controller line based on the SAT-32 DSP motor
control technology that is currently used in the ISAM product.
Motors and High Speed Drives
SatCon designs and builds high performance motors and drives that capitalize
on advances in materials and semiconductor technology to achieve high power
density. Through the use of high performance materials and careful design of
the magnetic circuits, SatCon has demonstrated electric motor prototypes that
are lightweight
3
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and have provided efficiencies in excess of 97 percent. SatCon's motor designs
are being evaluated for a wide variety of applications including electric
vehicles, shipboard motors and general industrial applications.
Magnetic Bearings and Suspension Systems
Improvements in magnetic materials and electronic control systems have led
the way to advances in electromagnetic bearings and suspension systems. SatCon
has participated in the development of such systems for spacecraft and ground-
based systems. SatCon's magnetic bearing systems feature innovative
electromagnetic and permanent magnet actuators and advanced digital control
systems. These systems have been developed for both commercial and military
applications.
By injecting electromagnetic forces along a selected bearing axis in concert
with shaft rotation, the magnetic bearings can balance a dynamic machine,
resulting in smooth and quiet operation. Similar principles guide the
application of electromagnetic suspension systems. These automated systems
provide a significant reduction of structure borne vibration transmittal,
providing low vibration machinery operation, low detection or vibration
isolation. In addition, these systems provide lubrication-free support for
rotating, reciprocating, and stationary systems. Also, through active
electronic control, these systems provide quiet, smooth and non-contaminating
machinery operation and isolation.
The Company is also developing a high-temperature magnetic bearing for gas
turbine engines.
Flywheel Energy Storage Systems
By integrating energy storing flywheels made of high strength materials with
high power, permanent magnet motor/generators, the Company has developed
electromechanical storage systems that the Company believes have the potential
to offer practical solutions for mobile and stationary applications. SatCon's
flywheel systems are anticipated to provide extremely high power output and
energy storage in compact packages. They may be a long-lasting, lightweight,
and an environmentally friendly alternative to conventional batteries. These
systems can be used to provide backup for critical industrial processes and
machines, as power supplies for satellites and as energy recovery systems for
electric and hybrid-electric vehicle drive trains.
On May 20, 1997, the Company formed Beacon through a strategic partnership
with Duquesne Enterprises, a subsidiary of DOE, Inc., to manufacture and
distribute SatCon's flywheel energy storage systems. Duquesne Enterprises made
an initial investment totaling $5,000,000 into SatCon to fund flywheel product
development. Beacon assumed the activities of SatCon's Energy Systems Division
which was formed in October 1995 to focus on the product development and
marketing of flywheel "Inertial Battery" systems for such markets as
utilities, cable television and telecommunications, where un-interruptible
power supplies (UPS) are critical to maintaining service. On October 23, 1998,
Beacon completed a $4,750,000 private placement of equity securities with
Perseus Capital, L.L.C., Dusquene Enterprises and Micro Generation Technology
Fund, L.L.C. Beacon will utilize the proceeds from the private placement to
complete the commercialization of the 20C1000 Cable/Telecom Flywheel System.
Beacon's focus is limited to providing flywheel energy storage products for
stationary terrestrial applications.
Beacon's 20C1000 Cable/Telecom Flywheel System offers an alternative to lead
acid batteries as an un-interruptible power supply for the telecommunications
industry, including cable television and telephone service providers, which
are required to maintain service during power outages.
Electro-Optic and Sensor Inspection Systems
SatCon is developing a commercial real-time optical biosensor having
extraordinary sensitivity for biological and chemical detection. The effort is
focused initially on the detection of microbial pathogens of interest to the
food industry. These pathogens include E. Coli 0157:H7 and Salmonella found in
meat and poultry, vegetables, fruit, juices and milk. The detection technique
is based on a novel technique using ultra-high resolution interferometry
measurements and, if successful, will result in the first commercial sensor
capable of the detection of small numbers of microbes without the need for
initial biological amplification.
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MARKETS
SatCon's objective is to capitalize on its technological developments from
its internal and contract research and development projects to become a
leading supplier of a new generation of intelligent, electromechanical and
electro-optic products for aerospace, transportation, industrial, utility and
food processing applications. These products, enabled by a revolution in the
size, weight and efficiency of machines, provide competitive advantages in
performance.
COMPETITION
The Company is aware of direct and indirect competitors that employ similar
technology and have extensive research and development facilities in both
government and commercial markets. The Company is aware of large companies, as
well as small companies, entering the markets in which the Company competes
and expects competition to intensify either through direct competition or the
development of alternative technologies.
Although the Company is not as well capitalized as some of its competitors
and is more limited in terms of its facilities and number of personnel, its
strategy is to compete with larger companies on the basis of its technical
skills and proprietary know-how. The Company also has access to university
researchers in the greater Boston area, many of whom are experts in the fields
of magnetic and electro-optic technologies. The Company continues to pursue
strategic alliances with investment and commercial partners.
The industries served by the Company are highly competitive and a number of
companies are involved in extensive research and development programs designed
to address the technological challenges which the Company is seeking to
address through its development programs. Many of these companies are larger
and better financed than the Company. As a result, there can be no assurance
that customers will not select technologies developed by or under development
by other companies or that potential customers will select the Company's
technologies to address both existing and potential markets. Accordingly, the
Company will need to develop technologies that address customers' needs in a
cost-effective and timely manner. There can be no assurance that the Company
will be successful in these efforts, that technologies developed by other
companies will not be selected or that potential customers for the Company's
technologies will adopt the Company's technologies in a timely manner, if at
all.
PATENTS AND PROPRIETARY INFORMATION
The Company currently owns 16 United States patents that expire between 2007
and 2015. The Company has 12 patent applications pending with the U.S. Patent
and Trademark Office.
As a qualifying small business, the Company has retained commercial
ownership rights to proprietary technology developed under various U.S.
Government contracts and grants, including Small Business Innovation Research
("SBIR") contracts.
In addition to its patent rights, the Company relies upon the treatment of
its technology as trade secrets and uses confidentiality agreements to assign
to the Company all rights to patents, technical, or other information
developed by employees during their employment with the Company. The Company's
employees have also agreed not to disclose any trade secret or confidential
information without the prior written consent of the Company. Notwithstanding
these confidentiality agreements, there can be no assurance that other
companies will not acquire information that the Company considers proprietary.
Moreover, while the Company intends to defend vigorously its patents against
infringement by third parties, there can be no assurance that the Company's
patents will be enforceable or provide the Company with meaningful protection
from competitors or that an application for a patent will be allowed. No
assurances can be given as to the issuance of additional patents or, if
issued, as to their scope. Patents granted may not provide meaningful
protection from competitors. Even if a competitor's products were to infringe
upon patents owned by the Company, it would be very costly for the Company to
pursue its rights in an enforcement action, which would also divert funds and
resources which otherwise could
5
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be used in the Company's operations. Furthermore, there can be no assurance
that the Company would be successful in enforcing intellectual property rights
or that the Company may not infringe upon patent or intellectual property
rights of third parties. To date, the Company has not been required to defend
its patents or proprietary information against claims by third parties.
RESEARCH AND DEVELOPMENT
Approximately $7,966,000 or 51% of the Company's revenue during fiscal year
1998 were attributable to research and development activities funded by
commercial customers and U.S. Government agency sponsors. Under the agreements
funded by the U.S. Government, the government retains a royalty-free license
to use the technology developed for government purposes and the Company
retains exclusive rights to the technology for commercial and industrial
applications. The rights to technology developed under contracts funded by
commercial customers are negotiated on a case by case basis.
The Company expended approximately $346,000, $2,489,000 and $894,000 on
internally-funded research and development during fiscal year 1998, 1997 and
1996. Beacon's 20C1000 Cable/Telecom Flywheel System and the introduction of
SatCon's ISAM product accounted for the majority of the fiscal year 1998 and
1997 internally-funded costs. The development of drive train components for
hybrid electric vehicles in the automotive industry as well as further
development of the flywheel energy storage systems for the cable industry
accounted for the majority of fiscal year 1996 internally-funded costs.
GOVERNMENT REGULATION
The Company has entered into certain U.S. Government contracts that require
compliance with applicable U.S. Government regulations. The Company's
contracts with the U.S. Government consist primarily of research and
development contracts, many of which are awarded under the SBIR Program.
As a party to a number of contracts with the U.S. Government and its
agencies, the Company must comply with extensive regulations, including
regulations with respect to bidding on proposals and billing practices. These
research and development contracts are generally subject to cancellation at
the U.S. Government's sole discretion. In the event that the U.S. Government
or its agencies conclude that the Company has not adhered to federal
regulations, any contracts to which the Company is a party could be canceled.
The Company could be prohibited from bidding on future contracts which would
have a material adverse effect on the Company. All payments to the Company for
work performed on contracts with agencies of the U.S. Government are subject
to adjustment upon audit by the U.S. Government Defense Contract Audit Agency,
the General Accounting Office and other agencies. The Company could also be
required to disgorge any payments received from U.S. Government agencies if it
is found to have violated federal regulations.
The commercialization of the Company's technologies for use in various
industries may also be affected by federal and state legislative and
regulatory changes affecting such industries.
MANUFACTURING AND SUPPLIERS
During fiscal year 1997, the Company acquired MagMotor, a manufacturer of
custom electric motors, and FMI, a manufacturer of custom integrated circuits.
The Company is in the process of transitioning the production of key
components of its products to these manufacturing companies. In addition, the
Company intends to continue to acquire manufacturing capabilities to support
its product development efforts and product line expansion. If the Company is
successful in obtaining market penetration of its products, the Company will
be required to deliver large volumes of quality products or components to its
customers on a timely basis at reasonable costs to the Company. When
necessary, the Company intends to seek to supplement its manufacturing
capabilities by establishing relationships with manufacturing organizations to
deliver large volumes of its products until such time as the Company can
develop its own manufacturing expertise and capacity. No assurance can be
given that the Company will be able to successfully establish relationships
with third party manufacturing organizations or, if such relationships are
established, that they will be successful.
6
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The principal materials and supplies used by the Company are available from
several commercial sources and the Company does not depend on any single
source for a significant portion of its materials or supplies.
BACKLOG
The Company's backlog consists primarily of research and development
contracts and orders for multi-chip modules and hybrid products. At September
30, 1998, the backlog was approximately $10,000,000 for work to be performed
and products to be shipped during the fiscal year ending September 30, 1999
and beyond. Many of the Company's contracts may be canceled at any time with
limited or no penalty. Also, contract awards may be subject to funding
approval from the U.S. Government and commercial entities, which involves
political, budgetary and other considerations over which the Company has no
control. The Company's backlog at September 30, 1997 was approximately
$10,500,000.
SIGNIFICANT CUSTOMERS
The U.S. Department of Defense accounted for approximately 22.2% of the
Company's fiscal year 1998 revenue.
EMPLOYEES
At September 30, 1998, the Company employed a total of 151 people; 146 on a
regular full-time basis, 3 on a regular part-time basis and 2 student interns.
In addition, at September 30, 1998, Beacon employed 20 people on a regular
full-time basis. Some of the Company's employees are affiliated with large
universities located in the greater Boston area. Approximately 57 persons are
employed in engineering, 63 in manufacturing, 23 in administration and 8 in
sales and marketing. None of these employees are represented by a union. The
Company believes that its relations with its employees are satisfactory.
ITEM 2. PROPERTIES
The Company leases 45,820 square feet of office and laboratory space at 161
First Street, Cambridge, Massachusetts under a primary lease expiring on
October 31, 2003 and an additional 8,343 square feet located at 6245 East
Broadway Boulevard, Suite 350, Tucson, Arizona under a primary lease expiring
on March 31, 2001. The Company also leases approximately 14,757 square feet of
manufacturing space at 530 Turnpike Street, North Andover, Massachusetts under
a primary lease expiring on July 31, 2002 and approximately 17,000 square feet
at 121 Higgins Street, Worcester, Massachusetts under a primary lease expiring
on March 31, 2003.
Effective November 5, 1997, the Company entered into an agreement to sub-
lease 8,930 square feet at 161 First Street to a third party and effective
July 15, 1998, the Company entered into an agreement to sub-lease an
additional 3,952 square feet at 161 First Street to the same third party.
The Company believes its facilities are adequate for its current needs and
that adequate facilities for expansion, if required, are available.
ITEM 3. LEGAL PROCEEDINGS
On October 15, 1997, the Company received a letter from the Department of
the Air Force stating that it may terminate for default a contract between the
Air Force and the Company for development of a satellite component, unless
perceived performance problems were cured. In the event of an actual default,
the Company could be liable for extra costs incurred by the Government in
developing the component. The Company has had several discussions with the Air
Force in order to resolve this issue. The Company informed the Air Force
contracting officer of its belief that a termination for default is not
warranted.
On December 15, 1997, the Air Force issued a "Show Cause Notice" to the
Company requiring the Company to demonstrate to the Air Force why the contract
should not be terminated "for cause." On December 31, 1997, the Company
responded to the Air Force's "Show Cause Notice," explaining its view that the
Company should not be terminated for cause.
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On December 12, 1997, FMI filed suit against Albert R. Snider for breach of
certain representations made by Mr. Snider, including statements of inventory
balances, in the Asset Purchase Agreement dated as of April 3, 1997, between
FMI and Mr. Snider relating to the purchase by SatCon of the business of FMI.
The suit was filed in the United States District Court in Boston,
Massachusetts. This lawsuit was dismissed because settlement discussions
between the Company and Mr. Snider were ongoing. However, those settlement
discussions were unsuccessful and the lawsuit was reinstated on July 17, 1998.
Mr. Snider filed counterclaims seeking, among other things, payments allegedly
due from the Company under a promissory note. Mr. Snider's motion for partial
summary judgement in the promissory note counterclaim was denied by the
District Court on October 15, 1998. The parties have recently initiated
discovery. SatCon believes it has sufficient reserves on the books of FMI for
the overstatement in inventory balances.
ITEM 4. SUBMISSION OF MATTERS TO VOTE OF SECURITY HOLDERS
No matter was submitted to a vote of security holders during the fourth
quarter of the fiscal year covered by this report through the solicitation of
proxies or otherwise.
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PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The Company's Common Stock is traded on the Nasdaq National Market
("NASDAQ") under the trading symbol "SATC." As of December 31, 1998 there were
approximately 199 shareholders of record.
For the periods reported below, the following table sets forth the range of
high and low bid quotations for the Common Stock as reported by NASDAQ. Such
quotations represent inter-dealer quotations without adjustment for retail
markups, markdowns, or commissions and may not represent actual transactions.
As of December 31, 1998 the closing price for the Company's Common Stock, as
reported by NASDAQ, was $5.6875.
<TABLE>
<CAPTION>
FISCAL YEAR FISCAL YEAR
1998 1997
-------------- -------------
BID BID
-------------- -------------
HIGH LOW HIGH LOW
------- ------ ------ ------
<S> <C> <C> <C> <C>
First Quarter................................. $14.375 $8.750 $8.625 $5.625
Second Quarter................................ 14.250 10.875 9.125 5.750
Third Quarter................................. 12.625 8.000 10.500 5.750
Fourth Quarter................................ 9.188 5.000 13.375 7.500
</TABLE>
DIVIDEND POLICY
The Company has not paid cash dividends on its Common Stock since its
inception and has no intention of paying any cash dividends to its
stockholders in the foreseeable future. The Company intends to reinvest
earnings, if any, in the development and expansion of its business. Any
declaration of dividends in the future will be at the election of the Board of
Directors and will depend upon the earnings, capital requirements and
financial position of the Company, general economic conditions, requirements
of any bank lending arrangements that may then be in place and other pertinent
factors.
RECENT SALES OF UNREGISTERED SECURITIES
On June 5, 1998, the Company issued to certain individuals, in settlement of
a claim asserted against the Company, Common Stock Purchase Warrants to
purchase up to 63,848 Shares of Common Stock at an exercise price of $11.43
per share. These warrants expire on November 11, 1999 and were issued in
reliance upon the exemptions from registration under Section 4(2) of the
Securities Act of 1933, as amended (the "Securities Act"), or Regulation D
promulgated thereunder, relative to sales by an issuer not involving any
public offering.
On November 11, 1998, the Company issued to certain individuals, who
formerly held warrants issued by the Company in connection with the Company's
initial public offering in November 1992, Common Stock Purchase Warrants to
purchase up to 67,125 shares of the Company's Common Stock at an exercise
price of $11.43 per share. These warrants expire on November 11, 1999 and were
issued in reliance upon the exemptions from registration under Section 4(2) of
the Securities Act or Regulation D promulgated thereunder, relative to sales
by an issuer not involving any public offering.
On January 4, 1999, the Company issued 100,000 shares of Common Stock to two
individuals in connection with K&D MagMotor Corp.'s, a wholly-owned subsidiary
of the Company, purchase of certain assets and assumption of certain
liabilities of Inductive Components, Inc. and Lighthouse Software, Inc. These
shares were issued in reliance upon the exemptions from registration under
Section 4(2) of the Securities Act or Regulation D promulgated thereunder,
relative to sales by an issuer not involving any public offering.
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ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA
The selected consolidated financial data set forth below for the years ended
September 30, 1998, 1997, 1996, 1995, and 1994 has been derived from the
financial statements of the Company which have been audited by
PricewaterhouseCoopers LLP, independent accountants. This information should
be read in conjunction with the consolidated financial statements and notes
thereto set forth elsewhere in this Annual Report on Form 10-K.
STATEMENT OF OPERATIONS DATA:
<TABLE>
<CAPTION>
FOR THE YEARS ENDED SEPTEMBER 30,
---------------------------------------------------------------
1998 1997 1996 1995 1994
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Revenue................. $15,485,923 $12,466,335 $ 9,384,588 $11,475,427 $18,016,987
----------- ----------- ----------- ----------- -----------
Cost of revenue......... 10,991,202 10,071,150 6,394,830 9,493,963 13,861,274
Selling, general and ad-
ministrative
expenses............... 4,787,070 6,197,951 5,569,285 2,511,999 2,075,734
Research and develop-
ment................... 346,161 2,489,207 893,628 1,937,241 461,068
Goodwill amortization... 290,957 120,467 -- -- --
----------- ----------- ----------- ----------- -----------
Total operating ex-
penses............... 16,415,390 18,878,775 12,857,743 13,943,203 16,398,076
----------- ----------- ----------- ----------- -----------
Operating income/(loss). (929,467) (6,412,440) (3,473,155) (2,467,776) 1,618,911
Loss from Investment in
Beacon Power Corpora-
tion................... (3,541,817) -- -- -- --
Interest income, net.... 169,655 269,198 463,840 451,034 409,337
----------- ----------- ----------- ----------- -----------
Income/(loss) before in-
come taxes............. (4,301,629) (6,143,242) (3,009,315) (2,016,742) 2,028,248
Provision/(benefit) for
income taxes........... 3,872 -- (144,479) (806,697) 803,356
----------- ----------- ----------- ----------- -----------
Net income/(loss)....... $(4,305,501) $(6,143,242) $(2,864,836) $(1,210,045) $ 1,224,892
=========== =========== =========== =========== ===========
Net income/(loss) per
weighted
average common share,
basic.................. $ (.48) $ (.77) $ (.39) $ (.17) $ .19
=========== =========== =========== =========== ===========
Net income/(loss) per
weighted
average common share,
diluted................ $ (.48) $ (.77) $ (.39) $ (.17) $ .17
=========== =========== =========== =========== ===========
Weighted average number
of common shares, ba-
sic.................... 8,956,671 7,959,309 7,285,756 7,079,855 6,601,282
Weighted average number
of common shares, di-
luted.................. 8,956,671 7,959,309 7,285,756 7,079,855 7,367,481
</TABLE>
BALANCE SHEET DATA:
<TABLE>
<CAPTION>
AT SEPTEMBER 30,
-----------------------------------------------------------
1998 1997 1996 1995 1994
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Total assets............ $18,166,590 $20,709,438 $17,277,517 $19,792,966 $22,274,534
Total long term obliga-
tions.................. $ 221,462 $ 322,897 -- -- --
Total liabilities....... $ 2,752,583 $ 2,630,301 $ 1,178,349 $ 1,040,251 $ 2,768,493
Working capital......... $ 8,504,471 $10,595,294 $11,011,170 $15,615,645 $18,172,529
Stockholders' equity.... $15,414,007 $18,079,137 $16,099,168 $18,752,715 $19,506,041
Dividends per share..... -- -- -- -- --
</TABLE>
10
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
INTRODUCTION
SatCon Technology Corporation (the "Company" or "SatCon") was organized as a
Massachusetts corporation in February 1985 and reincorporated in Delaware in
1992. SatCon itself and through its subsidiaries, designs, develops and
manufactures and sells hardware and software systems relating to energy
storage, energy conservation and power management with an emphasis on
environmentally friendly approaches
It is the Company's strategy to accelerate its technological developments by
continuing to expand its externally funded contract research and development
from both government and commercial sources. The Company can then leverage
this funding to develop products that the Company believes can both be sold to
government agencies and transition into high volume commercial products.
Recent changes in the SBIR program provide a new mechanism to pursue
government Phase III pre-production programs on a sole-source, non-competitive
basis. In most instances, individual components have multiple applications
across these markets.
This Annual Report on Form 10-K contains forward-looking statements. For
this purpose, any statements contained herein that are not statements of
historical fact may be deemed to be forward-looking statements. Without
limiting the foregoing, the words "believes," "anticipates," "plans,"
"expects" and similar expressions are intended to identify forward-looking
statements. There are a number of important factors that could cause the
Company's actual results to differ materially from those indicated by such
forward-looking statements. These factors include, without limitation, those
set forth below under the caption "Factors Affecting Future Results."
RESULTS OF OPERATIONS
During fiscal year 1998 the Company initiated several actions to advance the
development and market introduction of new products, to establish a product
manufacturing base capable of supplying key components of SatCon's products,
and to improve the future profitability of the Company. These actions include
the production of the ISAM system and the introduction of a standard product
line of linear regulators. In addition, during a recapitalization of Beacon in
December 1997, the Company converted a significant portion of its ownership of
Beacon to preferred stock. The Company retained approximately 19.9% of
Beacon's outstanding voting stock. Although the Company owned less than 20% of
the outstanding voting stock of Beacon, based on other factors there was a
presumption that the Company had the ability to exercise significant
influence, and the equity method was required for the fair presentation
subsequent to this recapitalization. The Company's share of losses from Beacon
is shown as a single amount in the statement of operations, "Loss from
Investment in Beacon Power Corporation." The effects of these actions on the
Company's financial performance during fiscal year 1998 are discussed below.
The following table sets forth, for the periods indicated, the percentage of
revenue for certain items in the Company's Statement of Operations for each
period:
<TABLE>
<CAPTION>
FOR THE YEARS
ENDED
SEPTEMBER 30,
-------------------
1998 1997 1996
----- ----- -----
<S> <C> <C> <C>
Revenue................. 100.0% 100.0% 100.0%
Cost of revenue......... 71.0 80.8 68.1
Selling, general and ad-
ministrative expenses.. 30.9 49.7 59.4
Research and development
expenses............... 2.2 20.0 9.5
Goodwill amortization... 1.9 1.0 --
Total operating expenses
(excluding cost of rev-
enue).................. 35.0 70.7 68.9
Operating loss.......... (6.0) (51.5) (37.0)
Loss from Investment in
Beacon Power Corpora-
tion................... (22.9) -- --
Interest income, net.... 1.1 2.2 4.9
Loss before income tax-
es..................... (27.8) (49.3) (32.1)
Provision/(benefit) for
income taxes........... -- -- (1.5)
Net loss................ (27.8) (49.3) (30.6)
</TABLE>
11
<PAGE>
YEAR ENDED SEPTEMBER 30, 1998 COMPARED TO THE YEAR ENDED SEPTEMBER 30, 1997
Revenue. The Company's revenue increased by approximately $3,020,000 or
24.2% from 1997 to 1998. The increase is due to the increase of revenue from
the sale of manufactured products offset by a decrease in revenue on research
and development contracts. During 1997, the Company acquired K&D MagMotor
Corporation ("MagMotor") and Film Microelectronics, Inc. ("FMI") as wholly-
owned subsidiaries which provided for additional revenue of approximately
$476,000 and $3,316,000, respectively, for the year ended September 30, 1998.
These increases in revenue were partially offset by a decrease in revenue of
approximately $232,000 related to research and development contracts.
Cost of revenue. Cost of revenue increased approximately $920,000 or 9.1%
from 1997 to 1998. The increase is primarily due to the addition of cost of
revenue associated with MagMotor and FMI of approximately $656,000 and
$2,135,000, respectively. These increases in cost of revenue were offset by a
decrease in cost of revenue on research and development contracts of
approximately $961,000.
Selling, general and administrative. Selling, general and administrative
expenses decreased approximately $1,411,000 or 22.8% from 1997 to 1998. The
decrease is the result of consolidating the Tucson Space Division into the
Technology Center, the recapitalization of Beacon and the continued management
of selling, general and administrative costs. During 1997, the Company
established a reserve of approximately $498,000 for expenses, primarily lease
cancellation costs relating to consolidating the Tucson Space Division into
the Technology Center. At September 30, 1998, the Company had a reserve of
$100,000, primarily relating to the lease cancellation costs. During 1997, the
Company formed Beacon, a wholly-owned subsidiary, to continue the work of its
Energy Systems Division. During a recapitalization of Beacon in December 1997,
the Company converted a significant portion of its ownership of Beacon to
convertible preferred stock. The Company retained approximately 19.9% of
Beacon's outstanding voting stock. Although the Company owned less than 20% of
the outstanding voting stock of Beacon, based on other factors, there was a
presumption that the Company had the ability to exercise significant
influence, and the equity method was required for the fair presentation
subsequent to this recapitalization. The Company's share of losses from Beacon
is shown as a single amount in the statement of operations, "Loss from
Investment in Beacon Power Corporation." These decreases were partially offset
by increases of approximately $225,000 and $813,000 of expenses related to
MagMotor and FMI, respectively.
Research and development. Internally funded research and development
expenses decreased approximately $2,143,000 or 86.1% from 1997 to 1998. During
1997, the Company recognized certain capitalized product development costs, in
the amount of approximately $2,593,000, rather than amortizing these costs
over future years' revenue based on the uncertainty of future revenue. These
costs related primarily to Beacon's 20C1000 Cable/Telecom Flywheel system
development efforts and the ISAM product. This decrease was partially offset
by an increase in cost due to the continued development of the flywheel energy
storage system incurred by Beacon for the period from October 1, 1997 to
December 24, 1997.
Goodwill amortization. Goodwill amortization increased approximately
$170,000 or 141.5% from 1997 to 1998. The increase is the result of a full
year of goodwill amortization related to goodwill in connection with the
acquisitions of MagMotor and FMI completed in 1997.
Loss from Investment in Beacon Power Corporation. On May 20, 1997, the
Company formed its subsidiary, Beacon, through a strategic partnership with
Duquesne Enterprises, a subsidiary of DOE, Inc., to manufacture and distribute
the Company's flywheel energy storage systems. Duquesne Enterprises made an
initial investment totaling $5,000,000 in the Company to fund flywheel product
development. Beacon assumed the activities of the Company's Energy Systems
Division which was formed in October 1995 to focus on the product development
and marketing of flywheel "Inertial Battery" systems for such markets as
utilities, cable television and telecommunications, where uninterruptible
power supplies (UPS) are critical to maintaining services. In December 1997,
Beacon obtained equity financing from private investors and the Company
converted a significant portion of its ownership of Beacon to convertible
preferred stock. The Company retained approximately 19.9% of Beacon's
outstanding voting stock. On October 23, 1998, Beacon completed a $4,750,000
private placement of equity securities with Perseus Capital L.L.C., Duquesne
Enterprises and Micro
12
<PAGE>
Generation Technology Fund, L.L.C. Beacon will utilize the proceeds from the
private placement toward the completion of the commercialization of the
20C1000 Cable/Telecom Flywheel System. Beacon's focus is limited to providing
flywheel energy storage products for stationary terrestrial applications.
As set forth in Note J to the Company's audited consolidated financial
statements for the year ended September 30, 1997, upon converting the majority
of its equity ownership interest in Beacon to convertible preferred stock in
December 1997, the Company believed that the appropriate accounting treatment
for its investment in Beacon was to account for the investment on the cost
basis and to treat Beacon as a non-consolidated entity. The Company has
reported its financial results since the second quarter of 1998 without
reflecting Beacon's losses in its results of operations and showing its
investment in Beacon at cost on its balance sheet.
In auditing the Company's financial statements for the year ended September
30, 1998, the Company's independent accountants advised the Company that the
treatment of Beacon as a non-consolidated entity was inappropriate for the
period subsequent to December 1997 and prior to the October 1998 financing.
Consequently, the Company will be required to amend its financial results for
the second and third quarters of fiscal year 1998 and has included
approximately $3,542,000 of loss from its investment in Beacon since December
1997 in the financial statements for the year ended September 30, 1998. This
resulted in a net loss of approximately $4,306,000 (or $.48 per share) for the
year ended September 30, 1998. The balance sheet reflects a corresponding
increase in retained earnings/(deficit). The loss reported in connection with
Beacon has not affected the business prospects or cash position of either the
Company or Beacon and the Company has no further funding commitments to
Beacon.
The Company has been advised by its independent accountants that they concur
with the Company's view that the Company is neither required to consolidate
nor reflect its pro-rata share of Beacon's losses for any period subsequent to
the third-party financing Beacon obtained in October 1998. Consequently,
during the fiscal year ended September 30, 1999, the Company will carry its
investment in Beacon at its remaining cost of approximately $1,458,000 and
will not be consolidating or otherwise reflecting Beacon's results of
operations in its financial statements.
The Company will continue to review its investment in Beacon. While the
Company continues to be optimistic regarding the long term prospects for
Beacon and the flywheel technology, Beacon has not yet successfully introduced
a flywheel product and will need substantial additional financing to continue
its operations. If in the future the Company determines that its investment in
Beacon does not have any remaining value, the Company would take appropriate
actions to write-off the remaining cost of its investment.
Interest income, net. Interest income, net decreased approximately $100,000
or 37.0% from 1997 to 1998. The decrease is primarily the result of the
decrease in marketable securities of approximately $1,319,000 or 66.7% from
1997 to 1998.
YEAR ENDED SEPTEMBER 30, 1997 COMPARED TO THE YEAR ENDED SEPTEMBER 30, 1996
Revenue. The Company's revenue increased approximately $3,082,000 or 32.8%
from 1996 to 1997. The increase is due to the introduction of revenue from the
sale of manufactured products as well as an increase in revenue on research
and development contracts. During 1997, the Company acquired MagMotor and FMI
as wholly-owned subsidiaries which provided for incremental revenue of
approximately $1,135,000 and $2,595,000, respectively. Revenue from the
Company's new ISAM product contributed approximately $540,000 of additional
revenue. Approximately $1,295,000 of the increase in revenue related to an
increase in revenue on research and development contracts. These increases
were partially offset by a decrease in revenue of approximately $3,410,000
from contracts with Chrysler Corporation for the development of drive train
components as part of the Patriot Hybrid Vehicle Program. During 1996,
Chrysler Corporation announced the cancellation of the Patriot Hybrid Vehicle
Program. Chrysler also announced that it intends to transition technologies
utilized in the Patriot Program to their Hybrid-Electric Vehicle program being
sponsored by the U.S. Government's Super Car Initiative.
13
<PAGE>
Cost of revenue. Cost of revenue increased approximately $3,676,000 or 57.5%
from 1996 to 1997. The increase is primarily due to the addition of cost of
revenue associated with MagMotor and FMI of approximately $797,000 and
$1,886,000, respectively, and increased cost of revenue on research and
development contracts accounting for an additional $696,000. In addition, the
Company established a reserve of approximately $910,000 in connection with the
cost to complete a number of commercial development contracts. These increases
were partially offset by a decrease in cost of revenue on contracts with
Chrysler Corporation.
Selling, general and administrative. Selling, general and administrative
expenses increased approximately $629,000 or 11.3% from 1996 to 1997.
Approximately $250,000 and $570,000 of the increase is due to selling, general
and administrative expenses related to MagMotor and FMI, respectively. In
addition, the Company established a reserve of approximately $498,000 for
expenses, primarily lease cancellation costs relating to consolidating the
Tucson Space Division into the Technology Center. These increases are offset
by a decrease of approximately $800,000 primarily due to the management of
travel and other selling and administrative costs.
Research and development. Internally funded research and development
expenses increased approximately $1,596,000 or 178.6% from 1996 to 1997.
Approximately $2,593,000 of the increase is related to the Company's decision
to recognize certain capitalized product development costs in fiscal year 1997
rather than amortizing the costs over future years' revenue based on the
uncertainty of future sales. These costs related primarily to Beacon's 20C1000
Cable/Telecom Flywheel system development efforts and the ISAM product. These
costs are partially offset by the reversal of a reserve for a fiscal year 1996
dispute over contractual terms. Management believes that the reserve is no
longer necessary and that the financial statements properly reflect the
ultimate impact of this matter.
Goodwill amortization. The Company recognized approximately $120,000 of
goodwill amortization in 1997 related to goodwill in connection with the
acquisition of MagMotor and FMI.
Interest income, net. Interest income, net decreased approximately $195,000
or 37.0% from 1996 to 1997. The decrease is primarily the result of the
decrease in marketable securities of approximately $1,459,000 or 42.5% from
1996 to 1997.
LIQUIDITY AND CAPITAL RESOURCES
As of September 30, 1998, the Company's cash and cash equivalents were
approximately $1,202,000, a decrease of approximately $3,055,000 from
September 30, 1997. Cash used in operating activities during 1998 was
approximately $2,383,000 as compared to cash used in operating activities of
approximately $3,482,000 during fiscal year 1997. This was primarily the
result of an increase in inventory related to the introduction of new standard
products.
Cash used in investing activities, as of September 30, 1998, was
approximately $2,261,000. This relates primarily to the investment in Beacon
and capital expenditures of manufacturing and inspection equipment. This was
partially offset by the sale and maturity of approximately $1,341,000 of
marketable securities.
Cash provided by financing activities as of September 30, 1998, was
approximately $1,590,000. This relates primarily to proceeds from the exercise
of options and warrants to purchase common stock.
On December 16, 1998, the Company obtained a $2,000,000 discretionary demand
line of credit (the "Line of Credit"), bearing interest at the bank's prime
rate of interest plus 1 1/2%. Available borrowings are based on a formula of
eligible accounts receivable and inventory and will be used for capital
expenditures, working capital and general corporate purposes.
The Company anticipates that existing cash resources, cash flow from
operations and the Line of Credit will be sufficient to fund its operations at
least through September 30, 1999 and to repurchase up to 5 percent of the
Company's outstanding shares under a stock repurchase program (the "Repurchase
Program") provided that
14
<PAGE>
the Company meets its operating plan. Under the Repurchase Program, the
Company plans to purchase shares of its Common Stock on the open market from
time to time, depending on market conditions. To the extent cash flow from
operations is insufficient to fund the Company's activities, it may be
necessary to raise additional funds through equity or debt financing. The
Company's ability to generate cash from operations depends upon, among other
things, revenue growth, its credit and payment terms with vendors and
collections of accounts receivable. If such sources of cash prove
insufficient, the Company will be required to make changes in its operations
or to seek additional debt or equity financing. There can be no assurances
that cash generated from operations will be sufficient to meet its operating
requirements or that additional debt or equity financing will be available on
terms acceptable to the Company, or at all.
FACTORS AFFECTING FUTURE RESULTS
The Company's future results remain difficult to predict and may be affected
by a number of factors which could cause actual results to differ materially
from the forward-looking statements contained in this Annual Report on Form
10-K and presented elsewhere by management from time to time. These factors
include business conditions within the automotive, telecommunications,
industrial machinery and semiconductor industries and the world economies as a
whole and competitive pressures that may impact research and development
spending. The Company's revenue growth is dependent on technology developments
and contract research and development for both the government and commercial
sectors and no assurance can be given that such investments will continue or
that the Company can successfully obtain such funds. In addition, the
Company's future growth opportunities are dependent on the introduction of new
products that must penetrate automotive, telecommunications, industrial and
computer market segments. No assurance can be given that new products can be
developed, or if developed, will be successful, that competitors will not
force prices to an unacceptably low level or take market share from the
Company or that the Company can achieve or maintain profits in these markets.
Because of these and other factors, past financial performances should not be
considered an indicator of future performance. Investors should not use
historical trends to anticipate future results and should be aware that the
Company's stock price frequently experiences significant volatility.
On October 23, 1998, the Company entered into a Securities Purchase
Agreement, by and among Beacon Power Corporation ("Beacon"), Perseus Capital
L.L.C. ("Perseus"), Duquesne Enterprises ("Duquesne") Micro Generation
Technology Fund, L.L.C. ("Micro", and together with Perseus and Duquesne the
"Purchasers") and the Company. Pursuant to the terms of the agreement, (i) the
Purchasers purchased from Beacon and Beacon issued, sold and delivered to the
Purchasers 1,900,000 shares (the "Shares") of Beacon's Class D Preferred
Stock, $.01 par value per share; (ii) the Purchasers have the right to receive
certain warrants to purchase shares of Beacon's common stock, $.01 par value
per share (Beacon's Common Stock"); (iii) the Company granted the Purchasers
the right (the "Put Right") to cause the Company, in circumstances described
below, to purchase all of the Shares and all of Beacon's Common Stock issuable
upon conversion of the Shares; and (iv) upon exercise of the Put Right
pursuant to the terms of the agreement, the Company must pay the consideration
contemplated by the agreement in shares of the Company's Common Stock, valued
at the average fair value for the fifteen trading days before and after notice
of exercise of the Put Right. The aggregate consideration received by Beacon
was $4,750,000. The Put Right is exercisable within sixty days of the second,
third, forth and fifth anniversary of the closing date of the transaction,
upon certain events of bankruptcy of Beacon and upon the occurrence of certain
going private transactions involving the Company. If the Put Right were to be
exercised, the Company would most likely recognize a loss equal to the value
of the Company's shares issued upon exercise of the Put Right.
EFFECT OF RECENT ACCOUNTING PRONOUNCEMENTS
In June 1997, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standard No. 130 ("SFAS 130"), "Reporting
Comprehensive Income." SFAS 130 is effective for fiscal years beginning after
December 15, 1997 and requires that changes in comprehensive income be shown
in a financial statement that is displayed with the same prominence as other
financial statements. The Company will adopt SFAS 130 beginning in the first
quarter of the fiscal year ending September 30, 1999.
15
<PAGE>
In June 1997, the FASB issued Statement of Financial Accounting Standard No.
131 ("SFAS 131"), "Disclosure about Segments of an Enterprise and Related
Information." SFAS is effective for fiscal years beginning after December 15,
1997 and establishes annual and interim reporting standards for an
enterprise's operating segments and related disclosures about its products and
services, geographical areas and major customers. The Company will adopt SFAS
131 beginning in the first quarter of the fiscal year ending September 30,
1999.
In June 1998, the FASB issued Statement of Financial Accounting Standard No.
133 ("SFAS 133"), "Accounting for Derivative Instruments and Hedging
Activities." SFAS 133 is effective for fiscal years beginning after June 15,
1999 and establishes a new model for accounting for derivatives and hedging
activities. The Company will adopt SFAS 133 beginning in the first quarter of
the fiscal year ending September 30, 2000.
Adoption of SFAS 130, SFAS 131 and SFAS 133 are not expected to have a
material impact to the Company's consolidated financial position, results of
operations or cash flows, and any effect will be limited to the form and
content of its disclosures.
EFFECTS OF INFLATION
The Company believes that inflation over the past three years has not had a
significant impact on the Company's revenue or operating results.
EFFECTS OF YEAR 2000
The year 2000 ("Y2K") issue is the result of computer programs being written
using two digits rather than four digits to define the applicable year.
Certain computer programs that have date-sensitive software and use two digits
only may recognize a date using "00" as the year 1900 rather than the year
2000.
The Company recognizes the need to ensure its operations will not be
adversely impacted by the Y2K software failures and has established a project
team to address the Y2K risks. The project team has coordinated the
identification of, and will coordinate the implementation of, changes to
computer hardware and software applications that will attempt to ensure
availability and integrity of the Company's information systems and the
reliability of its operational systems and manufacturing processes. The
Company is also assessing the potential overall impact of Y2K on its business,
results of operations and financial position.
The Company has reviewed its information and operational systems and
manufacturing processes in order to identify those products, services or
systems that are not Y2K compliant. As a result of this review, the Company
has determined that it will be required to modify or replace certain
information and operational systems so that they will be Y2K compliant. These
modifications and replacements are being, and will continue to be, made in
conjunction with the Company's overall system initiatives. The total cost of
these Y2K compliance measures has not been, and is not anticipated to be,
material to the Company's financial position or its results of operations. The
Company expects to complete its Y2K project during fiscal year 1999. Based on
available information, the Company does not believe any material exposure to
significant business interruption exists as a result of Y2K compliance issues.
Accordingly, the Company has not adopted any formal contingency plan in the
event its Y2K project is not completed in a timely manner. These costs and the
timing in which the Company plans to complete its Y2K modifications and
testing processes are based on management's best estimates. However, there can
be no assurance that the Company will timely identify and remediate all
significant Y2K problems, that remedial efforts will not involve significant
time and expense or that such problems will not have a material adverse effect
on the Company's business, results of operations or financial position.
The Company also faces risks to the extent that suppliers of products,
services and systems purchased by the Company and others with whom the Company
transacts business do not comply with the Y2K requirements. The Company is
identifying significant suppliers and customers to determine the extent to
which the Company is vulnerable to these third parties' failure to remediate
their own Y2K issues. In the event any such third party
16
<PAGE>
cannot provide the Company the products, services or systems that meet the Y2K
requirements on a timely basis, the Company's results of operations could be
materially and adversely affected. To the extent Y2K issues cause significant
delays in, or cancellation of, decisions to purchase the Company's products or
services, the Company's business, results of operations or financial position
would be materially adversely affected.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
INTEREST RATE RISK
The Company maintains an investment portfolio consisting of debt securities
of various issuers, types and maturities. These securities are classified as
available for sale, and consequently are recorded on the balance sheet at
market value, with the unrealized gain or loss recorded through the equity
section. These instruments are not leveraged, and are not held for purposes of
trading.
The following table summarizes derivative financial instruments included in
marketable securities held by the Company at September 30, 1998, which are
sensitive to changes in interest rates:
<TABLE>
<CAPTION>
FOR THE YEARS ENDED SEPTEMBER 30,
------------------------------------------
TOTAL TOTAL
FACE FAIR
DESCRIPTION 1999 2000 2001 2002 2003 THEREAFTER VALUE VALUE
- ----------- ------ ------ ------ ------ ------ ---------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Floater................. $350,000 $350,000 $325,500
Average Interest Rate. 5.7% 5.7% 5.7% 5.7% 5.7% 5.7%
CMO..................... $ 70,614 $ 70,614 $ 73,492
Average Interest Rate. 5.4% 5.4% 5.4% 5.4% 5.4% 5.4%
Structured Notes........ $250,000 $250,000 $258,439
Average Interest Rate. 6.0% 6.0% 6.0% 6.0% 6.0% 6.0%
</TABLE>
17
<PAGE>
ITEM 8. CONSOLIDATED FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Report of Independent Accountants......................................... 19
Consolidated Financial Statements:
Consolidated Balance Sheets as of September 30, 1998 and 1997........... 20
Consolidated Statements of Operations for the Years Ended September 30,
1998, 1997, and 1996................................................... 21
Consolidated Statements of Changes in Stockholders' Equity for the Years
Ended September 30, 1998, 1997, and 1996............................... 22
Consolidated Statements of Cash Flows for the Years Ended September 30,
1998, 1997, and 1996................................................... 23
Notes to Consolidated Financial Statements.............................. 24
Schedule II; Valuation and Qualifying Accounts for the Years Ended Sep-
tember 30, 1998, 1997, and 1996........................................ 40
</TABLE>
18
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
In our opinion, the consolidated financial statements listed in the
accompanying index present fairly, in all material respects, the financial
position of SatCon Technology Corporation and its subsidiaries at September
30, 1998 and 1997, and the results of their operations and their cash flows
for each of the three years in the period ended September 30, 1998, in
conformity with generally accepted accounting principles. In addition, in our
opinion, the financial statement schedule listed in the accompanying index
presents fairly, in all material respects, the information set forth therein
when read in conjunction with the related consolidated financial statements.
These financial statements and financial statement schedule are the
responsibility of the Company's management; our responsibility is to express
an opinion on these financial statements and financial statement schedule
based on our audits. We conducted our audits of these statements in accordance
with generally accepted auditing standards which require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on
a test basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for the
opinion expressed above.
