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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-KSB/A1
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended February 28, 1997
Commission file number 1-12680
ORYX TECHNOLOGY CORP.
(Name of Small Business Issuer as specified in its charter)
Delaware 22-2115841
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
47341 Bayside Parkway, Fremont, California 94538
(Address of principal executive offices) (Zip Code)
Issuer's Telephone Number, including area code: (510) 249-1144
Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange
Title of each class on which registered
Common Stock, $.001 par value NASDAQ/Pacific Stock Exchange
Common Stock Purchase Warrants NASDAQ/Pacific Stock Exchange
Securities registered pursuant to Section 12(g) of the Act:
None
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(Title of class)
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(Title of class)
Check whether the Issuer (1) has filed all reports required to be filed
by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the past 12
months (or for such shorter period that the Issuer was required to file such
reports), and (2) has been subject to such filing requirements for the past 90
days. Yes X No
Check if there is no disclosure of delinquent filers in response to
Item 405 of Regulation S-B contained in this form, and no disclosure will be
contained, to the best of the Issuer's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-KSB
or any amendment to this Form 10-KSB. [__]
Issuer's revenues for its most recent fiscal year were $26,860,000.
As of May 15, 1997, 13,124,821 shares of Common Stock and Preferred
Stock convertible into 52,515 shares of Common Stock of Registrant were
outstanding. The aggregate market value of the shares of Common Stock held by
non-affiliates of Registrant, based on the average of the closing bid and asked
prices on April 30, 1997: 1-15/32 and 1-5/16 quoted by the National Association
of Securities Dealers Automated Quotation System ("NASDAQ"), was approximately
$14,700,000.
13,124,821 shares of the Company's Common Stock were outstanding as of
April 30, 1997.
Transitional Small Business Disclosure Format (check one):
Yes No X
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the definitive Proxy Statement to be delivered to stockholders in
connection with the 1997 Annual Meeting of Stockholders are incorporated by
reference into Part III.
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For purposes of this Report, shares held by non-affiliates were
determined by aggregating the number of shares held by officers and directors of
the Registrant, and by others who, to Registrant's knowledge, own 5% or more of
Registrant's Common Stock including shares of Preferred Stock convertible into
Common Stock, and subtracting those shares from the total number of shares
outstanding. The price quotations supplied by NASDAQ represent prices between
dealers and do not include retail mark-up, mark-down or commission and do not
represent actual transactions.
<PAGE>
Some of the information in this report, including the discussion of the
Company's strategy, production plans, distribution strategies and various
statements concerning the Company's plans for expansion and expectations for
growth for both the Company and the markets in which the Company competes
constitute forward-looking statements within the meaning of Section 27A of the
Securities Act of 1933, as amended, and Section 21E of the Securities Exchange
Act of 1934, as amended. Actual results could differ materially from those
projected in the forward-looking statements as a result of the risks and
uncertainties described under the caption "Risk Factors" set forth in Part I of
this report and those identified by the Company from time to time in other
filings with the Securities and Exchange Commission (the "Commission"), press
releases and other communications.
PART I
BUSINESS
Item 1. Description of Business
Introduction
Oryx Technology Corp. ("Oryx" or the "Company") designs, manufactures
and markets specialized components, analytical equipment and instrumentation
products for original equipment manufacturers ("OEMs") in the information
technology industry. This industry includes office equipment, computers,
telecommunications and consumer electronics. The Company markets or has in
product development, technologically-advanced products which perform diagnostic
and analytical functions and address industry requirements for efficient power
conversion, surge protection and specialized materials technology. The Company
has concentrated its product development programs in critical areas where the
larger manufacturers of office equipment, computers, computer peripherals and
other electronic and telecommunications products depend upon complementary
technology and product support. The Company operates in three distinct market
segments: (i) power conversion products, (ii) electrical surge protection
products, and (iii) materials analysis and test equipment and specialized
materials products.
In November 1995, the Company made a strategic decision to improve
business focus and execution by separating its core businesses and placing
assets for each core business into wholly- owned subsidiaries. Three
subsidiaries were formed: Oryx Power Products Corporation, SurgX Corporation and
Oryx Instruments and Materials Corporation. The subsidiaries are intended to
provide additional management and employee motivation to increase the value of
each business through potential equity ownership tied more closely to each
business unit, and to position the Company to be better able to seek financing
or equity investment at the subsidiary level in order to develop the businesses
without diluting Oryx stockholders.
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Oryx Technology
Corp.
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Oryx Instruments and Materials
Corporation
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SurgX
Corporation
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Oryx
Power Products
Corporation
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- - Power Conversion - Surge Protection -Materials analysis
Products Components and test equipment
- - Contract Manufacturing - Specialized
Materials
- Contract R&D
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Oryx' and its subsidiaries' customer base for their current product
lines includes the following OEMs: Akashic Memories, Bussmann Corporation
("Bussmann"), Fuji Electric Co., Ltd, IBM Corporation, Pitney-Bowes Corp.,
Seagate Technology, Inc., Trace Storage Technology Corp., Western Digital Media
Corporation, and Xerox Corporation. The Company currently plans to market its
existing lines to these and other OEMs during fiscal 1998. The Company has also
undertaken research programs with the National Aeronautics and Space
Administration ("NASA") and the Department of Defense ("DoD") and plans to
pursue further joint research programs with major companies in or supporting the
information technology industry.
The Company's predecessor, Advanced Technology, Inc. ("ATI"), was
incorporated on April 21, 1976 in New Jersey. On July 25, 1993, ATI formed the
Company as a wholly-owned Delaware subsidiary, and on September 29, 1993, ATI
merged into the Company.
ORYX POWER PRODUCTS CORPORATION
Oryx Power Products Corporation ("Power Products") designs,
manufactures and markets custom and standard AC/DC switching power supplies and
high density DC/DC power conversion products for various electronics products,
and provides contract manufacturing services to OEMs.
Background
All electronic hardware products require some form of AC/DC or DC/DC
power conversion. Consequently, the supply of DC power becomes an integral part
of each product's cost, reliability, packaging and function. Typically, the
power conversion system constitutes over 10% of the cost, internal space and
weight of the product. However, the advancement of power technology (AC/DC and
DC/DC) has not paralleled developments in other segments of the industry, and
while product technology (logic/memory, etc.) has improved over ten-fold in size
and cost, power has made only a two-fold improvement in such areas during the
last decade.
In addition to the need to improve the basic