PricewaterhouseCoopers LLP
Boston, Massachusetts
December 17, 1998 except as to the information in Note R, for which the date
is January 4, 1999
19
<PAGE>
SATCON TECHNOLOGY CORPORATION
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
SEPTEMBER 30, SEPTEMBER 30,
1998 1997
------------- -------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents........................ $ 1,201,610 $ 4,256,504
Marketable securities (Note B)................... 657,431 1,976,400
Accounts receivable, net of allowance of $51,836
in 1998 and $159,243
in 1997......................................... 3,347,405 2,965,559
Unbilled contract costs, net of allowance of
$57,611 in 1998 and $1,130,468
in 1997 (Note C)................................ 1,196,318 1,709,826
Inventory (Note D)............................... 3,678,067 1,577,483
Prepaid expenses and other assets................ 358,308 416,926
Amounts due from related party (Note F).......... 596,453 --
----------- -----------
Total current assets........................... 11,035,592 12,902,698
Property and equipment, net (Note E)............... 2,677,786 4,784,355
Intangibles, net (Note P).......................... 2,967,988 2,992,659
Investment in Beacon Power Corporation (Note F).... 1,458,183 --
Other assets....................................... 27,041 29,726
----------- -----------
Total assets................................... $18,166,590 $20,709,438
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable................................. $ 1,447,897 $ 850,208
Accrued payroll and payroll related expenses..... 352,701 392,235
Deferred revenue................................. 197,930 191,128
Accrued costs for consolidation of facilities
(Note H)........................................ 100,000 498,000
Other accrued expenses........................... 285,999 290,049
Current portion of long-term debt (Note G)....... 146,594 85,784
----------- -----------
Total current liabilities...................... 2,531,121 2,307,404
Long-term liabilities:
Note Payable..................................... -- 6,737
Long-term debt (Note G).......................... 221,462 316,160
----------- -----------
Total long-term liabilities.................... 221,462 322,897
Commitments and contingencies (Note H).............
Stockholders' equity:
Preferred stock; $.01 par value, 1,000,000 shares
authorized; none issued
and outstanding (Note L)........................ -- --
Common stock, $.01 par value, 15,000,000 shares
authorized; 9,018,549 and 8,769,146 shares is-
sued at September 30, 1998 and 1997, respec-
tively
(Note K)........................................ 90,185 87,691
Additional paid-in capital....................... 28,377,718 26,576,600
Retained earnings/(deficit)...................... (12,870,440) (8,564,939)
Net unrealized losses on marketable securities,
net of tax effect (Note B)...................... (10,380) (20,215)
Treasury stock, at cost; 28,300 and 0 shares at
September 30, 1998 and 1997, respectively....... (173,076) --
----------- -----------
Total stockholders' equity..................... 15,414,007 18,079,137
----------- -----------
Total liabilities and stockholders' equity... $18,166,590 $20,709,438
=========== ===========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
20
<PAGE>
SATCON TECHNOLOGY CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
FOR THE YEARS ENDED SEPTEMBER 30,
-------------------------------------
1998 1997 1996
----------- ----------- -----------
<S> <C> <C> <C>
Revenue................................. $15,485,923 $12,466,335 $ 9,384,588
----------- ----------- -----------
Cost of revenue......................... 10,991,202 10,071,150 6,394,830
Selling, general and administrative ex-
penses................................. 4,787,070 6,197,951 5,569,285
Research and development expenses....... 346,161 2,489,207 893,628
Goodwill amortization................... 290,957 120,467 --
----------- ----------- -----------
Total operating expenses................ 16,415,390 18,878,775 12,857,743
Operating loss.......................... (929,467) (6,412,440) (3,473,155)
Loss from Investment in Beacon Power
Corporation............................ (3,541,817) -- --
Interest income, net.................... 169,655 269,198 463,840
----------- ----------- -----------
Net loss before income taxes............ (4,301,629) (6,143,242) (3,009,315)
Provision/(benefit) for income taxes.... 3,872 -- (144,479)
----------- ----------- -----------
Net loss................................ $(4,305,501) $(6,143,242) $(2,864,836)
=========== =========== ===========
Net loss per weighted average share, ba-
sic and diluted........................ $ (.48) $ (.77) $ (.39)
=========== =========== ===========
Weighted average number of common
shares, basic and diluted.............. 8,956,671 7,959,309 7,285,756
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
21
<PAGE>
SATCON TECHNOLOGY CORPORATION
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED SEPTEMBER 30, 1998, 1997 AND 1996
<TABLE>
<CAPTION>
NET
UNREALIZED
ADDITIONAL RETAINED LOSS ON TOTAL
COMMON COMMON PAID-IN EARNINGS / MARKETABLE TREASURY TREASURY STOCKHOLDERS'
SHARES STOCK CAPITAL (DEFICIT) SECURITIES SHARES STOCK EQUITY
--------- ------- ----------- ------------ ---------- -------- --------- -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance, September 30,
1995................... 7,166,601 $71,666 $18,284,486 $ 443,139 $(46,576) -- -- $18,752,715
Net Loss................ (2,864,836) (2,864,836)
Exercise of stock op-
tions.................. 192,473 1,925 202,723 204,648
Change in net unrealized
losses on marketable
securities............. 6,641 6,641
--------- ------- ----------- ------------ -------- ------ --------- -----------
Balance, September 30,
1996................... 7,359,074 $73,591 $18,487,209 $ (2,421,697) $(39,935) -- -- $16,099,168
Net Loss................ (6,143,242) (6,143,242)
Exercise of stock op-
tions.................. 161,934 1,619 408,390 410,009
Change in net unrealized
losses on marketable
securities............. 19,720 19,720
Stock issued in acquisi-
tion
(Note P)............... 450,000 4,500 2,871,750 2,876,250
Securities purchase
agreement (Note F)..... 798,138 7,981 4,809,251 4,817,232
--------- ------- ----------- ------------ -------- ------ --------- -----------
Balance, September 30,
1997................... 8,769,146 $87,691 $26,576,600 $ (8,564,939) $(20,215) -- -- $18,079,137
Net loss................ (4,305,501) (4,305,501)
Exercise of stock op-
tions.................. 100,266 1,003 580,736 581,739
Exercise of warrants.... 149,137 1,491 1,220,382 1,221,873
Treasury stock pur-
chased................. 28,300 $(173,076) (173,076)
Change in net unrealized
losses on marketable
securities............. 9,835 9,835
--------- ------- ----------- ------------ -------- ------ --------- -----------
Balance, September 30,
1998................... 9,018,549 $90,185 $28,377,718 $(12,870,440) $(10,380) 28,300 $(173,076) $15,414,007
========= ======= =========== ============ ======== ====== ========= ===========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
22
<PAGE>
SATCON TECHNOLOGY CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
FOR THE YEARS ENDED SEPTEMBER 30,
-------------------------------------
1998 1997 1996
----------- ----------- -----------
<S> <C> <C> <C>
Cash flows from operating activities:
Net loss.............................. $(4,305,501) $(6,143,242) $(2,864,836)
Adjustments to reconcile net loss to
net cash used in operating
activities:
Depreciation and amortization..... 676,240 969,010 820,991
Allowance for unbilled contract
costs............................ (19,065) 697,968 366,000
Allowance for doubtful accounts... (94,424) 28,324 --
Write off impaired assets......... 50,104 2,593,558 --
Loss from Investment in Beacon
Power
Corporation...................... 3,541,817 -- --
Changes in operating assets and
liabilities:
Accounts receivable............. (318,859) 535,797 (905,787)
Prepaid expenses and other as-
sets........................... (11,860) 62,174 222,821
Unbilled contract costs......... 532,573 (749,462) (532,886)
Inventory....................... (2,117,372) (403,302) --
Other assets.................... (607,245) 212,339 (221,772)
Accounts payable................ 597,689 (385,868) (19,907)
Accrued costs for consolidation
of facilities.................. (398,000) 498,000 --
Accrued expenses and payroll.... 90,516 (1,396,970) 236,225
Deferred income taxes........... -- -- (173,283)
----------- ----------- -----------
Total adjustments................... 1,922,114 2,661,568 (207,598)
----------- ----------- -----------
Net cash used in operating activities... (2,383,387) (3,481,674) (3,072,434)
----------- ----------- -----------
Cash flows from investing activities:
Purchases of marketable securities.... -- (600,000) (1,450,000)
Sales and maturities of marketable se-
curities............................. 1,340,609 2,079,064 8,407,185
Patent and intangible expenditures.... (522,483) (150,534) (156,843)
Deferred financing fees............... -- 56,313 (56,313)
Capital expenditures.................. (1,021,478) (2,496,726) (2,293,305)
Acquisitions, net of cash acquired.... -- (112,986) --
Investment in Beacon Power Corpora-
tion................................. (2,058,066) -- --
----------- ----------- -----------
Net cash (used in)/provided by investing
activities............................. (2,261,418) (1,224,869) 4,450,724
----------- ----------- -----------
Cash flows from financing activities:
Repayment of borrowings............... (40,625) (35,119) --
Proceeds from exercise of stock op-
tions................................ 581,739 410,009 204,648
Proceeds from exercise of warrants.... 1,221,873 -- --
Proceeds from issuance of common
stock................................ -- 4,817,232 --
Purchase of treasury stock............ (173,076) -- --
----------- ----------- -----------
Net cash provided by financing activi-
ties................................... 1,589,911 5,192,122 204,648
----------- ----------- -----------
Net (decrease)/increase in cash and cash
equivalents............................ (3,054,894) 485,579 1,582,938
Cash and cash equivalents at beginning
of year................................ 4,256,504 3,770,925 2,187,987
----------- ----------- -----------
Cash and cash equivalents at end of
year................................... $ 1,201,610 $ 4,256,504 $ 3,770,925
=========== =========== ===========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
23
<PAGE>
SATCON TECHNOLOGY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
A.SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization
SatCon Technology Corporation (the "Company" or "SatCon") was organized as a
Massachusetts corporation in February 1985 and reincorporated in Delaware in
1992. SatCon itself and through its subsidiaries, designs, develops,
manufacturers and sells hardware and software systems relating to energy
storage, energy conservation and power management with an emphasis on
environmentally friendly approaches.
It is the Company's strategy to accelerate leading edge developments by
continuing to expand its externally funded contract research and development
from both government and commercial sources. SatCon can then leverage this
funding to develop products that the Company believes can both be sold to
government agencies and transition into high volume commercial products.
Recent changes in the SBIR program provide a new mechanism to pursue
government Phase III pre-production programs on a sole source non-competitive
basis. In most instances, individual components have multiple applications
across these markets.
Basis of Consolidation
The consolidated financial statements include the accounts of SatCon and its
majority-owned subsidiaries. All inter-company accounts and transactions have
been eliminated.
Revenue Recognition
The Company performs research under cost-type, fixed-price, and time and
material contracts and sells product prototypes. Revenue is recognized on the
percentage-of-completion method based on the proportion of costs incurred to
total estimated costs for each contract. Revenue recognized in excess of
amounts billed are classified in current assets as unbilled contract costs.
Certain contracts contain provisions for performance incentives. Such
incentives are included in revenue when realization is assured. If a current
contract estimate indicates a loss, a provision is made for the total
anticipated loss. All payments to the Company for work performed on contracts
with agencies of the U.S. Government are subject to audit and adjustment by
the Defense Contract Audit Agency. Adjustments are recognized in the period
made.
The Company also designs and manufactures standard products such as multi-
chip modules and hybrids, custom electric motors, and integrated suspension
and motor systems. Revenue from product sales is recognized upon shipment.
Cash and Cash Equivalents
Cash and cash equivalents include cash on hand, demand deposits and highly
liquid investments with a maturity of three months or less when acquired. At
September 30, 1997, $67,632 of cash and cash equivalents was reserved as
collateral for a letter of credit drawn for the deposit on a facility lease.
Marketable Securities
The Company accounts for marketable securities in accordance with the
Statement of Financial Accounting Standard No. 115, "Accounting for Certain
Investments in Debt and Equity Securities."
Management determines the appropriate classification of its investments in
debt securities at the time of purchase and re-evaluates such determination at
each balance sheet date. Debt securities for which the Company does not have
the intent or ability to hold to maturity are classified as available for
sale.
24
<PAGE>
SATCON TECHNOLOGY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Securities available for sale are carried at fair value, based on quoted
market prices, with the unrealized gains and losses, net of tax effect,
reported in a separate component of stockholders' equity except for unrealized
losses determined to be permanent in nature. Such unrealized losses are
included in the determination of net income in the period in which management
determines the decline to be permanent. The Company is not actively involved
in the purchase and sale of investments classified as trading. At September
30, 1998 and 1997, the Company had no investments that qualified as trading or
held to maturity.
The amortized cost of debt securities classified as available for sale is
adjusted for amortization of premiums and accretion of discounts to maturity
or, in the case of mortgage-backed securities, over the estimated life of the
security. Such amortization and interest are included in interest income.
Realized gains and losses are included in other income or expense. The cost of
securities sold is based on the specific identification method. At September
30, 1997, $600,000 of marketable securities was reserved as collateral for an
operating lease.
Inventory
Inventories are stated at the lower of cost or market and costs are
determined based on the first-in, first-out method of accounting.
Property and Equipment
Property and equipment are stated at cost. Depreciation is computed using
the straight-line method over the asset's estimated useful life. The estimated
useful lives of property and equipment are as follows:
<TABLE>
<CAPTION>
ESTIMATED LIVES
---------------
<S> <C>
Computer equipment and software................ 3-5 Years
Electronic laboratory and shop equipment....... 5 Years
Mechanical laboratory and shop equipment....... 10 Years
Sales and demonstration equipment.............. 3-10 Years
Furniture and fixtures......................... 7-10 Years
Leasehold improvements......................... Lesser of the life of the
lease or the useful life of
the improvement
</TABLE>
When assets are retired or otherwise disposed of, the cost and related
depreciation and amortization are eliminated from the accounts and any
resulting gain or loss is reflected in other income.
Long-Lived Assets
The Company periodically evaluates the potential impairment of its long-
lived assets whenever events or changes in circumstances indicate that the
carrying amount of an asset may not be recoverable. At the occurrence of a
certain event or change in circumstances or at each balance sheet date, the
Company evaluates the potential impairment of an asset based on future
undiscounted cash flows. In the event impairment exists, the Company will
measure the amount of such impairment based the present value of estimated
future cash flows using a discount rate commensurate with the risks involved.
Factors which management considers in performing this assessment include
current operating results, trends and prospects and, in addition, demand,
competition and other economic factors.
Intangibles, which consist primarily of patents and trademarks, goodwill and
a non-compete agreement, are amortized on a straight-line basis over periods
ranging from 5 to 15 years. At September 30, 1998 and 1997, accumulated
amortization of intangibles amounted to $442,237 and $138,563, respectively.
25
<PAGE>
SATCON TECHNOLOGY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Deferred Revenue
Deferred revenue consists of payments received from customers in advance of
services performed.
Treasury Stock
The Company is authorized to repurchase up to 5 percent of the Company's
outstanding shares through July 2000. Under the repurchase program, the
Company plans to purchase shares on the open market from time-to-time,
depending on market conditions. The Company's repurchase of shares of common
stock are recorded as "Treasury stock" and result in a reduction of
"Stockholders' equity."
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 revenue and expenses during the period
reported. Actual results could differ from these estimates.
Income Taxes
The Company accounts for income taxes in accordance with Statement of
Financial Accounting Standard No. 109 ("SFAS 109"), "Accounting for Income
Taxes," which requires a balance sheet approach for accounting and reporting
for income taxes. Under SFAS 109, deferred tax assets and deferred tax
liabilities are recognized based on temporary differences between the basis of
assets and liabilities using statutory rates. In addition, SFAS 109 requires a
valuation allowance against net deferred tax assets if, based upon the
available evidence, it is more likely than not that some or all of the
deferred tax assets will not be realized. The Company, as required under the
Internal Revenue Code of 1986, as amended ("the Code"), has switched from the
cash to accrual method for tax reporting purposes.
Income/(Loss) per Basic and Diluted Common Share
The Company reports net income/(loss) per basic and diluted common share in
accordance with Statement of Financial Accounting Standard No. 128 ("SFAS
128"), "Earnings Per Share," which establishes standards for computing and
presenting earnings per share. Basic earnings per share excludes dilution and
is computed by dividing income available to common stockholders by the
weighted-average number of common shares outstanding for the period. Diluted
earnings per share reflects the potential dilution that could occur if
securities or other contracts to issue common stock were exercised or
converted into common stock or resulted in the issuance of common stock that
then shared in the earnings of the Company.
Concentration of Credit Risk
Financial instruments which subject the Company to concentrations of credit
risk consist principally of cash equivalents, investments in marketable
securities, trade accounts receivable and unbilled contract costs.
The Company's trade accounts receivable and unbilled contract costs are
primarily from sales to U.S. Government agencies and several commercial
customers. The Company does not require collateral and has not historically
experienced significant credit losses related to receivables or unbilled
contract costs from individual customers or groups of customers in any
particular industry or geographic area.
The Company deposits its cash and invests in short-term investments and
marketable securities primarily through two regional commercial banks and an
investment company. Credit exposure to any one entity is limited by Company
policy.
26
<PAGE>
SATCON TECHNOLOGY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Reclassifications
Certain prior year balances have been reclassified to conform to current
year presentations.
B. MARKETABLE SECURITIES
At September 30, 1998 and 1997, marketable securities have been categorized
as available for sale, and as a result, are stated at fair value.
As of September 30, 1998 marketable securities consist of the following:
<TABLE>
<CAPTION>
AMORTIZED AGGREGATE GROSS GROSS
COST FAIR UNREALIZED UNREALIZED
SECURITY CATEGORY BASIS VALUE GAINS LOSSES
----------------- --------- --------- ---------- ----------
<S> <C> <C> <C> <C>
Corporate debt securities........ $597,197 $583,939 $ 8,149 $(21,407)
Mortgage-backed securities....... 70,614 73,492 2,878 --
-------- -------- ------- --------
$667,811 $657,431 $11,027 $(21,407)
======== ======== ======= ========
</TABLE>
As of September 30, 1997 marketable securities consist of the following:
<TABLE>
<CAPTION>
GROSS GROSS
AMORTIZED AGGREGATE UNREALIZED UNREALIZED
SECURITY CATEGORY COST BASIS FAIR VALUE GAINS LOSSES
----------------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Corporate debt securities..... $ 597,178 $ 568,000 -- $(29,178)
Debt securities issued by U.S.
Government and its agencies.. 1,301,396 1,296,063 -- (5,333)
Mortgage-backed securities.... 111,518 112,337 $819 --
---------- ---------- ---- --------
$2,010,092 $1,976,400 $819 $(34,511)
========== ========== ==== ========
</TABLE>
The contractual maturities of debt securities available for sale at
September 30, 1998 are as follows:
<TABLE>
<CAPTION>
AMORTIZED AGGREGATE
COST BASIS FAIR VALUE
---------- ----------
<S> <C> <C>
Due within one year.................................. -- --
Due after one year through five years................ $250,290 $258,439
Due after five years through 10 years................ 70,614 73,492
Due after 10 years................................... 346,907 325,500
-------- --------
$667,811 $657,431
======== ========
</TABLE>
The change in net unrealized holding losses during fiscal year 1998, 1997
and 1996 were $23,312, $32,866, and $66,558, respectively, and are included in
the balance sheet in a separate component of stockholders' equity, net of tax
effect.
Proceeds from sales and maturities of marketable securities during fiscal
year 1998, 1997 and 1996 were $1,340,609, $2,079,064, and $8,407,185,
respectively. Gross realized losses from the sale of securities classified as
available for sale during fiscal year 1998, 1997 and 1996 were $0, $0, and
$1,461, respectively.
C. UNBILLED CONTRACT COSTS
Unbilled contract costs represent revenue recognized in excess of amounts
billed due to contractual provisions. These amounts include retained fee and
un-liquidated costs totaling $363,087 and $493,565 at September 30, 1998 and
1997, respectively. It is anticipated that substantially all of these unbilled
amounts will be collected during the fiscal year ending September 30, 1999.
27
<PAGE>
SATCON TECHNOLOGY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
D. INVENTORY
Inventory consists of the following:
<TABLE>
<CAPTION>
SEPTEMBER 30,
---------------------
1998 1997
---------- ----------
<S> <C> <C>
Raw material......................................... $1,783,803 $ 651,460
Work-in-process...................................... 1,788,241 637,657
Finished goods....................................... 106,023 288,366
---------- ----------
$3,678,067 $1,577,483
========== ==========
</TABLE>
E. PROPERTY AND EQUIPMENT
Property and equipment consist of the following:
<TABLE>
<CAPTION>
SEPTEMBER 30,
---------------------
1998 1997
---------- ----------
<S> <C> <C>
Machinery and equipment.............................. $3,493,435 $3,251,193
Sales and demonstration equipment.................... 19,052 2,115,921
Furniture and fixtures............................... 265,173 261,478
Computer software.................................... 556,876 529,788
Leasehold improvements............................... 524,539 496,977
---------- ----------
4,859,075 6,655,357
Less accumulated depreciation and amortization....... 2,181,289 1,871,002
---------- ----------
$2,677,786 $4,784,355
========== ==========
</TABLE>
Depreciation expense for the fiscal years ended September 30, 1998, 1997,
and 1996 was $540,213, $736,924, and $817,539, respectively.
As of September 30, 1998, there was no equipment under capital leases. There
was $29,650 of the $3,251,193 machinery and equipment related to a capital
lease as of September 30, 1997. The associated accumulated depreciation was
$13,837 at September 30, 1997.
During 1997, the Company determined that certain of its machinery and
equipment totaling $2,593,558 was impaired based on a change in the needs of
its customers and such assets were written off during fiscal year 1997.
F. INVESTMENT IN BEACON POWER CORPORATION
On May 28, 1997, SatCon Technology Corporation entered into a Securities
Purchase Agreement (the "Agreement"), dated as of May 28, 1997, by and among
the Company, Beacon Power Corporation ("Beacon"), a new wholly-owned
subsidiary of the Company, and Duquesne Enterprises ("Duquesne"). Pursuant to
the terms of the Agreement, Duquesne purchased from the Company and the
Company issued, sold and delivered to Duquesne 798,138 shares (the "Shares")
of the Company's Common Stock. Duquesne also received warrants (the "Beacon
Warrant") to purchase 500,000 shares of Beacon's Common Stock, $.01 par value
per share ("Beacon's Common Stock"), at a purchase price of $6.00 per share.
The warrants expire on the earlier of May 28, 1999 and 30 days prior to the
filing of a registration statement with respect to Beacon's Common Stock. The
aggregate consideration received by the Company was $5,000,000. In exchange
for certain fixed assets and a capital contribution, the Company received all
of the capital stock of Beacon, consisting of 3,000,000 shares of Beacons'
Common Stock and 1,000,000 shares of Beacon's preferred stock, par value $.01
per share ("Beacon's
28
<PAGE>
SATCON TECHNOLOGY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Preferred Stock"). Beacon's Preferred Stock is convertible into shares of
Beacon's Common Stock automatically upon the exercise of the Beacon Warrant by
Duquesne. Duquesne also entered into agreements pursuant to which it will act
as exclusive distributor of Beacon's products, subject to certain exceptions,
in seven Mid-Atlantic States and the District of Columbia. Duquesne is also
entitled to purchase sufficient securities in future Beacon equity financings
to increase its ownership in Beacon to 20% of the voting securities of Beacon
(assuming the Beacon Warrant is exercised). The foregoing purchase right
expires (i) upon the expiration of the Beacon Warrant if the Beacon Warrant is
not exercised in full; or (ii) if the Beacon Warrant is exercised in full,
upon the closing of an initial public offering of Beacon's Common Stock. The
consolidated financial statements included the accounts of Beacon and all
wholly-owned subsidiaries.
During a recapitalization of Beacon on December 24, 1997, Beacon obtained
equity financing from private investors and the Company converted a
significant portion of its ownership of Beacon to convertible preferred stock.
The Company retained approximately 19.9% of Beacon's outstanding voting stock.
Although the Company owned less than 20% of the outstanding voting stock of
Beacon, based on other factors there was a presumption that the Company had
the ability to exercise significant influence, and the equity method was
required for the fair presentation subsequent to this recapitalization. The
impact on the consolidated financial statements at December 24, 1997 was as
follows:
<TABLE>
<S> <C>
Accounts Receivable.......................................... $ (31,437)
Inventory.................................................... (16,788)
Prepaid expenses and other assets............................ (70,478)
Property and Equipment, net.................................. (2,859,572)
Intangibles, net............................................. (90,957)
Accrued payroll and payroll related expenses................. 32,298
Deferred revenue............................................. 95,000
Cash......................................................... (2,058,066)
-----------
Investment in Beacon Power Corporation....................... $ 5,000,000
===========
</TABLE>
At September 30, 1998, the Company had amounts of $596,453 due from Beacon.
These amounts arose from transactions after December 24, 1997, whereby the
Company advanced money and made payments for certain expenses incurred by
Beacon. Such amounts were subsequently repaid in connection with the October
23, 1998 financing.
On October 23, 1998, the Company entered into a Securities Purchase
Agreement, by and among Beacon, Perseus Capital, L.L.C. ("Perseus"), Duquesne,
Micro Generation Technology Fund, L.L.C ("Micro", and together with Perseus
and Duquesne the "Purchasers") and the Company. Pursuant to the terms of the
Agreement, (i) the Purchasers purchased from Beacon and Beacon issued, sold
and delivered to the Purchasers 1,900,000 shares (the "Shares") of Beacon's
Class D Preferred Stock, $.01 par value per share; (ii) the Purchasers have
the right to receive certain warrants to purchase shares of Beacon's common
stock, $.01 par value per share ("Beacon's Common Stock"); (iii) the Company
granted the Purchasers the right (the "Put Right") to cause the Company, in
circumstances described below, to purchase all of the Shares and all of
Beacon's Common Stock issuable upon conversion of the Shares; and (iv) upon
exercise of the Put Right pursuant to the terms of the Agreement, the Company
must pay the consideration contemplated by the Agreement in shares of the
Company's common stock, $.01 par value per share, valued at the average fair
value for the fifteen trading days before and after notice of exercise of the
Put Right. The aggregate consideration received by Beacon was $4,750,000. The
Put Right is exercisable within sixty days of the second, third, forth and
fifth anniversary of the closing date of the transaction, upon certain events
of bankruptcy of Beacon and upon the occurrence of certain going private
transactions involving the Company. If the Put Right were to be exercised, the
Company would most likely recognize a loss equal to the value of the Company's
shares issued upon exercise
29
<PAGE>
SATCON TECHNOLOGY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
of the Put Right. The Company retained approximately 19.9% of Beacon's
outstanding voting stock. Accordingly, as a result of the third-party
financing obtained on October 23, 1998 the Company's remaining investment in
Beacon from October 23, 1998 going forward will be accounted for on a cost
basis.
The Company will continue to review its investment in Beacon. While the
Company continues to be optimistic regarding the long term prospects for
Beacon and the flywheel technology, Beacon has not yet successfully introduced
a flywheel product and will need substantial additional financing to continue
its operations. If in the future the Company determines that its investment in
Beacon does not have any remaining value, the Company would take appropriate
actions to write-off the remaining cost of its investment.
G. LONG-TERM DEBT
Long-term debt consists of the following:
<TABLE>
<CAPTION>
SEPTEMBER 30,
-------------------
1998 1997
--------- --------
<S> <C> <C>
Note payable due in 52 weekly payments. The total
note of $443,804 commenced on April 16, 1997....... $ 368,056 $401,944
Less: Current Portion............................... (146,594) (85,784)
--------- --------
$ 221,462 $316,160
========= ========
</TABLE>
Long-term debt maturities payable for the five years and thereafter
subsequent to September 30, 1998 are as follows:
<TABLE>
<S> <C>
1999.............................................................. $146,594
2000.............................................................. 221,462
2001.............................................................. --
2002.............................................................. --
2003 and thereafter............................................... --
--------
$368,056
========
</TABLE>
H. COMMITMENTS AND CONTINGENCIES
Operating Leases
The Company leases 45,820 square feet of office and laboratory space at 161
First Street, Cambridge, Massachusetts under a primary lease expiring on
October 31, 2003 and an additional 8,343 square feet located at 6245 East
Broadway Boulevard, Suite 350, Tucson, Arizona under a primary lease expiring
on March 31, 2001. The Company also leases approximately 14,757 square feet of
office and manufacturing space at 530 Turnpike Street, North Andover,
Massachusetts under a primary lease expiring on July 31, 2002 and
approximately 17,000 square feet at 121 Higgins Street, Worcester,
Massachusetts under a primary lease expiring on March 31, 2003.
Effective November 5, 1997, the Company entered into an agreement to sub-
lease 8,930 square feet at 161 First Street to a third party and effective
July 15, 1998, the Company entered into an agreement to sub-lease an
additional 3,952 square feet at 161 First Street to the same third party.
The Company has also entered into a master leasing agreement to lease
various items of equipment not to exceed $600,000. At September 30, 1998,
approximately $428,000 of this facility has been utilized.
30
<PAGE>
SATCON TECHNOLOGY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Future minimum annual rentals under all lease agreements at September 30,
1998 are as follows:
<TABLE>
<CAPTION>
FISCAL YEAR
-----------
<S> <C>
1999............................................................. $1,227,529
2000............................................................. 1,253,658
2001............................................................. 1,307,326
2002............................................................. 1,233,922
2003............................................................. 1,002,424
Thereafter....................................................... 79,687
----------
Total (not reduced by minimum sublease rentals of $448,657).... $6,104,546
==========
</TABLE>
Total rental expense including operating expenses and real estate taxes for
operating leases amounted to $1,235,867, $1,245,238, and $1,000,802 for the
years ended September 30, 1998, 1997 and 1996, respectively.
In the fourth quarter of fiscal 1997, the Company decided to consolidate its
operating facility in Tucson, AZ back to Cambridge, MA. As a result, the
Company accrued approximately $498,000 primarily related to the buyout of the
facility lease. At September 30, 1998, the Company had a reserve of $100,000,
primarily related to the lease cancellation costs.
I. EMPLOYEE BENEFIT PLAN
The Company offers a 401(k) Employee Benefit Plan (the "Plan"). Under the
Plan, any regular employee, as defined by the Plan, who has completed six
months of service and has attained the age of 21 years is eligible to
participate. Under the terms of the Plan, an employee may defer up to 15% of
his or her compensation through contributions to the Plan. The Company made
matching contributions to the Plan of $86,883, $133,018 and $128,458 during
fiscal year 1998, 1997 and 1996, respectively.
J. INCOME TAXES
The provision for income taxes consists of the following:
<TABLE>
<CAPTION>
FOR THE YEARS ENDED SEPTEMBER 30,
-------------------------------------
1998 1997 1996
----------- ----------- -----------
<S> <C> <C> <C>
Current payable:
Federal........................... -- -- $ 9,775
State............................. $ 3,872 -- --
----------- ----------- -----------
3,872 -- 9,775
Deferred tax expense/(benefit):
Federal........................... $(1,349,519) $(1,823,584) $(1,853,352)
State............................. (404,950) (680,530) 37,769
Change in valuation allowance..... 1,754,469 2,504,114 1,661,329
----------- ----------- -----------
-- -- (154,254)
----------- ----------- -----------
$ 3,872 -- $ (144,479)
=========== =========== ===========
</TABLE>
31
<PAGE>
SATCON TECHNOLOGY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes. As of September 30,
1998 and 1997, the components of the net deferred tax assets/(liabilities) are
as follows:
<TABLE>
<CAPTION>
1998 1997
----------- -----------
<S> <C> <C>
Accrual to cash adjustment...................... -- $(1,175,626)
Federal net operating loss...................... $ 3,563,810 3,176,307
State net operating loss, net of federal bene-
fit............................................ 574,613 533,120
Unrealized losses on marketable securities...... 4,116 13,568
Credits......................................... 455,982 183,728
Depreciation.................................... 15,318 407,537
Loss on Investment in Beacon Power Corporation.. 1,404,347 --
Other........................................... 189,152 363,334
Valuation allowance............................. (6,207,338) (3,501,968)
----------- -----------
Net deferred income taxes....................... -- --
=========== ===========
</TABLE>
A decrease in net deferred tax assets and a decrease in the valuation
allowance in the amount of approximately $541,000 each has been made to
account for the recapitalization of Beacon Power Corporation during fiscal
year ended September 30, 1998.
The provision for income taxes differs from the Federal statutory rate due
to the following:
<TABLE>
<CAPTION>
FOR THE YEARS
ENDED
SEPTEMBER 30,
---------------------
1998 1997 1996
----- ----- -----
<S> <C> <C> <C>
Tax at statutory rate... (34.0)% (34.0)% (34.0)%
State taxes--net of fed-
eral benefit........... (6.2) (7.3) (0.8)
Other................... (0.5) .6 2.1
Change in valuation al-
lowance................ 40.8 40.7 27.9
----- ----- -----
Effective tax rate...... 0.1 % -- % (4.8)%
===== ===== =====
</TABLE>
At September 30, 1998, the Company had net operating loss carry-forwards of
approximately $10,480,000 and $9,160,000 for federal and state income tax
purposes, respectively, of which approximately $1,900,000 relates to
deductions attributable to the exercise of non-qualified stock options and
employees' early disposition of stock acquired through incentive stock
options. The federal net operating losses expire beginning September 30, 2008
through 2018. The state net operating losses will expire beginning September
30, 1999 through 2003. The use of these losses may be limited due to ownership
change limitations under Section 382 of the Code.
K. STOCKHOLDERS' EQUITY
Stock Options
Under the Company's 1986 Stock Option Plan, both qualified and non-qualified
stock options may be granted to certain officers and key employees. Options
under the 1986 Plan become exercisable as vested over four years, and expired
December 31, 1996. At September 30, 1998 and 1997, all of the 553,196 stock
options available for grant under the Company's 1986 Stock Option Plan have
been granted.
32
<PAGE>
SATCON TECHNOLOGY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
In June 1992, the Company adopted its 1992 Stock Option Plan that provides
for the grant to employees, officers, directors and consultants of qualified
and non-qualified stock options to purchase up to 450,000 shares of the
Company's common stock. At September 30, 1998 and 1997, 449,699 and 449,199,
respectively, of the 450,000 stock options available for grant under the
Company's 1992 Stock Option Plan have been granted.
In February 1994, the Company adopted its 1994 Stock Option Plan that was
subsequently adopted by the Company's stockholders in June 1994. The Plan
provides for the grant to employees, officers, directors, and consultants of
qualified and non-qualified stock options to purchase up to 300,000 shares of
the Company's common stock. At September 30, 1998 and 1997, 291,532 and
293,033, respectively, of the 300,000 stock options available for grant under
the Company's 1994 Stock Option Plan have been granted.
During fiscal year 1996, the Company adopted its 1996 Stock Option Plan that
provides for the grant to employees, officers, directors, and consultants of
qualified and non-qualified stock options to purchase up to 300,000 shares of
the Company's common stock. At September 30, 1998 and 1997, 257,750 and
113,000 respectively, of the 300,000 stock options available for grant under
the Company's 1996 Stock Option Plan have been granted.
During fiscal year 1998, the Company adopted its 1998 Stock Option Plan that
provides for the grant to employees, officers, directors and consultants for
qualified and non-qualified stock options to purchase up to 500,000 shares of
the Company's common stock. At September 30, 1998, 120,000 of the 500,000
stock options available for grant under the Company's 1998 Stock Option Plan
have been granted.
The 1986, 1992, 1994, 1996, and 1998 Stock Option Plans (collectively the
"Plans") are subject to the following provisions:
The aggregate fair market value (determined as of the date the option is
granted) of the common stock that any employee may purchase in any calendar
year pursuant to the exercise of qualified options may not exceed $100,000. No
person who owns, directly or indirectly, at the time of the granting of a
qualified option to him or her, more than 10% of the total combined voting
power of all classes of stock of the Company shall be eligible to receive any
qualified options under the Plans unless the option price is at least 110% of
the fair market value of the common stock subject to the option, determined on
the date of grant. Non-qualified options are not subject to this limitation.
Qualified options are issued only to employees of the Company, while non-
qualified options may be issued to non-employee directors, consultants, and
others, as well as to employees of the Company. Options granted under the
Stock Option Plans may not be granted with an exercise price less than 100% of
fair value of the Company's common stock, as determined by the Board of
Directors on the grant date.
Options under the Plans must be granted within 10 years from the effective
date of the Plan. Qualified options granted under the Plans cannot be
exercised more than 10 years from the date of grant except that qualified
options issued to 10% or greater stockholders are limited to five year terms.
All options granted under the Plans provide for the payment of the Company's
exercise price in cash, or by delivery to the Company of shares of common
stock already owned by the optionee having fair market value equal to the
exercise price of the options being exercised, or by a combination of such
methods of payment. Therefore, an optionee may be able to tender shares of
common stock to purchase additional shares of common stock and may
theoretically exercise all of his stock options with no additional investment
other than his original shares.
The Plans contain antidilutive provisions authorizing appropriate
adjustments in certain circumstances. Shares of common stock subject to
options which expire without being exercised or which are canceled as a result
of the cessation of employment are available for further grants.
33
<PAGE>
SATCON TECHNOLOGY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
A summary of the status of the Company's stock option plans as of September
30, 1998, 1997 and 1996 and changes for the years then ended are presented
below.
<TABLE>
<CAPTION>
1998 1997 1996
------------------- ------------------- -------------------
WEIGHTED WEIGHTED WEIGHTED
NUMBER OF AVERAGE NUMBER OF AVERAGE NUMBER OF AVERAGE
SHARES PRICE SHARES PRICE SHARES PRICE
--------- -------- --------- -------- --------- --------
<S> <C> <C> <C> <C> <C> <C>
Outstanding at beginning
of year................ 700,427 $ 8.44 713,392 $ 7.08 904,503 $ 5.91
Granted............... 319,000 11.20 144,000 8.97 20,000 7.00
Exercised............. (100,266) 5.80 (144,466) 2.25 (185,773) .91
Canceled.............. (98,251) 10.55 (12,499) 10.71 (25,338) 10.39
-------- -------- --------
Outstanding at end of
year................... 820,910 $ 9.58 700,427 $ 8.44 713,392 $ 7.08
======== ======== ========
Options exercisable at
year-end............... 413,403 $ 8.48 503,660 $ 8.14 579,776 $ 6.49
</TABLE>
The following table summarizes information about stock options outstanding
as of September 30, 1998.
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
------------------------------ --------------------
WEIGHTED WEIGHTED WEIGHTED
AVERAGE AVERAGE AVERAGE
RANGE OF NUMBER REMAINING EXERCISE NUMBER EXERCISE
EXERCISE PRICES OUTSTANDING LIFE PRICE EXERCISABLE PRICE
--------------- ----------- --------- -------- ----------- --------
<S> <C> <C> <C> <C> <C>
$5.00--$7.81 166,261 4.7 $5.84 159,761 $5.78
$8.75--$10.50 304,899 6.9 9.49 198,642 9.56
$11.00--$13.38 349,750 9.0 11.44 55,000 12.43
------- --- ----- ------- -----
$5.00--$13.38 820,910 7.3 $9.58 413,403 $8.48
======= =======
</TABLE>
An additional 431,019 and 194,768 shares were available for future grants at
September 30, 1998 and 1997, respectively.
All outstanding options vest at various rates over periods up to four years
and expire at various dates from November 30, 2002 to July 24, 2008.
In addition to options granted pursuant to the Plans, the Company in March
1992 issued non-qualified options to purchase up to 33,500 shares of common
stock to certain of its professional advisors. These options were exercisable
at a price of $5.25 per share and expired in March 1997. At September 30,
1998, all 33,500 options have been exercised.
Warrants
In connection with its initial public offering in November 1992, the Company
issued to the underwriter warrants to purchase up to (i) 150,000 shares of
Common Stock at an exercise price of $8.25 per share and (ii) 150,000 shares
of Common Stock at an exercise price of $11.55 per share. In November 1997,
such warrants were exercised for a total of $1,221,873. The remainder of the
warrants expired on November 11, 1997.
On June 5, 1998, the Company issued to certain individuals, in settlement of
a claim asserted against the Company, Common Stock Purchase Warrants to
purchase up to 63,848 shares of common stock at an exercise price of $11.43
per share. These warrants expire on November 11, 1999. At September 30, 1998,
none of these warrants have been exercised.
34
<PAGE>
SATCON TECHNOLOGY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
On November 11, 1998, the Company issued to certain individuals, who
formerly held warrants issued by the Company in connection with the Company's
initial public offering in November 1992, Common Stock Purchase Warrants to
purchase up to 67,125 shares of the Company's Common Stock at an exercise
price of $11.43 per share. These warrants expire on November 11, 1999.
Stock-Based Compensation
In October 1995, the Financial Accounting Standards Board issued SFAS No.
123 ("SFAS 123"), "Accounting for Stock-Based Compensation." SFAS 123 is
effective for periods beginning after December 15, 1995. SFAS 123 requires
that companies either recognize compensation expense for grants of stock,
stock options, and other equity instruments based on fair value, or provide
pro forma disclosure of net income and earnings per share in the notes to the
financial statements. The Company adopted the disclosure provisions of SFAS
123 for year ended September 30, 1997 and has applied APB Opinion 25 and
related interpretations in accounting for its plans. There were no
compensation costs recognized in fiscal year ended September 30, 1998, 1997
and 1996.
Had compensation cost for the Company's stock-based compensation plans been
determined based on fair value at the grant dates as calculated in accordance
with SFAS 123, the Company's net loss and loss per share for fiscal years
ended September 30, 1998, 1997 and 1996 would have been increased to the pro
forma amounts indicated below:
<TABLE>
<CAPTION>
1998 1997 1996
---------------------- ---------------------- ----------------------
LOSS LOSS LOSS
NET LOSS PER SHARE NET LOSS PER SHARE NET LOSS PER SHARE
----------- --------- ----------- --------- ----------- ---------
<S> <C> <C> <C> <C> <C> <C>
As reported............. $(4,305,501) $(.48) ($6,143,242) $(.77) ($2,864,836) $(.39)
Pro forma............... $(4,881,491) $(.55) ($6,215,049) $(.78) ($2,883,079) $(.40)
</TABLE>
The effects of applying SFAS 123 in this pro forma disclosure are not
indicative of future amounts. SFAS 123 does not apply to awards prior to
fiscal year 1996 and additional awards in future years are anticipated.
The fair value of each stock option is estimated on the date of the grant
using the Black-Scholes option-pricing model with the following weighted
average assumptions: an expected life of 7 years, expected volatility of
57.9%, no dividends, and risk-free interest rate of 5.76% for September 30,
1998. The weighted average price of the fair value of options granted for
years ended September 30, 1998, 1997 and 1996 are $7.14, $5.80 and $4.53,
respectively.
L. PREFERRED STOCK
The Company is authorized to issue up to 1,000,000 shares of Preferred
Stock, $.01 par value. The Preferred Stock may be issued in one or more
series, the terms of which may be determined at the time of issuance by the
Board of Directors, without further action by stockholders, and may include
voting rights (including the right to vote as a series on particular matters),
preferences as to dividends and liquidation, conversion and redemption rights
and sinking fund provisions. No Preferred Stock is currently outstanding and
the Company has no present plans for the issuance thereof. However, the
issuance of any such Preferred Stock could affect the rights of the holders of
Common Stock, and therefore, reduce the value of the Common Stock. In
particular, specific rights granted to future holders of Preferred Stock could
be used to restrict the Company's ability to merge with or sell its assets to
a third party, thereby preserving control of the Company by present owners.
35
<PAGE>
SATCON TECHNOLOGY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
M. EFFECT OF RECENT ACCOUNTING PRONOUNCEMENTS
In June 1997, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standard No. 130 ("SFAS 130"), "Reporting
Comprehensive Income." SFAS 130 is effective for fiscal years beginning after
December 15, 1997 and requires that changes in comprehensive income be shown
in a financial statement that is displayed with the same prominence as other
financial statements. The Company will adopt SFAS 130 beginning in the first
quarter of the fiscal year ending September 30, 1999.
In June 1997, the FASB issued Statement of Financial Accounting Standard No.
131 ("SFAS 131"), "Disclosure about Segments of an Enterprise and Related
Information." SFAS 131 is effective for fiscal years beginning after December
15, 1997 and establishes annual and interim reporting standards for an
enterprise's operating segments and related disclosures about its products and
services, geographical areas and major customers. The Company will adopt SFAS
131 beginning in the first quarter of the fiscal year ending September 30,
1999.
In June 1998, the FASB issued Statement of Financial Accounting Standard No.
133 ("SFAS 133"), "Accounting for Derivative Instruments and Hedging
Activities." SFAS 133 is effective for fiscal years beginning after June 15,
1999 and establishes a new model for accounting for derivatives and hedging
activities. The Company will adopt SFAS 133 beginning in the first quarter of
the fiscal year ending September 30, 2000.
Adoption of SFAS 130, SFAS 131 and SFAS 133 are not expected to have a
material impact to the Company's consolidated financial position, results of
operations or cash flows and any effect will be limited to the form and
content of its disclosures.
N. SIGNIFICANT CUSTOMERS
Significant customers, defined as those customers whose gross revenue
account for 10% or more of total gross revenue in a fiscal year, were as
follows:
<TABLE>
<CAPTION>
FOR THE YEARS
ENDED SEPTEMBER
30,
-------------------
1998 1997 1996
----- ----- -----
<S> <C> <C> <C>
U.S. Government:
N.A.S.A............................................. 2.7% 2.9% 18.2%
U.S. Department of Defense.......................... 22.2 44.6 33.6
----- ----- -----
24.9 47.5 51.8
Commercial:
Automotive.......................................... 3.3 9.7 38.2
Avionics............................................ 38.2 20.8 --
----- ----- -----
41.5 30.5 38.2
Other:................................................ 33.6 22.0 10.0
----- ----- -----
100.0% 100.0% 100.0%
===== ===== =====
</TABLE>
36
<PAGE>
SATCON TECHNOLOGY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
O. SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Interest and Income Taxes Paid
Cash paid for interest and income taxes were as follows:
<TABLE>
<CAPTION>
FOR THE YEARS ENDED
SEPTEMBER 30,
-----------------------
1998 1997 1996
------- ------- -------
<S> <C> <C> <C>
Interest........................................... $10,206 $13,933 $ 330
======= ======= =======
Income taxes....................................... $ 5,772 $ 5,800 $36,900
======= ======= =======
</TABLE>
Acquisition of Subsidiaries
Net cash paid for the acquisitions of K&D MagMotor Corporation and Film
Microelectronics, Inc. was as follows:
<TABLE>
<CAPTION>
FOR THE YEARS ENDED
SEPTEMBER 30,
----------------------
1998 1997 1996
---- ----------- ----
<S> <C> <C> <C>
Fair value of assets............................... -- $ 4,723,408 --
Cost in excess of net assets of companies acquired,
net............................................... 987,678
Liabilities assumed................................ (2,624,836)
Stock issued....................................... (2,876,250)
--- ----------- ---
Cash paid.......................................... -- $ 210,000 --
Less: Cash acquired................................ (97,014)
--- ----------- ---
Net cash paid for the acquisitions................. -- $ 112,986 --
=== =========== ===
</TABLE>
Non-Cash Transaction
During fiscal year 1996, equipment with a fair market value of $100,000 was
received in exchange for the relief of $100,000 of accounts receivable.
P. ACQUISITIONS
K&D MagMotor Corporation
On January 23, 1997, the Company acquired substantially all of the assets
and assumed certain of the liabilities of K&D MagMotor Corporation
("MagMotor") pursuant to the terms of an Asset Purchase Agreement, dated as of
January 2, 1997, by and among the Company, MagMotor and MagMotor's principal
stockholder (the "Stockholder") (the "Asset Purchase Agreement"). The
aggregate consideration paid by the Company for the acquired assets of
MagMotor was approximately $210,000 in cash and 30,000 shares of the Company's
common stock, par value $.01 per share valued at $6.625 per share or $198,750.
MagMotor's assets, including machinery and equipment and inventory, were
recorded at their estimated market value of $250,000 and $160,000,
respectively.
The terms of the Asset Purchase Agreement were determined on the basis of
arms-length negotiations. Prior to the execution of the Asset Purchase
Agreement, the Company did not have any material relationship with MagMotor or
the Stockholder.
37
<PAGE>
SATCON TECHNOLOGY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
MagMotor, headquartered in Worcester, Massachusetts, is a manufacturer of
custom electric motors targeting the factory automation, medical, semi-
conductor and packaging markets. The Company continues to use the assets in
the same manner in which they were used by MagMotor immediately prior to the
acquisition. The Company has included in its consolidated results of
operations the acquisition of MagMotor under the purchase method of
accounting.
Film Microelectronics, Inc.
On April 16, 1997, the Company acquired substantially all of the assets of
Film Microelectronics, Inc. ("FMI") pursuant to the Asset Purchase Agreement,
dated as of April 3, 1997, by and among the Company, FMI and FMI's principal
stockholder. In addition, the Company assumed trade payables aggregating
approximately $900,000 and the assumption of indebtedness of approximately $1
million. The aggregate consideration paid by the Company for the acquired
assets of FMI was 420,000 shares of the Company's common stock, par value $.01
per share (the "Common Stock") valued at $6.375 per share or $2,677,500.
FMI, headquartered in North Andover Massachusetts, is a manufacturer of
production and custom integrated circuits for the communications, industrial,
military and aerospace markets. The Company continues to use the assets in the
same manner in which they were used by FMI immediately prior to the
acquisition. FMI's assets have been recorded at their estimated market values
with the excess purchase price assigned to goodwill which is being amortized
over 15 years.
The Company has included in its consolidated results of operations the
acquisition of FMI under the purchase method of accounting. The following
unaudited pro forma financial information combines SatCon and FMI's results of
operations as if the acquisition had taken place on October 1, 1996 and 1995.
The pro forma results are not necessarily indicative of what the results of
operations actually would have been if the transaction had occurred on the
applicable dates indicated and are not intended to be indicative of future
results of operations.
<TABLE>
<CAPTION>
FOR THE YEARS ENDED
SEPTEMBER 30,
------------------------
1997 1996
----------- -----------
<S> <C> <C>
Net revenue...................................... $14,974,765 $13,794,481
Net operating loss............................... $(7,024,383) $(4,290,888)
Net loss......................................... $(6,544,837) $(3,522,463)
Net loss per share............................... $ (.82) $ (.45)
</TABLE>
38
<PAGE>
SATCON TECHNOLOGY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Q. EARNINGS PER SHARE
The following is the reconciliation of the numerators and denominators of
the basic and diluted per share computations of net loss:
<TABLE>
<CAPTION>
FOR THE YEARS ENDED
SEPTEMBER 30,
------------------------
1998 1997
----------- -----------
<S> <C> <C>
Net loss........................................ $(4,305,501) $(6,143,242)
BASIC:
Common shares outstanding, beginning of year.... 8,769,146 7,359,074
Weighted average common shares issued during the
year........................................... 190,163 600,235
Weighted average shares repurchased during the
year........................................... (2,638) --
----------- -----------
Weighted average shares outstanding--basic...... 8,956,671 7,959,309
=========== ===========
Net loss per weighted average share, basic...... $ (.48) $ (.77)
=========== ===========
DILUTED:
Weighted average shares outstanding--basic...... 8,956,671 7,959,309
Weighted average common stock equivalents (a)... -- --
----------- -----------
Weighted average shares outstanding--diluted.... 8,956,671 7,959,309
=========== ===========
Net loss per weighted average share, diluted.... $ (.48) $ (.77)
=========== ===========
</TABLE>
- --------
(a) not included if antidilutive
R. SUBSEQUENT EVENTS
On December 16, 1998, the Company obtained a $2,000,000 demand discretionary
line of credit, bearing interest at the banks prime rate of interest plus 1
1/2% for an effective rate of 9 1/4% at December 16, 1998. Available
borrowings are based on a formula of eligible accounts receivable and
inventory.
On January 4, 1999, the Company's MagMotor subsidiary acquired substantially
all of the assets and assumed certain liabilities of Inductive Components,
Inc. and Lighthouse Software, Inc. pursuant to the terms of an Asset Purchase
Agreement, dated January 4, 1999, among MagMotor, the Company, Inductive
Components, Inc, Lighthouse Software, Inc. and Thomas Glynn, the sole
stockholder of Inductive and the majority stockholder of Lighthouse. The
aggregate consideration paid by the Company for the acquired assets of
Inductive Components, Inc. and Lighthouse Software, Inc. was 100,000 shares of
the Company's Common Stock, valued at $5.6875 per share or $568,750. In
addition, the Company assumed indebtedness of approximately $250,000.
39
<PAGE>
FINANCIAL STATEMENT SCHEDULE
SCHEDULE II VALUATION AND QUALIFYING ACCOUNTS
<TABLE>
<CAPTION>
ADDITIONS
BALANCE AT CHARGED TO BALANCE
BEGINNING COSTS AND AT END
OF PERIOD EXPENSES DEDUCTIONS OF PERIOD
---------- ---------- ----------- ----------
<S> <C> <C> <C> <C>
Year Ended September 30, 1996:
Allowance for doubtful accounts. $ 130,900 $ 130,900
Allowance for unbilled contract
costs.......................... $ 66,500 $ 390,500 $ (24,500) $ 432,500
Deferred tax valuation allow-
ance........................... $1,661,329 $1,661,329
Year Ended September 30, 1997:
Allowance for doubtful accounts. $ 130,900 $ 30,750 $ (2,407) $ 159,243
Allowance for unbilled contract
costs.......................... $ 432,500 $ 909,100 $ ( 211,132) $1,130,468
Deferred tax valuation allow-
ance........................... $1,661,329 $1,840,639 $3,501,968
Allowance for obsolete invento-
ry............................. $ 758,541 $ 758,541
Reserve for product warranty ex-
pense.......................... $ 16,511 $ 16,511
Accrued costs for consolidation
of facilities.................. $ 498,000 $ 498,000
Year Ended September 30, 1998:
Allowance for doubtful accounts. $ 159,243 $ 29,014 $ (136,421) $ 51,836
Allowance for unbilled contract
costs.......................... $1,130,468 $(1,072,857) $ 57,611
Deferred tax valuation allow-
ance........................... $3,501,968 $2,705,370 $6,207,338
Allowance for obsolete invento-
ry............................. $ 758,541 $ (549,765) $ 208,776
Reserve for product warranty ex-
pense.......................... $ 16,511 $ (16,511) -
Accrued costs for consolidation
of facilities.................. $ 498,000 $ (398,000) $ 100,000
</TABLE>
40
<PAGE>
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Not Applicable.
41
<PAGE>
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information with respect to directors required under this item is
incorporated herein by reference to the information set forth under the
section entitled "Election of Directors" in the Company's Proxy Statement for
the 1999 Annual Meeting of Stockholders to be held March 17, 1999 (the "1999
Proxy Statement"). Information relating to certain filings of Forms 3, 4, and
5 of the Company is contained in the 1999 Proxy Statement under the caption
"Section 16(a) Beneficial Ownership Reporting Compliance."
ITEM 11. EXECUTIVE COMPENSATION
The information required under this item is incorporated by reference to the
section entitled "Compensation of Executive Officers" in the 1999 Proxy
Statement.
The sections entitled "Compensation Committee Report on Executive
Compensation" and "Comparative Stock Performance Graph" in the 1999 Proxy
Statement are not incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required under this item is incorporated by reference to the
section entitled "Security Ownership of Certain Beneficial Owners and
Management" in the 1999 Proxy Statement.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required under this item is incorporated by reference to the
section entitled "Certain Relationships and Related Transactions" in the 1999
Proxy Statement.
42
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) The following documents are filed as part of this Report:
1.Consolidated Financial Statements:
Consolidated Balance Sheets as of September 30, 1998 and 1997
Consolidated Statements of Operations for the Years Ended September 30,
1998, 1997, and 1996
Consolidated Statements of Changes in Stockholders' Equity for the
Years Ended September 30, 1998, 1997, and 1996
Consolidated Statements of Cash Flows for the Years Ended September 30,
1998, 1997, and 1996
Notes to Consolidated Financial Statements
2.Financial Statement Schedule:
Schedule II; Valuation and Qualifying Accounts for the Years Ended
September 30, 1998, 1997, and 1996
All other financial statement schedules not listed have been omitted
because they are either not required, not applicable, or the
information has been included elsewhere in the consolidated financial
statements or notes thereto.
3.Exhibits:
The Exhibits listed in the Exhibit Index immediately preceding such
exhibits are filed as part of this Annual Report on Form 10-K.
(b) Reports on Form 8-K:
No reports on Form 8-K were filed during the last quarter of the period
covered by the Annual Report on Form 10-K.
On October 30, 1998, the Company filed a Current Report on Form 8-K, dated
October 23, 1998, in connection with the Securities Purchase Agreement, dated
October 23, 1998, by and among Beacon Power Corporation, Perseus Capital,
L.L.C., Duquesne Enterpises, Micro Generation Technology Fund, L.L.C. and the
Company.
43
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this Report to be signed
on its behalf by the undersigned, thereunto duly authorized, in the City of
Cambridge, Commonwealth of Massachusetts on January 13, 1999.
SatCon Technology Corporation
/s/ David B. Eisenhaure
By: ___________________________________
David B. Eisenhaure, President
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES EXCHANGE ACT OF 1934, THIS
REPORT HAS BEEN SIGNED BY THE FOLLOWING PERSONS IN THE CAPACITIES AND ON THE
DATES INDICATED.
<TABLE>
<S> <C>
NAME CAPACITY
DATE
/s/ David B. Eisenhaure President, Chief Executive January 13, 1999
- -------------------------- Officer, and Chairman of the
David B. Eisenhaure Board of Directors (Principal
Executive Officer)
/s/ Michael C. Turmelle Vice President, Chief January 13, 1999
- -------------------------- Financial Officer,
Michael C. Turmelle Treasurer and Director
(Principal Financial and
Accounting Officer)
/s/ James L. Kirtley, Vice President, General January 13, 1999
Jr. Manager and Director
- --------------------------
James L. Kirtley, Jr.
/s/ John P. O'Sullivan Director January 13, 1999
- --------------------------
John P. O'Sullivan
/s/ Marshall J. Director January 13, 1999
Armstrong
- --------------------------
Marshall J. Armstrong
/s/ Anthony J. Villiotti Director January 13, 1999
- --------------------------
Anthony J. Villiotti
</TABLE>
44
<PAGE>
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION OF EXHIBIT
----------- ----------------------
<C> <S>
2.1(1) --Amended and Restated Asset Purchase Agreement among SatCon Film
Microelectronics, Inc., Film Microelectronics Inc., and Albert
R. Snider, dated as of April 3, 1997
3.1(2) --Certificate of Incorporation of the Registrant
3.2(2) --Bylaws of the Registrant
3.3(3) --Certificate of Amendment of Certificate of Incorporation of the
Registrant, as filed with the Secretary of State of the State of
Delaware on May 12, 1997
3.4(3) --Bylaws Amendment of the Registrant
4.1(2) --Specimen Certificate of Common Stock, $.01 par value
10.1(2) --Employment Agreement, dated July 1, 1992, between the Registrant
and David B. Eisenhaure
10.2(2) --Employment Agreement, dated July 1, 1992, between the Registrant
and Michael C. Turmelle
10.3(2)(*) --1992 Stock Option Plan
10.4(4)(*) --1994 Stock Option Plan
10.5(5)(*) --1996 Stock Option Plan
10.6(2) --Lease, dated October 21, 1993, between the Registrant and
Gunwyn/First Street Limited Partnership
10.7 --First Amendment to Lease, dated June 22, 1998, by and between
the Registrant and Gunwyn/First Street Limited Partnership
10.8(3) --Manufacturing Agreement between Applied Materials, Inc. and its
wholly-owned subsidiaries and the Registrant, dated as of
February 20, 1997
10.9(6) --Securities Purchase Agreement, dated as of May 28, 1997, by and
among the Registrant, Beacon Power Corporation and Dusquene
Enterprises
10.10(7) --Securities Purchase Agreement, dated as of October 23, 1998, by
and among Beacon Power Corporation, Perseus Capital, L.L.C.,
Dusquene Enterprises, Micro Generation Technology Fund, L.L.C.
and the Registrant
10.11(7) --Amended and Restated License Agreement, dated as of October 23,
1998, by and among the Registrant and Beacon Power Corporation
10.12(7) --Registration Right Statement, dated as of October 23, 1998, by
and among Beacon Power Corporation, Perseus Capital, L.L.C.,
Dusquene Enterprises, Micro Generation Technology Fund, L.L.C.
and the Registrant, setting forth certain registration rights
granted by the Registrant
10.13(7) --Registration Right Statement, dated as of October 23, 1998, by
and among Beacon Power Corporation, Perseus Capital, L.L.C.,
Dusquene Enterprises, Micro Generation Technology Fund, L.L.C.
and the Registrant, setting forth certain registration rights
granted by Beacon Power Corporation
10.14 --Form of Common Stock Purchase Warrant issued to certain
individuals and entities on June 15, 1998
10.15 --Form of Common Stock Purchase Warrant issued to certain
individuals and entities on November 11, 1998
10.16 --Lease, dated February 27, 1996, by and between the Registrant
and Diamond Management, Inc.
10.17 --Lease, dated March 5, 1998, by and between the Registrant and
Harold W. Slovin
</TABLE>
i
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION OF EXHIBIT
----------- ----------------------
<C> <S>
10.18 --Discretionary Demand Line of Credit Letter Agreement, dated as of
December 16, 1998, between the Registrant, SatCon Film
Microelectronics, Inc., K&D MagMotor Corp. and BankBoston, N.A.,
together with Promissory Note, dated as of December 16, 1998,
made in favor of BankBoston, N.A. by the Registrant, SatCon Film
Microelectronics, Inc. and K&D MagMotor Corp. and Security
Agreement, dated as of December 16, 1998, between the Registrant
and BankBoston N.A.
10.19 --North America Distributor Agreement, dated June 4, 1998, by and
between SatCon Film Microelectronics, Inc., a division of the
Registrant, and Falcon Electronics, Inc.
21.1 --Subsidiaries of the Registrant
23.1 --Consent of PricewaterhouseCoopers LLP
27 --Financial Data Schedule
</TABLE>
- --------
(1) Incorporated by reference to Exhibits to the Registrant's Current Report
on Form 8-K dated April 16, 1997.
(2) Incorporated by reference to Exhibits to the Registrant's Registration
Statement on Form S-1 (File No. 33-49286).
(3) Incorporated by reference to Exhibits to the Registrant's Quarterly Report
on Form 10-Q for the period ended March 31, 1997.
(4) Incorporated by reference to Exhibits to the Registrant's Annual Report on
Form 10-K for the year ended September 30, 1994.
(5) Incorporated by reference to Exhibits to the Registrant's Annual Report on
Form 10-K for the year ended September 30, 1996.
(6) Incorporated by reference to Exhibits to the Registrant's Current Report
on Form 8-K dated May 28, 1997.
(7) Incorporated by reference to Exhibits to the Registrant's Current Report
on Form 8-K dated October 23, 1998.
(*) Management contract or compensatory plan or arrangement required to be
filed as an Exhibit to this Annual Report on Form 10-K.
ii
<PAGE>
EXHIBIT 10.7
FIRST AMENDMENT TO LEASE
------------------------
Reference is made to that certain lease dated October 21, 1993 (the
"Lease") by and between Gunwyn/First Street Limited Partnership ("Landlord"), a
- --------- ------------
Massachusetts limited partnership, and SatCon Technology Corporation ("Tenant"),
a Delaware corporation.
WHEREAS, pursuant to the Lease, Landlord leased to Tenant and Tenant leased
from Landlord certain premises more particularly described in and subject to and
upon the terms and conditions set forth in the Lease; and
WHEREAS, Tenant wishes to extend the term of this Lease and Landlord is
willing to agree to such extension upon certain terms and conditions as
hereinafter provided.
NOW, THEREFORE, in consideration of the foregoing and for other
consideration, the receipt and sufficiency of which are hereby mutually
acknowledged, Landlord and Tenant agree to the following terms and conditions
and furthermore agree that the Lease shall be amended as follows:
1. The definition of "Premises Rentable Area" set forth in Section 1.1 of
------------------------
the Lease shall be deleted and the following inserted in its place:
(i) "For the period commencing on the Commencement Date and expiring
June 30, 1995, 36,890 square feet; and (ii) for the period commencing July 1,
1995 and thereafter, 45,820 square feet."
2. The definition of "Original Term" set forth in Section 1.1 of the
---------------
Lease shall be amended by deleting the word "fifth" from the second line thereof
and inserting the word "tenth" in its place.
3. The definition of "Annual Fixed Rent" set forth in Section 1.1 of the
-------------------
Lease shall be deleted and the following inserted in its place:
"The sum of (i) for the period commencing on the Commencement Date and
expiring June 30, 1995, $405,790.00 per annum; and (ii) for the period
commencing July 1, 1995 and expiring October 31, 1998, $504,020.00 per annum;
and (iii) for the period commencing November 1, 1998 and expiring October 31,
2000, $834,600.00 per annum; and (iv) for the period commencing November 1, 2000
and expiring October 31, 2003, $956,245.00 per annum."
See the chart attached hereto as Exhibit 1 detailing the Annual Fixed Rent
due for each floor of the Premises for the periods described in clauses (iii)
and (iv) of the definition of Annual Fixed Rent.
4. The definition of "Tenant's Percentage" set forth in Section 1.1 of the
---------------------
Lease shall be amended by inserting the following after the word "be" in the
last line thereof: "(i) for the period commencing on the Commencement Date and
expiring June 30, 1995,", and inserting the following at the end: "; and
(ii) for the period commencing July 1, 1995 and thereafter, 1.0 (100%).".
<PAGE>
-2-
5. Section 2.3 of the Lease is hereby amended by:
(i) deleting the phrase "ninety-five percent of the" from the 13th line
thereof; and
(ii) amending subsection (ii) by adding, after the word "sublet" which
precedes the parenthetical, the words ,(except that if Tenant has sublet a part
of a floor and Tenant wishes to remain in partial occupancy of that floor during
the Extended Term, then Tenant shall be required to extend the term with respect
to such entire floor and not just the portion occupied by Tenant) and such
occupancy also meets the requirement set forth in the first sentence of this
Section 2.3"; and
(iii) by adding the following to the end of the first paragraph thereof:
"If requested by Tenant, Landlord shall during the three month period
preceding the date by which Tenant must elect to extend the term of this Lease,
enter into good faith negotiations with Tenant regarding the Market Rate."; and
(iv) inserting the following after the word "Premises" in the 2nd line of
the second paragraph: "plus the fair market rent for the parking spaces afforded
to Tenant under Section 5.5 hereof"; and
(v) deleting the last sentence of the second paragraph.
6. Tenant hereby acknowledges that it has exercised its rights under
Section 2.4 of the Lease and that as a result, Section 2.4 is hereby deleted
from the Lease.
7. Notwithstanding any provisions of Section 6.1.9 or 6.2.4 of the Lease
to the contrary, Tenant shall not be required to restore any improvements
removed from the Premises prior to June 1, 1998, nor to remove any alterations
performed (nor to restore any improvements removed from the Premises) on or
after June 1, 1998 in accordance with the terms of the Lease as to which
Landlord shall have notified Tenant at the time of plan approval need not be
removed or restored (as applicable).
8. Tenant accepts and leases the Premises under this Lease in as is
condition without representation or warranty by Landlord.
9. Section 5.5 of the Lease shall be deleted in its entirety and the
following inserted in its place:
"5.5 Parking. Landlord shall furnish to Tenant the parking spaces listed
-------
below for use by Tenant's employees and/or customers at a cost to Tenant,
payable monthly in advance as Additional Rent, as hereinafter provided:
<PAGE>
-3-
(i) For the period commencing on the Commencement Date and expiring
June 30, 1995, forty-two (42) unreserved parking spaces in the parking area
shown on Exhibit A (the "Lot") at a cost of $2,520 per month; and
(ii) For the period commencing July 1, 1995 and expiring October 31, 1998,
all parking spaces in the Lot at a cost of $3,420 per month; and
(iii) For the period commencing November 1, 1998 and expiring October 31,
2000, all parking spaces in the Lot at a cost of $5,700 per month; and
(iv) For the period commencing November 1, 2000 and thereafter, fifty-seven
(57) unreserved parking spaces in the Lot at a cost equal to the fair market
rental value of such spaces, as reasonably determined from time to time by
Landlord, except that, to the extent Tenant shall, pursuant to Section 2.3,
elect to extend the term for the Extended Term, the fair market rent for such
spaces for the Extended Term shall be included in the determination of Market
Rate and to the extent that Tenant shall elect to extend the term for the
Extended Term but for less than all of the Building, then the number of parking
spaces to which Tenant shall be entitled for the Extended Term shall be reduced
to be the number equal to the product (rounded to the nearest whole number) of
fifty-seven (57) multiplied by Tenant's Percentage (as reduced pursuant to
Section 2.3).
The parking rights and privileges granted under this Section 5.5 shall
always be subject to reasonable rules and regulations from time to time
established by Landlord pursuant to Section 6.1.10."
10. No payments which would otherwise be due pursuant to the last
paragraph of Section 6.2.1 of the Lease shall be payable with respect to the
space on the third floor subleased to Epix for the period from November 1, 1998
through October 31, 2000.
11. Tenant represents and warrants that it has dealt with no broker in
connection with the execution of this First Amendment to Lease other than CB
Commercial/Whittier and Meredith & Grew (the "Brokers"), and agrees to
----------
indemnify Landlord and hold it harmless from and against any and all brokerage
claims other than by CB Commercial/Whittier and Meredith & Grew arising
therefrom. Landlord warrants and represents that it has dealt with no broker in
connection with the execution of this First Amendment other than the Brokers.
Landlord shall cause the Brokers to be paid a fee in accordance with a separate
agreement.
12. All capitalized terms used herein without definition shall have the
meanings ascribed to them by the Lease;
13. Except as herein specifically amended, this Lease is hereby ratified
and confirmed.
<PAGE>
-4-
IN WITNESS WHEREOF, the parties have hereto executed this First Amendment to
Lease this 22nd day of June, 1998.
LANDLORD:
GUNWYN/FIRST STREET LIMITED PARTNERSHIP
By: Gunwyn Development Corporation, a General Partner
By: /s/ Jennifer F. Francis
-----------------------------------
Jennifer F. Francis, Vice President
TENANT:
SATCON TECHNOLOGY CORPORATION
By: /s/ Michael C. Turmelle
-----------------------------------
Name: Michael C. Turmelle
Its: Vice President and CFO
<PAGE>
EXHIBIT I
<TABLE>
<CAPTION>
Ground
Floor Floor I Floor 2 Floor 3
(14,507 r.s.f.) (11,336 r.s.f.) (10,619 r.s.f.) (9,358 r.s.f.) Total
Per s.f. Per year Per s.f. Per Year Per s.f. Per year Per s.f. Per Year Per Year
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Year 1 15.00 217,605 18.00 204,048 19.50 207,071 22.00 205,876 834,600
Year 2 15.00 217,605 18.00 204,048 19.50 207,071 22.00 205,876 834,600
Year 3 18.20 264,027 21.00 238,056 22.50 238,928 23.00 215,234 956,245
Year 4 18.20 264,027 21.00 238,056 22.50 238,928 23.00 215,234 956,245
Year 5 18.20 264,027 21.00 238,056 22.50 238,928 23.00 215,234 956,245
</TABLE>
<PAGE>
Exhibit 10.14
-------------
SCHEDULE OF MATERIAL TERMS
--------------------------
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------
Name Warrant Number Date of Issuance Number of Shares
- ---------------- ---------------- ---------------- ----------------
- -------------------------------------------------------------------------
<S> <C> <C> <C>
Dan Purjes 1 June 5, 1998 31,921
- -------------------------------------------------------------------------
Matthew Balk 2 June 5, 1998 7,186
- -------------------------------------------------------------------------
Lawrence Rice 3 June 5, 1998 6,718
- -------------------------------------------------------------------------
Estate of 4 June 5, 1998 5,708
Peter Scheib
- -------------------------------------------------------------------------
Charles Rodin 5 June 5, 1998 4,760
- -------------------------------------------------------------------------
Averell Satloff 6 June 5, 1998 4,136
- -------------------------------------------------------------------------
Michael Loew 7 June 5, 1998 1,668
- -------------------------------------------------------------------------
Frank Garriton 8 June 5, 1998 1,537
- -------------------------------------------------------------------------
Paul Fitzgerald 9 June 5, 1998 214
- -------------------------------------------------------------------------
</TABLE>
THIS WARRANT AND THE SHARES OF COMMON STOCK ISSUED UPON ITS
EXERCISE ARE SUBJECT TO THE RESTRICTIONS ON
TRANSFER SET FORTH IN SECTION 4 OF THIS WARRANT
- -------------------------------------------------------------------------
Warrant No. _____ Number of Shares: _________
(subject to adjustment)
Date of Issuance: June 5, 1998
SATCON TECHNOLOGY CORPORATION
-----------------------------
Common Stock Purchase Warrant
-----------------------------
(Void after November 11, 1999)
SatCon Technology Corporation, a Delaware corporation (the "Company"), for
value received, hereby certifies that ___________________, or his registered
assigns
<PAGE>
(the "Registered Holder"), is entitled, subject to the terms set forth below, to
purchase from the Company, at any time or from time to time on or after the date
of issuance and on or before November 11, 1999 at not later than 5:00 p.m.
(Boston, Massachusetts time), _______ shares of Common Stock, $.01 par value per
share, of the Company, at a purchase price of $11.43 per share. The shares
purchasable upon exercise of this Warrant, and the purchase price per share,
each as adjusted from time to time pursuant to the provisions of this Warrant,
are hereinafter referred to as the "Warrant Shares" and the "Purchase Price,"
respectively.
1. Exercise.
--------
(a) This Warrant may be exercised by the Registered Holder, in whole
or in part, by surrendering this Warrant, with the purchase form appended hereto
as Exhibit I duly executed by such Registered Holder or by such Registered
---------
Holder's duly authorized attorney, at the principal office of the Company, or at
such other office or agency as the Company may designate, accompanied by payment
in full, in lawful money of the United States, of the Purchase Price payable in
respect of the number of Warrant Shares purchased upon such exercise.
(b) Each exercise of this Warrant shall be deemed to have been
effected immediately prior to the close of business on the day on which this
Warrant shall have been surrendered to the Company as provided in subsection
1(a) above. At such time, the person or persons in whose name or names any
certificates for Warrant Shares shall be issuable upon such exercise as provided
in subsection 1(c) below shall be deemed to have become the holder or holders of
record of the Warrant Shares represented by such certificates.
(c) As soon as practicable after the exercise of this Warrant in full
or in part, and in any event within 10 days thereafter, the Company, at its
expense, will cause to be issued in the name of, and delivered to, the
Registered Holder, or as such Holder (upon payment by such Holder of any
applicable transfer taxes) may direct:
(i) a certificate or certificates for the number of full Warrant
Shares to which such Registered Holder shall be entitled upon such exercise
plus, in lieu of any fractional share to which such Registered Holder would
otherwise be entitled, cash in an amount determined pursuant to Section 3
hereof; and
(ii) in case such exercise is in part only, a new warrant or
warrants (dated the date hereof) of like tenor, calling in the aggregate on the
face or faces thereof for the number of Warrant Shares equal (without giving
effect to any adjustment therein) to the number of such shares called for on the
face of this Warrant minus the number of such shares purchased by the Registered
Holder upon such exercise.
-2-
<PAGE>
2. Adjustments.
-----------
(a) General. The Purchase Price shall be subject to adjustment from
-------
time to time pursuant to the terms of this Section 2.
(b) Diluting Issuances.
------------------
(i) Special Definitions. For purposes of this subsection 2(b),
-------------------
the following definitions shall apply:
(A) "Option" shall mean rights, options or warrants to
------
subscribe for, purchase or otherwise acquire Common Stock or Convertible
Securities, excluding options described in clause (III) of subsection 2(b)(i)(D)
below.
(B) "Original Issue Date" shall mean the date on which this
-------------------
Warrant was first issued.
(C) "Convertible Securities" shall mean any evidences of
----------------------
indebtedness, shares or other securities directly or indirectly convertible into
or exchangeable for Common Stock.
(D) "Additional Shares of Common Stock" shall mean all shares
---------------------------------
of Common Stock issued (or, pursuant to subsection 2(b)(iii) below, deemed to be
issued) by the Company after the Original Issue Date, other than shares of
Common Stock issued or issuable:
(I) upon conversion of shares of Preferred Stock
outstanding on the Original Issue Date;
(II) by reason of a dividend, stock split, split-up or
other distribution on shares of Common Stock that are excluded from the
definition of Additional Shares of Common Stock by the foregoing clause (I)
or this clause (II); or
(III) to employees or directors of, or consultants
to, the Company pursuant to a plan adopted by the Board of Directors of the
Company.
(ii) No Adjustment of Purchase Price. No adjustments to the
-------------------------------
Purchase price shall be made unless the consideration per share (determined
pursuant to subsection 2(b)(v)) for an Additional Share of Common Stock issued
or deemed to be issued by the Company is less than the Purchase Price in effect
on the date of, and immediately prior to, the issue of such Additional Shares.
-3-
<PAGE>
(iii) Issue of Securities Deemed Issue of Additional Shares of
--------------------------------------------------------
Common Stock. If the Company at any time or from time to time after the
- ------------
Original Issue Date shall issue any Options or Convertible Securities or shall
fix a record date for the determination of holders of any class of securities
entitled to receive any such Options or Convertible Securities, then the maximum
number of shares of Common Stock (as set forth in the instrument relating
thereto without regard to any provision contained therein for a subsequent
adjustment of such number) issuable upon the exercise of such Options or, in the
case of Convertible Securities and Options therefor, the conversion or exchange
of such Convertible Securities, shall be deemed to be Additional Shares of
Common Stock issued as of the time of such issue or, in case such a record date
shall have been fixed, as of the close of business on such record date, provided
that Additional Shares of Common Stock shall not be deemed to have been issued
unless the consideration per share (determined pursuant to subsection 2(b)(v)
hereof) of such Additional Shares of Common Stock would be less than the
Purchase Price in effect on the date of and immediately prior to such issue, or
such record date, as the case may be, and provided further that in any such case
in which Additional Shares of Common Stock are deemed to be issued:
(A) No further adjustment in the Purchase Price shall be made
upon the subsequent issue of Convertible Securities or shares of Common Stock
upon the exercise of such Options or conversion or exchange of such Convertible
Securities;
(B) If such Options or Convertible Securities by their terms
provide, with the passage of time or otherwise, for any increase in the
consideration payable to the Company, upon the exercise, conversion or exchange
thereof, the Purchase Price computed upon the original issue thereof (or upon
the occurrence of a record date with respect thereto), and any subsequent
adjustments based thereon, shall, upon any such increase becoming effective, be
recomputed to reflect such increase insofar as it affects such Options or the
rights of conversion or exchange under such Convertible Securities;
(C) Upon the expiration or termination of any unexercised
Option, the Purchase Price shall not be readjusted, but the Additional Shares of
Common Stock deemed issued as the result of the original issue of such Option
shall not be deemed issued for the purposes of any subsequent adjustment of the
Purchase Price;
(D) In the event of any change in the number of shares of
Common Stock issuable upon the exercise, conversion or exchange of any Option or
Convertible Security, including, but not limited to, a change resulting from the
anti-dilution provisions thereof, the Purchase Price then in effect shall
forthwith be readjusted to such Purchase Price as would have obtained had the
adjustment which
-4-
<PAGE>
was made upon the issuance of such Option or Convertible Security not exercised
or converted prior to such change been made upon the basis of such change; and
(E) No readjustment pursuant to Clause (B) or (D) above shall
have the effect of increasing the Purchase Price to an amount which exceeds the
lower of (i) the Purchase Price on the original adjustment date, or (ii) the
Purchase Price that would have resulted from any issuances of Additional Shares
of Common Stock between the original adjustment date and such readjustment date.
(iv) Adjustment of Purchase Price Upon Issuance of Additional
--------------------------------------------------------
Shares of Common Stock. In the event the Company shall at any time after the
- ----------------------
Original Issue Date issue Additional Shares of Common Stock (including
Additional Shares of Common Stock deemed to be issued pursuant to subsection
2(b)(iii), but excluding shares issued as a dividend or distribution or upon a
stock split or combination as provided in subsection 2(c)), without
consideration or for a consideration per share less than the Purchase Price in
effect on the date of and immediately prior to such issue, then and in such
event, such Purchase Price shall be reduced, concurrently with such issue, to a
price (calculated to the nearest cent) determined by dividing (A) the sum of (1)
the total number of shares of Common Stock outstanding immediately prior to such
issue, multiplied by the Purchase Price in effect immediately prior to such
issue, and (2) the consideration, if any, received by the Company upon such
sale, issuance, subdivision or combination by (B) the total number of shares of
Common Stock outstanding immediately after such issue; provided that, (i) for
-------------
the purpose of this subsection 2(b)(iv), all shares of Common Stock issuable
upon exercise or conversion of Options or Convertible Securities outstanding
immediately prior to such issue shall be deemed to be outstanding (other than
shares excluded from the definition of "Additional Shares of Common Stock" by
virtue of clause (III) of subsection 2(b)(i)(D)), and (ii) the number of shares
of Common Stock deemed issuable upon conversion of such outstanding Options and
Convertible Securities shall not give effect to any adjustments to the
conversion price or conversion rate of such Options or Convertible Securities
resulting from the issuance of Additional Shares of Common Stock that is the
subject of this calculation.
Notwithstanding the foregoing, the applicable Purchase Price shall not
be so reduced at such time if the amount of such reduction would be an amount
less than $.05, but any such amount shall be carried forward and reduction with
respect thereto made at the time of and together with any subsequent reduction
which, together with such amount and any other amount or amounts so carried
forward, shall aggregate $.05 or more.
(v) Determination of Consideration. For purposes of this
------------------------------
subsection 2(b), the consideration received by the Company for the issue of any
Additional Shares of Common Stock shall be computed as follows:
-5-
<PAGE>
(A) Cash and Property: Such consideration shall:
-----------------
(I) insofar as it consists of cash, be computed at the
aggregate of cash received by the Company, excluding amounts paid or payable for
accrued interest or accrued dividends;
(II) insofar as it consists of property other than cash,
be computed at the fair market value thereof at the time of such issue, as
determined in good faith by the Board of Directors; and
(III) in the event Additional Shares of Common Stock are
issued together with other shares or securities or other assets of the Company
for consideration which covers both, be the proportion of such consideration so
received, computed as provided in clauses (I) and (II) above, as determined in
good faith by the Board of Directors.
(B) Options and Convertible Securities. The consideration per
share received by the Company for Additional Shares of Common Stock deemed to
have been issued pursuant to subsection 2(b)(iii), relating to Options and
Convertible Securities, shall be determined by dividing
(x) the total amount, if any, received or receivable by
the Company as consideration for the issue of such Options or Convertible
Securities, plus the minimum aggregate amount of additional consideration (as
set forth in the instruments relating thereto, without regard to any provision
contained therein for a subsequent adjustment of such consideration) payable to
the Company upon the exercise of such Options or the conversion or exchange of
such Convertible Securities, or in the case of Options for Convertible
Securities, the exercise of such Options for Convertible Securities and the
conversion or exchange of such Convertible Securities, by
(y) the maximum number of shares of Common Stock (as set
forth in the instruments relating thereto, without regard to any provision
contained therein for a subsequent adjustment of such number) issuable upon the
exercise of such Options or the conversion or exchange of such Convertible
Securities.
(vi) Multiple Closing Dates. In the event the Company shall
----------------------
issue on more than one date Additional Shares of Common Stock which are
comprised of shares of the same series or class of Preferred Stock, and such
issuance dates occur within a period of no more than 120 days, then the Purchase
Price shall be adjusted only once on account of such issuances, with such
adjustment to occur upon the final such issuance and to give effect to all such
issuances as if they occurred on the date of the final such issuance.
-6-
<PAGE>
(c) Recapitalizations. If outstanding shares of the Company's Common
-----------------
Stock shall be subdivided into a greater number of shares or a dividend in
Common Stock shall be paid in respect of Common Stock, the Purchase Price in
effect immediately prior to such subdivision or at the record date of such
dividend shall simultaneously with the effectiveness of such subdivision or
immediately after the record date of such dividend be proportionately reduced.
If outstanding shares of Common Stock shall be combined into a smaller number of
shares, the Purchase Price in effect immediately prior to such combination
shall, simultaneously with the effectiveness of such combination, be
proportionately increased.
(d) Mergers, etc. If there shall occur any capital reorganization or
------------
reclassification of the Company's Common Stock (other than a change in par value
or a subdivision or combination as provided for in subsection 2(c) above), or
any consolidation or merger of the Company with or into another corporation, or
a transfer of all or substantially all of the assets of the Company, then, as
part of any such reorganization, reclassification, consolidation, merger or
sale, as the case may be, lawful provision shall be made so that the Registered
Holder of this Warrant shall have the right thereafter to receive upon the
exercise hereof the kind and amount of shares of stock or other securities or
property which such Registered Holder would have been entitled to receive if,
immediately prior to any such reorganization, reclassification, consolidation,
merger or sale, as the case may be, such Registered Holder had held the number
of shares of Common Stock which were then purchasable upon the exercise of this
Warrant. In any such case, appropriate adjustment (as reasonably determined in
good faith by the Board of Directors of the Company) shall be made in the
application of the provisions set forth herein with respect to the rights and
interests thereafter of the Registered Holder of this Warrant, such that the
provisions set forth in this Section 2 (including provisions with respect to
adjustment of the Purchase Price) shall thereafter be applicable, as nearly as
is reasonably practicable, in relation to any shares of stock or other
securities or property thereafter deliverable upon the exercise of this Warrant.
(e) Adjustment in Number of Warrant Shares. When any adjustment is
--------------------------------------
required to be made in the Purchase Price, the number of Warrant Shares
purchasable upon the exercise of this Warrant shall be changed to the number
determined by dividing (i) an amount equal to the number of shares issuable upon
the exercise of this Warrant immediately prior to such adjustment, multiplied by
the Purchase Price in effect immediately prior to such adjustment, by (ii) the
Purchase Price in effect immediately after such adjustment.
(f) Certificate of Adjustment. When any adjustment is required to be
-------------------------
made pursuant to this Section 2, the Company shall promptly mail to the
Registered Holder a certificate setting forth the Purchase Price after such
adjustment and setting forth a brief statement of the facts requiring such
adjustment. Such certificate shall
-7-
<PAGE>
also set forth the kind and amount of stock or other securities or property into
which this Warrant shall be exercisable following such adjustment.
3. Fractional Shares. The Company shall not be required upon the
-----------------
exercise of this Warrant to issue any fractional shares, but shall make an
adjustment therefor in cash.
4. Requirements for Transfer.
-------------------------
(a) This Warrant and the Warrant Shares shall not be sold or
transferred unless either (i) they first shall have been registered under the
Securities Act of 1933, as amended (the "Securities Act"), or (ii) the Company
first shall have been furnished with an opinion of legal counsel, reasonably
satisfactory to the Company, to the effect that such sale or transfer is exempt
from the registration requirements of the Securities Act.
(b) Notwithstanding the foregoing, no registration or opinion of
counsel shall be required for (i) a transfer by a Registered Holder which is a
partnership to a partner of such partnership or a retired partner of such
partnership who retires after the date hereof, or to the estate of any such
partner or retired partner, if the transferee agrees in writing to be subject to
the terms of this Section 4, or (ii) a transfer made in accordance with Rule 144
under the Securities Act.
(c) Each certificate representing Warrant Shares shall bear a legend
substantially in the following form:
"The securities represented by this certificate have not been
registered under the Securities Act of 1933, as amended, and may not
be offered, sold or otherwise transferred, pledged or hypothecated
unless and until such securities are registered under such Act or an
opinion of counsel satisfactory to the Company is obtained to the
effect that such registration is not required."
The foregoing legend shall be removed from the certificates representing any
Warrant Shares, at the request of the holder thereof, at such time as they
become eligible for resale pursuant to Rule 144(k) under the Securities Act.
5. No Impairment. The Company will not, by amendment of its charter or
-------------
through reorganization, consolidation, merger, dissolution, sale of assets or
any other voluntary action, avoid or seek to avoid the observance or performance
of any of the terms of this Warrant, but will at all times in good faith assist
in the carrying out of all such terms and in the taking of all such action as
may be necessary or appropriate in order to protect the rights of the holder of
this Warrant against impairment.
-8-
<PAGE>
6. Liquidating Dividends. If the Company pays a dividend or makes a
---------------------
distribution on the Common Stock payable otherwise than in cash out of earnings
or earned surplus (determined in accordance with generally accepted accounting
principles) except for a stock dividend payable in shares of Common Stock (a
"Liquidating Dividend"), then the Company will pay or distribute to the
Registered Holder of this Warrant, upon the exercise hereof, in addition to the
Warrant Shares purchased upon such exercise, the Liquidating Dividend which
would have been paid to such Registered Holder if he had been the owner of
record of such Warrant Shares immediately prior to the date on which a record is
taken for such Liquidating Dividend or, if no record is taken, the date as of
which the record holders of Common Stock entitled to such dividends or
distribution are to be determined.
7. Notices of Record Date, etc. In case:
---------------------------
(a) the Company shall take a record of the holders of its Common Stock
(or other stock or securities at the time deliverable upon the exercise of this
Warrant) for the purpose of entitling or enabling them to receive any dividend
or other distribution, or to receive any right to subscribe for or purchase any
shares of stock of any class or any other securities, or to receive any other
right; or
(b) of any capital reorganization of the Company, any reclassification
of the capital stock of the Company, any consolidation or merger of the Company
with or into another corporation (other than a consolidation or merger in which
the Company is the surviving entity), or any transfer of all or substantially
all of the assets of the Company; or
(c) of the voluntary or involuntary dissolution, liquidation or
winding-up of the Company, then, and in each such case, the Company will mail or
cause to be mailed to the Registered Holder of this Warrant a notice specifying,
as the case may be, (i) the date on which a record is to be taken for the
purpose of such dividend, distribution or right, and stating the amount and
character of such dividend, distribution or right, or (ii) the effective date on
which such reorganization, reclassification, consolidation, merger, transfer,
dissolution, liquidation or winding-up is to take place, and the time, if any is
to be fixed, as of which the holders of record of Common Stock (or such other
stock or securities at the time deliverable upon the exercise of this Warrant)
shall be entitled to exchange their shares of Common Stock (or such other stock
or securities) for securities or other property deliverable upon such
reorganization, reclassification, consolidation, merger, transfer, dissolution,
liquidation or winding-up. Such notice shall be mailed at least ten (10) days
prior to the record date or effective date for the event specified in such
notice.
8. Reservation of Stock. The Company will at all times reserve and keep
--------------------
available, solely for issuance and delivery upon the exercise of this Warrant,
such number of Warrant Shares and other stock, securities and property, as from
time to
-9-
<PAGE>
time shall be issuable upon the exercise of this Warrant. The Company agrees
that, upon the exercise of this Warrant and payment of the Purchase Price
therefor, the Warrant Shares shall not be subject to the preemptive rights of
any stockholder of the Company.
9. Exchange of Warrants. Upon the surrender by the Registered Holder of
--------------------
any Warrant or Warrants, properly endorsed, to the Company at the principal
office of the Company, the Company will, subject to the provisions of Section 4
hereof, issue and deliver to or upon the order of such Registered Holder, at the
Registered Holder's expense, a new Warrant or Warrants of like tenor, in the
name of such Registered Holder or as such Registered Holder (upon payment by
such Registered Holder of any applicable transfer taxes) may direct, calling in
the aggregate on the face or faces thereof for the number of shares of Common
Stock called for on the face or faces of the Warrant or Warrants so surrendered.
10. Replacement of Warrants. Upon receipt of evidence reasonably
-----------------------
satisfactory to the Company of the loss, theft, destruction or mutilation of
this Warrant and (in the case of loss, theft or destruction) upon delivery of an
indemnity agreement (with surety if reasonably required) in an amount reasonably
satisfactory to the Company, or (in the case of mutilation) upon surrender and
cancellation of this Warrant, the Company will issue, in lieu thereof, a new
Warrant of like tenor.
11. Transfers, etc.
--------------
(a) The Company will maintain a register containing the names and
addresses of the Registered Holders of this Warrant. Any Registered Holder may
change its or his address as shown on the warrant register by written notice to
the Company requesting such change.
(b) Subject to the provisions of Section 4 hereof, this Warrant and
all rights hereunder are transferable, in whole or in part, upon surrender of
this Warrant with a properly executed assignment (in the form of Exhibit II
----------
hereto) at the principal office of the Company.
(c) Until any transfer of this Warrant is made in the warrant
register, the Company may treat the Registered Holder of this Warrant as the
absolute owner hereof for all purposes; provided, however, that if and when this
-------- -------
Warrant is properly assigned in blank, the Company may (but shall not be
obligated to) treat the bearer hereof as the absolute owner hereof for all
purposes, notwithstanding any notice to the contrary.
-10-
<PAGE>
12. Registration Rights
-------------------
(a) At any time commencing on the date of this Warrant, the Registered
Holders representing a Majority (as hereinafter defined) of Warrant Shares shall
have the right, exercisable by written notice to the Company, to require the
Company to use its best efforts to prepare and file with the Securities and
Exchange Commission (the "Commission"), on one occasion only and at the expense
of the Company, a registration statement on Form S-3 and such other documents,
including a prospectus, as may be necessary in the opinion of both counsel for
the Company and counsel for the Registered Holders, in order to comply with the
provisions of the Securities Act (hereinafter, a "Demand Registration
Statement"), so as to permit a non-underwritten public offering and sale of
their Warrant Shares for 90 days by any such Registered Holders and any other
Registered Holders who notify the Company of their decision to join therein
within 10 days after receiving notice from the Company pursuant to Section 12(b)
below.
(b) The Company covenants and agrees to give written notice of any
registration request under this Section 12 to all Registered Holders within 10
days from the date of the receipt of any such registration request.
(c) Notwithstanding the provisions of Section 12, the Company may by
written notice to the Registered Holders (x) delay filing a Demand Registration
Statement requested by a Registered Holder (a "Delayed Demand Registration
Statement") or (y) require that the Registered Holders immediately cease sales
of shares under any effective Registration Statement ("Suspended Registration
Statement"), in any period during which the Company is engaged in (i) a
registered public offering of the Company, or (ii) any activity or transaction
or preparations or negotiations for any activity or transaction ("Company
Activity") that the Company desires to keep confidential for business reasons,
if the Company determines in good faith that the public disclosure requirements
imposed on the Company under the Securities Act in connection with any such
Registration Statement would require disclosure of the Company Activity;
provided, that, (i) in the aggregate, all such delays of filing a Delayed Demand
Registration Statement and/or cessations of sales under Suspended Registration
Statements shall not exceed 150 days in any 12-month period and (ii) the Company
shall cause any Suspended Registration Statement to remain effective for one
additional day for each day, or any portion of a day, that the Registered
Holders were required to cease sales of shares thereunder.
(d) If the Company requires the Registered Holders to cease sales of
shares pursuant to Section 12(c) above, the Company shall, as promptly as
practicable following the termination of the circumstance which entitled the
Company to do so, give written notice to the Registered Holders that such
circumstance has terminated and that they may resume sales pursuant to the
Suspended Registration Statement. If
-11-
<PAGE>
the prospectus included in such Suspended Registration Statement has been
amended to comply with the requirement of the Securities Act, the Company shall
enclose such revised prospectus with the notice to the Registered Holders given
pursuant to this Section 12(d), and the Registered Holders shall make no offers
or sales of shares pursuant to such Suspended Registration Statement other than
by means of such revised prospectus.
(e) Whenever the Company proposes to file a Registration Statement
(other than a Demand Registration Statement and a Registration Statement
covering shares to be sold solely for the account of other holders of securities
of the Company who are entitled, by contract with the Company, to have
securities included in such a registration ("Other Holders")) at any time and
from time to time, it will, prior to such filing, give written notice to the
Registered Holders of its intention to do so; provided, that no such notice need
be given if no Warrant Shares are to be included therein as a result of a
determination of the managing underwriter pursuant to Section 12(f). Upon the
written request of a Registered Holder or Registered Holders given within 20
days after the Company provides such notice (which request shall state the
intended method of disposition of the Warrant Shares), the Company shall use its
best efforts to cause all Warrant Shares which the Company has been requested by
such Registered Holder or Registered Holders to register to be registered under
the Securities Act to the extent necessary to permit their sale or other
disposition in accordance with the intended methods of distribution specified in
the request of such Registered Holder or Registered Holders; provided that the
Company shall have the right to postpone or withdraw any registration effected
pursuant to this Section 12(e) without obligation to any Registered Holder.
(f) If the registration for which the Company gives notice pursuant to
Section 12(e) is a registered public offering involving an underwriting, the
Company shall so advise the Registered Holders as a part of the written notice
given pursuant to Section 12(e). In such event, the right of any Registered
Holder to include its Warrant Shares in such registration pursuant to Section 12
shall be conditioned upon such Registered Holder's participation in such
underwriting on the terms set forth herein. All Registered Holders proposing to
distribute their securities through such underwriting shall (together with the
Company, Other Holders, and any officers or directors distributing their
securities through such underwriting) enter into an underwriting agreement in
customary form with the underwriter or underwriters selected for the
underwriting by the Company. Notwithstanding any other provision of this
Section 12, if the managing underwriter determines that the inclusion of all
shares requested to be registered would adversely affect the offering, the
Company may limit the number of Warrant Shares to be included in the
registration and underwriting. The Company shall so advise all Registered
Holders requesting registration, and the number of shares that are entitled to
be included in the registration and underwriting shall be allocated in the
following manner. The securities of the Company held by officers and directors
of the Company (other than
-12-
<PAGE>
Warrant Shares) shall be excluded from such registration and underwriting to the
extent deemed advisable by the managing underwriter, and, if a further
limitation on the number of shares is required, the number of shares that may be
included in such registration and underwriting shall be allocated among all
Registered Holders and Other Holders requesting registration in proportion, as
nearly as practicable, to the respective number of shares of Common Stock which
they held at the time the Company gives the notice specified in Section 12(e).
If any Registered Holder or Other Holder would thus be entitled to include more
securities than such holder requested to be registered, the excess shall be
allocated among other requesting Registered Holders and Other Holders pro rata
in the manner described in the preceding sentence. If any Registered Holder or
any officer, director or Other Holder disapproves of the terms of any such
underwriting, such person may elect to withdraw therefrom by written notice to
the Company, and any Warrant Shares or other securities excluded or withdrawn
from such underwriting shall be withdrawn from such registration.
(g) Notwithstanding the foregoing, the Company shall not be required,
pursuant to this Section 12, to include any Warrant Shares in a Registration
Statement if such Warrant Shares can then be sold pursuant to Rule 144(k) under
the Securities Act and represent less than 1% of the then outstanding shares of
Common Stock.
(h) For purposes of this Warrant, the term "Majority" in reference to
the Registered Holders of Warrant Shares shall mean the Registered Holders of
Warrant Shares who, assuming the immediate exercise of all of the outstanding
Warrants for Common Stock, would hold in excess of fifty-one percent (51%) of
the Common Stock then issued or issuable pursuant to Warrants that (i) are not
held by the Company, an affiliate or officer thereof or any of their respective
affiliates, members of their family or persons acting as their nominees or in
conjunction therewith or (ii) have not been resold to the public pursuant to a
registration statement filed with the Commission under the Securities Act.
13. Mailing of Notices, etc. All notices and other communications from
-----------------------
the Company to the Registered Holder of this Warrant shall be mailed by first-
class certified or registered mail, postage prepaid, to the address furnished to
the Company in writing by the last Registered Holder of this Warrant who shall
have furnished an address to the Company in writing. All notices and other
communications from the Registered Holder of this Warrant or in connection
herewith to the Company shall be mailed by first-class certified or registered
mail, postage prepaid, to the Company at its principal office set forth below.
If the Company should at any time change the location of its principal office to
a place other than as set forth below, it shall give prompt written notice to
the Registered Holder of this Warrant and thereafter all references in this
Warrant to the location of its principal office at the particular time shall be
as so specified in such notice.
-13-
<PAGE>
14. No Rights as Stockholder. Until the exercise of this Warrant, the
------------------------
Registered Holder of this Warrant shall not have or exercise any rights by
virtue hereof as a stockholder of the Company.
15. Change or Waiver. This Warrant is one of a series of Warrants issued
----------------
and to be issued by the Company in replacement of certain $11.55 common stock
purchase warrants issued by the Company to Josephthal Lyon & Ross Incorporated
("Josephthal") (and subsequently assigned by Josephthal to the Registered
Holders) in connection with the company's initial public offering of securities
in November 1992 (collectively, the "Company Warrants"). Any term of this
Warrant may be amended or waived upon the written consent of the Company and the
holders of Company Warrants representing at least a Majority of the Registered
Holders of the Warrant Shares; provided that any such amendment or waiver must
--------
apply to all Company Warrants then outstanding; and provided further that the
-------- -------
number of Warrant Shares subject to this Warrant and the Purchase Price of this
Warrant may not be amended, and the right to exercise this Warrant may not be
waived, without the written consent of the holder of this Warrant (it being
agreed that an amendment to or waiver under any of the provisions of Section 2
of this Warrant shall not be considered an amendment of the number of Warrant
Shares or the Purchase Price).
16. Headings. The headings in this Warrant are for purposes of reference
--------
only and shall not limit or otherwise affect the meaning of any provision of
this Warrant.
17. Governing Law. This Warrant will be governed by and construed in
-------------
accordance with the laws of The Commonwealth of Massachusetts.
18. Integration. This Warrant embodies the entire agreement and
-----------
understanding between the parties hereto and supersedes all prior agreements and
understandings relating to the subject matter hereof.
SATCON TECHNOLOGY CORPORATION
By: /s/ David B. Eisenhaure
--------------------------------
Name: David B. Eisenhaure
------------------------------
Title: President
-----------------------------
-14-
<PAGE>
EXHIBIT I
---------
PURCHASE FORM
-------------
To: SatCon Technology Corporation Dated:______________
The undersigned, pursuant to the provisions set forth in the attached
Warrant (No. ____), hereby irrevocably elects to purchase _____ shares of the
Common Stock covered by such Warrant. The undersigned herewith makes payment of
$____________ in cash, representing the full purchase price for such shares at
the price per share provided for in such Warrant.
Signature:__________________________
Name:_______________________________
Address:____________________________
____________________________
<PAGE>
EXHIBIT II
----------
ASSIGNMENT FORM
---------------
FOR VALUE RECEIVED, the undersigned hereby sells, assigns and transfers all
of the rights of the undersigned under the attached Warrant (No. ___) with
respect to the number of shares of Common Stock covered thereby set forth below,
unto:
Name of Assignee Address No. of Shares
- ---------------- ------- -------------
Dated:______________ Signature:_______________________________
Dated:______________ Witness:_________________________________
<PAGE>
Exhibit 10.15
-------------
SCHEDULE OF MATERIAL TERMS
--------------------------
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------
Name Warrant Number Date of Issuance Number of Shares
- ---------------------- -------------- ----------------- ----------------
- ------------------------------------------------------------------------------
<S> <C> <C> <C>
Pasquale Ruggieri 10 November 11, 1998 32,028
- ------------------------------------------------------------------------------
Arthur G. Jenkins 11 November 11, 1998 24,853
- ------------------------------------------------------------------------------
Nicholas Moceri 12 November 11, 1998 3,074
- ------------------------------------------------------------------------------
Thomas W. 13 November 11, 1998 1,602
Schneider
- ------------------------------------------------------------------------------
Kevin Carey 14 November 11, 1998 1,537
- ------------------------------------------------------------------------------
Henry Tow 15 November 11, 1998 1,537
- ------------------------------------------------------------------------------
Siegfried P. Duray- 16 November 11, 1998 303
Bito
- ------------------------------------------------------------------------------
Roger P. May 17 November 11, 1998 303
- ------------------------------------------------------------------------------
Thomas J. 18 November 11, 1998 242
O'Rourke
- ------------------------------------------------------------------------------
Jay A. Murray 19 November 11, 1998 109
- ------------------------------------------------------------------------------
Joan Taylor 20 November 11, 1998 1,537
- ------------------------------------------------------------------------------
</TABLE>
THIS WARRANT AND THE SHARES OF COMMON STOCK ISSUED UPON ITS
EXERCISE ARE SUBJECT TO THE RESTRICTIONS ON
TRANSFER SET FORTH IN SECTION 4 OF THIS WARRANT
- -------------------------------------------------------------------------------
Warrant No. ____ Number of Shares: ________
(subject to adjustment)
Date of Issuance: November 11, 1998
SATCON TECHNOLOGY CORPORATION
-----------------------------
Common Stock Purchase Warrant
-----------------------------
(Void after November 11, 1999)
<PAGE>
SatCon Technology Corporation, a Delaware corporation (the "Company"), for
value received, hereby certifies that _______________, or his registered assigns
(the "Registered Holder"), is entitled, subject to the terms set forth below, to
purchase from the Company, at any time or from time to time on or after the date
of issuance and on or before November 11, 1999 at not later than 5:00 p.m.
(Boston, Massachusetts time), ______ shares of Common Stock, $.01 par value per
share, of the Company, at a purchase price of $11.43 per share. The shares
purchasable upon exercise of this Warrant, and the purchase price per share,
each as adjusted from time to time pursuant to the provisions of this Warrant,
are hereinafter referred to as the "Warrant Shares" and the "Purchase Price,"
respectively. This Warrant is one of a series of Warrants (collectively, the
"Company Warrants") issued by the Company in replacement of certain $11.55
common stock purchase warrants issued by the Company to Josephthal Lyon & Ross
Incorporated ("Josephthal") (and subsequently assigned by Josephthal to the
Registered Holders) in connection with the Company's initial public offering of
securities in November 1992.
1. Exercise.
--------
(a) This Warrant may be exercised by the Registered Holder, in whole
or in part, by surrendering this Warrant, with the purchase form appended hereto
as Exhibit I duly executed by such Registered Holder or by such Registered
---------
Holder's duly authorized attorney, at the principal office of the Company, or at
such other office or agency as the Company may designate, accompanied by payment
in full, in lawful money of the United States, of the Purchase Price payable in
respect of the number of Warrant Shares purchased upon such exercise.
(b) Each exercise of this Warrant shall be deemed to have been
effected immediately prior to the close of business on the day on which this
Warrant shall have been surrendered to the Company as provided in subsection
1(a) above. At such time, the person or persons in whose name or names any
certificates for Warrant Shares shall be issuable upon such exercise as provided
in subsection 1(c) below shall be deemed to have become the holder or holders of
record of the Warrant Shares represented by such certificates.
(c) As soon as practicable after the exercise of this Warrant in full
or in part, and in any event within 10 days thereafter, the Company, at its
expense, will cause to be issued in the name of, and delivered to, the
Registered Holder, or as such Holder (upon payment by such Holder of any
applicable transfer taxes) may direct:
(i) a certificate or certificates for the number of full Warrant
Shares to which such Registered Holder shall be entitled upon such exercise
plus, in lieu of any fractional share to which such Registered Holder would
otherwise be entitled, cash in an amount determined pursuant to Section 3
hereof; and
-2-
<PAGE>
(ii) in case such exercise is in part only, a new warrant or
warrants (dated the date hereof) of like tenor, calling in the aggregate on the
face or faces thereof for the number of Warrant Shares equal (without giving
effect to any adjustment therein) to the number of such shares called for on the
face of this Warrant minus the number of such shares purchased by the Registered
Holder upon such exercise.
2. Adjustments.
-----------
(a) Recapitalizations. If outstanding shares of the Company's Common
-----------------
Stock shall be subdivided into a greater number of shares or a dividend in
Common Stock shall be paid in respect of Common Stock, the Purchase Price in
effect immediately prior to such subdivision or at the record date of such
dividend shall simultaneously with the effectiveness of such subdivision or
immediately after the record date of such dividend be proportionately reduced.
If outstanding shares of Common Stock shall be combined into a smaller number of
shares, the Purchase Price in effect immediately prior to such combination
shall, simultaneously with the effectiveness of such combination, be
proportionately increased. When any adjustment is required to be made in the
Purchase Price, the number of Warrant Shares purchasable upon the exercise of
this Warrant shall be changed to the number determined by dividing (i) an amount
equal to the number of shares issuable upon the exercise of this Warrant
immediately prior to such adjustment, multiplied by the Purchase Price in effect
immediately prior to such adjustment, by (ii) the Purchase Price in effect
immediately after such adjustment.
(b) Mergers, etc. If there shall occur any capital reorganization or
------------
reclassification of the Company's Common Stock (other than a change in par value
or a subdivision or combination as provided for in subsection 2(a) above), or
any consolidation or merger of the Company with or into another corporation, or
a transfer of all or substantially all of the assets of the Company, then, as
part of any such reorganization, reclassification, consolidation, merger or
sale, as the case may be, lawful provision shall be made so that the Registered
Holder of this Warrant shall have the right thereafter to receive upon the
exercise hereof the kind and amount of shares of stock or other securities or
property which such Registered Holder would have been entitled to receive if,
immediately prior to any such reorganization, reclassification, consolidation,
merger or sale, as the case may be, such Registered Holder had held the number
of shares of Common Stock which were then purchasable upon the exercise of this
Warrant. In any such case, appropriate adjustment (as reasonably determined in
good faith by the Board of Directors of the Company) shall be made in the
application of the provisions set forth herein with respect to the rights and
interests thereafter of the Registered Holder of this Warrant, such that the
provisions set forth in this Section 2 (including provisions with respect to
adjustment of the Purchase Price) shall thereafter be applicable, as nearly as
is
-3-
<PAGE>
reasonably practicable, in relation to any shares of stock or other securities
or property thereafter deliverable upon the exercise of this Warrant.
(c) Certificate of Adjustment. When any adjustment is required to be
-------------------------
made pursuant to this Section 2, the Company shall promptly mail to the
Registered Holder a certificate setting forth the Purchase Price after such
adjustment and setting forth a brief statement of the facts requiring such
adjustment. Such certificate shall also set forth the kind and amount of stock
or other securities or property into which this Warrant shall be exercisable
following such adjustment.
3. Fractional Shares. The Company shall not be required upon the
-----------------
exercise of this Warrant to issue any fractional shares, but shall make an
adjustment therefor in cash.
4. Requirements for Transfer.
-------------------------
(a) This Warrant and the Warrant Shares shall not be sold or
transferred unless either (i) they first shall have been registered under the
Securities Act of 1933, as amended (the "Securities Act"), or (ii) the Company
first shall have been furnished with an opinion of legal counsel, reasonably
satisfactory to the Company, to the effect that such sale or transfer is exempt
from the registration requirements of the Securities Act.
(b) Notwithstanding the foregoing, no registration or opinion of
counsel shall be required for (i) a transfer by a Registered Holder which is a
partnership to a partner of such partnership or a retired partner of such
partnership who retires after the date hereof, or to the estate of any such
partner or retired partner, if the transferee agrees in writing to be subject to
the terms of this Section 4, or (ii) a transfer made in accordance with Rule 144
under the Securities Act.
(c) Each certificate representing Warrant Shares shall bear a legend
substantially in the following form:
"The securities represented by this certificate have not been
registered under the Securities Act of 1933, as amended, and may not
be offered, sold or otherwise transferred, pledged or hypothecated
unless and until such securities are registered under such Act or an
opinion of counsel satisfactory to the Company is obtained to the
effect that such registration is not required."
The foregoing legend shall be removed from the certificates representing any
Warrant Shares, at the request of the holder thereof, at such time as they
become eligible for resale pursuant to Rule 144(k) under the Securities Act.
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<PAGE>
5. No Impairment. The Company will not, by amendment of its charter or
-------------
through reorganization, consolidation, merger, dissolution, sale of assets or
any other voluntary action, avoid or seek to avoid the observance or performance
of any of the terms of this Warrant, but will at all times in good faith assist
in the carrying out of all such terms and in the taking of all such action as
may be necessary or appropriate in order to protect the rights of the holder of
this Warrant against impairment.
6. Liquidating Dividends. If the Company pays a dividend or makes a
---------------------
distribution on the Common Stock payable otherwise than in cash out of earnings
or earned surplus (determined in accordance with generally accepted accounting
principles) except for a stock dividend payable in shares of Common Stock (a
"Liquidating Dividend"), then the Company will pay or distribute to the
Registered Holder of this Warrant, upon the exercise hereof, in addition to the
Warrant Shares purchased upon such exercise, the Liquidating Dividend which
would have been paid to such Registered Holder if he had been the owner of
record of such Warrant Shares immediately prior to the date on which a record is
taken for such Liquidating Dividend or, if no record is taken, the date as of
which the record holders of Common Stock entitled to such dividends or
distribution are to be determined.
7. Notices of Record Date, etc. In case:
---------------------------
(a) the Company shall take a record of the holders of its Common Stock
(or other stock or securities at the time deliverable upon the exercise of this
Warrant) for the purpose of entitling or enabling them to receive any dividend
or other distribution, or to receive any right to subscribe for or purchase any
shares of stock of any class or any other securities, or to receive any other
right; or
(b) of any capital reorganization of the Company, any reclassification
of the capital stock of the Company, any consolidation or merger of the Company
with or into another corporation (other than a consolidation or merger in which
the Company is the surviving entity), or any transfer of all or substantially
all of the assets of the Company; or
(c) of the voluntary or involuntary dissolution, liquidation or
winding-up of the Company,
then, and in each such case, the Company will mail or cause to be mailed to the
Registered Holder of this Warrant a notice specifying, as the case may be, (i)
the date on which a record is to be taken for the purpose of such dividend,
distribution or right, and stating the amount and character of such dividend,
distribution or right, or (ii) the effective date on which such reorganization,
reclassification, consolidation, merger, transfer, dissolution, liquidation or
winding-up is to take place, and the time, if any is to be fixed, as of which
the holders of record of Common Stock (or such other stock or securities at the
time deliverable upon the exercise of this Warrant)
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<PAGE>
shall be entitled to exchange their shares of Common Stock (or such other stock
or securities) for securities or other property deliverable upon such
reorganization, reclassification, consolidation, merger, transfer, dissolution,
liquidation or winding-up. Such notice shall be mailed at least ten (10) days
prior to the record date or effective date for the event specified in such
notice.
8. Reservation of Stock. The Company will at all times reserve and keep
--------------------
available, solely for issuance and delivery upon the exercise of this Warrant,
such number of Warrant Shares and other stock, securities and property, as from
time to time shall be issuable upon the exercise of this Warrant. The Company
agrees that, upon the exercise of this Warrant and payment of the Purchase Price
therefor, the Warrant Shares shall not be subject to the preemptive rights of
any stockholder of the Company.
9. Exchange of Warrants. Upon the surrender by the Registered Holder of
--------------------
any Warrant or Warrants, properly endorsed, to the Company at the principal
office of the Company, the Company will, subject to the provisions of Section 4
hereof, issue and deliver to or upon the order of such Registered Holder, at the
Registered Holder's expense, a new Warrant or Warrants of like tenor, in the
name of such Registered Holder or as such Registered Holder (upon payment by
such Registered Holder of any applicable transfer taxes) may direct, calling in
the aggregate on the face or faces thereof for the number of shares of Common
Stock called for on the face or faces of the Warrant or Warrants so surrendered.
10. Replacement of Warrants. Upon receipt of evidence reasonably
-----------------------
satisfactory to the Company of the loss, theft, destruction or mutilation of
this Warrant and (in the case of loss, theft or destruction) upon delivery of an
indemnity agreement (with surety if reasonably required) in an amount reasonably
satisfactory to the Company, or (in the case of mutilation) upon surrender and
cancellation of this Warrant, the Company will issue, in lieu thereof, a new
Warrant of like tenor.
11. Transfers, etc.
--------------
(a) The Company will maintain a register containing the names and
addresses of the Registered Holders of this Warrant. Any Registered Holder may
change its or his address as shown on the warrant register by written notice to
the Company requesting such change.
(b) Subject to the provisions of Section 4 hereof, this Warrant and
all rights hereunder are transferable, in whole or in part, upon surrender of
this Warrant with a properly executed assignment (in the form of Exhibit II
----------
hereto) at the principal office of the Company.
-6-
<PAGE>
(c) Until any transfer of this Warrant is made in the warrant
register, the Company may treat the Registered Holder of this Warrant as the
absolute owner hereof for all purposes; provided, however, that if and when this
-------- -------
Warrant is properly assigned in blank, the Company may (but shall not be
obligated to) treat the bearer hereof as the absolute owner hereof for all
purposes, notwithstanding any notice to the contrary.
12. Registration Rights
-------------------
(a) Whenever the Company proposes to file a Registration Statement
(including a Registration Statement covering shares to be sold solely for the
account of other holders of securities of the Company who are entitled, by
contract with the Company, to have securities included in such a registration
("Other Holders"), but excluding a registration statement covering shares to be
sold solely for the account of holders of Company Warrants upon exercise of such
Company Warrants) at any time and from time to time, it will, prior to such
filing, give written notice to the Registered Holders of its intention to do so;
provided, that no such notice need be given if no Warrant Shares are to be
included therein as a result of a determination of the managing underwriter
pursuant to Section 12(b). Upon the written request of a Registered Holder or
Registered Holders given within 20 days after the Company provides such notice
(which request shall state the intended method of disposition of the Warrant
Shares), the Company shall use its best efforts to cause all Warrant Shares
which the Company has been requested by such Registered Holder or Registered
Holders to register to be registered under the Securities Act to the extent
necessary to permit their sale or other disposition in accordance with the
intended methods of distribution specified in the request of such Registered
Holder or Registered Holders; provided that the Company shall have the right to
postpone or withdraw any registration effected pursuant to this Section 12(a)
without obligation to any Registered Holder.
(b) If the registration for which the Company gives notice pursuant to
Section 12(a) is a registered public offering involving an underwriting, the
Company shall so advise the Registered Holders as a part of the written notice
given pursuant to Section 12(a). In such event, the right of any Registered
Holder to include its Warrant Shares in such registration pursuant to Section 12
shall be conditioned upon such Registered Holder's participation in such
underwriting on the terms set forth herein. All Registered Holders proposing to
distribute their securities through such underwriting shall (together with the
Company, Other Holders, and any officers or directors distributing their
securities through such underwriting) enter into an underwriting agreement in
customary form with the underwriter or underwriters selected for the
underwriting by the Company. Notwithstanding any other provision of this
Section 12, if the managing underwriter determines that the inclusion of all
shares requested to be registered would adversely affect the offering, the
Company may limit the number of Warrant Shares to be included in the
-7-
<PAGE>
registration and underwriting. The Company shall so advise all Registered
Holders requesting registration, and the number of shares that are entitled to
be included in the registration and underwriting shall be allocated in the
following manner. The securities of the Company held by officers and directors
of the Company (other than Warrant Shares) shall be excluded from such
registration and underwriting to the extent deemed advisable by the managing
underwriter, and, if a further limitation on the number of shares is required,
the number of shares that may be included in such registration and underwriting
shall be allocated among all Registered Holders and Other Holders requesting
registration in proportion, as nearly as practicable, to the respective number
of shares of Common Stock which they held at the time the Company gives the
notice specified in Section 12(a). If any Registered Holder or Other Holder
would thus be entitled to include more securities than such holder requested to
be registered, the excess shall be allocated among other requesting Registered
Holders and Other Holders pro rata in the manner described in the preceding
sentence. If any Registered Holder or any officer, director or Other Holder
disapproves of the terms of any such underwriting, such person may elect to
withdraw therefrom by written notice to the Company, and any Warrant Shares or
other securities excluded or withdrawn from such underwriting shall be withdrawn
from such registration.
(c) Notwithstanding the foregoing, the Company shall not be required,
pursuant to this Section 12, to include any Warrant Shares in a Registration
Statement if such Warrant Shares can then be sold pursuant to Rule 144(k) under
the Securities Act and represent less than 1% of the then outstanding shares of
Common Stock.
13. Mailing of Notices, etc. All notices and other communications from
-----------------------
the Company to the Registered Holder of this Warrant shall be mailed by first-
class certified or registered mail, postage prepaid, to the address furnished to
the Company in writing by the last Registered Holder of this Warrant who shall
have furnished an address to the Company in writing. All notices and other
communications from the Registered Holder of this Warrant or in connection
herewith to the Company shall be mailed by first-class certified or registered
mail, postage prepaid, to the Company at its principal office set forth below.
If the Company should at any time change the location of its principal office to
a place other than as set forth below, it shall give prompt written notice to
the Registered Holder of this Warrant and thereafter all references in this
Warrant to the location of its principal office at the particular time shall be
as so specified in such notice.
14. No Rights as Stockholder. Until the exercise of this Warrant, the
------------------------
Registered Holder of this Warrant shall not have or exercise any rights by
virtue hereof as a stockholder of the Company.
-8-
<PAGE>
15. Change or Waiver. Any term of this Warrant may be amended or waived
----------------
upon the written consent of the Company and the holders of Company Warrants
representing at least a Majority (as hereinafter defined) of the Registered
Holders of the Warrant Shares; provided that any such amendment or waiver must
--------
apply to all Company Warrants then outstanding; and provided further that the
-------- -------
number of Warrant Shares subject to this Warrant and the Purchase Price of this
Warrant may not be amended, and the right to exercise this Warrant may not be
waived, without the written consent of the holder of this Warrant (it being
agreed that an amendment to or waiver under any of the provisions of Section 2
of this Warrant shall not be considered an amendment of the number of Warrant
Shares or the Purchase Price). For purposes of this Warrant, the term
"Majority" in reference to the Registered Holders of Warrant Shares shall mean
the Registered Holders of Warrant Shares who, assuming the immediate exercise of
all of the outstanding Warrants for Common Stock, would hold in excess of fifty-
one percent (51%) of the Common Stock then issued or issuable pursuant to
Warrants that (i) are not held by the Company, an affiliate or officer thereof
or any of their respective affiliates, members of their family or persons acting
as their nominees or in conjunction therewith or (ii) have not been resold to
the public pursuant to a registration statement filed with the Securities and
Exchange Commission under the Securities Act.
16. Headings. The headings in this Warrant are for purposes of reference
--------
only and shall not limit or otherwise affect the meaning of any provision of
this Warrant.
17. Governing Law. This Warrant will be governed by and construed in
-------------
accordance with the laws of The Commonwealth of Massachusetts.
18. Integration. This Warrant embodies the entire agreement and
-----------
understanding between the parties hereto and supersedes all prior agreements and
understandings relating to the subject matter hereof.
SATCON TECHNOLOGY CORPORATION
By: /s/ David B. Eisenhaure
------------------------------
Name: David B. Eisenhaure
----------------------------
Title: President
---------------------------
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<PAGE>
EXHIBIT I
---------
PURCHASE FORM
-------------
To: SatCon Technology Corporation Dated:______________
The undersigned, pursuant to the provisions set forth in the attached
Warrant (No. __), hereby irrevocably elects to purchase _____ shares of the
Common Stock covered by such Warrant. The undersigned herewith makes payment of
$____________ in cash, representing the full purchase price for such shares at
the price per share provided for in such Warrant.
Signature:__________________________
Name:_______________________________
Address:____________________________
____________________________
<PAGE>
EXHIBIT II
----------
ASSIGNMENT FORM
---------------
FOR VALUE RECEIVED, the undersigned hereby sells, assigns and transfers all
of the rights of the undersigned under the attached Warrant (No. __) with
respect to the number of shares of Common Stock covered thereby set forth below,
unto:
Name of Assignee Address No. of Shares
- ---------------- ------- -------------
Dated:______________ Signature:_______________________________
Dated:______________ Witness:_________________________________
<PAGE>
EXHIBIT 10.16
TUCSON OFFICE PLAZA
LEASE AGREEMENT
This Lease between Diamond Management, Inc., an Arizona Corporation, as Agent
for the Owners (defined below) as "Landlord" and "Lessor", and SatCon Technology
Corporation, a Delaware corporation, as "Tenant" and "Lessee", is dated
February 27, 1996.
1. LEASE OF PREMISES.
In consideration of the Rent (as defined in Section 5.4) and the provisions of
this Lease, Landlord leases to Tenant and Tenant leases from Landlord the
Premises shown by diagonal lines on the floor plan attached hereto as Exhibit
"A" and further described at Section 2.m. The Premises are located within the
Building and Project described in Section 2.n. Tenant shall have the non-
exclusive right (unless otherwise provided herein) in common with Landlord,
other tenants, subtenants and invitees to use of the Common Areas (as defined
at Section 2.e).
2. DEFINITIONS
As used in this Lease, the following terms shall have the following meanings:
A. BASE RENT: The amount Tenant is to pay to Landlord during the Term of this
Lease for the Rentable Area of the Premises in accordance with the terms of
Article 5 of the Lease and in accordance with the following schedule:
Months 1-6: Rent free
Months 7-24: Fifteen and 00/100 Dollars ($15.00) per square foot per
year.
Months 25-48: Fifteen and 50/100 Dollars ($15.50) per square foot per
year.
Months 49-60: Sixteen and 00/100 Dollars ($16.00) per square foot per
year.
B. BASE YEAR: The calendar year of 1996.
C. BROKER(S)
LANDLORD'S: Richard Shenkarow, CB Commercial Real Estate Group, Inc.
TENANT'S: Robert Davis, CB Commercial Real Estate Group, Inc.
In the event that CB Commercial Real Estate Group, Inc. represents both Landlord
and Tenant, Landlord and Tenant hereby confirm that they were timely advised of
the dual representation and that they consent to the same, and that they do not
expect said broker to disclose to either of them the confidential information of
the other party.
D. COMMENCEMENT DATE: April 1, 1996
E. COMMON AREAS: The building lobbies, common corridors and hallways, restrooms,
garage and parking areas, stairways, elevators and other generally understood
public or common areas. Landlord shall have the right to regulate or restrict
the use of the Common Areas.
F. EXPENSE STOP: (fill in if applicable): N/A
G. EXPIRATION DATE: March 31, 2001
1
<PAGE>
H. LANDLORDS'S MAILING ADDRESS: c/o Partners Management Consultants, Inc.,
5055 E. Broadway, Suite C220, Tucson, Arizona 85711
I. TENANT'S MAILING ADDRESS: SatCon Technology Corporation, 6245 East
Broadway Boulevard, Suite 350, Tucson, Arizona 85711
J. MONTHLY INSTALLMENTS OF BASE RENT: One-twelfth (1/12th) of the then
applicable annual Base Rent calculated pursuant to Section 2.a. or Article
44, if applicable.
K. OWNERS: Diamond Management, Inc., Auriga Properties, Inc., and Rocking K
Holdings Limited Partnership, as tenants in common.
L. PARKING: Tenant shall be permitted, to park cars on a non-exclusive basis in
the area(s) designated by Landlord for parking. Tenant shall abide by any
and all parking regulations and rules established from time to time by
Landlord or Landlord's parking operator. The Lessee, its agents, employees
and invitees shall be entitled to park in common with other lessees of
Lessor in the uncovered and unreserved parking spaces at the Project,
providing that it agrees not to overburden the parking facilities of the
Project and agrees to cooperate with the Lessor and other lessees in the use
of the parking facilities. The Lessor specifically reserves the right, in
its absolute discretion, to determine whether parking facilities are
becoming overburdened and in such event to allocate the parking spaces among
the Lessee and other lessees, their agents, employees, and business invitees
using the parking facilities. All loading operations for receipt or shipment
of goods, wares and merchandise by the Lessee shall be done in the rear of
the Premises or in such area therein which is specifically designated in
writing by the Lessor.
M. PROMISES: That portion of the Building containing approximately 8,343
square feet of Rentable Area shown by diagonal lines on Exhibit "A" located
on the third floor of the Building and known as Suite 350.
N. PROJECT: The building of which the Premises are a part (the "Building") and
any other buildings or improvements on the real property (the "Property")
located at 6235 East Boadway Boulevard, 6245 East Broadway Boulevard and 75
North Wilmot Road, further described at Exhibit "B". The Project is known as
the Tucson Office Plaza.
O. RENTABLE AREA: As to both the Premises and the Project, the respective
measurements of floor area as may from time to time be subject to lease by
Tenant and all tenants of the Project, respectively, as determined by
Landlord and applied on a consistent basis throughout the Project.
P. SECURITY DEPOSIT: Nine Thousand Three Hundred seventy-five and OO/lOO
Dollars($9,375.00).
Q. STATE: The State of Arizona
R. TENANT'S PROPORTIONATE SHARE: 8.6%. Such share is based on a fraction, the
numerator of which is the Rentable Area of the Premises, and the denominator
of which is the Rentable Area of the Project, as determined by Landlord from
time to time. The Project consists of three (3) buildings containing a total
Rentable Area of 97,120 square feet.
S. TERM: The period commencing at l2:0l a.m. on the Commencement Date and
expiring at ll:59 p.m. on the Expiration Date, or as extended pursuant to
Article 44.
3. EXHIBITS AND ADDENDA.
The exhibits and addenda listed below (unless lined out) are incorporated by
reference in this Lease:
a. Exhibit "A"-Floor Plan showing the Premises.
b. Exhibit "B"-Site Plan of the Project.
c. Exhibit "C"-Tenant Improvements.
d. Exhibit "D"-Rules and Regulations.
2
<PAGE>
4. DELIVERY OF POSSESSION.
If for any reason Landlord does not deliver possession of the Premises to Tenant
on the Commencement Date, Landlord shall not be subject to any liability for
such failure, the Expiration Date shall not change and the validity of this
Lease shall not be impaired, but Rent shall be abated until delivery of
possession and free rent period shall commence on such date. "Delivery of
possession" shall be deemed to occur on the date Landlord completes the tenant
improvements described in Exhibit "C". If Landlord permits Tenant to enter into
possession of the Premises before the Commencement Date, such possession shall
be subject to the provisions of this Lease, including, without limitation, the
payment of Rent. Tenant shall have the right to cancel this Lease by written
notice to Landlord in the event possession of the Premises is not delivered to
Tenant within one hundred fifty (150) days after execution of this Lease by both
parties.
5. RENT.
5.1 PAYMENT OF BASE RENT. Tenant agrees to pay the Base Rent for the Premises.
Monthly Installments of Base Rent shall be payable in advance on the first day
of each calendar month of the Term. If the Term begins (or ends) on other than
the first (or last) day of a calendar month, the Base Rent for the partial month
shall be prorated on a per diem basis. Tenant shall pay Landlord the first
Monthly Installment of Base Rent when Tenant executes the Lease.
5.2 [OMITTED]
5.3 PROJECT OPERATING COSTS.
a. In order that the Rent payable during the Term reflect any increase in
Project Operating Costs, Tenant agrees to pay to Landlord as Rent, Tenant's
Proportionate Share of all increases in costs, expenses and obligations
attributable to the Project and its operation, all as provided below.
b. If, during any calendar year during the Term, Project Operating Costs
exceed the Project Operating Costs for the Base Year, Tenant shall pay to
Landlord, in addition to the Base Rent and all other payments due under this
Lease, an amount equal to Tenant's Proportionate Share of such excess Project
Operating Costs in accordance with the provisions of this Section 5.3.b.
(1) The term "Project Operating Costs" shall include all those items described
in the following subparagraphs (a) and (b).
(a) All taxes, assessments, water and sewer charges and other similar
governmental charges levied on or attributable to the Building or Project
or their operation, including without litigation, (i) real property taxes
or assessments levied or assessed against the Building or Project, (ii)
assessments or charges levied or assessed against the Building or Project
by any redevelopment agency, and (iii) any tax measured by gross rentals
received from the leasing of the Premises, Building or Project, excluding
any such tax for which Landlord is reimbursed by the tenant paying the
rental on which the tax is based and any income, excess profits, single
business, succession, transfer, franchise, capital stock, estate or
inheritance taxes imposed by the State or federal government or their
agencies, branches or departments; provided that if at any time during the
Term any governmental entity levies, assesses or imposes on Landlord any
(1) general or special, ad valorem or specific, excise, capital levy or
other tax, assessment, levy or charge directly on the Rent received under
this Lease, or (2) any license fee, excise or franchise tax, assessment,
levy or charge measured by or based, in whole or in part, upon such rent, or
(3) any transfer, transaction, or similar tax, assessment, levy or charge
based directly upon the transaction represented by this Lease, or (4) any
occupancy, use, per capita or other tax, assessment, levy or charge based
directly upon the use or occupancy of the Premises, then any such taxes,
assessments, levies and charges shall be deemed to be included in the term
Project Operating Costs to the extent not otherwise payable by Tenant
pursuant to Section 5.6.
(b) Operating costs incurred by Landlord in maintaining and operating the
Building and Project, including without limitation the following: costs of
(1) utilities; (2) supplies; (3) insurance (including public liability,
property damage, earthquake, and fire and extended coverage insurance for
the full replacement cost of the
3
<PAGE>
Building and Project as required by Landlord or its lenders for the
Project); (4) services of independent contractors; (5) compensation
(including employment taxes and fringe benefits) of all persons who perform
duties connected with the operation, maintenance, repair or overhaul of the
Building or Project, and equipment, improvements and facilities located
within the Project, including without limitation engineers, janitors,
painters, floor waxers, window washers, security and parking personnel and
gardeners (but excluding persons performing services not uniformly available
to or performed for substantially all Building or Project tenants); (6)
operation and maintenance of a room for delivery and distribution of mail to
tenants of the Building or Project as required by the U S Postal Service
(including, without limitation, an amount equal to the fair market rental
value of the mail room premises); (7) management of the Building or Project,
whether managed by Landlord or an independent contractor (including, without
limitation, an amount equal to the fair market value of any on-site
manager's office) not to exceed 10% of the total operating costs; (8) rental
expenses for (or a reasonable depreciation allowance on) personal property
used in the maintenance, operation or repair of the Building or Project; (9)
costs, expenditures or charges (not capitalized) required by any
governmental or quasi-governmental authority; (10) expenditures (including
financing costs) (i) required by a governmental entity for energy
conservation or life safety purposes, or (ii) made by Landlord to reduce
Project Operating Costs; and (11) any other costs or expenses incurred by
Landlord under this Lease and not otherwise reimbursed by tenants of the
Project.
(2) Tenant's Proportionate Share of Project Operating Costs shall be payable by
Tenant to Landlord as follows:
(a) Beginning with the calendar year following the Base Year and for each
calendar year thereafter ("Comparison Year"), Tenant shall pay Landlord an
amount equal to Tenant's Proportionate Share of the Project Operating Costs
incurred by Landlord in the Comparison Year which exceeds the total amount
of Project Operating Costs payable by Landlord for the Base Year. This
excess is referred to as the "Excess Expenses".
(b) To provide for current payments of Excess Expenses, Tenant shall, at
Landlord's request, pay as additional rent during each Comparison Year, an
amount equal to Tenant's Proportionate Share of the Excess Expenses payable
during such Comparison Year, as estimated by Landlord from time to time.
Such payments shall be made in monthly installments, commencing on the
first day of the month following the month in which Landlord notifies
Tenant of the amount it is to pay hereunder and continuing until the first
day of the month following the month in which Landlord gives Tenant a new
notice of estimated Excess Expenses. It is the intention hereunder to
estimate from time to time the amount of the Excess Expenses for each
Comparison Year and Tenant's Proportionate Share thereof, and then to make
an adjustment in the following year based on the actual Excess Expenses
incurred for that Comparison Year.
(c) On or before April 1 of each Comparison Year after the first Comparison
Year (or as soon thereafter as is practical), Landlord shall deliver to
Tenant a statement setting forth Tenant's Proportionate Share of the Excess
Expenses for the preceding Comparison Year. If Tenant's Proportionate Share
of the actual Excess Expenses for the previous Comparison Year exceeds the
total of the estimated monthly payments made by Tenant for such year,
Tenant shall pay Landlord the amount of the deficiency within thirty (30)
days of the receipt of the statement. If such total exceeds Tenant's
Proportionate Share of the actual Excess Expenses for such Comparison Year,
then Landlord shall immediately pay Tenant an amount equal to the
difference. The obligations of Tenant and Landlord to make payments
required under this Section 5.3 shall survive the Expiration Date.
(d) Tenant's Proportionate Share of Excess Expenses in any Comparison Year
having less than 365 days shall be appropriately prorated.
(e) If any dispute arises as to the amount of any additional rent due hereunder,
Tenant shall have the right after reasonable notice and at reasonable times
to inspect Landlord's accounting records at Landlord's accounting office
and, if after such inspection Tenant still disputes the amount of additional
rent owed, a certification as to the proper amount shall be made by a
certified public accountant mutually acceptable to both Tenant and Landlord,
which certification shall be final and conclusive. Tenant agrees to pay the
cost of such certification unless it is determined that Landlord's original
statement overstated Project Operating Costs by more than five percent (5%).
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(f) If this Lease sets forth an Expense Stop at Section 2.f.,then during the
Term Tenant shall be liable for Tenants Proportionate Share of any actual
Project Operating Costs which exceed the amount of the Expense Stop. Tenant
shall make current payments of such excess costs during the Term in the
same manner as is provided for payment of Excess Expenses under the
applicable provisions of Section 5.3.b.(2)(b) and (c) above.
5.4 Definition of Rent. All costs and expenses which Tenant assumes or agrees
to pay to Landlord under this Article 5 shall be deemed additional rent (which,
together with the Base Rent is sometimes referred to as the "Rent"). The Rent
shall be paid to the Building manager (or other person) and at such place, as
Landlord may from time to time designate in writing, without any prior demand
therefor and without deduction or offset, in lawful money of the United States
of America.
5.5 Rent Control. If the amount of Rent or any other payment due under this
Lease violates the terms of any governmental restrictions on such Rent or
payment, then the Rent or payment due during the period of such restrictions
shall be the maximum amount allowable under those restrictions. Upon
termination of the restrictions, Landlord shall, to the extent it is legally
permitted, recover from Tenant the difference between the amounts received
during the period of the restrictions and the amounts Landlord would have
received had there been no restrictions.
5.6 Taxes Payable by Tenant. In addition to the Rent and any other charges to
be paid by Tenant hereunder, Tenant shall reimburse Landlord upon demand for any
and all taxes payable by Landlord (other than net income taxes), whether or not
now customary or within the contemplation of the parties, where such taxes are
upon, measured by or reasonably attributable to (a) the cost or value of
Tenant's equipment, furniture, fixtures and other personal property located in
the Premises, or the cost or value of any leasehold improvements made in or to
the Premises by or for Tenant, other than the tenant improvements made by
Landlord, regardless of whether title to such improvements is held by Tenant or
Landlord; the gross or net Rent payable under this Lease, including, without
limitation, any transaction privilege, rental or gross receipts tax levied by
any taxing authority with respect to the receipt of the Rent hereunder; (c) the
possession, leasing, operation, management, maintenance, alteration, repair, use
or occupancy by Tenant of the Premises or any portion thereof; or (d) this
transaction or and document to which Tenant is a party creating or transferring
an interest or an estate in the Premises. If it becomes unlawful for Tenant to
reimburse Landlord for any costs as required under this Lease, the Base Rent
shall be revised to net Landlord the same net Rent after imposition of any tax
or other charge upon Landlord as would have been payable to Landlord but for the
reimbursement being unlawful.
6. INTEREST AND LATE CHARGES.
If Tenant fails to pay when due any Rent or other amounts or charges which
Tenant is obligated to pay under the terms of this Lease, the unpaid amounts
shall bear Interest at the prime commercial rate then being charged by Bank of
America NT & SA plus three percent (3%) per annum. Tenant acknowledges that the
late payment of any Monthly Installment of Base Rent will cause Landlord to lose
the use of that money and incur costs and expenses not contemplated under this
Lease, including without limitation, administrative and collection costs and
processing and accounting expenses, the exact amount of which is extremely
difficult to ascertain. Therefore, in addition to interest, if any such
installment is not received by Landlord within ten (10 days from the date it
is due, Tenant shall pay Landlord a late charge equal to ten percent (10%) of
such installment. Landlord and Tenant agree that this late charge represents a
reasonable estimate of such costs and expenses and is fair compensation to
Landlord for the loss suffered from such nonpayment by Tenant. Acceptance of
any interest or late charge shall not constitute a waiver of Tenant's default
with respect to such nonpayment by Tenant nor prevent Landlord from exercising
any other rights or remedies available to Landlord under this Lease.
7. SECURITY DEPOSIT.
Tenant agrees to deposit with Landlord the Security Deposit set forth at Section
2.p. upon execution of this Lease, as security for Tenant's faithful performance
of its obligations under this Lease. Landlord and Tenant agree that the
Security Deposit may be commingled with funds of Landlord and Landlord shall
have no obligation or liability for payment of interest on such deposit. Tenant
shall not mortgage, assign, transfer or
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encumber the Security Deposit without the Prior written consent of Landlord and
any attempt by Tenant to do so shall be void, without force or effect and shall
not be binding upon Landlord.
If Tenant fails to pay any Rent or other amount when due and payable under this
Lease, or fails to perform any of the terms hereof, Landlord may appropriate and
apply or use all or any portion of the Security Deposit for Rent payments or any
other amount then due and unpaid, for payment of any amount for which Landlord
has become obligated as a result of Tenant's default or breach, and for any loss
or damage sustained by Landlord as a result of Tenant's default or breach, and
Landlord may so apply or use this deposit without prejudice to any other remedy
Landlord may have by reason of Tenant's default or breach. If Landlord so uses
any of the Security Deposit, Tenant shall, within ten (10) days after written
demand therefor, restore the Security Deposit to the full amount originally
deposited; Tenant's failure to do so shall constitute an act of default
hereunder and Landlord shall have the right to exercise any remedy provided for
at Article 27 hereof. Within fifteen (15) days after the Term (or any
extension thereof) has expired or Tenant has vacated the Premises, whichever
shall last occur, and provided Tenant is not then in default on any of its
obligations hereunder, Landlord shall return the Security Deposit to Tenant, or,
if Tenant has assigned its interest under this Lease, to the last assignee of
Tenant. If Landlord sells its interest in the Premises, Landlord may deliver
this deposit to the Purchaser of Landlord's interest and thereupon be relieved
of any further liability or obligation with respect to the Security Deposit.
8. TENANT'S USE OF THE PREMISES.
a. The Premises are to be used only for administrative offices, electronics,
and optics R&D labs ("Permitted Use") and for no other business or purpose
whatsoever without the prior written consent of Lessor. No act shall be done
in or about the Premises that is unlawful or that will increase the existing
rate of insurance on the Project. in the event of a breach of this covenant,
Lessee shall pay to Lessor any and all increases in insurance premiums
resulting from such breach upon demand, and Lessor shall have all additional
remedies provided for herein to redress such breach. Lessee shall not commit
or allow to be committed any waste upon the Premises, or any public or
private nuisance or other act or thing which disturbs the quiet enjoyment of
any other lease in the Project. If any of Lessee's machines or equipment
disturb any other lessee in the Project, then Lessee shall provide adequate
insulation, or take such other action as may be necessary to eliminate the
noise or disturbance. Lessee, at its expense, shall comply with all laws
relating to its use and occupancy of the Premises and shall observe such
reasonable rules and regulations as may be adopted and made available to
Lessee by Lessor from time to time for the safety, care and cleanliness of
the Premises or the Project and for the preservation of good order therein.
b. Lessee warrants that the operation of its business shall be conducted in
strict compliance with all applicable private covenants, conditions and
restrictions and all applicable federal, state and local environmental,
safety and other pertinent laws, rules, regulations and ordinances,
including, without limitation, the Americans With Disabilities Act ("ADA"),
and that any alterations necessary to the Premises because Tenant's business
as conducted is not in compliance with such covenants, conditions,
restrictions, laws, rules, regulations and ordinances, shall be at Lessee's
sole cost and expense. Lessee represents and warrants to Lessor that there
is not risk to Lessee, Lessee's visitors and others using the Premises
arising from Lessee's operations. Lessee shall indemnify, defend and hold
harmless Lessor from and against any claim, liability, expense, lawsuit,
loss or other damage, including reasonable attorneys' fees, arising from or
relating to Lessee's use of the Premises, Lessee's activities within the
Project or because Tenant's business as conducted or the use of the Premises
by Lessee, its employees, subtenants, agents, guests or invitees is not in
compliance with the ADA. Notwithstanding the foregoing, Tenant shall have no
liability for any claim, liability expense, lawsuit, loss, or other damage
arising prior to Tenant's occupancy of the Premises.
Tenant shall use the Premises solely for the purposes set forth in Tenant's
Use Clause. Tenant shall not use or occupy the Premises in violation of law
or any covenant, condition or restriction affecting the Building or Project
or the certificate of occupancy issued for the Building or Project, and
shall, upon notice from Landlord, immediately discontinue any use of the
Premises which is declared by any governmental authority having jurisdiction
to be a Violation of law or the certificate of occupancy. Tenant, at
Tenant's own cost and expense, shall comply with all laws, ordinances,
regulations, rules and/or any directions of any governmental agencies or
authorities having jurisdiction which shall, by reason of the nature of
Tenant's use or occupancy of the Premises, impose any duty upon Tenant or
Landlord with respect to the Premises or its use or
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occupation. A judgment of any court of competent jurisdiction or the
admission by Tenant in any action or proceeding against Tenant that Tenant
has Violated any such laws, ordinances, regulations, rules and/or directions
in the use of the Premises shall be deemed to be a conclusive determination
of that fact as between Landlord and Tenant. Tenant shall not do or permit to
be done anything which will invalidate or increase the cost of any fire,
extended coverage or other insurance policy covering the Building or Project
and/or property located therein, and shall comply with all rules, orders,
regulations, requirements and recommendations of the Insurance Services
Office or any other organization performing a similar function. Tenant shall
promptly upon demand reimburse Landlord for any additional premium charged
for such policy by reason of Tenant's failure to comply with the provisions
of this Article. Tenant shall not do or permit anything to be done in or
about the Premises which will in any way obstruct or interfere with the
rights of other tenants or occupants of the Building or Project, or injure or
annoy them, or use or allow the Premises to be used for any improper,
immoral, unlawful or objectionable purpose, nor shall Tenant cause, maintain
or permit any nuisance in, on or about the Premises. Tenant shall not commit
or suffer to be committed any waste in or upon the Premises.
9. SERVICES AND UTILITIES.
Provided that Tenant is not in default hereunder, beyond applicable grace and
cure periods, Landlord agrees to furnish to the Premises during generally
recognized business days, and during such additional hours as may be determined
by Landlord in its sole discretion, and subject to the Rules and Regulations of
the Building or Project, electricity for normal desk top office equipment and
normal copying equipment, and heating, ventilation and air conditioning ("HVAC"
as required in Landlord's judgment for the comfortable use and occupancy of the
Premises. If Tenant desires HVAC at any other time, Landlord shall use
reasonable efforts to furnish such service upon reasonable notice from Tenant
and Tenant shall pay Landlord's charges there or on demand. Landlord shall also
maintain and keep lighted the common stairs, common entries and restrooms in the
Building. Landlord shall not be in default hereunder or be liable for any
damages directly or indirectly resulting from, nor shall the Rent be abated by
reason of (i) the installation, use or interruption of use of any equipment in
connection with the furnishing of any of the foregoing services, (ii) failure to
furnish or delay in furnishing any such services where such failure or delay is
caused by accident or any condition or event beyond the reasonable control of
Landlord, or by the making of necessary repairs or improvements to the Premises,
Building or Project, or (iii) the limitation, curtailment or rationing of, or
restrictions on, use of water, electricity, gas or any other form of energy
serving the Premises, Building or Project provided that if such services are not
provided for a period of five (5) consecutive days, Rent shall thereafter abate
until the provision thereof is resumed. Landlord shall not be liable under any
circumstances for a loss of or injury to property or business, however
occurring, through or in connection with or incidental to failure to furnish any
such services, unless such failure is not excused under Article 34 and continues
for more than thirty (30) consecutive days. If Tenant uses heat generating
machines or equipment in the Premises which affect the temperature otherwise
maintained by the HVAC system, Landlord reserves the right to install
supplementary air conditioning units in the Premises and the cost thereof,
including the cost of installation, operation and maintenance thereof, shall be
paid by Tenant to Landlord upon demand by Landlord.
Subject to Section 8.a. above, Tenant shall not, without the written consent of
Landlord, use any apparatus or device in the Premises, including without
limitation, electronic data processing machines or machines using in excess of
120 volts, which consumes more electricity than is usually furnished or supplied
for the use of premises as general office space, as determined by Landlord.
Tenant shall not connect any apparatus with electric current except through
existing electrical outlets in the Premises. Tenant shall not consume water or
electric current in excess of that usually furnished or supplied for the use of
premises as general office space (as determined by Landlord), without first
procuring the written consent of Landlord, which Landlord may refuse, subject to
Section 8.a. above (which permits Tenant to use the Premises as an optics R&D
lab), and in the event of consent, Landlord may have installed a water meter or
electrical current meter in the Premises to measure the amount of water or
electric current consumed. The cost of any such meter and of its installation,
maintenance and repair shall be paid for by the Tenant and Tenant agrees to pay
to Landlord promptly upon demand for all such water and electric current
consumed as shown by said meters, at the rates charged for such services by the
local public utility plus any additional expense incurred in keeping account of
the water and electric current so consumed. If a separate meter is not
installed, the excess cost for such water and electric current shall be
established by an estimate made by a utility company or electrical engineer
hired by Landlord at Tenant's expense.
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Nothing contained in this Article shall restrict Landlord's right to require at
any time separate metering of utilities furnished to the Premises. In the
event utilities are separately metered, Tenant shall pay promptly upon demand
for all utilities consumed at utility rates charged by the local public utility
plus any additional expense incurred by Landlord in keeping account of the
utilities so consumed. Tenant shall be responsible for the maintenance and
repair of any such meters at its sole cost.
Landlord shall furnish elevator service, lighting replacement for building
standard lights, restroom supplies, window washing and janitor services in a
manner that such services are customarily furnished to comparable office
buildings in the area.
10. CONDITION OF THE PREMISES.
Tenant's taking possession of the Premises shall be deemed conclusive evidence
that as of the date of taking possession the Premises are in good order and
satisfactory condition, except for such matters as to which Tenant gave Landlord
notice on or before the Commencement Date. No promise of Landlord to alter,
remodel, repair or improve the Premises, the Building or the Project and no
representation, express or implied, respecting any matter or thing relating to
the Premises, Building, Project or this Lease (including, without limitation,
the condition of the Premises, the Building or the Project) have been made to
Tenant by Landlord or its Broker or Sales Agent, other than as may be contained
herein or in a separate exhibit or addendum signed by Landlord and Tenant.
11. CONSTRUCTION, REPAIRS AND MAINTENANCE.
a. Landlord's Obligations. Landlord shall at its sole cost and expense make
the tenant improvements to the Premises as described in Exhibit "C".
Landlord's cost shall include the cost of preparation and obtaining
governmental approval for the plans and specifications for the tenant
improvements. In the event Landlord's cost for such improvements exceeds the
sum of $12.50 per square foot of Rentable Area, as shown by Landlord's
invoices, copies of which shall be furnished upon request, Tenant shall
reimburse Landlord for such excess costs within fifteen (15) days after
Tenant is given notice thereof. Landlord shall maintain in good order,
condition and repair the Building and all other portions of the Premises not
the obligation of Tenant or of any other tenant in the Building.
b. Tenant's Obligations.
(1) (Omitted)
(2) Tenant at Tenant's sole expense shall, except for services furnished by
Landlord pursuant to Article 9 hereof, maintain the Premises in good order,
condition and repair, including the interior surfaces of the ceilings, walls
and floors, all doors, all interior windows, all plumbing, pipes and
fixtures, electrical wiring, switches and fixtures, Building Standard
furnishings and special items and equipment installed by or at the expense
of Tenant.
(3) Tenant shall be responsible for all repairs and alterations in and to the
Premises, Building and Project and the facilities and systems thereof, the
need for which arises out of (i) Tenant's use or occupancy of the Premises,
(ii) the installation, removal, use or operation of Tenant's Property (as
defined in Article 13) in the Premises, (iii) the moving of Tenant's
Property into or out of the Building, or (iv) the act, omission, misuse or
negligence of Tenant, its agents, contractors, employees or invitees.
(4) If Tenant falls to maintain the Premises in good order, condition and
repair, Landlord shall give Tenant notice to do such acts as are reasonably
required to so maintain the Premises. If Tenant falls to promptly commence
such work and diligently prosecute it to completion, then Landlord shall
have the right to do such acts and expend such funds at the expense of
Tenant as are reasonably required to perform such work. Any amount so
expended by Landlord shall be paid by Tenant promptly after demand with
interest at the prime commercial rate then being charged by Bank of America
NT & SA plus two percent (2%) per annum, from the date of such work, but not
to exceed the maximum rate then allowed by law. Landlord shall have no
liability to Tenant for any damage, inconvenience, or interference with the
use of the Premises by Tenant as a result of performing any such work.
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c. Compliance with Law. Landlord and Tenant shall each do all acts required to
comply with all applicable laws, ordinances, and rules of any public
authority relating to their respective maintenance obligations as set forth
herein.
d. Waiver by Tenant. Tenant expressly waives the benefits of any statute now or
here after in effect which would otherwise afford the Tenant the right to
make repairs at Landlord's expense or to terminate this Lease because of
Landlord's failure to keep the Premises in good order, condition and repair.
e. Load and Equipment Limits. Tenant shall not place a load upon any floor of
the Premises which exceeds the load per square foot which such floor was
designed to carry, as determined by Landlord or Landlord's structural
engineer. The cost of any such determination made by Landlord's structural
engineer shall be paid for by Tenant upon demand. Tenant shall not install
business machines or mechanical equipment which cause noise or vibration to
such a degree as to be objectionable to Landlord or other Building tenants.
f. Except as otherwise expressly provided in this Lease, Landlord shall have no
liability to Tenant nor shall Tenant's obligations under this Lease be
reduced or abated in any manner whatsoever by reason of any inconvenience,
annoyance, interruption or injury to business arising from Landlord's making
any repairs or changes which Landlord is required or permitted by this Lease
or by any other tenant's lease or required by law to make in or to any
portion of the Project, Building or the Premises. Landlord shall nevertheless
use reasonable efforts to minimize any interference with Tenant's business in
the Premises.
g. Tenant shall give Landlord prompt notice of any damage to or defective
condition in any part or appurtenance of the Building's mechanical,
electrical, plumbing, HVAC or other systems serving, located in, or passing
through the Premises.
h. Upon the expiration or earlier termination of this Lease, Tenant shall return
the Premises to Landlord clean and in the same condition as on the date
Tenant took possession, except for normal wear and tear. Any damage to the
Premises, including any structural damage, resulting from Tenant's use or
from the removal of Tenant's fixtures, furnishings and equipment pursuant to
Section 13.b. shall be repaired by Tenant at Tenant's expense.
12. ALTERATIONS AND ADDITIONS.
a. Tenant shall not make any additions, alterations or improvements to the
Premises or which alter or affect the utilities and operating systems of the
Premises without obtaining the prior written consent of Landlord. Landlord's
consent may be conditioned on Tenant's removing any such additions,
alterations or improvements upon the expiration of the Term and restoring the
Premises to the same condition as on the date Tenant took possession. All
work with respect to any addition, alteration or improvement shall be done In
a good and workmanlike manner by properly qualified and licensed personnel
approved by Landlord, and such work shall be diligently prosecuted to
completion. Landlord may, at Landlord's option, require that any such work be
performed by Landlord's contractor, in which case the cost of such work shall
be paid for before commencement of the work. Tenant shall pay to Landlord
upon completion of any such work by Landlord's contractor, an administrative
fee of five percent (5%) of the cost of the work. Any modifications made by
Tenant shall be in full compliance with the Americans With Disabilities Act
(ADA). Further, any modifications required to be made to the Leased Premises
due to Tenant's employees shall be at the Tenant's sole expense.
b. Tenant shall pay the costs of any work done on the Premises pursuant to
Section l2.a.,and shall keep the Premises, Building and Project free and
clear of liens of any kind. Tenant shall indemnify, defend against and keep
Landlord free and harmless from all liability, loss, damage, costs,
attorneys' fees and any other expense incurred on account of claims by any
person performing work or furnishing materials or supplies for Tenant or any
person claiming under Tenant.
Tenant shall keep Tenant's leasehold interest, and any additions or
improvements which are or become the property of Landlord under this Lease,
free and clear of all attachment or judgment liens. Before the actual
commencement of any work for which a claim or lien may be levied. Tenant
shall give Landlord notice of the intended commencement date a sufficient
time before that date to enable Landlord to post notices
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of non-responsibility or any other notices which Landlord deems necessary for
the proper notice of Landlord's interest in the Premises, Building or the
Project, and Landlord shall have the right to enter the Premises and post
such notices at any reasonable time.
c. Landlord may require, at Landlord's sole option, that Tenant provide to
Landlord, at Tenant's expense, lien and completion bond in an amount equal to
at least one and one-half (1 1/2%) times the total estimated cost of any
additions, alterations or improvements to be made in or to the Premises,
costing over Twenty-Five Thousand and No/100 Dollars ($25,000.00) to protect
Landlord against any liability for mechanics' and materialmen's liens and to
insure timely completion of the work. Nothing contained in this Section 12.c.
shall relieve Tenant of its obligation under Section 12.b. to keep the
Premises, Building and Project free of all liens.
d. Unless their removal is required by Landlord as provided In Section 12.a.,
all additions, alterations and improvements made to the Premises shall become
the property of Landlord and be surrendered with the Premises upon the
expiration of the Term; provided, however, Tenant's equipment, machinery and
trade fixtures which can be removed without damage to the Premises shall
remain the property of Tenant and may be removed, subject to the provisions
of Section 13.b.
13. LEASEHOLD IMPROVEMENTS; TENANT'S PROPERTY.
a. All fixtures, equipment, improvements and appurtenances attached to or
built into the Premises at the commencement of or during the Term, whether or
not by or at the expense of Tenant ('Leasehold Improvements'), shall be and
remain a part of the Premises, shall be the property of Landlord and shall
not be removed by Tenant, except as expressly provided in Section 13.b.
b. All movable partitions, business and trade fixtures, machinery and equipment,
communications equipment and office equipment located in the Premises and
acquired by or for the account of Tenant, without expense to Landlord, which
can be removed without structural damage to the Building, and all furniture,
furnishings and other articles of movable personal property owned by Tenant
and located in the Premises (collectively 'Tenant's Property') shall be and
shall remain the property of Tenant and may be removed by Tenant at any time
during the Term; provided that if any of Tenant's Property is removed, Tenant
shall promptly repair any damage to the Premises or to the Building resulting
from such removal.
14. RULES AND REGULATIONS.
Tenant agrees to comply with (and cause its agents, contractors, employees and
invitees to comply with) the rules and regulations attached hereto as Exhibit
"D" and with such reasonable modifications thereof and additions thereto as
Landlord may from time to time make. Landlord shall not be responsible for any
violation of said rules and regulations by other tenants or occupants of the
Building or Project.
15. CERTAIN RIGHTS RESERVED BY LANDLORD.
Landlord reserves the following rights, exercisable without liability to Tenant
for (a) damage or injury to property, person or business, (b) causing an actual
or constructive eviction from the Premises, or (c) disturbing Tenant's use or
possession of the Premises:
a. To name the Building and Project and to change the name or street address
of the Building or Project;
b. To install and maintain all signs on the exterior and interior of the
Building and Project;
c. To have pass keys to the Premises and all doors within the Premises,
excluding Tenant's vaults and safes;
d. At any time during the Term, and on reasonable prior notice to Tenant, to
inspect the Premises, and to show the Premises to any prospective purchaser
or mortgagee of the Project, or to any assignee of any mortgage on the
Project, or to others having an interest in the Project or Landlord, and
during the last six months of the Term, to show the Premises to prospective
tenants thereof; and
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e. To enter the Premises for the purpose of making inspections, repairs,
alterations, additions or improvements to the Premises or the Building
(including, without limitation, checking, calibrating, adjusting or
balancing controls and other parts of the HVAC system), and to take all
steps as may be necessary or desirable for the safety, protection,
maintenance or preservation of the Premises or the Building or Landlord's
interest therein, or as may be necessary or desirable for the operation or
improvement of the Building or in order to comply with laws, orders or
requirements of governmental or other authority. Landlord agrees to use its
best efforts (except in an emergency) to minimize interference with Tenant's
business in the Premises in the course of any such entry.
f. Tenant shall be entitled to have his employee or representative accompany
Landlord during any inspection or entry described in sub-section d. or e.
above, provided that if Tenant does not designate such person within a
reasonable time, Landlord shall not be subject to this obligation, and
further provided that this obligation shall not be applicable in the event
of an emergency.
16. ASSIGNMENT AND SUBLETTING.
No assignment of this Lease or sublease of all or any part of the Premises shall
be permitted, except as provided in this Article 16.
a. Tenant shall not, without the prior written consent of Landlord, assign or
hypothecate this Lease or any interest herein or sublet the Premises or any
part thereof, or permit the use of the Premises by any party other than
Tenant. Any of the foregoing acts without such consent shall be void and
shall, at the option of Landlord, terminate this Lease. This Lease shall
not, nor shall any interest of Tenant herein, be assignable by operation of
law without the written consent of Landlord.
b. If at any time or from time to time during the Term Tenant desires to assign
this Lease or sublet all or any part of the Premises. Tenant shall give
notice to Landlord setting forth the terms and provisions of the proposed
assignment or sublease, and the identity of the proposed assignee or
subtenant. Tenant shall promptly supply Landlord with such information
concerning the business background and financial condition of such proposed
assignee or subtenant as Landlord may reasonably request. Landlord shall
have the option, exercisable by notice given to Tenant within twenty (20)
days after Tenant's notice is given, either to sublet such space from Tenant
at the rental and on the other terms set forth in this Lease for the term
set forth in Tenant's notice, or, in the case of an assignment, to terminate
this Lease. If Landlord does not exercise such option, Tenant may assign the
Lease or sublet such space to such proposed assignee or subtenant on the
following further conditions:
(1) Landlord shall have the right to approve such proposed assignee or
subtenant, which approval shall not be unreasonably withheld;
(2) The assignment or sublease shall be on the same terms set forth in the
notice given to Landlord;
(3) No assignment or sublease shall be valid and no assignee or sublessee shall
take possession of the Premises until an executed counterpart of such
assignment or sublease has been delivered to Landlord;
(4) No assignee or sublessee shall have a further right to assign or sublet
except on the terms herein contained; and
(5) Any sums or other economic consideration received by Tenant as a result of
such assignment or subletting, however denominated under the assignment or
sublease, which exceed, in the aggregate, (I) the total sums which Tenant
is obligated to pay Landlord under this Lease (prorated to reflect
obligations allocable to any portion of the Premises subleased), plus (II)
any real estate brokerage commissions or fees payable in connection with
such assignment or subletting, shall be paid to Landlord as additional rent
under this Lease without affecting or reducing any other obligations of
Tenant hereunder.
c. Notwithstanding the provisions of paragraphs a and b above, Tenant may
assign this Lease or sublet the Premises or any portion thereof, without
Landlord's consent and without extending any recapture or termination option
to Landlord, to any corporation which controls, is controlled by or is under
common
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control with Tenant, or to any corporation resulting from a merger or
consolidation with Tenant, or to any person or entity which acquires all the
assets of Tenant's business as a going concern, provided that (i) the
assignee or sublessee assumes, in full, the obligations of Tenant under this
Lease, (ii) Tenant remains fully liable under this Lease, and (iii) the use
of the Premises under Article 8 remains unchanged.
d. No subletting or assignment shall release Tenant of Tenant's obligations
under this Lease or alter the primary liability of Tenant to pay the Rent
and to perform all other obligations to be performed by Tenant hereunder.
The acceptance of Rent by Landlord from any other person shall not be deemed
to be a waiver by Landlord of any provision hereof. Consent to one
assignment or subletting shall not be deemed consent to any subsequent
assignment or subletting. In the event of default by an assignee or
subtenant of Tenant or any successor of Tenant in the performance of any of
the terms hereof, Landlord may proceed directly against Tenant without the
necessity of exhausting remedies against such assignee, subtenant or
successor. Landlord may consent to subsequent assignments of the Lease or
sublettings or amendments or modifications to the Lease with assignees of
Tenant, without notifying Tenant, or any successor of Tenant, and without
obtaining its or their consent thereto and any such actions shall not
relieve Tenant of liability under this Lease.
e. If Tenant assigns the Lease or sublets the Premises or requests the consent
of Landlord to any assignment or subletting or if Tenant requests the consent
of Landlord for any act that Tenant proposes to do, then Tenant shall, upon
demand, pay Landlord an administrative fee of One Hundred Fifty and No/
100ths Dollars ($150.00) plus any attorneys' fees reasonably incurred by
Landlord in connection with such act or request.
17. HOLDING OVER.
If after expiration of the Term, Tenant remains in possession of the Premises
with Landlord's permission (express or implied) unless otherwise agreed, Tenant
shall become a tenant from month to month only, upon all the provisions of this
Lease (except as to term and Base Rent), but the "Monthly Installments of Base
Rent" payable by Tenant shall be increased to one hundred fifty percent (I 50%)
of the Monthly Installments of Base Rent payable by Tenant at the expiration of
the Term. Such monthly rent shall be payable in advance on or before the first
day of each month. If either party desires to terminate such month to month
tenancy, it shall give the other party not less than thirty (30) days advance
written notice of the date of termination.
18. SURRENDER OF PREMISES.
a. Tenant shall peaceably surrender the Premises to Landlord on the Expiration
Date, in broom-clean condition and in as good condition as when Tenant took
possession, except for (i) reasonable wear and tear, (ii) loss by fire or
other casualty, and (iii) loss by condemnation. Tenant shall, on Landlord's
request, remove Tenant's Property on or before the Expiration Date and
promptly repair all damage to the Premises or Building caused by such
removal.
b. If Tenant abandons or surrenders the Premises, or is dispossessed by process
of law or otherwise, any of Tenant's Property left on the Premises shall be
deemed to be abandoned, and, at Landlord's option, title shall pass to
Landlord under this Lease as by a bill of sale. If Landlord elects to remove
all or any part of such Tenant's Property, the cost of removal, Including
repairing any damage to the Premises or Building caused by such removal,
shall be paid by Tenant. On the Expiration Date Tenant shall surrender all
keys to the Premises.
19. DESTRUCTION OR DAMAGE.
a. If the Premises or the portion of the Building necessary for Tenant's
occupancy is damaged by fire, earthquake, act of God, the elements of other
casualty, Landlord shall, subject to the, provisions of this Article,
promptly repair the damage, If such repairs can, in Landlord's opinion, be
completed within ninety (90) days. If Landlord determines that repairs can be
completed within ninety (90) days, this Lease shall remain in full force and
effect, except that if such damage is not the result of the gross negligence
or willful misconduct of Tenant or Tenant's agents, employees, contractors,
licensees or invitees, the Rent shall be abated to the extent Tenant's use of
the Premises is impaired, commencing with the date of damage and
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continuing until completion of the repairs required of Landlord under Section
19.d. If Landlord commences repairs under this Section 1 9.a. but fails to
complete such repairs within one hundred twenty (120) days after their
commencement, Tenant shall have the right to cancel this Lease by notice to
Landlord.
b. If in Landlord's opinion, such repairs to the Premises or portion of the
Building necessary for Tenant's occupancy cannot be completed within ninety
(90) days, Landlord may elect, upon notice to Tenant to that effect given
within thirty (30) days after the date of such fire or other casualty, to
repair such damage, whereupon Tenant shall have the right to cancel this
Lease, exercisable by Tenant giving notice of termination to Landlord within
fifteen (15) days after Landlord's notice is given. If Tenant does not give
such notice within such time period, this Lease shall continue in full force
and effect, but the Rent shall be partially abated as provided in Section
19.a. If Landlord does not so elect to make such repairs, this Lease shall
terminate as of the date of such fire or other casualty.
c. If any other portion of the Building or Project is totally destroyed or
damaged to the extent that in Landlord's opinion repair thereof cannot be
completed within ninety (90) days, Landlord may elect upon notice to Tenant
given within thirty (30) days after the date of such fire or other casualty,
to repair such damage, in which event this Lease shall continue in full force
and effect, but the Rent shall be partially abated as provided in Section
19.a. If Landlord does not elect to make such repairs, this Lease shall
terminate as of the date of such fire or other casualty.
d. If the Premises are to be repaired under this Article, Landlord shall repair
at its cost any injury or damage to the Building and the tenant improvements
described in Exhibit "C" in the Premises. Tenant shall be responsible at its
sole cost and expense for the repair, restoration and replacement of any
other Leasehold Improvements and Tenant's Property. Landlord shall not be
liable for any loss of business, inconvenience or annoyance arising from any
repair or restoration of any portion of the Premises, Building or Project as
a result of any damage from fire or other casualty.
e. This Lease shall be considered an express agreement governing any case of
damage to or destruction of the Premises, Building or Project by fire or
other casualty, and any present or future law which purports to govern the
rights of Landlord and Tenant in such circumstances in the absence of express
agreement, shall have no application.
20. EMINENT DOMAIN.
a. If the whole of the Building or Premises is lawfully taken by condemnation or
in any other manner for any public or quasi-public purpose, this Lease shall
terminate as of the date of such taking, and Rent shall be prorated to such
date. If less than the whole of the Building or Premises is so taken, this
Lease shall be unaffected by such taking, provided that (i) Tenant shall have
the right to terminate this Lease by notice to Landlord given within
Ninety(90) days after the date of such taking if twenty percent (20%) or more
of the Premises is taken and the remaining area of the Premises is not
reasonably sufficient for Tenant to continue operation of its business, and
(ii) Landlord shall have the right to terminate this Lease by notice to
Tenant given within ninety (90) days after the date of such taking. If either
Landlord or Tenant so elects to terminate this Lease, the Lease shall
terminate on the thirtieth (30th) day after either such notice. The Rent
shall be prorated to the date Tenant is required to surrender occupancy. If
this Lease continues in force upon such partial taking, the Base Rent and
Tenant's Proportionate Share shall be equitably adjusted retroactive to the
date of the taking according to the remaining Rentable Area of the Premises
and Project.
b. In the event of any taking, partial or whole, all of the proceeds of any
award, judgment or settlement payable by the condemning authority shall be
the exclusive property of Landlord, and Tenant hereby assigns to Landlord
all of its right, title and interest in any award, judgment or settlement
from the condemning authority. Tenant, however, shall have the right, to the
extent that Landlord's award is not reduced or prejudiced, to claim from the
condemning authority(but not from Landlord) such compensation as may be
recoverable by Tenant in its own right for relocation expenses and damage to
Tenant's personal property.
c. In the event of a partial taking of the Premises which does not result in a
termination of this Lease, Landlord shall restore the remaining portion of
the Premises as nearly as practicable to its condition prior to the
condemnation or taking, but only to the extent of the tenant improvements
described in Exhibit "C".
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Tenant shall be responsible at its sole cost and expense for the repair,
restoration and replacement of any other Leasehold Improvements and Tenant's
Property.
21. INDEMNIFICATION.
a. Tenant shall indemnify and hold Landlord harmless against and from liability
and claims of any kind for loss or damage to property of Tenant or any other
person, or for any injury to or death of any person, arising out of: (1)
Tenant's use and occupancy of the Premises, or any work, activity or other
things allowed or suffered by Tenant to be done in, on or about the Premises;
(2) any breach or default by Tenant of any of Tenant's obligations under this
Lease; or (3) any negligent or otherwise tortious act or omission of Tenant,
its agents, employees, invitees or contractors, unless caused by Landlord's
gross negligence or willful misconduct. Tenant shall at Tenant's expense, and
by counsel satisfactory to Landlord, defend Landlord in any action or
proceeding arising from any such claim and shall indemnify Landlord against
all costs, attorneys' fees, expert witness fees and any other expenses
incurred in such action or proceeding. As a material part of the
consideration for Landlord's execution of this Lease, Tenant hereby assumes
all risk of damage or injury to any person or property in, on or about the
Premises from any cause.
b. Landlord shall not be liable for injury or damage which may be sustained by
the person or property of Tenant, its employees, invitees or customers, or
any other person in or about the Premises, caused by or resulting from fire,
steam, electricity, gas, water or rain which may leak or flow from or into
any part of the Premises, or from the breakage, leakage, obstruction or other
defects of pipes, sprinklers, wires, appliances, plumbing, air conditioning
or lighting fixtures, whether such damage or injury results from conditions
arising upon the Premises or upon other portions of the Building or Project
or from other sources, unless such injury or damage is caused by Landlord's
gross negligence or wilful misconduct. Landlord shall not be liable for any
damages arising from any act or omission of any other tenant of the Building
or Project.
22. TENANT'S INSURANCE.
a. All insurance required to be carried by Tenant hereunder shall be issued by
responsible insurance companies acceptable to Landlord and Landlord's lender
and qualified to do business in the State. Each policy shall name Landlord,
and at Landlord's request any mortgagee of Landlord, as an additional
insured, as their respective interests may appear. Each policy shall contain
(i) a cross-liability endorsement, (ii) a provision that such policy and the
coverage evidenced thereby shall be primary and non-contributing with respect
to any policies carried by Landlord and that any coverage carried by Landlord
shall be excess Insurance, and (iii) a waiver by the insurer of any right of
subrogation against Landlord, its agents, employees and representatives,
which arises or might arise by reason of any payment under such policy or by
reason of any act or omission of Landlord, its agents, employees or
representatives. A copy of each paid up policy (authenticated by the insurer)
or certificate of the Insurer evidencing the existence and amount of each
insurance policy required hereunder shall be delivered to Landlord before the
date Tenant is first given the right of possession of the Premises, and
thereafter within thirty (30) days after any demand by Landlord therefor.
Landlord may, at any time and from time to time, inspect and/or copy any
insurance policies required to be maintained by Tenant hereunder. No such
policy shall be cancelable except after twenty (20) days written notice to
Landlord and Landlord's lender. Tenant shall furnish Landlord with renewals
or 'binders' of any such policy at least ten (10) days prior to the
expiration thereof. Tenant agrees that if Tenant does not take out and
maintain such insurance, Landlord may (but shall not be required to) procure
said insurance on Tenant's behalf and charge the Tenant the premiums, payable
upon demand. Tenant shall have the right to provide such insurance coverage
pursuant to blanket policies obtained by the Tenant, provided such blanket
policies expressly afford coverage to the Premises, Landlord, Landlord's
mortgagee and Tenant as required by this Lease.
b. Beginning on the date Tenant is given access to the Premises for any purpose
and continuing until expiration of the Term, Tenant shall procure, pay for
and maintain in effect policies of casualty insurance covering (i) all
Leasehold Improvements (including any alterations, additions or improvements
as may be made by Tenant pursuant to the provisions of Article 12 hereof),
and (ii) trade fixtures, merchandise and other personal property from time to
time in, on or about the Premises, in an amount not less than one hundred
percent (100%) of their actual replacement cost from time to time, providing
protection against any peril included within the classification "Fire and
Extended Coverage" together with insurance against sprinkler
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damage, vandalism and malicious mischief. The proceeds of such insurance
shall be used for the repair or replacement of the property so insured. Upon
termination of this Lease following a casualty as set forth herein, the
proceeds under (i) shall be paid to Landlord, and the proceeds under (ii)
above shall be paid to Tenant.
c. Beginning on the date Tenant is given access to the Premises for any purpose
and continuing until expiration of the term, Tenant shall procure, pay for
and maintain in effect workers' compensation insurance as required by law and
comprehensive public liability and property damage insurance with respect to
the construction of improvements on the Premises, the use, operation or
condition of the Premises and the operations of Tenant in, on or about the
Premises, providing personal injury and broad form property damage coverage
for not less than One Million Dollars ($ 1,000,000.00) combined single limit
for bodily injury, death and property damage liability.
d. Not less than every three (3) years during the Term, Landlord and Tenant
shall mutually agree to increases in all of Tenant's insurance policy limits
for all insurance to be carried by Tenant as set forth in this Article. In
the event Landlord and Tenant cannot mutually agree upon the amounts of said
increases, then Tenant agrees that all insurance policy limits as set forth
in this Article shall be adjusted based on increases in the cost of living
since the Base Year.
23. WAIVER OF SUBROGATION.
Landlord and Tenant each hereby waive all rights of recovery against the other
and against the officers, employees, agents and representatives of the other,
on account of loss by or damage to the waiving party of its property or the
property of others under its control, to the extent that such loss or damage is
insured against under any fire and extended coverage insurance policy which
either may have in force at the time of the loss or damage. Tenant shall, upon
obtaining the policies of insurance required under this Lease, give notice to
its insurance carrier or carriers that the foregoing mutual waiver of
subrogation is contained in this Lease.
24. SUBORDINATION AND ATTORNMENT.
Upon written request of Landlord, or any mortgagee or deed of trust beneficiary
of Landlord, or ground lessor of Landlord, Tenant shall, in writing, subordinate
its rights under this Lease to the lien of any mortgage or deed of trust, or to
the interest of any lease in which Landlord is lessee, and to all advances made
or hereafter to be made thereunder. However, before signing any subordination
agreement, Tenant shall have the right to obtain from any lender or lessor or
Landlord requesting such subordination, an agreement in writing providing that,
as long as Tenant is not in default hereunder, this Lease shall remain in effect
for the full Term. The holder of any security interest may, upon written notice
to Tenant, elect to have this Lease prior to its security interest regardless of
the time of the granting or recording of such security interest.
In the event of any foreclosure sale, transfer in lieu of foreclosure or
termination of the lease in which Landlord is lessee, Tenant shall attorn to
the purchaser, transferee or lessor as the case may be, and recognize that
party as Landlord under this Lease, provided such party acquires and accepts
the Premises subject to this Lease.
25. ESTOPPEL CERTIFICATES.
Within ten (10) days after written request from Landlord, Tenant shall execute
and deliver to Landlord or Landlord's designee, a written statement certifying
(a) that this Lease is unmodified and in full force and effect, or is in full
force and effect as modified and stating the modifications; (b) the amount of
Base Rent and the date to which Base Rent and additional rent have been paid in
advance; (c) the amount of any Security Deposit; and (d) that Landlord is not
in default hereunder or, if Landlord is claimed to be in default, stating the
nature of any claimed default. Any such statement may be relied upon by a
Purchaser, assignee or lender. Tenant's failure to execute and deliver such
statement within the time required shall be conclusive upon Tenant that: (1)
this Lease is in full force and effect and has not been modified except as
represented by Landlord; (2) there are no uncured defaults in Landlord's
performance and that Tenant has no right of
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offset, counter-claim or deduction against Rent; and (3) not more than one
month's Rent has been paid in advance.
Within ten (10) days after written request from Tenant, Landlord shall execute
and deliver to Tenant or Tenant's designee, a written statement certifying (a)
that this Lease is unmodified and in full force and effect, or is in full force
and effect as modified and stating the modifications; (b) the amount of Base
Rent and the date to which Base Rent and additional rent have been paid in
advance; (c) the amount of any Security Deposit; and (d) that Tenant is not in
default hereunder or, if Tenant is claimed to be in default, stating the nature
of any claimed default. Any such statement may be relied upon by a Purchaser,
assignee or lender. Landlord's failure to execute and deliver such statement
within the time required shall be conclusive upon Landlord that: (1) this Lease
is in full force and effect and has not been modified except as represented by
Tenant; (2) there are no uncured defaults in Tenant's performance and that
Landlord has no right of offset, counter-claim or deduction against Rent; and
(3) not more than one month's Rent has been paid in advance.
26. TRANSFER OF LANDLORD'S INTEREST.
In the event of any sale or transfer by Landlord of the Premises, Building or
Project, and assignment of this Lease by Landlord, Landlord shall be and is
hereby entirely freed and relieved of any and all liability and obligations
contained in or derived from this Lease arising out of any act, occurrence or
omission relating to the Premises, Building, Project, or Lease occurring after
the consummation of such sale or transfer, providing the Purchaser shall
expressly assume all of the covenants and obligations of Landlord under this
Lease. If any Security Deposit or prepaid Rent has been paid by Tenant,
Landlord may transfer the Security Deposit or prepaid Rent to Landlord's
successor and upon such transfer, Landlord shall be relieved of any and all
further liability with respect thereto.
27. DEFAULT.
27.1 Tenant's Default. The occurrence of any one or more of the following
events shall constitute a default and breach of this Lease by Tenant:
a. If Tenant falls to pay any Rent or any other charges required to be paid by
Tenant under this Lease and such failure continues for five (5) days after
such payment is due and payable, provided that the first late payment of rent
in any calendar year shall not constitute a default if payment is made within
five (5) days after written notice of default from Landlord to Tenant; or
b. If Tenant fails to promptly and fully perform any other covenant, condition
or agreement contained in this Lease and such failure continues for thirty
(30) days after written notice thereof from Landlord to Tenant or unless such
failure is not curable within such thirty (30) day period, in which event
Tenant shall, provided it is using its best efforts and utmost due diligence
to cure such failure, have an additional fifteen (1 5) day period to
accomplish such cure; or
c. If a writ of attachment or execution is levied on this Lease or on any of
Tenant's Property; or
d. If Tenant makes a general assignment for the benefit of creditors, or
provides for an arrangement, composition, extension or adjustment with its
creditors; or
e. If Tenant files a voluntary petition for relief or if a petition against
Tenant in a proceeding under the federal bankruptcy laws or other insolvency
laws is filed and not withdrawn or dismissed within forty-five (45) days
thereafter, of if under the provisions of any law providing for
reorganization or winding up of corporations, any court of competent
jurisdiction assumes jurisdiction, custody or control of Tenant or any
substantial part of its property and such jurisdiction, custody or control
remains in force unrelinquished, unstayed or unterminated for a period of
forty-five (45) days; or
f. If in any proceeding or action in which Tenant is a party, a trustee,
receiver, agent or custodian is appointed to take charge of the Premises or
Tenant's Property (or has the authority to do so) for the purpose of
enforcing a lien against the Premises or Tenant's Property; or
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g. If Tenant fails to perform its obligations under Article 25.
27.2 Remedies. In the event of Tenant's default hereunder, then in addition to
any other rights or remedies Landlord may have under any law, Landlord shall
have the right, at Landlord's option, without further notice or demand of any
kind to do the following:
a. Terminate this Lease and Tenant's right to possession of the Premises and
reenter the Premises and take possession thereof, and Tenant shall have no
further claim to the Premises or under this Lease; or
b. Continue this Lease in effect, reenter and occupy the Premises for the
account of Tenant, and collect any unpaid Rent or other charges which have
or thereafter become due and payable; or
c. Reenter the Premises under the provisions of subparagraph b, and thereafter
elect to terminate this Lease and Tenant's right to possession of the
Premises.
If Landlord reenters the Premises under the provisions of subparagraphs b or c
above, Landlord shall not be deemed to have terminated this Lease or the
obligation of Tenant to pay any Rent or other charges thereafter accruing,
unless Landlord notifies Tenant in writing of Landlord's election to terminate
this Lease. In the event of any reentry or retaking of possession by Landlord,
Landlord shall have the right, but not the obligation, to remove all or any part
of Tenant's Property in the Premises and to place such property in storage at a
public warehouse at the expense and risk of Tenant. If Landlord elects to
relate the Premises for the account of Tenant, the rent received by Landlord
from such reletting shall be applied as follows: first, to the payment of any
indebtedness other than Rent due hereunder from Tenant to Landlord; second, to
the payment of any costs of such reletting; third, to the payment of the cost of
any alterations or repairs to the Premises; fourth to the payment of Rent due
and unpaid hereunder; and the balance, if any, shall be held by Landlord and
applied in payment of future Rent as it becomes due. If that portion of rent
received from the reletting which is applied against the Rent due hereunder is
less than the amount of the Rent due, Tenant shall pay the deficiency to
Landlord promptly upon demand by Landlord. Such deficiency shall be calculated
and paid monthly. Tenant shall also pay to Landlord, as soon as determined, any
costs and expenses incurred by Landlord in connection with such reletting or in
making alterations and repairs to the Premises, which are not covered by the
rent received from the reletting.
Should Landlord elect to terminate this Lease under the provisions of
subparagraph a or c above, Landlord may recover as damages from Tenant the
following:
1. Past Rent. The worth at the time of the award of any unpaid Rent which had
been earned at the time of termination; plus
2. Rent Prior to Award. The worth at the time of the 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 Tenant proves
could have been reasonably avoided; plus
3. Rent AfterAward. The worth at the time of the award of the amount by which
the unpaid Rent for the balance of the Term after the time of award exceeds
the amount of the rental loss that Tenant proves could be reasonably
avoided; plus
4. Proximately Caused Damages. Any other amount necessary to compensate Landlord
for all detriment proximately caused by Tenant'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, any costs or
expenses (including attorneys' fees), incurred by Landlord in (a) retaking
possession of the Premises, (b) maintaining the Premises after Tenant's
default, (c) preparing the Premises for reletting to a new tenant, including
any repairs or alterations, and (d) reletting the Premises, including
broker's commissions.
"The worth at the time of the award" as used in subparagraphs 1 and 2 above, is
to be computed by allowing interest at a rate equal to the discount rate of the
Federal Reserve Bank situated nearest to the Premises plus two percent (2%).
"The worth at the time of the award" as used in subparagraph 3 above,
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is to be computed by discounting the amount at the discount rate of the Federal
Reserve Bank situated nearest to the Premises at the time of the award plus two
percent (2%).
The waiver by Landlord of any breach of any term, covenant or condition of this
Lease shall not be deemed a waiver of such term, covenant or condition or of any
subsequent breach of the same or any other term, covenant or condition.
Acceptance of Rent by Landlord subsequent to any breach hereof shall not be
deemed a waiver of any preceding breach other than the failure to pay the
particular Rent so accepted, regardless of Landlord's knowledge of any breach at
the time of such acceptance of Rent. Landlord shall not be deemed to have
waived any term, covenant or condition unless Landlord gives Tenant written
notice of such waiver.
27.3 Landlord's Default. If Landlord fails to perform any covenant, condition
or agreement contained in this Lease (except Landlord's obligation under Article
25) within thirty (30) days after receipt of written notice from Tenant
specifying such default, or if such default cannot reasonably be cured within
thirty (30) days, if Landlord fails to commence to cure within that thirty (30)
day period, then Landlord shall be liable to Tenant for any damages sustained by
Tenant as a result of Landlord's breach; provided, however, it is expressly
understood and agreed that if Tenant obtains a money judgment against Landlord
resulting from any default or other claim arising under this Lease, Including
one based on Article 25, that judgment shall be satisfied only out of the rents,
issues, profits, and other income actually received on account of Landlord's
right, title and interest in the Premises, Building or Project, and no other
real, personal or mixed property of Landlord (or of any of the partners which
comprise Landlord, if any) wherever situated, shall be subject to levy to
satisfy such judgment. If, after notice to Landlord of default, Landlord (or
any first mortgagee or first deed of trust beneficiary of Landlord) fails to
cure the default as provided herein, then Tenant shall have the right to cure
that default at Landlord's expense. Tenant shall not have the right to
terminate this Lease or to withhold, reduce or offset any amount against any
payments of Rent or any other charges due and payable under this Lease except as
otherwise specifically provided herein.
28. BROKERAGE FEES.
Tenant and Landlord each mutually warrants and represents that it has not dealt
with any real estate broker or agent in connection with this Lease or its
negotiation except those noted in Section 2.c. Each party shall indemnify and
hold the other harmless from any cost, expense or liability (including costs of
suit and reasonable attorneys' fees) for any compensation, commission or fees
claimed by any other real estate broker or agent in connection with this Lease
or its negotiation by reason of the act of the indemnifying party. Landlord
shall be solely responsible for payment of the commissions of the brokers listed
in Section 2.c. of this Lease.
29. NOTICES.
All notices, approvals and demands permitted or required to be given under this
Lease shall be in writing and deemed duly served or given if personally
delivered or sent by certified or registered U.S. mail, postage prepaid, and
addressed as follows: (a) if to Landlord, to Landlord's Mailing Address and to
the Building manager, and (b) if to Tenant, to Tenant's Mailing Address;
provided, however, notices to Tenant shall be deemed duly served or given if
delivered or mailed to Tenant at the Premises. Landlord and Tenant may from time
to time by notice to the other designate another place for receipt of future
notices.
30. GOVERNMENT ENERGY OR UTILITY CONTROLS.
In the event of imposition of federal, state or local government controls,
rules, regulations, or restrictions on the use or consumption of energy or other
utilities during the Term, both Landlord and Tenant shall be bound thereby. In
the event of a difference in interpretation by Landlord and Tenant of any such
controls, the interpretation of Landlord shall prevail, and Landlord shall have
the right to enforce compliance therewith, including the right of entry into the
Premises to effect compliance.
31. (OMITTED]
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32. QUIET ENJOYMENT.
Tenant, upon paying the Rent and performing all of its obligations under this
Lease, shall peaceably and quietly enjoy the Premises, subject to the terms of
this Lease and to any mortgage, lease, or other agreement to which this Lease
may be subordinate.
33. OBSERVANCE OF LAW.
Tenant shall not use the Premises or permit anything to be done in or about the
Premises which will in any way conflict with any law, statute, ordinance or
governmental rule or regulation now in force or which may hereafter be enacted
or promulgated. Tenant shall, at its sole cost and expense, promptly comply
with all laws, statutes, ordinances and governmental rules, regulations or
requirements now in force or which may hereafter be in force, and with the
requirements of any board of fire insurance underwriters or other similar bodies
now or hereafter constituted, relating to, or affecting the condition, use or
occupancy of the Premises, excluding structural changes not related to or
affected by Tenant's improvements or acts. The final judgment of any court of
competent jurisdiction or the admission of Tenant in any action against Tenant,
whether Landlord is a party thereto or not, that Tenant has violated any law,
ordinance or governmental rule, regulation or requirement, shall be conclusive
of that fact as between Landlord and Tenant.
34. FORCE MAJEURE.
Any prevention, delay or stoppage of work or services to be performed by
Landlord or Tenant which is due to strikes, labor disputes, inability to obtain
labor, materials, equipment or reasonable substitutes therefor, acts of God,
governmental restrictions or regulations or controls, judicial orders, enemy or
hostile government actions, civil commotion, fire or other casualty, or other
causes beyond the reasonable control of the party obligated to perform
hereunder, shall excuse performance of the work by that party for a period equal
to the duration of that prevention, delay or stoppage. Nothing in this Article
34 shall excuse or delay Tenant's obligation to pay Rent or other charges under
this Lease.
35. CURING TENANT'S DEFAULTS.
If Tenant defaults in the performance of any of its obligations under this
Lease, Landlord may (but shall not be obligated to) without waiving such
default, perform the same for the account at the expense of Tenant. Tenant
shall pay Landlord all costs of such performance promptly upon receipt of a
bill therefor.
36. SIGN CONTROL.
Tenant shall not affix, paint, erect or inscribe any sign, projection, awning,
signal or advertisement of any kind to any part of the Premises, Building or
Project, including without limitation, the inside or outside of windows or
doors, without the written consent of Landlord. Landlord shall have the right
to remove any signs or other matter, installed without Landlord's permission,
without being liable to Tenant by reason of such removal, and to charge the cost
of removal to Tenant as additional rent hereunder, payable within ten
(10) days of written demand by Landlord.
37. MISCELLANEOUS.
a. Accord and Satisfaction; Allocation of Payments. No payment by Tenant or
receipt by-Landlord of a lesser amount than the Rent provided for in this
Lease shall be deemed to be other than on account of the earliest due Rent,
nor shall any endorsement or statement on any check or letter accompanying
any check or payment as Rent be deemed an accord and satisfaction, and
Landlord may accept such check or payment without prejudice to Landlord's
right to recover the balance of the Rent or pursue any other remedy provided
for in this Lease. In connection with the foregoing, Landlord shall have the
absolute right in its sole discretion to apply any payment received from
Tenant to any account or other payment of Tenant then not current and due or
delinquent.
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b. Addenda. If any provision contained in an addendum to this Lease is
inconsistent with any other provision herein, the provision contained in the
addendum shall control, unless otherwise provided in the addendum.
c. Attorneys' Fees. If any action or proceeding is brought by either party
against the other pertaining to or arising out of this Lease, the finally
prevailing party shall be entitled to recover all costs and expenses,
including reasonable attorneys' fees, incurred on account of such action or
proceeding.
d. Captions; Article and Section Numbers. The captions appearing within the body
of this Lease have been inserted as a matter of convenience and for reference
only and in no way define, limit or enlarge the scope or meaning of this
Lease. All references to Article and Section numbers refer to Articles and
Sections in this Lease.
e. Changes Requested by Lender. Neither Landlord or Tenant shall unreasonably
withhold its consent to changes or amendments to this Lease requested by the
lender on Landlord's interest, so long-as these changes do not alter the
basic business terms of this Lease or otherwise materially diminish any
rights or materially increase any obligations of the party from whom consent
to such charge or amendment is requested.
f. Choice of Law. This Lease shall be construed and enforced in accordance with
the laws of the State.
g. Consent. Notwithstanding anything contained in this Lease to the contrary,
Tenant shall have no claim, and hereby waives the right to any claim against
Landlord for money damages by reason of any refusal, withholding or delaying
by Landlord of any consent, approval or statement of satisfaction, and in
such event, Tenant's only remedies therefor shall be an action for specific
performance, injunction or declaratory judgment to enforce any right to-such
consent, approval or statement.
h. Corporate Authority. If Tenant is a corporation, each individual signing this
Lease on behalf of Tenant represents and warrants that he is duly authorized
to execute and deliver this Lease on behalf of the corporation, and that this
Lease is binding on Tenant in accordance with its terms. Tenant shall, at
Landlord's request, deliver a certified copy of a resolution of its board of
directors authorizing such execution.
I. Counterparts. This Lease may be executed in multiple counterparts, all of
which shall constitute one and the same Lease.
j. Execution of Lease; No Option. The submission of this Lease to Tenant shall
be for examination purposes only, and does not and shall not constitute a
reservation of or option for Tenant to lease, or otherwise create any
interest of Tenant in the Premises or any other premises within the Building
or Project. Execution of this Lease by Tenant and its return to Landlord
shall not be binding on Landlord notwithstanding any time interval, until
Landlord has in fact signed and delivered this Lease to Tenant.
k. Furnishing of Financial Statements; Tenant's Representations. In order to
induce Landlord to enter into this Lease Tenant agrees that it shall promptly
furnish Landlord, from time to time, upon Landlord's written request, with
financial statements reflecting Tenant's current financial condition. Tenant
represents and warrants that all financial statements, records and
information furnished by Tenant to Landlord in connection with this Lease are
true, correct and complete in all material respects.
l. Further Assurances. The parties agree to promptly sign all documents
reasonably requested to give effect to the provisions of this Lease.
m. Mortgagee Protection. Tenant agrees to send by certified or registered mail
to any first mortgagee or first deed of trust beneficiary of Landlord whose
address has been furnished to Tenant, a copy of any notice of default served
by Tenant on Landlord. If Landlord fails to cure such default within the time
provided for in this Lease, such mortgagee or beneficiary shall have an
additional thirty (30) days to cure such default; provided that if such
default cannot reasonably be cured within that thirty (30) day period, then
such
20
<PAGE>
mortgagee or beneficiary shall have such additional time to cure the
default as is reasonably necessary under the circumstances.
n. Prior Agreements; Amendments. This Lease contains all of the agreements of
the parties with respect to any matter covered or mentioned in this Lease,
and no prior agreement or understanding pertaining to any such matter shall
be effective for any purpose. No provisions of this Lease may be amended or
added to except by an agreement in writing signed by the parties or their
respective successors in interest.
o. Recording. Tenant shall not record this Lease without the prior written
consent of Landlord. Tenant, upon the request of Landlord, shall execute and
acknowledge a "short form" memorandum of this Lease for recording purposes.
p. Severability. A final determination by a court of competent jurisdiction
that any provision of this Lease is invalid shall not affect the validity of
any other provision, and any provision so determined to be invalid shall, to
the extent possible, be construed to accomplish its intended effect.
q. Successors and Assigns. This Lease shall apply to and bind the heirs,
personal representatives, and permitted successors and assigns of the
parties.
r. Time of the Essence. Time is of the essence of this Lease.
s. Waiver. No delay or omission in the exercise of any right or remedy of
Landlord upon any default by Tenant shall impair such right or remedy or be
construed as a waiver of such default. The receipt and acceptance by Landlord
of delinquent Rent shall not constitute a waiver of any other default; it
shall constitute only a waiver of timely payment for the particular Rent
payment involved. No act or conduct of Landlord, including, without
limitation, the acceptance of keys to the Premises, shall constitute an
acceptance of the surrender of the Premises by Tenant before the expiration
of the Term. Only a written notice from Landlord to Tenant shall constitute
acceptance of the surrender of the Premises and accomplish a termination of
the Lease. Landlord's consent to or approval of any act by Tenant requiring
Landlord's consent or approval shall not be deemed to waive or render
unnecessary Landlord's consent to or approval of any subsequent act by
Tenant. Any waiver by Landlord of any default must be in writing and shall
not be a waiver of any other default concerning the same or any other
provision of the Lease.
38. SAFETY.
Lessee shall maintain on the Premises at all times during the Term hereof an
adequate number, size and type of fire extinguishers as are appropriate to
Lessee's business. Lessee will at all times adhere to good safety practices or
as may be required by safety inspectors. No goods, merchandise or materials
shall be kept, stored or sold by Lessee on or about the Premises which are in
any way hazardous, and Lessee shall not suffer, permit or perform any acts on or
about the Premises which will increase the existing rate of fire insurance. If
the said insurance rate is increased by such an act, then the increased cost of
such insurance shall be paid by Lessee to Lessor with the next succeeding
installment of rental. Lessee, at its sole expense, shall comply with any and
all requirements of any insurance organization or company necessary for the
maintenance of reasonable fire and public liability insurance covering the
Premises, the Project or any portion thereof.
39. NO ACCESS TO ROOF.
Lessee shall have not right of access to the roof of the Premises or the
building in which the Premises are located and shall not install, repair or
replace any aerial, fan, air conditioner or other device on the roof of the
Premises or the building in which the Premises are located without the prior
written consent of Lessor. Any aerial, fan, air conditioner or device installed
without such written consent shall be subject to removal, at Lessee's expense,
without notice, at any time.
21
<PAGE>
40. ALTERATIONS AND COMMON AREAS.
Lessor shall have the right to make changes in the Common Areas or any part
thereof, including, without limitation, changes in the location of driveways,
entrances, exits, vehicular parking spaces and the direction of traffic flow,
and designation of restricted areas, as Lessor deems necessary or advisable for
the proper and efficient operation and maintenance of the Common Areas.
Notwithstanding the foregoing, Lessor shall not make changes in the Common Areas
which materially and adversely affect access to, or visibility of, the Premises,
except temporarily during periods of construction.
41. OTHER TENANTS.
Lessor reserves the absolute right to permit such other tenancies and businesses
in the Project as Lessor, in the exercise of its sole business judgement, shall
determine to best promote the interests of the Project. Lessee is not relying
on the understanding, nor does Lessor represent, any specific lessee or number
of lessees shall during the Term occupy any space in the Project.
42. NAME OF PROPERTY.
Lessor shall have the right to change the name of the Property upon not less
than thirty (30) days prior written notice to Lessee. Lessee agrees that the
name of the Project shall be the sole property of and belong to Lessor. From
and after the termination or expiration of the Term for any reason whatsoever,
Lessee shall cease using the name of the Project for any purpose.
43. ARMS-LENGTH TRANSACTION.
This Lease has been negotiated with both parties being represented by their
respective attorneys. Each party acknowledges that it has had full opportunity
to consult with tax, engineering and other advisors of its choosing. All terms
and provisions hereof shall be given their plain meaning, and shall not be
construed for or against either party.
44. OPTION TO RENEW.
Tenant shall have two five-year renewal options, each exercisable by giving
Landlord notice to that effect no less than one-hundred eighty (180) days prior
to the expiration of the then current Term. All terms and conditions of this
Lease will remain in full force and effect should Tenant desire to extend its
occupancy, with the exception of the Base Rate, which shall be as follows:
First Five-Year Option Term
----------------------
Months 1-12: Seventeen and 50/100 Dollars ($17.50) per square foot per year.
Months 13-24: Eighteen and 00/100 Dollars ($18.00) per square foot per year.
Months 25-36: Eighteen and 50/100 Dollars ($18.50) per square foot per year.
Months 37-48: Nineteen and 00/100 Dollars ($19.00) per square foot per year.
Months 49-60: Nineteen and 50/100 Dollars ($19.50) per square foot per year.
Second Five-Year Option Term
----------------------------
Months 1-1 2: Twenty and 00/100 Dollars ($20.00) per square foot per year.
Months 13-24: Twenty and 50/100 Dollars ($20.50) per square foot per year.
Months 25-36: Twenty-One and 00/100 Dollars ($21.00) per square foot per
year.
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Months 37-48: Twenty-One and 50/100 Dollars ($21.50) per square foot per
year.
Months 49-60: Twenty-Two and 00/100 Dollars ($22.00) per square foot per
year.
45. RIGHT OF FIRST REFUSAL.
During the initial sixty (60) months of the Term, providing that Tenant shall
not be in default hereunder beyond applicable grace and cure periods, if
Landlord shall receive a bona fide offer from a party (herein called the
"Outside Tenant"), for the lease of the first right of refusal space, which
shall be the "First Refusal Premises", as referenced on Exhibit "A" which offer
Landlord desires to accept (herein called the "Outside Offer"), or if Landlord
shall make a bona fide offer to a party (such offeree also herein called the
"Outside Tenant"), for the lease of the First Refusal Premises, which the
Outside Tenant desires to accept (also called the "Outside Offer"), Landlord
shall give written notice of such Outside Offer to Tenant. Tenant then shall
have five (5) business days from the date Landlord's written notice is given in
which to give written notice to Landlord electing to lease the First Refusal
Premises at the then existing rental rate specified in this Lease, for a lease
term and rental rate which shall be commensurate with and expire at the same
time as those set forth in this Lease, and upon the same other material terms
and conditions as set forth in this Lease document. In the event Tenant shall
elect to lease the First Refusal Premises, this Lease shall automatically be
deemed amended to include the First Refusal Premises as part of the Premises
leased. In the event Tenant shall not elect to lease the First Refusal Premises,
then Landlord may lease such First Refusal Premises to the Outside Tenant on any
terms Landlord deems appropriate in its sole discretion, and Tenant shall have
no further rights with respect thereto, provided that if the rental rate to be
paid by the Outside Tenant is less than ninety percent (90%) of the rental rate
originally specified in the Outside Offer, Landlord shall give notice of this
fact to Tenant and Tenant shall have an additional five (5) business days within
which to extend the terms of this Lease to cover the First Refusal Premises.
Tenant's right of first refusal as set forth in this Section 45 shall be subject
to the pre-existing rights of the other tenants in the Project.
46. SIGNAGE.
Landlord, at its expense will place the approved Tenant's signage on the
Project's monument signs located on Wilmot Road and Broadway Boulevard and the
monument sign at the main entranceway of the Building.
47. COVERED PARKING.
Landlord shall supply Tenant with one (1) free covered parking space per 1,000
square feet of Rentable Area at no charge to the Tenant for the initial sixty
(60) months of the Term. During any renewal term pursuant to Section 44,
covered parking will be charged at the then-prevailing rate for the Project.
48. CONSENT.
Whenever this Lease requires the consent or approval of a party, such consent or
approval shall not be unreasonably withheld or delayed.
The parties hereto have executed this Lease as of the dates set forth below:
LANDLORD: TENANT:
Diamond Management, Inc., SatCon Technology Corporation
as Agent for the Owner a Delaware Corporation
By: /s/ David Goldstein By: /s/ Michael C. Turmelle
-------------------- --------------------------
David Goldstein Michael C. Turmelle
Its: President Its: Vice President, CFO
Date: 2/27/96 Date: 2/27/96
23
<PAGE>
Exhibit "A"
[Floor plan showing the Premises]
<PAGE>
Exhibit "B"
[Site plan of the Project]
<PAGE>
EXHIBIT "D"
RULES AND REGULATIONS
TUCSON OFFICE PLAZA
1. NO SMOKING AREAS. No smoking is allowed in the building common areas
including elevators, restrooms, hallways, and lobby areas. Tenant shall
instruct its employees of this regulation and inform them of designated
smoking zones.
2. TELEPHONE AND COMPUTER CABLING. Telecommunications wiring and maintenance
shall not be done above the acoustic ceiling without coordinating through
Building Management. Any damage to any acoustic ceiling tile caused by
Tenant and/or it's vendors shall be the responsibility of Tenant. All
telephone/data cable shall be plenum rated wire.
Additionally, Tenant is not to attach anything to the suspended acoustic
ceiling grid including hanging plants.
3. FLOOR COVERING MAINTENANCE. Landlord, as part of it's janitorial
services, shall provide routine spot cleaning of floor covering surfaces
incurred during normal business occupancy. However, all service
maintenance of floor covering surfaces including shampooing and/or
polishing of hard floor surfaces shall be the responsibility of Tenant but
shall be done by a vendor approved by Building Management.
4. REKEYING THE PREMISES. In the event the Tenant requires to have it's
leased premises rekeyed for any reason, then Tenant shall use the
authorized building locksmith. Any rekeying shall keep the applicable
lock on the existing building master keyway. Further, Tenant shall be
financially responsible for the expense of each rekeying, unless the
rekeying is requested by Landlord. Any specialty locks installed by
Tenant (i.e. cipher locks) shall be at Tenant's sole expense. Any repairs
to such specialty lock hardware shall be at Tenant's expense.
TO REKEY - NOTIFY BUILDING MANAGEMENT.
<PAGE>
EXHIBIT 10.17
LEASE
This Agreement is an Indenture of Lease between LANDLORD and the TENANT
hereinafter named relating to a portion of the property located at 121 Higgins
Street, Worcester, Massachusetts.
The parties hereto hereby agree, each to the other, as follows:
ARTICLE I
1.1 Introduction: The following sets forth the basic data and definitions of
terms contained in this Indenture of Lease.
1.2 Basic Data.
DATE: March 5, 1998
LANDLORD: Harold W. Slovin
TENANT: K & D MagMotor Corp.
GUARANTOR: SatCon Technology Corporation
MAILING ADDRESS
OF LANDLORD: 121 Higgins Street
Worcester, MA 01606
MAILING ADDRESS
OF TENANT: 121 Higgins Street
Worcester, MA 01606
TERM: The term of this Lease, subject to prior termination as hereinafter
provided, shall be five (5) years, commencing April 1, 1998, and ending
March 31, 2003. Notwithstanding the foregoing, two (2) weeks prior to the
commencement of the term TENANT shall have access to the premises for
purposes of installing cabling, telephones and other equipment.
ARTICLE II
Leased Premises
---------------
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2.1 The leased premises (hereinafter sometimes referred to as the "premises" or
the "demised premises") shall be approximately 17,000 square feet of Space in
the front portion of the building facing Higgins Street, located at 121 Higgins
Street, Worcester, Massachusetts as set forth in the plan hereto as Exhibit A,
along with the right to use in common with other tenants the parking for the
premises and the hall leading into the boiler room. TENANT shall have available
to it no less than 25 parking spaces.
ARTICLE III
As is Condition
---------------
3.1 The premises are demised to the TENANT in "as is condition", except that,
LANDLORD agrees to do the work set forth in Exhibit B hereof, some of the cost
of which shall be shared by TENANT as set forth therein and LANDLORD agrees to
remove all debris from the premises and to deliver the premises in broom clean
condition. TENANT shall not make any material structural or nonstructural
alterations, addition or improvement, in or to the demised premises without
first having obtained the prior written approval of LANDLORD. Any such allowed
work shall be at TENANT'S own cost and expense. Such approval by the LANDLORD as
to nonstructural alterations shall not be unreasonably withheld. Any
alterations, either structural or nonstructural, made by TENANT shall be done in
a good workmanlike manner in compliance with all buildings and zoning codes.
TENANT agrees to pay, promptly when due, the entire cost of any work done on the
premises by TENANT, his agents, employees, or independent contractors, and not
to cause or permit any liens for labor and materials performed or furnished in
connection therewith to attach to the premises or building and to immediately
discharge any such liens which may so attach. Any such alteration, addition or
improvement shall become part of the realty, unless LANDLORD, by notice given to
TENANT at the time TENANT seeks LANDLORD'S approval thereof, provides written
notice to TENANT that LANDLORD shall, require its removal at the end of the
term.
ARTICLE IV
Rent
----
4.1 During the first year of this Lease, the TENANT shall pay to the LANDLORD
as annual rent the sum of $71,500.00, payable in monthly installments on the
first day of each and every month during the term hereof as follows: for the
first three months $3,000.00 each, for the next nine months $6,944.44 each. The
rent for each succeeding year, payable in equal monthly installments, in
advance, shall be 103% of the annual rent for the preceding year of the Lease.
4.2 TENANT shall pay to LANDLORD a late charge for any rental payment,
including payments of TENANT'S percentage interest set forth in Section 4.3
below, which is more than five (5) days late, equal to 1% of the amount due for
each month or portion thereof during which the arrearage continues.
2
<PAGE>
4.3 TENANT shall pay to LANDLORD as additional rent hereunder TENANT'S
percentage, as defined below, of the following costs and expenses relating to
the leased property: insurance, real estate taxes, water and sewer charges
(unless separately metered), snow removal and yard maintenance which may arise
or become due during the term of this Lease. TENANT'S percentage shall be that
percentage that the square footage of the leased premises bears to the usable
square footage of the entire building, which it is agreed is 54.8%. TENANT
agrees to pay each month as additional rent an amount which LANDLORD reasonably
calculates to be TENANT'S total yearly costs for such expenses divided by 12,
with a reconciliation at the end of each year. The initial estimated monthly
charge to be paid by TENANT for such expenses is $1,300.00. At the end of each
lease year, LANDLORD shall furnish TENANT with a breakdown of all such expenses
and TENANT shall pay within ten days of receipt of such breakdown any additional
amounts owing by TENANT, or if LANDLORD owes a refund to TENANT, TENANT may
deduct the amount thereof from the next monthly rental payment, or if the
lease has terminated, LANDLORD will reimburse TENANT such amount or offset it
against any amounts owing by TENANT to LANDLORD.
ARTICLE V
Utilities
---------
5.1 In addition to the foregoing, the TENANT shall pay all charges for heat,
electricity, gas, telephone and all other utility services furnished to the
leased premises and shall hold the LANDLORD harmless for and on account of any
liability which may be imposed upon the LANDLORD with respect to the aforesaid.
TENANT shall make TENANT'S own arrangements for such utilities and services and
LANDLORD shall be under no obligation to furnish utilities to the demised
premises and shall not be liable for any interruption or failure in the supply
of any such utilities to the demised premises, unless caused by LANDLORD'S
negligence or willful misconduct.
ARTICLE VI
Security Systems
----------------
6.1 LANDLORD provides no security system to the demised premises. The previous
TENANT in the demised premises had a security system, and if TENANT desires a
security System TENANT may take whatever steps are necessary to activate that
security system which activation, maintenance and monitoring shall be at
TENANT'S sole cost, risk and expense.
ARTICLE VII
7.1 LANDLORD shall be responsible for snow removal from driveways and parking,
areas and for the general maintenance of such areas.
3
<PAGE>
7.2 Except as otherwise provided, LANDLORD agrees to maintain foundations
structural portions and the exterior of the building located on the demised
premises (except glass and glass windows and doors) in the same condition the
same are now in or may hereafter be placed in by the LANDLORD, reasonable wear
and tear and damage (not insured against) caused by any act of vandalism of
TENANT or any act of negligence of the TENANT, TENANT'S employees, agents,
licensees, contractors and customers excepted. Furthermore, LANDLORD to pay for
the replacement of an element of the heating, ventilating and air conditioning
systems that needs replacement, except any element of such systems which costs
less than ONE THOUSAND ($1,000.00) DOLLARS, which replacement shall be TENANT'S
responsibility
7.3 LANDLORD agrees that within a reasonable time after written notice by the
TENANT to LANDLORD, the LANDLORD shall make such repairs as provided in the
preceding Section 7.2 to the demised premises as are specified in said notice,
to the extent that they are reasonably necessary for the TENANT'S occupancy, but
the LANDLORD shall not be obligated to make repairs which the TENANT is
otherwise obligated to make hereunder, or if the conditions were caused by the
fault, breach of contract, or negligence of the TENANT, TENANT'S servants,
agent, licensees or contractors or as a result of any use to which the premises
have been put by the TENANT or, in any such case, by any one acting for or on
behalf of the TENANT, except to the extent there is insurance proceeds available
to LANDLORD to make such repairs. The LANDLORD shall not be responsible for a
failure to perform caused by inability to obtain materials or labor from usual
sources due to strikes or labor difficulties or to causes beyond the LANDLORD'S
reasonable control.
ARTICLE VIII
Trash
-----
8.1 The TENANT shall keep and maintain the entire demised premises clean and
free from rubbish, trash and garbage, except such rubbish, trash and garbage as
it shall store in closed containers. TENANT shall be responsible for the regular
removal of such rubbish, trash and garbage.
ARTICLE IX
Use of Premises
---------------
9.1 The TENANT shall use the premises for light assembly and manufacturing and
uses ancillary thereto, and shall not change such usage without the LANDLORD'S
written consent.
9.2 The TENANT shall keep the demised premises equipped with all safety
appliances which may be required by any governmental authority and shall keep
the drains empty and clean. TENANT shall obtain all necessary permits and
licenses for its operation, comply with the orders
4
<PAGE>
and regulations of all governmental authorities having jurisdiction and conform
to all rules and regulations of the local Board of Fire Underwriters, the
Department of Environmental Protection and similar bodies, and install all
firefighting and fire-prevention equipment required by any such Board or
governmental body.
9.3 The TENANT shall, at all times, operate TENANT'S business in complete
compliance with all local, state and federal laws regarding environmental
protection and the storage, use and disposal of hazardous substances as such may
be defined under any local, state or federal law.
ARTICLE X
Assignment or Subletting
------------------------
10.1 Notwithstanding any other provisions contained herein, the TENANT will not
assign this Lease, nor sublet the whole or any part of the demised premises
without the LANDLORD'S written consent, which consent shall not be unreasonably
withheld. Any such assignment shall not, in any way, release the TENANT from
TENANT'S obligations hereunder the LANDLORD'S express written consent.
10.2 If the Lease is assigned, or the premises sublet, pursuant to Section 10.1
hereof, the TENANT named herein, and any subsequent assignee of TENANT, shall
each be, Jointly and severally, liable for the obligation to pay the rent, and
other amounts provided to be paid under the Lease during the remaining term.
Furthermore, such assignee or sublessee shall agree directly with the LANDLORD
to be bound by all of the obligations of the TENANT hereunder, including this
covenant against further assignment or subletting.
10.3 If the TENANT is a corporation, or if the interest of the TENANT is
assigned with the consent of the LANDLORD to a corporation, trust or other
entity having transferable shares within the permissible provisions hereof, a
sale, transfer or other assignment of a majority interest of the shares of said
entity shall constitute an assignment of this Lease within the meaning of this
Article.
ARTICLE XI
Tenant's Maintenance
--------------------
11.1 Except for the work to be done by LANDLORD pursuant to Exhibit B, TENANT
agrees to accept the demised premises and adjoining land area in the condition
existing on the date of this Lease.
During the term hereof TENANT shall keep and maintain all of the demised
Premises, in the same condition the same are in at the time of the letting, or
which may thereafter be put in during the continuance of the term, reasonable
wear and use, damage by fire or other unavoidable casualty excepted, and TENANT
shall keep and maintain the interior of the premises in neat and clean
condition. In furtherance thereof, TENANT shall perform ordinary maintenance
5
<PAGE>
to interior walls, floors, ceilings, plumbing, electrical, air conditioning and
HVAC system, ventilating and heating units servicing the demised premises,
except the furnace.
Furthermore,TENANT shall be responsible for capital replacements of any element
of heating, ventilation and air conditioning systems costing less than ONE
THOUSAND ($1000.00) dollars.
11.2 If repairs are required to be made by the TENANT pursuant to the terms
hereof, LANDLORD may demand that the TENANT make the same forthwith in case of
emergency, and as soon as reasonably possible in all other cases, and if the
TENANT refuses or neglects to commence such repairs and complete the same with
reasonable dispatch after such demand, the LANDLORD may (but shall not be
required to do so) make or cause such repairs to be made and shall not be
responsible to the TENANT for any loss or damage that may accrue to TENANT'S
stock or business by reason thereof, and if the LANDLORD makes or causes such
repairs to be made, the TENANT agrees that TENANT will, forthwith, on demand pay
to the LANDLORD the reasonable cost thereof, and if it shall default in such
payment the LANDLORD shall have the remedies provided in Article XXII hereof.
ARTICLE XII
Landlord's Access to Premises
-----------------------------
12.1 The LANDLORD shall have the right to enter upon the demised premises at
all reasonable business hours, subject to TENANT'S reasonable security
regulations, (and, in the event of emergency, then at all times, not subject to
TENANT'S reasonable security regulations) for the purpose of inspecting the
same, showing, it to a prospective purchaser, or of making, repairs to the
demised premises; provided, however, that except in an emergency, LANDLORD shall
give TENANT twenty-four (24) hours notice of LANDLORD'S intent to enter the
premises.
12.2 For a period commencing six (6) months prior to the termination of
TENANT'S occupancy of the demised premises, LANDLORD may have reasonable access
for the purpose of exhibiting, same to prospective tenants and LANDLORD may
erect and display signs advertising the premises for rent on the exterior of the
building, and elsewhere on the premises, if a new lease has not been executed.
ARTICLE XIII
Insurance
---------
13.1 LANDLORD'S insurance for which TENANT shall pay its percentage share as
provided in Section 4.3 hereof, shall be all risk of perils coverage insurance,
covering the building upon the leased premises against loss or damage by other
risks now or hereinafter embraced by "all risk of perils", in an amount equal to
the replacement cost of the premises as annually determined by the insurance
company so insuring the premises and such additional insurance as normally
covers similar premises. Upon request by TENANT, LANDLORD shall provide TENANT
with a copy of the insurance policy declarations page or certificate of
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insurance evidencing such coverage.
13.2 TENANT agrees to maintain in full force, from the date upon which the
TENANT first enters the premises for any reason, and throughout the term of this
Lease, and, thereafter, so long as TENANT is in occupancy of any part of the
premises, commercial general liability and property damage insurance
indemnifying the LANDLORD (and such other persons as are in privity of estate
with LANDLORD as may be set out in notice from time to time) and TENANT harmless
from and against all cost, expense and/or liability arising out of or based upon
any and all claims, accidents, injuries and damages arising on or about the
premises, in the usual form of such coverage from time to time available in
Massachusetts. The minimum limits of liability of such insurance shall be basic
coverage of $1,000,000 for bodily injury or death and $1,000,000 with respect to
damage to property.
13.3 Each policy of insurance shall be with an insurance carrier rated "A" or
better by Best Ratings and shall be non-cancelable and non-amendable with
respect to LANDLORD and LANDLORD'S said designees without twenty (20) days prior
notice to LANDLORD, and a certificate thereof as to the insurance under Sections
13.2 shall be delivered to LANDLORD.
13.4 The TENANT agrees to insure the fixtures and personal property
belonging to TENANT on the demised premises to at least eighty (80%) percent of
their full fair market value.
13.5 The TENANT covenants and agrees that TENANT will not do or permit anything
to be done in or upon the demised premises or bring in anything or keep anything
therein which shall increase the rate of insurance on the premises or on the
buildings located thereon, above the standard rate applicable to the premises
being occupied for the use to which the TENANT has agreed to devote the
premises.
ARTICLE XIV
Waiver of Subrogation
---------------------
14.1 LANDLORD and TENANT hereby release the other from any and all liability or
responsibility to the other or any one claiming through or under them by way of
subrogation or otherwise for any loss or damage to property covered by fire
insurance or any of the policies of extended coverage or supplementary contract
casualties, even if such fire or supplementary contract casualty is due to the
negligent act or omission of such other party, or any one for whom such party
may be responsible, provided, however, that this release shall be applicable and
in force and effect only with respect to loss or damage occurring during such
time as the releasor's policies: (i) permit this waiver of subrogation without
adversely affecting or impairing the insurance; or (ii) contain a clause or
endorsement to the effect that any such release shall not adversely affect or
impair said policies or prejudice the right of the releasor to recover
thereunder.
14.2 LANDLORD and TENANT each agree to notify their insurance carriers of the
existence of this provision and, if necessary, to request its insurance carriers
to include in its policy such a clause or endorsement. If extra costs shall be
charged therefore, the party requesting
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such clause or endorsement for its benefit shall pay such entire cost.
ARTICLE XV
Liability
---------
15.1 To the maximum extent this Agreement may be made effective according to
law and, except as otherwise prohibited by Chapter 186 Section 15 of the
Massachusetts General Laws, TENANT agrees that LANDLORD shall not be responsible
or liable to TENANT, or those claiming by, through or under TENANT, for any loss
or damage that may be occasioned by or through the acts or omissions of persons
occupying adjoining premises or otherwise, or for any loss or damage resulting
to TENANT or those claiming by, through or under it, or Its or their property,
from the breaking, bursting, stopping or leaking of electric cables and wires,
and water, gas, sewer or steam pipes, except for loss or damage which results
from the intentional acts or negligence of LANDLORD, its agents or employees not
covered by insurance.
15.2 To the maximum extent this Agreement may be made effective according to
law and, except as otherwise prohibited by Chapter 186, Section 15 of
Massachusetts General Laws, TENANT agrees to use and occupy the premises and to
use such other portions of the common areas as it is herein given the right to
use, at its own risk, and LANDLORD shall have no responsibility or liability for
any loss of or damage to fixtures or other personal property of TENANT, except
due to LANDLORD'S negligence or intentional actions and those of LANDLORD'S
agents and employees. The provisions of this Section shall be applicable from
and after the execution of this Lease and until the end of the term of this
Lease and during, such further period as TENANT may use or be in occupancy of
any part of the premises.
15.3 TENANT covenants and agrees to defend LANDLORD and to save LANDLORD
harmless and indemnified (to the extent permitted by law) from and against any
and all claims, actions, loss, damages, liability and expense in connection with
loss of life, personal injury and damage to property, whether arising, out of or
resulting, from any occurrence in the demised premises, or any party thereof,
including the ways and sidewalks, adjacent thereto, or out of or from any work
undertaken by TENANT under this Lease, which is wholly or in part occasioned by
or in any way connected with any act, neglect, failure to perform the
obligations imposed on TENANT by this Lease or any breach thereof, or any
omission of TENANT, TENANT'S agents contractors, employees, licensees or
invitees, or of any other person occupying space in the demised premises.
ARTICLE XVI
Quiet Enjoyment
---------------
16.1 The LANDLORD covenants and agrees with the TENANT that upon TENANT paying
the rent and performing all of the covenants and conditions aforesaid on
TENANT'S part to be observed and performed, the TENANT shall and may peaceably
and quietly have, hold
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and enjoy the premises hereby demised for the term aforesaid, subject, however,
to the terms of the Lease.
ARTICLE XVII
Landlord's Transfer,
--------------------
17.1 If the interest of the LANDLORD shall be transferred by conveyance or be
taken or repossessed or foreclosed, TENANT agrees to be bound to the LANDLORD'S
successor in interest under all of the terms, covenants and conditions of this
Lease for the balance of the term remaining and any extensions or renewals
thereof and TENANT'S attornment hereunder is to be effective and self-operative
without the execution of any further instruments on the part of any of the
parties provided, however, that TENANT shall be under no obligation to pay rent
to such successor until the TENANT has received notice in writing, signed by
LANDLORD, that any other party has succeeded to the interest of the LANDLORD.
17.2 The TENANT acknowledges and agrees that assignment by the LANDLORD of the
LANDLORD'S interest in this Lease or in the rent payable under the provisions of
this Lease, whether conditional or otherwise, made to the holder of a mortgage
which includes the demised premises, shall not be treated as an assumption by
such mortgagee of the obligations and duties of the LANDLORD hereunder, unless
the mortgagee shall specifically agree with the TENANT hereunder, and the same
shall not be treated as an assumption by said mortgagee of the LANDLORD'S
obligations hereunder except upon foreclosure and the taking of possession of
the demised premises by the said mortgagee and upon notice by said mortgagee of
its assumption of the duties to be performed and observed by the LANDLORD
hereunder, from the date of such assumption.
17.3 Any voluntary transfer or conveyance of LANDLORD'S interest hereunder
shall be made subject to this Lease
ARTICLE XVIII
Tenant's Subordination
----------------------
18.1 The TENANT agrees that upon request of the LANDLORD or the holder of the
LANDLORD'S interest, the TENANT will subordinate this Lease to any mortgage now
or hereafter placed against the land or building of which the demised premises
are a part, with the same force and effect as if said mortgage were executed,
delivered and recorded prior to the execution and delivery of the Lease;
provided, however, that the LANDLORD shall deliver to the TENANT an agreement by
the mortgagee whereby the mortgagee assents to the Lease and agrees with the
TENANT that in the event of any entry by the mortgagee to foreclose the
mortgage, or in the event of a foreclosure of the mortgage, by entry or by sale,
the TENANT, if TENANT is not then in default beyond applicable grace or cure
periods with respect to any of the covenants or conditions of this Lease to be
performed or observed by the TENANT, shall
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enjoy the demised premises for the remainder of the unexpired term or any
peaceably hold and conditions as are contained in this Lease and extensions upon
the same terms, covenants without any hindrance or interruption from the
mortgagee.
18.2 The TENANT does hereby covenants with the mortgagee in consideration of
the foregoing that in the event of a foreclosure the TENANT will recognize the
mortgagee as its LANDLORD for the remainder of the unexpired term of the Lease
upon the covenants and conditions hereof to be performed and observed by the
TENANT, which recognition shall not be considered a release of any remaining
obligations still owing by the LANDLORD to the TENANT.
18.3 As used herein, wherever the context so requires or admits the word
"mortgagee" shall include any person claiming through or under the mortgagee or
the mortgage including, but not limited to, any purchaser at foreclosure sale,
and the word "TENANT" shall include the TENANT'S successors and assigns.
18.4 The TENANT agrees that TENANT will, upon the request of the LANDLORD,
execute, acknowledge and deliver any and all instruments which the LANDLORD may,
from time to time, reasonably request in order to effect such subordination. As
used herein, the term "mortgage" shall include any modification, consolidation,
extension, renewal, replacement or substitution of any existing or subsequent
mortgage on the property.
ARTICLE XIX
Eminent Domain
---------------
19.1 In the event that all of the leased premises shall be taken in
condemnation proceedings or by exercise of eminent domain, this Lease shall
terminate as of the date of said taking and the TENAINT shall surrender
possession of the leased premises to the LANDLORD. The award for such taking,
shall belong to the LANDLORD and the TENANT shall have no right to make any
claim for loss for the value of the TENANT'S leasehold interest. The TENANT
shall be entitled to make claim in TENANT'S own name to the condemning authority
for the value of any furniture, trade fixtures or personal property of any kind
belonging to the TENANT or for the cost of moving any or all of the same, and
any such award made directly to the TENANT shall belong entirely to the TENANT.
19.2 In the event that only a part of the Demised Premises shall be so taken or
condemned then:
A. If substantial structural alteration or reconstruction of the
building shall be necessary or appropriate as a result of a taking or
condemnation, LANDLORD or TENANT, at their option, may terminate this Lease and
the term and estate hereby created by giving written notice to the other within
sixty (60) days following the date the LANDLORD shall have received, notice of
the vesting of title in the condemning authorities whereupon this Lease
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shall terminate sixty (60) days from the date of said notice from one party to
the other.
B. If only a part of the premises is taken and if this Lease is not
terminated under the provisions of the preceding subparagraph, then this Lease
shall remain in full force and effect, except the TENANT shall be entitled to a
pro rata reduction in the rent.
ARTICLE XX
Fire or Other Casualty
----------------------
20.1 Except as hereinafter provided, damage to or destruction of any portion of
the improvements of the leased premises by fire or any other cause shall not
terminate this Lease or entitle the TENANT to surrender the leased premises or
to any abatement of or reduction of the rent payable by the TENANT or otherwise
affect the respective obligations of the LANDLORD or TENANT.
A. If a substantial portion of the leased Premises shall be damaged
or destroyed, the LANDLORD may terminate this Lease by giving, written notice to
the TENANT within sixty (60) days of such damage and destruction, whereupon this
Lease shall terminate sixty (60) days from the date of said notice.
B. In the event this Lease is not so terminated, the LANDLORD shall
proceed with due diligence to collect the proceeds of any available insurance
and shall restore the leased premises to at least as good a condition as existed
immediately prior to the casualty provided, however, that the LANDLORD shall not
be required to pay or advance any sums in excess of the insurance proceeds paid
to it.
C. Notwithstanding, the foregoing, either party shall have the night
to terminate this Lease if the demised premises shall be damaged or destroyed
and (i) cannot reasonably be expected to be repaired and ready for reoccupancy,
or (ii) are not in fact actually repaired and ready for reoccupancy at or within
four (4) months from the date of such destruction.
D. In the event of any damage, the rent and other charges herein
reserved shall be abated on an equitable basis according to the nature, location
and extent of the damage until such damage shall have been restored as herein
provided.
ARTICLE XXI
Tenant's Personal Property
--------------------------
21.1 LANDLORD hereby acknowledges that LANDLORD has no claim to any of the
personal property of the TENANT as a result of such personal property being
affixed to the demised premises. TENANT may remove such property at TENANT'S
discretion, but shall not damage the demised premises during such removal and
shall restore the demised premises after
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removal to a condition reasonably to the LANDLORD, but in no event better than
the condition they were in prior to such removal.
As used in this Section 21.1, "personal property" shall not mean fixtures
which are commonly considered part of the demised premises.
ARTICLE XXII
Tenant's Default
----------------
22.1 It is covenanted and agreed that if the TENANT shall neglect or fail to
pay the rent and other charges herein provided on the due date, or within seven
(7) days thereafter, or shall neglect or fail to perform or observe any of the
other covenants, terms, provisions or conditions contained in these presents and
on his part to be performed or observed within fifteen (15) days of written
notice of default, provided that IF, during said fifteen (15) day period TENANT
has commenced curing said default, TENANT shall be given a reasonable amount of
time to diligently cure said default, or if the estate hereby created shall be
taken on execution or by other process of law, or if the TENANT or Guarantor
shall be declared bankrupt or insolvent according to law, or if any assignment
shall be made of the property of the TENANT or Guarantor for the benefit of
creditors, or if a receiver, trustee in bankruptcy or other similar officer
shall be appointed to take charge of all or any substantial part of the TENANT'S
or Guarantor's property by a court of competent Jurisdiction or a petition shall
be filed for the reorganization of the TENANT or Guarantor under any provisions
of the Bankruptcy Act now or hereafter enacted, and any proceedings not
dismissed within sixty (60) days after It is begun, or if TENANT or Guarantor
shall file a petition for such reorganization, or for arrangements under any
provisions of the Bankruptcy Act now or hereafter enacted and providing a plan
for a debtor to settle, satisfy or extend the time for the payment of debts
then, and in any of the said cases (notwithstanding any release or any consent
in a former instance), the LANDLORD lawfully may, immediately or at any time
thereafter and without demand or notice, enter into and upon the said premises
or any part thereof in the name of the whole and repossess the same as of
LANDLORD'S former estate, and expel the TENANT and those claiming through or
under TENANT and remove TENANT'S or their effects (forcibly if necessary)
without being deemed guilty of any manner of trespass, and without prejudice to
any remedies which might otherwise be used for arrears of rent or precedence
breach of covenant and upon entry as aforesaid, this Lease shall terminate.
The TENANT covenants and agrees, notwithstanding any entry or re-entry by
the LANDLORD whether by summary proceedings, termination or otherwise, to pay
and be liable for on the days originally fixed herein for the payment thereof,
amounts equal to the several installments of rent and other charges reserved as
they would under the provisions of this Lease, become due if this Lease had not
been terminated, or if the LANDLORD had not entered or re-entered as aforesaid,
and whether the demised premises be relet or remain vacant in whole or in part
or for a period less than the remainder of the term, and for the whole thereof,
together with reasonable costs including attorney fees if placed with an
attorney for collection or for possession of Premises, but in the event the
demised premises be relet, in whole or in part, by the LANDLORD, the TENANT
shall be entitled to a credit in the net amount of rent received
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by the LANDLORD in reletting after deduction of all expenses reasonably incurred
in reletting the demised premises and in collecting the rent in connection
therewith.
As an alternative, at the election of the LANDLORD, the TENANT will, upon
such termination pay to the LANDLORD as damages, such a sum as at the time of
such termination represents the present value of the amount in excess, if any,
of the then value of the total rent and other benefits which would have accrued
to LANDLORD under this Lease for the remainder of the Lease term if the Lease
term had been fully complied with by TENANT over and above the then cash rental
value (in advance) of the Premises for the balance of the term, together with
reasonable costs, including attorney fees if placed with an attorney for
collection.
22.2 If LANDLORD shall terminate this Lease by reason of a condition of
default, TENANT, and those claiming under TENANT, shall, within ten (10) days
after the termination of the Lease, remove their goods and effects from the
demised premises. If TENANT or any such claimant shall fail to effect such
removal forthwith, LANDLORD, without liability to TENANT or to those claiming
under TENANT, may remove such goods and effects and may, store the same for the
account of TENANT or of the owner thereof in any place selected by LANDLORD or,
at LANDLORD'S sole election, LANDLORD may sell the same at public auction or
private sale on such terms and conditions as to price, payment and otherwise as
LANDLORD, in LANDLORD'S sole judgment, may deem advisable. Notwithstanding, the
foregoing, LANDLORD'S disposition of TENANT'S goods and effects shall be subject
to the provisions of M.G.L.A. Chapter 106, Section 9-504.
22.3 Except with respect to the payment of rent to be paid by the TENANT
hereunder, neither party shall be in default in the performance of any of their
obligations hereunder unless and until such party shall have failed to perform
such obligations within fifteen (15) days or such additional time as is
reasonably required to correct any such default after written notice by the
other party properly specifying wherein such party has failed to perform any
such obligation.
ARTICLE XXIII
Invalid Provision
-----------------
23.1 If any term or provision of this Lease or the application thereof to any
person or circumstance shall, to any extent, be invalid or unenforceable, the
remainder of this Lease or the application of such term or provision to persons
or circumstances other than those as to which it is held invalid or
unenforceable shall not be affected thereby, and each term and provision of this
Lease shall be valid and be enforced to the fullest extent permitted by law.
ARTICLE XXIV
Successors or Assigns
---------------------
24.1 Except as herein otherwise specifically provided, the terms hereof shall
be binding
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upon and shall inure to the benefit of the heirs, executors, administrators,
successors and assigns, respectively, of the LANDLORD and the TENANT. Each term
and each provision of this Lease to be performed by the LANDLORD or the TENANT
shall be construed to be both a covenant and a condition. The reference
contained to successors and assigns of TENANT is not intended to constitute a
consent to assignment by TENANT, but has reference only to those instances in
which the LANDLORD may later give written consent to a particular assignment as
required by provisions of this instrument.
ARTICLE XXV
Waiver
------
25.1 One or more waivers of any covenant or condition by either party
shall not be construed as a waiver of a subsequent breach of the same covenant
or condition and a consent or approval to or of any act requiring consent or
approval shall not be deemed to waive or render unnecessary such consent or
approval to or of any subsequent similar act.
ARTICLE XXVI
Notices
-------
26.1 All notices given from one party to the other shall be sent to the
mailing, address as set forth in ARTICLE I by recognized overnight courier
service, or by Registered or Certified Mail, Return Receipt Requested, or to
such other address as the parties shall, from time to time, designate by notice,
in writing, given in the manner required hereunder; provided, however, any
notice given to LANDLORD shall also be given to LANDLORD'S attorney, JAY Z.
AFPANE, ESQUIRE, of Phillips, Silver, Talman & Aframe, P.C., 340 Main Street,
Suite 900' Worcester, Massachusetts, 01609 and any notice given to TENANT shall
also be given to TENANT'S attorney, JEFFREY A. HERMANSON, ESQUIRE, of Hale and
Dorr LLP, 60 State Street, Boston, MA 02109.
ARTICLE XXVII
Entire Contract
---------------
27.1 This Lease embodies the entire contract of the parties hereto and
shall not be altered, chanced or modified in any respect, except in writing,
ARTICLE XXVIII
Marginal Headings
-----------------
28.1 The article headings used herein are for convenience and reference
purposes only
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and are not to be construed as part of this Lease.
ARTICLE XXIX
Real Estate Broker
------------------
29.1 TENANT and LANDLORD each warrant and represent that they have dealt
with no real estate broker concerning the demised premises except Kelleher and
Sadowsky Associates, to which LANDLORD is responsible for a commission, and
Avalon Partners which will share the commission with Kelleher and Sadowsky
Associates, and each party agrees to indemnify and hold harmless the other party
from any claim for a brokerage commission by any other broker arising out of the
acts or agreements of that party.
ARTICLE XXX
Governing Law
-------------
30.1 This Lease shall be governed exclusively by the provisions hereof and
by the laws of the Commonwealth of Massachusetts as the same may, from time to
time, exist.
ARTICLE XXXI
Sign
----
31.1 TENANT shall have the right, at TENANT'S own cost and expense, and in
compliance with all applicable laws and with any necessary permits, to erect a
sign on the front of the building with the written approval of the LANDLORD,
which approval shall not be unreasonably withheld.
ARTICLE XXXII
Limitation
----------
32.1 It is specifically understood and agreed that there shall be no personal
liability of LANDLORD (nor LANDLORD'S agents) in respect to any of the
covenants, conditions or provisions of this Lease. In the event of a breach or
default by the LANDLORD of obligations under this Lease, TENANT shall look
solely to the equity of the LANDLORD including any available insurance or
eminent domain proceeds for the satisfaction of TENANT'S remedies.
ARTICLE XXXIII
Self Help
---------
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33.1 If the TENANT shall fail to perform any Of the TENANT'S covenants or
agreements herein contained, the LANDLORD may, if LANDLORD so elects, without
prejudice default, immediately or at any time to LANDLORD'S other remedies and
without waiving any time thereafter, and without notice and without awaiting the
expiration of any grace period, enter upon the leased premises without
termination of this Lease and do any and all such acts as may be necessary,
proper or convenient to cure such default, and the TENANT agrees, upon demand,
to pay as additional rent the damage, cost and expense, including reasonable
attorney's fees, incurred by the LANDLORD in so doing, together with interest
thereon at the rate of twelve (12%) percent per annum to date of payment.
ARTICLE XXXIV
Security Deposit
----------------
34.1 Upon the execution of this Lease, the TENANT has paid to the LANDLORD, the
sum of SIX THOUSAND SEVEN HUNDRED SIX ($6,706.00) DOLLARS as security for the
full and faithful performance by the TENANT of all of the terms of this Lease
required to be performed by the TENANT. In the event of a sale of the property
in which the leased premises are a part, the LANDLORD shall have the right to
transfer the security deposit to the purchaser to be held under the terms of
this Lease and the LANDLORD shall thereupon be released from all liability for
the return of such security to the TENANT. The LANDLORD shall not be obliged to
pay any interest on account of such security deposit and the TENANT shall not
assign or encumber the amount deposited with the LANDLORD and neither the
LANDLORD nor the LANDLORD'S successors or assigns shall be bound by any such
assignment or encumbrance. TENANT shall not use the security deposit as payment
of the last months' rent hereunder. If TENANT is not in default under any of the
terms and conditions and has duly performed all of its obligations hereunder
then, upon the expiration of this Lease, LANDLORD shall return the security
deposit.
ARTICLE XXXV
Option to Extend
----------------
35.1 TENANT shall have the option to extend the term of this Lease for one
additional period of five (5) years, commencing March 1, 2003, upon all of the
same terms and conditions as set forth herein, except at such rent as the
parties may mutually agree upon, or if the parties are unable to agree then at
the then market rent determined by appraisal, which shall include periodic
adjustments each year for cost of living increases, in the manner set forth
below. The TENANT and the LANDLORD shall each select an appraiser qualified to
do commercial real estate appraisals in the Worcester area, which two appraisers
shall select a third appraiser also so qualified. The three appraisers shall by
majority decision agree upon the fair market rent for the premises for the
option years with appropriate annual cost of living increases. The parties each
agree to select an appraiser no less than 45 days prior to the termination of
the Lease. The two appraisers so chosen shall thereafter forthwith choose the
third appraiser, and all three shall
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meet and reach their decision at least ten days prior to the termination of the
initial lease period and shall inform the LANDLORD and TENANT in writing of the
rent that shall be paid for the option period. Each party shall pay the cost of
the appraisers chosen by that party and will share equally in the cost of the
third appraiser. The option to extend said Lease is subject to TENANT notifying
LANDLORD by giving notice at least one hundred eighty (180) days prior to the
termination of the then original lease period, time being of the essence. Said
option to extend shall be conditioned upon the Lease then being in full force
and effect and the TENANT not being in default after the expiration of any
applicable cure period under any term or provision of said Lease, as of the date
that the option to extend is exercised and as of the date of the commencement of
the option period.
ARTICLE XXXVI
36.1 Should the remaining space in the building be made available for rent
to a party other than the present tenant of that space, or other than to any
entity controlled by the present tenant, or any stockholder of the present
tenant,or child or sibling of such a stockholder, the TENANT shall have the
right to rent all such space and not a portion thereof, at the same square
footage rental as TENANT is then paying, for the demised premises, for such term
which will coincide with the then remaining term of this Lease, with rental
increases in the same proportion as the rental increases as provided in this
Lease, with Tenant's percentage share increased to 100% and TENANT shall then
become responsible for the maintenance and repair of the furnace as well.
LANDLORD shall notify TENANT in writing of LANDLORD'S intent to rent the space
and TENANT shall have thirty (30) days to inform LANDLORD in writing of its
exercise of its rights hereunder. The Lease for such additional space shall
commence fifteen (15) days after such notice by TENANT to LANDLORD or such later
date as LANDLORD makes the space available to TENANT, but not later than 45
days after such notice. If TENANT fails to exercise its rights hereunder, within
said thirty (30) day period, TENANT'S rights under this Article shall terminate
and be null and void. Said rights of TENANT hereunder shall be conditioned upon
the Lease then being in full force and effect and the TENANT not being in
default after the expiration of any applicable cure period under any term or
provision of said Lease, as of the date that the rights hereunder are exercised
and as of the date of the commencement of occupancy of the additional space.
ARTICLE XXXVII
Estoppel Certificate
--------------------
37.1 TENANT shall furnish to LANDLORD, or LANDLORD'S prospective mortgage
or buyer, within five days of a written request therefor, an estoppel
certificate affirming certain facts as to the lease, including rental payments,
default and any other reasonably pertinent matters.
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ARTICLE XXXVIII
Notice of Lease
---------------
38.1 At the request of either party the other party hereto agrees to execute a
notice of lease, in recordable form, reasonably satisfactory to each, to be
recorded at the Worcester District Registry of Deeds.
IN WITNESS WHEREOF, the parties have hereunto set their hands and seals as of
this 5th day of March, 1998. This instrument may be executed in any number of
counterpart copies, each of which counterpart shall be deemed an original for
all purposes.
/s/ Harold W. Slovin
--------------------------
HAROLD W. SLOVIN, LANDLORD
K & D MAGMOTOR CORPORATION, TENANT
/s/ Richard A. Rio
--------------------------------
By: Richard A. Rio
Duly Authorized General Manager
GUARANTY
The undersigned SATCON TECHNOLOGY CORPORATION, the parent company of
TENANT, does hereby absolutely and unconditionally guaranty each and every
obligation of the TENANT contained in the foregoing Lease including any
extension of said Lease or addition to the amount of space rented as provided in
said Lease. The undersigned's responsibility under this Guaranty shall not in
any way be affected by reason of TENANT'S obligations under this Lease being
deemed invalid or discharged. The undersigned agrees that the LANDLORD may
proceed to enforce this guaranty, before proceeding against the TENANT for any
amounts owing under the Lease. The undersigned further agrees to pay to LANDLORD
all costs including attorney's fees and expenses incurred by LANDLORD in
connection with this Guaranty and the enforcement thereof. The undersigned does
hereunto set its hand and seal this 5th day of March, 1998.
SATCON TECHNOLOGY CORPORATION
/s/ Michael C. Turmelle
----------------------------------
By: Michael C. Turmelle its VP CFO
Duly Authorized
18
<PAGE>
Exhibit A
[Diagram of building facing Higgins Street, located at
121 Higgins Street, Worcester, Massachusetts]
<PAGE>
Exhibit B
LANDLORD agrees to make the following repairs and improvements to the premises:
1. LANDLORD at LANDLORD'S cost will separately meter the gas and electricity
services to the premises.
2. LANDLORD will build out an interior dividing wall between the demised
premises and the remainder of the building, the cost of which will be
shared equally by LANDLORD and TENANT.
<PAGE>
EXHIBIT 10.18
BankBoston, N.A.
100 Federal Street
Boston, Massachusetts 02110
As of December 16, 1998
SatCon Technology Corporation
SatCon Film Microelectronics, Inc.
K&D MagMotor Corp.
161 First Street
Cambridge, Massachusetts 02142
Attention: David B. Eisenhaure, President
Dear David:
This letter (this "Letter Agreement") will confirm that BankBoston, N.A. (the
"Bank") holds available for SATCON TECHNOLOGY CORPORATION, SATCON FILM
MICROELECTRONICS, INC., and K&D MAGMOTOR CORP. (collectively, the "Borrowers") a
$2,000,000 demand discretionary line of credit. All capitalized terms used but
not defined in the text of this Letter Agreement shall have the meanings
specified on Annex 1 attached hereto.
-------
All borrowings under this line (each a "Loan" and collectively, the "Loans")
will be the joint and several obligations of the Borrowers and will be used by
the Borrowers for working capital purposes and capital expenditures. All
outstanding amounts borrowed will be payable on demand.
Upon satisfaction of the Closing Conditions, borrowings will be made available
at the Bank's sole discretion, subject to Borrowing Base Availability, and will
bear interest at the Bank's Alternate Base Rate in effect from time to time plus
----
1.5% per annum. Loans will be available on a same-day basis and prepayment of
Loans may be made without penalty.
Loans will be evidenced by a Demand Promissory Note in the form of Annex 2
-------
attached hereto (the "Note"). Each borrowing and the corresponding information
will be recorded on such Note on the day of borrowing. The Bank's corresponding
records of debit and credit will be additional evidence of Loans made hereunder.
The Borrowers shall also be permitted to request that standby and documentary
letters of credit be issued for their account in lieu of Loans hereunder,
provided that at the time the Borrowers request the issuance of a letter of
- --------
credit and after giving effect to the issuance thereof, the LC Amount (as
hereinafter defined) shall not exceed (i) $250,000 or (ii) an amount which, when
added to the current debit balance in the Loan Account, would not exceed the
Borrowing Base Availability. If in our discretion we agree to issue such
letters of credit, the Borrowers shall enter into such agreements and execute
such documents as the Bank customarily requires in like transactions, including
without limitation, a letter of credit application and agreement. Any and all
amounts drawn under letters of credit shall be immediately due and payable by
the Borrowers to the Bank and, in any event, shall bear interest at four percent
(4%) above the Alternate Base Rate then in effect until fully paid. All standby
letters of credit shall bear such fees as are mutually agreed to by the Bank and
the Borrowers, and all standby and documentary letters of credit shall bear such
other fees as are customarily charged by the Bank on such letters of credit.
<PAGE>
The anticipated availability of borrowings under this demand discretionary
facility is subject to our usual conditions that we continue to be satisfied
with the affairs of the Borrowers and to any changes in government regulations
or monetary policies. In addition, availability of borrowings will at all times
be subject to Borrowing Base Availability.
Each Borrower agrees that it will not, without our prior written consent, create
or suffer to exist any security interest, lien or other encumbrance
("Encumbrances") upon or with respect to any of its properties or assets, except
for Encumbrances in favor of the Bank pursuant to the Security Agreement between
such Borrower and the Bank of even date herewith. Each Borrower also agrees
that it does not have any indebtedness, nor will it incur any indebtedness,
other than the indebtedness reflected hereby, customary trade debt (not for
borrowed money) in the ordinary course of business, and the $600,000
indebtedness to Albert R. Snider by SatCon Film Microelectronics, Inc. as
reflected in that certain Promissory Note dated March 1, 1995, so long as such
debt is promptly paid and discharged when due or in conformity with customary
trade terms and practices, without our prior written consent. No Borrower will,
without our prior written consent, declare any dividends or make any
distributions or other payments (other than salary in the ordinary course of
business) to its shareholders.
Each Borrower represents and warrants to us that it is not in default under any
material agreement or instrument to which it is a party or by which it is bound
and that it is in compliance with all laws, statutes, regulations and rules
applicable to it. Further, each Borrower agrees to notify us promptly of the
occurrence (or, if known, the anticipated occurrence) of any of the following
events: (i) any default under this Letter Agreement or the other Loan Documents
or any default, acceleration or demand under any other agreement or instrument
to which it is a party, by which it is bound or of which it is a guarantor, (ii)
any material adverse change in the business, properties, condition (financial or
otherwise) or prospects of any Borrower, or (iii) any failure of any Borrower to
comply with any law, statute, regulation or rule applicable to it or the receipt
of any notice regarding such potential non-compliance.
The Borrowers will furnish to the Bank such financial or other information
regarding their business and operations as we may reasonably request, by prior
written notice, from time to time, including, in any event, annual financial
statements (including a balance sheet and related statements of income and cash
flow) within 90 days after the end of each fiscal year certified by independent
public accountants acceptable to the Bank, quarterly financial statements
(including a balance sheet and related statements of income and cash flow)
within 45 days after the end of each fiscal quarter certified by the chief
financial officer of Satcon on behalf of the Borrowers, monthly financial
statements (including a balance sheet and related statements of income and cash
flow) within 30 days after the end of each fiscal month certified by the chief
financial officer of Satcon on behalf of the Borrowers, and monthly borrowing
base reports (along with detailed accounts receivable aging reports), in form
satisfactory to the Bank, within 7 days after the end of each fiscal month. All
such monthly and quarterly financial statements shall be on a consolidated and
consolidating basis and all such annual financial statements shall be on a
consolidated basis. All such financial statements shall be prepared in
accordance with generally accepted accounting principles, consistently applied.
As a condition to entering into this Letter Agreement and the financing
contemplated hereby, we shall require a perfected first-priority security
interest in all assets of each Borrower, as more fully described in the Security
Agreement referred to above, securing all of the Borrowers' joint and several
obligations to the Bank hereunder, under the Note and under the other Loan
Documents (collectively, the "Obligations").
Upon acceptance of this Letter Agreement, the Borrowers will pay to the Bank a
non-refundable set-up fee of $10,000 (the "Fee"), less any amounts previously
paid to the Bank as a deposit. The Borrowers will also pay all reasonable
costs, fees and expenses in connection with the preparation and negotiation of
the terms of this Letter Agreement and other Loan Documents (whether or not the
facility closes), and in connection with the amendment, administration or
enforcement hereof or thereof.
2
<PAGE>
The Borrowers shall have the right to terminate this Letter Agreement upon prior
written notice to the Bank. The Bank shall have the right to terminate this
Letter Agreement at any time.
Please sign the form of acceptance on the enclosed counterpart of this Letter
Agreement and the Note attached hereto as Annex 2, and return the same, together
-------
with all of the other Loan Documents, to the undersigned, and complete all of
the other acts necessary to fulfill the Closing Conditions, on or before
December 16, 1998.
3
<PAGE>
We are pleased to be of service to you.
Very truly yours,
BANKBOSTON, N.A.
By: /s/ Henry L. Petrillo
--------------------------
Title: Director
Accepted and Agreed:
SATCON TECHNOLOGY CORPORATION
By: /s/ David B. Eisenhaure
----------------------------
Title: President
SATCON FILM MICROELECTRONICS, INC.
By: /s/ David B. Eisenhaure
----------------------------
Title: President
K&D MAGMOTOR CORP.
By: /s/ David B. Eisenhaure
----------------------------
Title: President
Date: December 16, 1998
4
<PAGE>
ANNEX 1
-------
"Alternate Base Rate" shall mean the higher of (i) the annual rate of interest
announced from time to time by the Bank at its head office in Boston,
Massachusetts as its "Base Rate" and (ii) one-half of one percent (1/2%) above
the overnight federal funds effective rate as published by the Board of
Governors of the Federal Reserve System, as in effect from time to time. Any
change in the Base Rate shall result in a corresponding change on the same day
in the rate of interest accruing from and after such day on the unpaid balance
of principal of the Loans, if any, effective on the day of such change in the
Base Rate.
"Borrowing Base Availability" shall mean an amount equal to the lesser of (i)
$2,000,000 less the LC Amount and (ii) the sum of 80% of the Eligible Accounts
----
Receivable of the Borrowers plus 40% of the Eligible Inventory of the Borrowers,
----
provided that the Bank reserves the right, in its sole discretion, to increase
- --------
or decrease the foregoing percentage or to modify the eligibility requirements
at any time.
"Closing Conditions" shall mean each of the following:
(i) the Bank has received duly authorized, executed and delivered
originals of each of the Loan Documents, each in form and substance
satisfactory to the Bank;
(ii) the Bank has completed satisfactory management and trade checkings;
(iii) there has not occurred any material adverse change in the condition
(financial or otherwise), operations, assets, income and/or
prospects of any Borrower;
(iv) each Borrower is in compliance with all of the terms of each Loan
Document;
(v) the Bank has received each of the other items required to be
delivered by the Borrowers on the Closing Agenda attached as Annex 3
-------
to the Letter Agreement; and
(vi) there has not been any change in any law or regulation or
interpretation thereof that, in the Bank's opinion, would make it
illegal or against the policy of any governmental agency or
authority for the Bank to make the Loans hereunder.
"Eligible Accounts Receivable" shall mean the aggregate accounts receivable of a
Borrower:
(i) in which the Bank has a valid and perfected first-priority security
interest;
(ii) which are not unpaid more than 90 days from the date the
corresponding service was rendered or performed by such Borrower;
(iii) which arose in the ordinary course of business;
(iv) which are not progress or advance billings for work not yet
performed (including, without limitation, advance billings for up-
front "non-recurring engineering" and "burn-in charges");
(v) which do not arise from the rendering of services on a contract
basis; and
(vi) which have not been designated by the Bank in its sole discretion as
unacceptable.
"Base Inventory" shall mean inventory (other than work-in-process) as to which a
Borrower has acquired title, the Bank has acquired a valid and perfected first-
priority security interest, and such Borrower has furnished to the Bank
information relating thereto as provided in this Letter Agreement. Inventory
immediately loses the status of Base Inventory if and when a Borrower sells it,
otherwise passes title thereto or consumes it or the Bank releases or transfers
its security interest therein. Anything herein to the contrary notwithstanding,
Base
<PAGE>
Inventory shall exclude all inventory owned by K&D MagMotor Corp. unless and
until it institutes a tracking system capable of reporting changes in its
inventory on a monthly basis, which system shall be satisfactory to the Bank in
its sole discretion.
"Eligible Inventory" shall mean the net value of Base Inventory, calculated at
the lesser of fair market value or cost determined on the "first in, first out"
basis after taking into account charges and liens (other than those of the Bank)
of all kinds against the Base Inventory, changes in the market value thereof,
and transportation, processing and other handling charges affecting the value
thereof, all as determined by the Bank in its sole discretion, which
determination shall be final and binding upon the Borrowers.
"Loan Documents" shall mean, collectively, (i) this Letter Agreement, (ii) the
Note, (iii) the separate Security Agreements of even date herewith between each
Borrower and the Bank, (iv) the separate Solvency Certificates of each Borrower
of even date herewith in favor of the Bank, and (v) the letters of credit issued
pursuant to this Letter Agreement and all documents, instruments and contracts
(including applications) delivered in connection therewith, as any of the
foregoing may be amended from time to time; along with any and all other
agreements, certificates or documents executed and delivered by any Borrower to
the Bank in connection with the foregoing or the transactions contemplated
hereby or thereby, whether executed and delivered on or before the Closing Date
or at any time thereafter.
"LC Amount" shall mean, with respect to all letters of credit issued by the Bank
and outstanding at any time, an aggregate amount equal to the sum of (i) the
maximum amount then available to be drawn under such letters of credit (without
regard to whether any conditions to drawing could then be met), plus (ii) the
aggregate amount of any unreimbursed draws under such letters of credit.
2
<PAGE>
SATCON TECHNOLOGY CORPORATION
SATCON FILM MICROELECTRONICS, INC.
K&D MAGMOTOR CORP.
DEMAND PROMISSORY NOTE
----------------------
$2,000,000 December 16, 1998
Boston, Massachusetts
FOR VALUE RECEIVED, the undersigned (collectively, the "Borrowers"),
by this promissory note ("this Note"), absolutely and unconditionally, and
jointly and severally, promise to pay to the order of BANKBOSTON, N.A. (the
"Bank"), at the head office of the Bank in Boston, Massachusetts, ON DEMAND, TWO
MILLION DOLLARS ($2,000,000) or, if less, the aggregate principal amount of all
loans made by the Bank to the Borrowers as shown in the schedule attached hereto
(the "Note Schedule"), together with interest on each loan from the date such
loan is made until the maturity thereof at the applicable rate set forth in the
Note Schedule.
Interest on the principal amount of each loan shall be payable in
arrears ON DEMAND, provided that unless sooner demanded interest on each loan
--------
shall be payable on the first day of each successive calendar month, beginning
on the first of such dates occurring after the date of such loan and when such
loan is due.
Loans shall bear interest at a rate per annum equal to the rate of
interest from time to time in effect under that certain Discretionary Demand
Line Letter of even date herewith among the Borrowers and the Bank (the "Line
Letter").
Upon demand, there shall become absolutely due and payable by the
Borrowers and the Borrowers hereby jointly and severally promise to pay to the
Bank, the balance (if any) of the principal hereof then remaining unpaid, all of
the unpaid interest accrued hereon and all (if any) other amounts payable on or
in respect of this Note or the indebtedness evidenced hereby.
Interest shall be computed on the basis of a 360-day year and paid for
the actual number of days elapsed. All payments hereunder shall be made in
lawful currency of the United States of America in immediately available and
freely transferable funds. All payments hereunder shall be made without set-off
or counterclaim and free and clear of and without any deduction of any kind for
any taxes, levies, fees, deductions, withholdings, restrictions or conditions of
any nature.
Overdue payments of principal of any loan (whether after demand or
otherwise), and, to the extent permitted by applicable law, overdue interest,
fees, expenses and other charges, shall bear interest, payable on demand and
compounded daily, at a rate per annum equal to 4% above the Base Rate.
The Borrowers will have the right to prepay the unpaid principal of
each loan in full or in part without penalty or charge, provided that all of the
--------
unpaid interest accrued on the amount so prepaid to the date of such payment
must be paid at the time of any such prepayment. The Borrowers will be entitled
at the Bank's discretion to reborrow all or any part of the principal of any
loan repaid or prepaid prior to demand by the Bank.
To the extent permitted by law and not expressly required under any of
the Loan Documents, the Borrowers hereby irrevocably waive presentment, demand,
notice of dishonor, protest and all other demands and notices in connection with
the delivery, acceptance, performance and enforcement of this Note. The
Borrowers hereby
1
<PAGE>
absolutely and irrevocably consent and submit to the jurisdiction of the Courts
of the Commonwealth of Massachusetts and of any Federal Court located in the
said Commonwealth in connection with any actions or proceedings brought against
the Borrowers by the Bank arising out of or relating to this Note.
EACH BORROWER HEREBY WAIVES TRIAL BY JURY, AND HEREBY WAIVES RIGHTS OF
SETOFF, IN ANY LITIGATION IN ANY COURT WITH RESPECT TO, IN CONNECTION WITH, OR
ARISING OUT OF THIS NOTE, THE LINE LETTER OF EVEN DATE HEREWITH, OR ANY
INSTRUMENT OR DOCUMENT DELIVERED PURSUANT HERETO OR THERETO AMONG THE BORROWERS
AND THE BANK. EACH BORROWER CONFIRMS THAT THE FOREGOING WAIVERS ARE INFORMED
AND FREELY MADE.
The failure of the Bank to exercise all or any of its rights,
remedies, powers or privileges hereunder in any instance shall not constitute a
waiver thereof in that or in any other instance.
All notices, demands or other communications to or upon the Borrowers
pursuant to this Note shall be in writing, either delivered in hand or sent to
the undersigned by first-class mail, postage prepaid, or by telex, telefax,
facsimile transmission or telegraph, addressed to the undersigned, marked
"Attention: David B. Eisenhaure" at the address of the Borrowers set forth
below or at such other address as the Borrowers shall have designated in a
written notice to the Bank.
Should all or any part of the indebtedness represented by this Note be
collected by action at law, or in bankruptcy, insolvency, receivership or other
court proceedings, or should this Note be placed in the hands of attorneys for
collection after default, the Borrowers hereby jointly and severally promise to
pay to the Bank, upon demand by the Bank at any time, in addition to principal,
interest and all (if any) other amounts payable on or in respect of this Note or
the indebtedness evidenced hereby, all court costs and reasonable attorneys'
fees and all other reasonable collection charges and expenses incurred or
sustained by the Bank.
This instrument shall have the effect of an instrument executed under
seal and shall be governed by the laws of the Commonwealth of Massachusetts
without regard to its conflicts of law rules.
Each of the Borrowers shall be jointly and severally liable for the
full amount owing under this Note.
2
<PAGE>
IN WITNESS WHEREOF, this NOTE has been duly executed by each of the
undersigned on the date first above written in Boston, Massachusetts.
[SEAL]
Attest: SATCON TECHNOLOGY CORPORATION
/s/ Michael C. Turmelle By: /s/ David B. Eisenhaure
- ----------------------------- -----------------------------
Title: President
Address: 161 First Street
Cambridge, Massachusetts 02142
Attest: SATCON FILM
MICROELECTRONICS, INC.
/s/ Michael C. Turmelle By: /s/ David B. Eisenhaure
- ----------------------------- -------------------------------
Title: President
Address: 161 First Street
Cambridge, Massachusetts 02142
Attest: K&D MAGMOTOR CORP.
/s/ Michael C. Turmelle By: /s/ David B. Eisenhaure
- ----------------------------- -------------------------------
Title: President
Address: 161 First Street
Cambridge, Massachusetts 02142
3
<PAGE>
NOTE SCHEDULE TO PROMISSORY NOTE
DATED: December 16, 1998
<TABLE>
<CAPTION>
Date and
Principal Amount of
Amount of Interest Payment Notation
Date of Loan Loan Rate Received Made By
------------ ---- ---- -------- -------
<S> <C> <C> <C> <C>
Base Rate
plus 1.5%*
</TABLE>
______________________________________
* The Base Rate shall have the meaning set forth in the Line Letter.
4
<PAGE>
SATCON TECHNOLOGY CORPORATION
SECURITY AGREEMENT
This SECURITY AGREEMENT is made as of December 16, 1998 between SATCON
TECHNOLOGY CORPORATION ("SatCon"), a Delaware corporation having its principal
place of business and chief executive office at 161 First Street, Cambridge,
Massachusetts 02142, and BANKBOSTON, N.A. (the "Bank"), a national banking
association with its head office at 100 Federal Street, Boston, Massachusetts
02110.
WHEREAS, SatCon has requested the Bank to enter into a certain
Discretionary Demand Line Letter of even date herewith (the "Letter Agreement")
pursuant to which the Bank may, in its discretion, make loans to SatCon, SatCon
Film Microelectronics, Inc. ("FMI"), and K&D MagMotor Corp. ("K&D") upon the
terms and subject to the conditions set forth therein;
WHEREAS, the Bank is unwilling to enter into the Letter Agreement and to
make any discretionary loans thereunder unless SatCon shall execute and deliver
this Security Agreement and grant the security interests herein provided;
NOW, THEREFORE, in order to induce the Bank to enter into the Letter
Agreement and to make or extend to SatCon, FMI, and K&D one or more
discretionary loans, advances, or other extensions of credit, and in
consideration thereof, and for other good and valuable consideration, the
receipt and adequacy of which are hereby acknowledged, the parties hereto agree
as follows:
1. Definitions. The following terms shall have the meanings set forth
-----------
below. All capitalized terms used herein, but not defined herein, shall have
the same meanings as set forth in the Letter Agreement. Terms not otherwise
defined herein shall have the meanings ascribed to them, if any, under the
Massachusetts Uniform Commercial Code.
"Account and Accounts Receivable" means individually and collectively,
all rights to payment for goods sold or leased or for services rendered, all
sums of money or other proceeds due or becoming due thereon (including, without
limitation, all accounts receivable, notes, bills, drafts, acceptances,
instruments, documents, chattel paper and all other debts, obligations and
liabilities in whatever form owing to any Person for goods sold by it or for
services rendered by it), all guaranties and security therefor, and all right,
title and interest of such Person in the goods or services giving rise thereto
and the rights pertaining to such goods, including rights of reclamation and
stoppage in transit, and all related insurance, whether any of the foregoing be
now existing or hereafter arising, now or hereafter received by or owing or
belonging to such Person.
"Collateral" means all personal property and fixtures of SatCon of
every kind and description, tangible or intangible, whether now or hereafter
existing, whether now owned or hereafter acquired, and wherever located,
including, but not limited to, the following: all Inventory of SatCon; all
furniture, fixtures and similar property of SatCon; all machinery and equipment
of SatCon; all Accounts of SatCon; all contract rights of SatCon, including
without limitation, all rights of SatCon as a bailee; all other rights of SatCon
to the payment of money, including without limitation amounts due from
Affiliates, bailors, tax refunds, and insurance proceeds; any and all rights
SatCon may have pursuant to a bailee's lien; all interests of SatCon in goods as
to which an Account shall have arisen; all files, records (including without
limitation computer programs, tapes and related electronic data processing
software and electronic data) and writings of SatCon or in which SatCon has an
interest in any way relating to the foregoing property; all goods, instruments,
documents of title, policies and certificates of insurance, securities,
investment property, chattel paper, deposits, cash or other property owned by
SatCon or in which SatCon has an interest which are now or may hereafter be in
the possession of the Bank or as to which the Bank may now or hereafter control
possession by documents of title or otherwise (including, without limitation,
the issued and outstanding capital stock of any subsidiaries of SatCon and all
balances or other sums credited by or due from the Bank or any of its branch or
affiliate offices); all general intangibles of SatCon (including without
limitation all patents, trademarks, trade names, service marks,
1
<PAGE>
copyrights and applications for any of the foregoing; all goodwill connected
with the use of and symbolized by trademarks, trade names and service marks of
SatCon; all rights to use patents, trademarks, trade names, service marks and
copyrights of any person; and any rights of SatCon to retrieval from third
parties of electronically processed and recorded information pertaining to any
of the types of collateral referred to in this definition); any other property
of SatCon, real or personal, tangible or intangible, in which the Bank now has
or hereafter acquires a security interest or which is now or may hereafter be in
the possession of the Bank; any sums at any time credited by or due from the
Bank to SatCon, including deposits; and proceeds and products of and accessions
to all of the foregoing; provided, however, that the definition of Collateral
-------- -------
shall not include any contracts or general intangibles for which a grant of a
security interest therein is prohibited by contract.
"Inventory" means all of SatCon's inventory of whatever name, nature,
kind or description, all goods held for sale or lease or to be furnished under
contracts of service, finished goods, work in process, raw materials, materials
used or consumed by SatCon, parts, supplies, all wrapping, packaging,
advertising, labeling, and shipping materials, devices, names and marks, all
contracts, rights and documents relating to any of the foregoing, whether any of
the foregoing be now existing or hereafter arising, wherever located, now owned
or hereafter acquired by SatCon.
"Obligations" shall mean all of the joint and several obligations of
payment and performance of SatCon, FMI, and K&D under the Letter Agreement.
2. Satisfaction of Obligations. SatCon hereby promises to pay or
---------------------------
otherwise satisfy all Obligations when the same shall become due, whether at
maturity, by acceleration or otherwise.
3. Grant of Security Interest.
--------------------------
3.1 Collateral. As security for the prompt and unconditional payment and
----------
performance of the Obligations, SatCon hereby grants to the Bank, a continuing
security interest in all Collateral, whether now owned or existing or hereafter
arising or acquired and wherever located; and in each case in all proceeds,
products, and accessions thereof, all causes of action and remedies relating
thereto and all guaranties and security therefor. SatCon agrees that the
security interest herein granted has attached and shall continue until the
Obligations have been paid, performed and indefeasibly discharged in full and
the Bank has terminated the discretionary credit facility provided under the
Letter Agreement.
3.2 Deposits. Any and all deposits or other sums at any time credited by
--------
or due from the Bank or any of its affiliates to SatCon shall at all times
constitute security for Obligations and may be set-off against any Obligations
at any time whether or not they are then adequate. Any and all instruments,
documents, policies and action, general intangibles, chattel paper, cash,
property and the proceeds thereof (whether or not the same are Collateral or
proceeds thereof) owned by SatCon or in which SatCon has an interest, which now
or hereafter are at any time in the possession or control of the Bank or any of
its affiliates or in transit by mail or carrier to or from the Bank or such
affiliate or in the possession of any third party acting on its behalf, without
regard to whether the Bank or such affiliate received the same in pledge, for
safekeeping, as agent for collection or transmission or otherwise or had
conditionally released the same, shall constitute security for Obligations and
may be applied at any time to Obligations which are then owing, whether due or
not due.
3.3 Insurance. SatCon hereby assigns to the Bank, all sums, including,
---------
without limitation, return of premiums, which may become payable under any of
SatCon's policies of insurance and directs each insurance company issuing any
such policy to make payment thereof directly to the Bank.
3.4 Obtaining Consents to Assignments. SatCon shall use its best efforts,
---------------------------------
in good faith, to obtain consents to assign to the Bank all contracts and
general intangibles for which a grant of a security interest therein is
prohibited by contract.
2
<PAGE>
4. Collateral.
----------
4.1 Location of Collateral. SatCon's principal place of business is
----------------------
located at the address shown on Exhibit A attached hereto and the records
---------
relating to SatCon's Accounts Receivable are kept at that address. SatCon will
not change such principal place of business without giving at least thirty (30)
days' prior written notice to the Bank. The Collateral will be kept at the
location(s) listed on Exhibit A and such new locations as SatCon shall establish
---------
not sooner than seven (7) days after having given written notice thereof to the
Bank.
4.2 Instruments. If any Accounts Receivable are at any time
-----------
evidenced by promissory notes, trade acceptances or other instruments for the
payment of money, SatCon will immediately deliver the same to the Bank,
appropriately endorsed to the Bank's order and, regardless of the form of such
endorsement and to the extent permitted by law, SatCon hereby waives
presentment, demand, notice of dishonor, protest, notice of protest and all
other notices with respect thereto.
4.3 No Transfers. Except as expressly permitted by the Letter
------------
Agreement, SatCon shall not sell, lease or transfer or further encumber any of
the Collateral (except that Inventory (if any) may be sold in the ordinary
course of business and obsolete assets may be sold for their fair market value
provided that SatCon shall, immediately upon receipt of any cash in excess of
$5,000 from any such divestiture of Collateral, pay such amounts to the Bank to
apply to the Discretionary Demand Line to the extent there is any balance then
outstanding) without the prior written consent of the Bank until the Bank has
determined that the Obligations have been indefeasibly paid in full.
4.4 Representations. SatCon represents, warrants and agrees as
---------------
follows:
(a) SatCon has no knowledge of any fact that would impair the
validity or make uncollectible any material amount of the Collateral that is
Accounts Receivable, chattel paper, general intangibles, contract rights,
documents or instruments, and, to the best of SatCon's knowledge, each obligor
liable upon such Collateral has and will have capacity to contract.
(b) The items making up the Inventory at any time are and will
be salable in the ordinary course of SatCon's business.
(c) Each Account Receivable is and will be a true and correct
statement of the actual indebtedness incurred by each account debtor with
respect thereto, and arises and will arise out of or in connection with the sale
or lease of goods or for the rendering of services by SatCon to each such
account debtor.
(d) No presently effective financing statement under the Uniform
Commercial Code naming SatCon as debtor is on file in any jurisdiction and
SatCon has not signed any presently effective security agreement authorizing any
secured party thereunder to file a financing statement except for the Bank and
as otherwise permitted in the Letter Agreement.
(e) SatCon's exact legal name is set forth at the beginning of
this Agreement and SatCon does not conduct business under any other name except
as set forth on Exhibit A attached hereto.
---------
(f) At the time that SatCon pledges, sells, assigns or transfers
to the Bank any instrument, document of title, security, chattel paper or other
property or any proceeds or products thereof, or any interest therein, such
entity shall be the lawful owner thereof, or the lawful holder of the leasehold
interest therein, and shall have the right to pledge, sell, assign or transfer
the same, and SatCon shall defend the same against the claims and demands of all
persons.
5. Proceeds of Collateral.
----------------------
5.1 Collection By SatCon. SatCon will collect with diligence, to
--------------------
the extent consistent with its collection policies, all of the proceeds of
SatCon's Accounts Receivable, Inventory, instruments, chattel paper, general
3
<PAGE>
intangibles, and contract rights pursuant to this Agreement. The Bank will at
any time have the right to require SatCon (i) to enter into a lockbox
arrangement with the Bank or its representative or designee for the collection
of such remittances and payments or (ii) to maintain its deposit account(s) at
the Bank or, in the alternative, at another financial institution which has
agreed to accept drafts drawn on it by the Bank under a written depository
transfer agreement with the Bank, and to block SatCon's account and waive its
own rights as against such account.
5.2 Collection By the Bank. At the Bank's request, SatCon will
----------------------
notify account debtors that Collateral has been assigned to the Bank, and that
payments by such debtors shall be made directly to the Bank, and give
instruction and/or dictate on billings to such debtors that their Accounts
Receivable shall be paid to the Bank. The Bank may at any time, without prior
notice to SatCon, collect the proceeds of SatCon's Accounts Receivable,
Inventory, instruments, chattel paper, general intangibles and contract rights
and give notice of assignment thereof to any and all debtors thereof, and SatCon
does hereby make, constitute and appoint the Bank its irrevocable, true and
lawful attorney in fact with power to receive, open and dispose of all mail
addressed to SatCon; to take possession of, sign, endorse the name of SatCon
upon and collect any notes, drafts, money orders, demands, checks, instruments,
payments (including payments payable under or with respect to any policy of
insurance), evidences of payment, agreements, documents, and other writings that
may come into the possession of the Bank in connection with the Collateral or as
proceeds of Collateral; in SatCon's name or otherwise, to demand, sue for,
collect and give acquittances for, any and all moneys due or to become due upon
the Collateral; to compromise, prosecute or defend any action, claim or
proceeding with respect thereto; and to do any and all things necessary or
desirable to carry out the purposes herein contemplated.
6. Protection of Security Interest.
-------------------------------
6.1 By SatCon. SatCon shall continuously take all steps that are
---------
reasonably necessary or prudent to protect and maintain the security interest of
the Bank in the Collateral. Without limiting the generality of the foregoing,
SatCon will:
6.1.1 No Liens. Not create, grant or permit to exist any
--------
security interest or lien in or on any of the Collateral, except as permitted by
the Letter Agreement;
6.1.2 Books. Keep and maintain separate books relating to the
-----
Collateral at its principal place of business listed on Exhibit A attached
---------
hereto, not remove the same without the prior written consent of the Bank, which
consent shall not be unreasonably withheld, and allow the Bank access to the
books and to the Collateral at any reasonable time, upon notice, for the purpose
of examination, verification, copying, extracting or other purposes as the Bank
may reasonably require;
6.1.3 Maintenance. Maintain, preserve and protect all
-----------
Collateral, keep all Collateral in good condition and repair (ordinary wear and
tear and obsolete items excepted);
6.1.4 Copies. Deliver to the Bank promptly at its reasonable
------
request all schedules, lists, invoices, original bills of lading, documents of
title, original purchase orders, receipts, agreements, writings and other items
relating to the Collateral;
6.1.5 Notice. Upon reasonable request of the Bank, make, stamp
------
or record on any of SatCon's books relating to the Collateral entries or legends
with respect to the Bank's security interest, including, without limitation,
notation of the security interest of the Bank on any certificates of title or
other evidence of ownership outstanding with respect thereto;
6.1.6 Filings. Join with the Bank at its request from time to
-------
time in executing financing statements, amendments thereto and continuation
statements, and pay the cost of filing the same wherever the Bank reasonably
deems necessary, and do, make, execute and deliver all additional and further
acts, things, deeds, powers of attorney, assurances, writings, and instruments
that the Bank may reasonably require to vest completely in it and assure to it
its rights hereunder and in and to the Collateral;
4
<PAGE>
6.1.7 Assignments Under the Federal Assignment of Claims Act.
------------------------------------------------------
If any Accounts Receivable arise from contracts with the United States or any
department, agency or instrumentality thereof, SatCon will immediately notify
the Bank thereof and execute any instruments and take any steps reasonably
requested by the Bank in order that all monies due and to become due thereunder
shall be assigned to the Bank and notice thereof given to the Federal
authorities under the Federal Assignment of Claims Act;
6.1.8 Adverse Interests. Promptly notify the Bank of the
-----------------
existence of any claims, liens, security interests, rights, attachments or other
encumbrances (except those permitted under the Letter Agreement) that may be or
become adverse to the interest of the Bank in any of the Collateral; and defend
the Collateral against all claims, liens, security interests, demands and other
encumbrances of third parties at any time claiming an interest in the Collateral
that is adverse to the security interest granted to the Bank (other than those
expressly permitted by the Letter Agreement), and reimburse the Bank for any
reasonable expenses it may incur in satisfying any of the foregoing;
6.1.9 Insurance. Maintain insurance on the Collateral as
---------
required by the Bank, it being understood that SatCon's insurance, as of the
date of this Security Agreement, is acceptable to the Bank;
6.1.10 Loss. Notify the Bank in the event of a material loss
----
of or damage to the Collateral; of any loss, theft, damage or destruction to or
of any material assets(s) of SatCon not covered by insurance; of any reclamation
or repossession of or any action by a creditor to reclaim or repossess any
material asset(s) of SatCon; of any material adverse change in the Collateral;
and of any other occurrence that may materially or adversely affect the security
interest of the Bank in the Collateral;
6.1.11 Inventory. At least annually and whenever else
---------
reasonably requested by the Bank, take a physical listing of all Inventory (if
any) and provide a copy (certified by an authorized officer of SatCon, on behalf
of SatCon, to be true, correct and complete) of any listing of Inventory, and
perform any and all further steps reasonably requested by the Bank to perfect
the Bank's security interest in Inventory;
6.1.12 Valuation. Notify the Bank in the event of any change
---------
in the basis for valuing Inventory;
6.1.13 Name. Notify the Bank at least 30 days before changing
----
its legal name or doing business under any name other than its legal name or the
names set forth on Exhibit A;
---------
6.1.14 Expenses. Pay all expenses incurred with respect to the
--------
purchase, manufacture, delivery, use, repair, storage or other handling of the
Collateral, and reimburse the Bank for all reasonable expenses and all taxes
that the Bank may incur in connection with the protection of its security
interest in the Collateral.
6.2 Bank Action. The Bank is hereby authorized and permitted
-----------
to take any action at any time (except as expressly limited below) it reasonably
deems necessary or prudent to protect the Collateral or its security interest in
the Collateral, and SatCon agrees to reimburse the Bank for all reasonable costs
and expenses incurred by the Bank in connection therewith. Without limiting the
generality of the foregoing (but subject to the Bank's reasonably determining it
necessary or prudent), SatCon hereby grants to the Bank the right, at the Bank's
sole discretion:
6.2.1 U.C.C. Statements. To sign and file in the name and on
-----------------
behalf of SatCon one or more financing statements under any applicable Uniform
Commercial Code naming SatCon as debtor and the Bank as secured party and
indicating therein the types or describing the items of Collateral herein
specified;
6.2.2 Communication with Debtors. In its own name or in the
--------------------------
name of others, and upon prior notice to SatCon, to communicate with account
debtors solely in order to verify with them to the Bank's reasonable
satisfaction the existence, amount and terms of any Accounts Receivable and the
absence of any reductions, discounts, defenses or offsets with respect thereto;
and
5
<PAGE>
6.2.3 Taxes. (i) Discharge taxes and liens levied or placed on
-----
Collateral except those contested in accordance with the terms of the Letter
Agreement; (ii) pay for insurance thereon or the maintenance and preservation
thereof; or (iii) if SatCon shall fail to make deposits in respect of F.I.C.A.
and withholding taxes, make such deposits or pay such taxes, in whole or in
part, or set up such reserves as the Bank shall deem reasonably necessary in
respect of SatCon's liability therefor. Any amount so paid, deposited or
reserved for shall constitute a Loan under the Letter Agreement. Nothing herein
shall be deemed to obligate the Bank to do any of the foregoing and the making
of any one or more such payments, deposits or reserves shall not constitute an
agreement by the Bank to take any further or similar action or a waiver of any
right of the Bank hereunder.
7. Remedies.
--------
7.1 Action after Demand. Whenever the Bank shall have made demand
-------------------
for payment of the Obligations, the Bank may, at its option and without notice
to SatCon:
7.1.1 Immediately, or from time to time, take possession of the
Collateral, or any of it, wherever it may be found, using all necessary force so
to do but without breach of the peace, or, from time to time, require SatCon to
assemble the Collateral, or any of it, and make it available to the Bank at a
place designated by the Bank that is reasonably convenient to SatCon and the
Bank, and SatCon waives all claims for damages due to, arising from or connected
with any such taking;
7.1.2 From time to time, proceed in the foreclosure of the
Bank's security interest and sale of the Collateral, or any of it, in any manner
permitted by law or provided for herein;
7.1.3 Sell, lease or otherwise dispose of the Collateral, or any
of it, at public or private sale, with or without having the Collateral, or any
of it, at the place of sale, and upon terms and in such manner as the Bank may
determine. Except for Collateral which is perishable or threatens to decline
speedily in value or which is of a type customarily sold on a recognized market,
the Bank shall give SatCon at least ten (10) days' prior written notice of the
time and place of any public sale of Collateral or of the time after which any
private sale or other intended disposition is to be made, which notice SatCon
agrees is reasonable. The Bank may bid for any of the Collateral at any public
sale and acquire the same free from any redemption right, and in lieu of paying
cash therefor may make settlement for the selling price by crediting upon the
Obligations the net selling price after deducting all reasonable costs and
expenses in any way relating thereto;
7.1.4 From time to time in the Bank's sole discretion, postpone
the time (until a time after the originally scheduled time) and change the place
of any proposed public sale of any of the Collateral that has been noticed as
provided above, upon at least one (1) day prior written notice to SatCon (which
notice SatCon agrees is reasonable) of the new time and place of such sale
(which time shall be at least seven (7) days after such notice of postponement
is given to SatCon) whenever, in the Bank's reasonable judgment, such
postponement or change is necessary or appropriate in order that the provisions
of this Security Agreement applicable to such sale may be fulfilled or in order
to obtain more favorable conditions under which such sale may take place;
7.1.5 In case of any sale by the Bank of any of the Collateral
on credit or for future delivery (which may be elected in the Bank's sole
discretion), retain the Collateral so sold until the full selling price is paid
by the purchaser, and the Bank shall incur no liability in case of failure of
the purchaser to take up and pay for the Collateral so sold. In case of any such
failure, the Collateral so sold may again be similarly sold;
7.1.6 Retain the Collateral, or any of it, in satisfaction of
the Obligations secured hereby;
7.1.7 Act as attorney for SatCon in obtaining, adjusting,
settling and canceling insurance, endorsing any checks or drafts, and applying
any amounts collected or received by the Bank to obligations or at the option of
the Bank, releasing the same to SatCon, provided that no amount so released
--------
shall be deemed a payment on any Obligations secured hereby;
6
<PAGE>
7.1.8 Settle, compromise or adjust any suit, action or
proceeding against SatCon with respect to any Collateral and in connection
therewith, give such discharges or releases as the Bank may deem appropriate
and, generally, sell, transfer, pledge, make any agreement with respect to or
otherwise deal with any of the Collateral as fully and completely as though the
Bank were absolute owner thereof for all purposes;
7.1.9 As to the Collateral that is Accounts Receivable, chattel
paper, deposit accounts, instruments, general intangibles or contract rights,
the Bank may, in its own name or in the name of SatCon:
(i) Take any action permitted under Section 5.2
relating to such Collateral or in connection therewith, sign and
endorse any invoices, drafts against debtors, assignments,
verifications and notices in connection therewith or in
connection with other documents relating to the Collateral;
(ii) Receive payment of, receipt for, settle,
compromise or adjust and give discharges and releases for or in
respect of any and all moneys, claims and other amounts due and
to become due at any time under or arising out of the Collateral;
(iii) File any claim and take other action in any
court of law or equity or otherwise deemed appropriate by the
Bank for the purpose of collecting any and all such Collateral
whenever payable relating thereto, although the Bank shall not be
required or obligated in any manner to make any demand or make
any inquiry as to the nature or sufficiency of any payment
received by it, or present or file any claim or take any action
to collect or enforce the payment of any amounts that may have
been assigned to it or to which it may be entitled hereunder at
any time or times;
(iv) Give written notice to officials of the
United States Post Office to effect change or changes of address
so that all mail addressed to SatCon may be delivered directly to
a Post Office box or to any other depository that may be selected
by the Bank (which is hereby consented to by SatCon), and
receive, open and dispose of all mail addressed to SatCon; and
(v) Direct obligors or any other party liable
for the payment thereunder to make payment of any and all moneys
at any time payable in connection therewith directly to the Bank
or to an agent specified by it; and notwithstanding the
foregoing, neither this Security Agreement nor the receipt by the
Bank of any payment pursuant hereto shall cause the Bank to be
under any obligation or liability in any respect to an obligor or
any other party for the performance or observance of any of the
representations, warranties, conditions or terms of any invoice,
agreement or other document issued or executed in connection with
any Account Receivable;
7.1.10 Exercise any and all remedies of a secured party under
the Massachusetts or other applicable Uniform Commercial Code or as otherwise
provided by law.
7.2 Additional Provisions.
---------------------
7.2.1 SatCon authorizes the Bank to carry out the remedial steps
set forth in Section 7.1 above and irrevocably makes, constitutes, and appoints
the Bank and any officer or agent thereof with full power of substitution as
SatCon's true and lawful attorney in fact in connection therewith.
7.2.2 SatCon hereby waives, to the full extent permitted by law,
the benefit of all appraisement, valuation, stay, extension and redemption laws
now or hereafter in force and all rights of marshaling in the event of any sale
or other disposition of any of the Collateral.
7
<PAGE>
7.2.3 Prior to any such disposition of Collateral, the Bank may,
at its option, cause any of the Collateral to be repaired or reconditioned in
such manner and to such extent as the Bank reasonably deems advisable, and any
reasonable sums expended therefor by the Bank shall constitute loans to be
repaid by SatCon and shall be secured hereby. The Bank shall have the right to
pursue any remedy that it may have hereunder or by law. If a sufficient sum is
not realized from any such disposition of Collateral to pay all of the
Obligations, SatCon hereby promises and agrees to pay the Bank any deficiency
and the security interest herein granted shall continue in accordance with
Section 3.1 hereof in Collateral not so disposed of.
7.2.4 The receipt of the Bank for the purchase money paid at any
sale of Collateral made by the Bank shall be a sufficient discharge therefor to
any purchaser of any of the Collateral sold as provided above. No such
purchaser (or its representatives or assigns) other than the Bank, after paying
such purchase money and receiving such receipt, shall be bound to see to the
application of such purchase money or any part thereof or be answerable in any
manner for any loss, misapplication or nonapplication of any such purchase
money, or be bound to inquiry as to the authorization, necessity, expediency or
regularity of any such sale.
7.2.5 Under no circumstances shall the Bank be deemed to assume
any responsibility for or obligation or duty with respect to any part or all of
the Collateral of any nature or kind, or any matter or proceedings arising out
of or relating thereto, but the same shall be at SatCon's sole risk at all
times, it being acknowledged that the Bank will act in a commercially reasonable
manner. The Bank shall not be required to take any action of any kind to
collect, preserve or protect its or SatCon's rights in the Collateral or against
other parties. The Bank's prior recourse to any part or all of the Collateral
shall not constitute a condition of any demand, suit or proceeding for payment
or collection of the Obligations.
7.3 Priority of Payment. Any amounts collected pursuant to action
-------------------
taken under this Section 7 shall be paid to the Bank and applied first, to the
payment of any reasonable costs incurred by the Bank in taking such action; and
second, to payment of all sums due to the Bank in respect of Obligations; and
the excess, if any, shall be paid to SatCon.
7.4 No Remedy Exclusive. No remedy herein conferred upon or
-------------------
reserved to the Bank is intended to be exclusive of any other available remedy
or remedies, but each and every such remedy shall be cumulative and shall be in
addition to every other remedy given under this Agreement or now or hereafter
existing at law or in equity or by statute. No course of dealing on the part of
the Bank and no delay or omission to exercise any right or power accruing upon
demand for payment of the Obligations shall impair such right or power or shall
be construed to be a waiver thereof, but any such right and power may be
exercised from time to time and as often as may be deemed expedient. In order
to entitle the Bank to exercise any remedy reserved to it in this Section 7, it
shall not be necessary to give any notice, other than any notice or notices
expressly required in this Section 7.
8. General.
-------
8.1 Successors and Assigns. This Security Agreement shall inure to
----------------------
the benefit of and shall be binding upon the parties hereto and their respective
successors and assigns whether or not an express assignment of rights hereunder
is made. No other person shall acquire or have any right under or by virtue of
this Security Agreement.
8.2 Provisions to Survive. All representations, warranties,
---------------------
covenants and agreements contained in this Security Agreement shall survive the
execution and delivery of the Loan Documents.
8.3 Severability. If any provision of this Security Agreement shall
------------
be held invalid or unenforceable by any court of competent jurisdiction, that
holding shall not invalidate or render unenforceable any other provision hereof.
8.4 Amendments. This Security Agreement may be amended, modified and
----------
supplemented only by written agreement of the parties hereto.
8
<PAGE>
8.5 Waivers. No waiver of any rights or remedies hereunder shall be
-------
deemed made by the Bank or any subsequent holder of the Note under any
circumstances unless in writing and duly signed on behalf of the Bank or such
holder, as the case may be. Any such written waiver shall apply only to the
particular instance specified therein and shall not impair the further exercise
of the right or remedy involved.
8.6 Execution and Counterparts. This Security Agreement may be
--------------------------
executed in several counterparts, each of which shall be an original and all of
which shall constitute one and the same instrument.
8.7 Captions. Captions and headings in this Security Agreement are
--------
for convenience only and in no way define, limit or describe the scope or intent
of the provisions hereof.
8.8 Written Notices. Any notices, expressly required by this
---------------
Agreement to be in writing, to any party hereto shall be deemed to have been
given when delivered by hand, when sent by telecopy, when delivered to any
overnight delivery service freight pre-paid or 3 days after deposit in the
mails, postage prepaid, and addressed to such party at its address given at the
beginning of this Agreement or at any other address specified in writing.
Written notices to SatCon shall be sent to the attention of David B. Eisenhaure,
President, or to such other officer as may be designated by SatCon, with a copy
to Hale and Dorr LLP, 60 State Street, Boston, Masachusetts 02109, Attention:
Jeffrey Carp, Esq., and written notices to the Bank shall be sent to the
attention of Paul G. Holian, Assistant Vice President, or such other officer as
may be designated by the Bank, with a copy to Goulston & Storrs, P.C., 400
Atlantic Avenue, Boston, MA 02110-3333, Attention: Philip A. Herman, Esq. Any
notice, unless otherwise specified, may be given orally or in writing.
8.9 GOVERNING LAW. THIS SECURITY AGREEMENT SHALL BE GOVERNED BY, AND
-------------
CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE COMMONWEALTH OF MASSACHUSETTS
(WITHOUT GIVING EFFECT TO PROVISIONS RELATING TO CONFLICTS OF LAW). ANY LEGAL
ACTION OR PROCEEDING ARISING OUT OF OR RELATING TO THIS AGREEMENT OR ANY
OBLIGATION MAY BE INSTITUTED IN THE COURTS OF THE COMMONWEALTH OF MASSACHUSETTS
OR OF THE UNITED STATES OF AMERICA FOR THE DISTRICT OF MASSACHUSETTS, AND SATCON
HEREBY IRREVOCABLY SUBMITS TO THE JURISDICTION OF EACH SUCH COURT IN ANY SUCH
ACTION OR PROCEEDING, PROVIDED, HOWEVER, THAT THE FOREGOING SHALL NOT LIMIT THE
BANK'S RIGHTS TO BRING ANY LEGAL ACTION OR PROCEEDING IN ANY OTHER APPROPRIATE
JURISDICTION IN WHICH EVENT, AT THE BANK'S OPTION, THE LAWS OF SUCH JURISDICTION
OR OF THE COMMONWEALTH OF MASSACHUSETTS SHALL APPLY. PERSONAL JURISDICTION OVER
SATCON MAY BE OBTAINED BY THE MAILING (POSTAGE PREPAID) OF A SUMMONS OR SIMILAR
LEGAL DOCUMENT TO SATCON'S ADDRESS FOR NOTICES UNDER THIS AGREEMENT.
8.10 Exhibits. The Exhibits attached hereto are incorporated herein
--------
for all purposes, and shall be considered a part of this Agreement.
9
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed and sealed by their duly authorized officers or representatives,
all as of the date first above written.
SATCON TECHNOLOGY CORPORATION
By: /s/ David B. Eisenhaure
---------------------------
Title:
BANKBOSTON, N.A.
By: /s/ Henry L. Petrillo
---------------------------
Title: Director
10
<PAGE>
EXHIBIT A
---------
I. SatCon's Principal Place of Business:
-------------------------------------
Address: 161 First Street
Cambridge, MA 02142
II. Other Locations of Collateral:
------------------------------
Address: 530 Turnpike Street, North Andover, MA 01845
121 Higgins Street, Worcester, MA 01806
III. Other Names:
------------
11
<PAGE>
EXHIBIT 10.19
NORTH AMERICA DISTRIBUTOR AGREEMENT
This Agreement is made this 4th day of June, 1998, by and between
Film Microelectronics Inc., a division of SatCon Technology, with its principal
place of business at 530 Turnpike Street, North Andover, MA 01845 (hereinafter
referred to as "Company"), and Falcon Electronics, Inc., a company organized
and existing under the laws of Connecticut with its principal place of
business at 48 Elm Street, Huntington, NY 11743 (hereinafter referred
to as "Distributor").
RECITALS
A. Company is engaged in the business of manufacturing and selling
Standard Products including Resistor Networks, Microwave Pin-Diode
Drivers, Solid State Relays, and Linear Voltage Regulators.
B. Company wishes to supplement its own sales and marketing efforts
through the appointment of a non-exclusive, independent distributor.
C. Distributor wishes to act as an independent distributor of Company's
products.
Now, therefore, in consideration of the mutual promises, terms, provisions,
and conditions contained herein, the parties agree as follows:
SECTION 1--APPOINTMENT
- ----------------------
Company hereby appoints Distributor, and Distributor hereby accepts such
appointment as a non-exclusive, authorized distributor of Company during the
term of
<PAGE>
this Agreement for the sales and marketing of Company's products, as defined in
Section 2.1, from listed franchised locations, as defined in Exhibit B.
SECTION 2--PRODUCTS
- -------------------
2.1. The products covered by this Agreement shall be those identified on
Exhibit A, attached hereto (the "Products")
2.2. Company may add Products to, or delete Products from, Exhibit A upon
written notice to the Distributor.
2.3. Anything contained herein to the contrary notwithstanding, Company
reserves the right, in its sole discretion and without notice, to
modify specifications and characteristics of its Products, to
discontinue the distribution and sale of such Products, and to cancel,
modify or condition any right of the Distributor to prevent a violation
of law.
SECTION 3--OBLIGATIONS OF DISTRIBUTOR
- -------------------------------------
During the term of this Agreement, Distributor shall at all times seek
to enhance the image and reputation of Company and the Products that are the
subject matter hereof, and agrees:
3.1 Distributor shall not disclose information of Company considered by
Company to be confidential or proprietary including, but not limited
to, price lists (both cost and resale), customer lists, and data
regarding the design or methods of manufacture of the Products and will
not use any such information except as contemplated by this Agreement.
Such information will be appropriately marked or identified by Company
and the obligation of Distributor not to disclose or improperly use
such information will survive the termination of this Agreement. Upon
the termination of this Agreement or the earlier request of Company,
all such information will be promptly returned to Company. The
restrictions of this Section 3.1 are in addition to any other agreement
between the parties with respect to the protection and use of
information.
3.2 Distributor shall not market or distribute Products under this
Agreement in violation of any applicable law or regulation.
2
<PAGE>
3.3 Distributor shall sell only Company's Products that bear Company's
markings or trademarks and will not alter, modify, or in any way change
the Products, markings or trademarks thereon without prior written
approval of Company.
3.4 Distributor shall offer and sell Products only in accordance with
specifications and warranty schedules provided by Company.
3.5 Distributor shall provide Company by the fifteenth day of each month
reports as follows:
3.5.1 Point-of-Sales Report that shall include FMI Part Number, Resale
Price, Cost Price, Customer Name, Customer Location, Total Sales
Dollars per Customer and Location.
3.5.2 Inventory Report that shall include FMI Part Number, Total
Quantity in Stock, Location(s) of Stock, Cost of Stock per Unit,
back ordered quantity, and Total value of inventory by part
number.
3.6 Distributor shall use its best efforts to actively promote the sale of
the Products to customers in the Territory covered by the Franchised
Locations listed in Exhibit B. Such efforts shall include, but not be
limited to, promptly servicing all customer accounts, soliciting new
customer accounts, and cooperating and participating in Company's
advertising and sales promotional programs.
3.7 Distributor shall provide and maintain, without expense to Company, a
suitable place of business with adequate facilities and sufficient
personnel for the sale and distribution of the Products and to fulfill
all other additional objectives agreed to in writing by Company and
Distributor.
3.8 Distributor shall pay all fees, taxes and duties that may be imposed on
the Products purchased by Distributor. To the extent that Company must
pay any fees, taxes or duties on Products sold to Distributor,
Distributor shall promptly reimburse Company.
3.9 Distributor shall refrain from any activities which are illegal,
unethical, or which might damage Company's reputation.
3
<PAGE>
3.10 Distributor shall fully comply with all agreements with Company,
including without limitation, the obligations to pay amounts due when
due.
3.11 Distributor shall use its best efforts to consolidate purchase orders
to promote efficiency and reduce supporting documentation.
SECTION 4--OBLIGATIONS OF COMPANY
- ---------------------------------
4.1 Company, in its sole discretion, shall maintain the necessary personnel
needed to fulfill the agreed upon sales objectives of Company and
Distributor
4.2 Company shall use its best efforts to manufacture sufficient quantities
of Products to meet the requirements of Distributor. Company shall
consult with Distributor regarding inventory levels, and shall advise
Distributor of promotional efforts to increase the sale of Products.
4.3 Company shall subject all Products delivered to Distributor to its
usual standards of quality control and inspection and all products sold
or delivered under this Agreement shall be subject to the limited
warranty set forth in Paragraph 17 below.
SECTION 5--DELIVERIES
- ---------------------
5.1 All deliveries of Products by Company pursuant to this Agreement will
be made F.O.B. North Andover, Massachusetts. Products will be consigned
to carriers for shipment to Distributor, however, upon the written
approval of Company and Distributor, Company will consign Products to
carriers for shipment directly to Distributor's customers.
5.2 Minimum order quantities: The minimum order quantities for all products
shall be per agreement between Company and Distributor, in order to
effect the best possible monolithic Distributor cost. In no case shall
the minimum order quantity be below 100 pieces per device type, without
the written agreement of the Company.
4
<PAGE>
SECTION 6--TITLE AND RISK OF LOSS
- ---------------------------------
Title and risk of loss of Products sold hereunder shall pass to the
Distributor upon delivery to the carrier at the F.O.B. point.
SECTION 7--PRICE
- ----------------
Company agrees to sell the Products to Distributor at the prices set
forth in the published Distributor Cost and Price Schedule. It is the Company's
intent to establish and maintain a monolithic distributor cost for all product.
All prices are subject to change by Company at any time upon written notice to
Distributor.
7.1 If the price for any Product is increased prior to full shipment of any
Order, the price charged to Distributor will be that in effect at the
time of Company's acceptance of Distributor's Order. If the price for
any Product is decreased, all Products shipped on or after the
effective date of any price decrease will be shipped and invoiced at
the price in effect at the time of shipment.
7.2 Company intends to set Distributor Cost Prices to reflect the
competitive reality of the market, and will adjust prices in a timely
manner accordingly. In the rare case that a specific customer Resale
Price requirement cannot be addressed within the normal Distributor
Cost structure, special pricing may be requested by Distributor of the
Company. The following information must accompany any such request:
Customer Name and Location, Company Part Number, Resale Price to the
Customer, Adjusted Cost Requested, and competitive products and pricing
available in the market. Upon acceptance by Company, a special Cost
will be authorized and accompanied by a Quote Number.
SECTION 8--PAYMENTS
- -------------------
Payment for Products delivered to Distributor shall be in United States
Dollars and within thirty (30) days of invoice date. All payments made within
ten (10) days of receipt of invoice may deduct one percent (1%) of the total
invoice paid.
5
<PAGE>
SECTION 9--CANCELLATION OF ORDER
- --------------------------------
9.1 In the event Distributor cancels an Order for any Product which has
been accepted by Company, Distributor shall pay Company for all direct
and indirect costs incurred by Company as a result of such
cancellation.
9.2 Distributor may reschedule delivery dates of product on order by
written request: provided, however, that no such changes shall be
allowed within thirty (30) days of first factory promise date.
9.3 Distributor may cancel Product by written notice; provided, however,
that no orders may be canceled within sixty (60) days of first factory
promise date.
SECTION 10--EXCUSABLE DELAYS AND FAILURES
- -----------------------------------------
Company shall be excused for delays in performing and failures to
perform pursuant to this Agreement and to any Order issued hereunder to the
extent that any such delay or failure results from any cause beyond its control,
including, solely by way of example and without limitation, delays caused by
Distributor or a third party, acts of God, strikes, and other labor disputes,
government regulations, public disorders, international disputes, inability to
obtain or shortage of any material used in the manufacture or shipping and
delivery of the Products, transportation or trade embargoes, customers
restrictions, and catastrophes of nature, fire and explosion, whether any such
cause affects Company, any supplier or provider of service to Company. Company
agrees to exert reasonable effort to prevent such occurrences from affecting its
performance hereunder. Company shall not be liable for damages, general,
specific or otherwise resulting from such excusable delays and failures.
SECTION 11--INVENTORY
- ---------------------
11.1 Distributor shall maintain a minimum level of inventory of Products.
The level of inventory shall be established by Company and adjusted
from time to time as market conditions warrant. Company retains the
right to inspect Distributor's inventory at any time.
6
<PAGE>
11.2 In the event of a decrease in the price on any of Company's Products,
Distributor shall be entitled, within thirty (30) days following such
decrease, to apply for a credit in an amount equal to the difference in
the price of the Product(s) excluding transportation charges, duties,
and taxes before and after such decrease on the unsold Product(s) in
Distributor's inventory and/or the affected Product(s) in transit to
Distributor. This credit shall be calculated upon receipt of an
itemized inventory from Distributor and shall be applied against future
Orders from Distributor. Company will have the right to inspect the
inventory subject to the credit and all records relating thereto.
SECTION 12--RETURNS
- -------------------
12.1 Company will accept returned Products only if such return is made in
accordance with Company's current procedures, which are set forth in
this Section 12. Company reserves the right to unilaterally change
these procedures, such changes will become effective upon reasonable
notice to Distributor.
12.2 Distributor may return any and all Products within 1 year of the
delivery of the Initial Stocking Package recommended by Company after
obtaining Company's prior written authorization and the return material
authorization number given with such prior written authorization, and a
dollar for dollar off-setting order is received. Upon receipt of such
Products in condition acceptable to Company, a credit, less shipping
and handling costs, will be issued to Distributor. After the Initial
Stocking Package period has expired, Products may be returned in
accordance with Company's current return policy, or as provided for in
Par. 12.4 below.
12.3 Company shall give Distributor written notice of the discontinuance of
any Product. Within thirty (30) days of receipt of such notice,
Distributor shall notify Company in writing of its intention to return
discontinued Products for credit. On receipt of such Product in a
condition acceptable to Company, freight prepaid by Distributor,
Company shall issue a credit to Distributor.
12.4 Distributor is authorized to return slow-moving items for exchange in
only the months of January and July. All such returns shall require
Company's prior written authorization and the return material
authorization number given with such prior written authorization, and a
dollar for dollar
7
<PAGE>
offsetting order is received, and shall be limited to five percent (5%)
of the U.S. dollar amount (excluding costs associated with shipping,
handling, duties, and taxes) of standard purchases of Product over the
prior six months. All returned material must be in a condition
acceptable to Company.
SECTION 13--ADVERTISING
- -----------------------
13.1 Company and Distributor shall jointly agree from time to time on
advertising programs and other forms of promotion of the Products in
the Territory. It is anticipated that at least two (2) promotions per
year shall be undertaken, in order to adequately promote Products. Such
promotion shall be handled on a case-by-case basis, with costs to be
shared by Company and distributor.
13.2 Company shall provide Distributor reasonable quantities of its Product
catalogs, data sheets, and other promotional material free of charge.
Additional quantities of any such material requested by Distributor
shall also be supplied free of charge, F.O.B. North Andover,
Massachusetts.
13.3 Distributor may conduct advertising programs other than those programs
undertaken with Company provided Distributor obtains Company's approval
of all aspects of the advertising program. Distributor shall refrain
from making any representations or claims concerning the Products,
which are inconsistent or exceed Company's written representations.
SECTION 14--DURATION AND TERMINATION
- ------------------------------------
14.1 Unless terminated as provided for herein, this Agreement shall continue
in force for one year from the date first above mentioned. This
Agreement shall continue thereafter unless either party gives written
notice to the other party of its intention to terminate the agreement,
giving at least thirty (30) days written notice.
14.2 If either party commits a material breach of this Agreement or becomes
insolvent or bankrupt, or admits in writing its inability to pay its
debts as
8
<PAGE>
they mature, or makes an assignment for the benefit of creditors, or
ceases to function as a going concern, or to conduct its operations in
the normal course of business, the other party shall have the right to
cancel this Agreement by giving immediate written notice of its
election to do so.
14.3 Upon expiration or termination of this Agreement by Distributor,
Distributor will return to Company as such place as Company may
designate, all promotional materials, which had originally been
furnished by Company to Distributor. Distributor shall be responsible
for all return charges. Upon expiration or termination of this
Agreement by Company, Company shall be responsible for all return
charges.
14.4 Company and Distributor agree that upon the expiration or termination
of this Agreement, neither party shall be liable to the other for any
damages, expenditures, loss of profits or prospective profits of any
kind or nature sustained or arising our of, or alleged to have been
sustained or to have arisen out of, such termination. The expiration or
termination of this Agreement shall not, however, release either party
from making payments that may be owing to either party under the terms
of this Agreement.
14.5 Upon termination or expiration of this Agreement by Company, Company
will accept, within thirty (30) days after effective date of
termination or expiration, the Distributor's stock inventory valued at
the effective Distributor cost as of the date of termination or
expiration or at Distributor's acquisition price, whichever is lower.
Upon termination or expiration of this Agreement by Distributor,
Company will accept the Distributor stock inventory valued at the
effective Distributor cost as of the date of termination or at
Distributor acquisition price, whichever is lower, plus a 10% re-
stocking charge. The Company will not accept stock inventory not
returned within thirty (30) days of the termination.
14.6 In event of termination of this Agreement for any reason, Company shall
not be liable to the Distributor or any employee or agent of the
Distributor for compensation, reimbursement or damages on account of
the loss of prospective profits or anticipated sales or on account of
expenditures, investments, leases, or commitments in connection with
the business or goodwill of the Distributor or for any reason arising
out of such termination. The Distributor hereby waives any and all
rights it might have to compensation upon termination of this Agreement
pursuant to the local and national laws of any country within the
territory and hereby agrees to indemnify Company and hold harmless from
any and all claims of its employees or subcontractors for similar
compensation or for severance, liability, or other pay.
9
<PAGE>
SECTION 15--RELATION BETWEEN PARTIES
- ------------------------------------
15.1 This Agreement does not create an employer-employee relationship
between Company and Distributor, or a joint venture or partnership. The
relationship between Company and Distributor shall be that of seller
and buyer. And in such relationship Distributor shall be an independent
contractor and shall have no authority to act for or to bind Company in
any matter. Distributor agrees to hold Company harmless from all
claims, actions, or judgments arising from acts or omissions of
Distributor, its agents or employees.
15.2 Company shall indemnify, protect, and save harmless Distributor from
and against all claims, demands and proceedings, actions, liabilities
and costs resulting from any actual or alleged infringement of any
patent, industrial and commercial property rights of third parties
related to the Products.
SECTION 16--UNITED STATES EXPORT CONTROLS
- -----------------------------------------
Distributor acknowledges that exportation of the Products may be
subject to compliance with various United States Export Administration Acts and
the rules and regulations promulgated from time to time thereunder, which
restrict the export and re-export of certain products, technical data, and
direct products of technical data. Distributor agrees to comply with such
United States export control laws, rules, and regulations, and all other
applicable laws and governmental regulations, domestic, foreign, and local.
SECTION 17--WARRANTY
- --------------------
Company warrants that its Product for a period of one (1) year from
date of shipment of Product to Distributor's customer, to be free from defects
caused by faulty materials or poor workmanship and to conform to specifications
furnished by Company. The liability of Company under this warranty is limited
to replacing or repairing or issuing credit for the price, at its option, for
the Product returned provided:
10
<PAGE>
a. Company is notified in writing within fifteen (15) days after discovery
of such defect, and
b. The defective Product is returned to Company, freight prepaid, within
thirty (30) days of discovery of such defect, and
c. Company's examination of such units shall disclose to its reasonable
satisfaction that such defects exist and have not been cause by misuse,
(used within specified limits) neglect, improper installation,
alteration, or accident caused by parties other than Company.
The Products are not authorized for use as critical components of life
support systems unless both parties have signed a hold harmless
agreement/document. A critical component is any component of a life
support device or system whose failure to perform may be expected to cause
the failure of the life support device or to affect its safety or
effectiveness.
SECTION 18--MISCELLANEOUS
- -------------------------
18.1 This Agreement does not convey, nor shall Distributor claim any
property interest in Company's trademarks, trade names, copyrights,
patents, or other such property so marked by Company. Distributor
acknowledges ownership by Company of trademarks, patents, and other
such property so marked by Company, so identified or so identifiable.
18.2 Distributor shall not delegate any duties or assign any rights under
this Agreement or any interest herein without Company's prior written
consent.
18.3 The validity, meaning, enforceability, and effect of this Agreement,
and the rights and liabilities of the parties, shall be determined in
accordance with the laws of the State of Massachusetts.
18.4 Except as specifically provided in a written waiver signed by a duly
authorized officer of the party or the party seeking enforcement, the
failure to enforce or the waiver of any term of this Agreement shall
not constitute the waiver of such term at any time or in any
circumstance and shall not give rise to any restriction on or condition
to the prompt, full, and strict enforcement of the terms of this
Agreement.
11
<PAGE>
18.5 All notices in connection with this Agreement shall be in writing and
shall be effective upon dispatch if by fax, telegram, or similar means,
upon delivery if by hand delivery, and three (3) days after deposit if
deposited in the channels of the United States mails, postage prepaid,
in registered form, return receipt requested. In all cases, notices
shall be delivered to the other party at the address set forth above,
or such other address such party may have provided by written notice.
18.6 This Agreement, including any exhibits, schedules, and tables attached
hereto which either have been specifically referred to herein or have
been initialed by the parties, constitute the entire Agreement between
the parties with respect to the subject matter. This Agreement
supersedes all prior discussions, understandings, and agreements with
respect to the subject matter.
18.7 This Agreement may be amended or supplemented only in a writing
designated as such an amendment or supplement and signed by a duly
authorized officer of the party or the party against whom enforcement
is sought.
18.8 This Agreement may be executed in two or more counterparts, each of
which shall be deemed an original and all of which together shall
constitute one and the same Agreement.
18.9 If any provisions of this Agreement shall be held by a court of
competent jurisdiction to be invalid, the remaining provisions of this
Agreement shall remain in full force and effect.
SECTION 19--COMPLIANCE WITH LAW
- -------------------------------
19.1 Distributor agrees that it will not violate any applicable or
regulation of any country or political subdivision thereof in
performing or purporting to perform any act arising out of or in
connection with this Agreement. Pursuant thereto, Distributor agrees to
maintain such records as are required by all applicable laws and
regulations and to provide such written assurances as are required by
Company in connection therewith.
12
<PAGE>
19.2 This Agreement is subject to all applicable laws, regulations, and
other statutes and administrative acts, now or hereafter in effect of
the United States and the Territory.
19.3 The Distributor agrees that it will use its best efforts to secure any
licenses or permits as may now or hereafter be required in connection
with the performance of its obligations under this Agreement, but this
Agreement shall not be deemed to require any performance on the part of
either party which cannot lawfully be done pursuant to the laws,
regulations, and statutory and administrative acts referred to above.
IN WITNESS WHEREOF, the undersigned, being duly authorized, have executed this
Agreement in duplicate as of the day and year first above written.
COMPANY DISTRIBUTOR
- ------- -----------
Film Microelectronics Inc,
A SatCon Company FALCON ELECTRONICS, INC.
------------------------------
BY: /s/ Stephen P. Dawe BY: /s/ Brian Diaz
------------------------ --------------------------
TITLE: Vice President, Sales TITLE: President
--------------------- -----------------------
and Marketing
---------------------
DATE: June 4, 1998 DATE: June 10, 1998
---------------------- ------------------------
13
<PAGE>
EXHIBIT A
THE PRODUCTS
LINEAR VOLTAGE REGULATORS
MICROWAVE PIN DIODE DRIVERS
SOLID STATE RELAYS
14
<PAGE>
EXHIBIT B
THE TERRITORY
UNITED STATES
CANADA
PUERTO RICO
15
<PAGE>
EXHIBIT 21.1
SUBSIDIARIES OF THE REGISTRANT
Subsidiary State of Incorporation
- ---------- ----------------------
K & D MagMotor Corporation Delaware
SatCon Film Microelectronics, Inc.* Delaware
Beacon Power Corporation Delaware
- -----------------------------
* Doing Business as "Film Microelectronics, Inc."
<PAGE>
EXHIBIT 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation of our report dated December 17, 1998 except as
to the information in Note R, for which the date is January 4, 1999 on our
audits of the consolidated financial statements and financial statement schedule
of SatCon Technology Corporation and its subsidiaries as of September 30, 1998
and 1997, and for each of the three years in the period ended September 30,
1998, which report is included in this Annual Report on Form 10-K, into the
Company's previously filed Registration Statements on Form S-8 (File Nos. 33-
75934, 33-4280 and 333-08047) and Form S-3 (File Nos. 333-05939 and 333-37921).
/s/ PricewaterhouseCoopers LLP
-------------------------------
PRICEWATERHOUSECOOPERS LLP
Boston, Massachusetts
January 13, 1999
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> SEP-30-1998
<PERIOD-END> SEP-30-1998
<CASH> 1,201,610
<SECURITIES> 657,431
<RECEIVABLES> 3,347,405
<ALLOWANCES> 51,836
<INVENTORY> 3,678,067
<CURRENT-ASSETS> 11,035,592
<PP&E> 2,677,786<F1>
<DEPRECIATION> 0
<TOTAL-ASSETS> 18,166,590
<CURRENT-LIABILITIES> 2,531,121
<BONDS> 0
0
0
<COMMON> 90,185
<OTHER-SE> 15,323,822
<TOTAL-LIABILITY-AND-EQUITY> 18,166,590
<SALES> 0
<TOTAL-REVENUES> 15,485,923
<CGS> 0
<TOTAL-COSTS> 10,991,202
<OTHER-EXPENSES> 5,424,188
<LOSS-PROVISION> 0
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<INCOME-PRETAX> (4,301,629)
<INCOME-TAX> 0
<INCOME-CONTINUING> (4,305,501)
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<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (4,305,501)
<EPS-PRIMARY> (0.48)<F2>
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<F1>PP&E IS SHOWN NET OF ACCUMULATED DEPRECIATION AS REPORTED WITHIN THE ANNUAL
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<F2>IN ACCORDANCE WITH SFAS NO. 128 "EARNINGS PER SHARE-BASIC" IS REPORTED AS
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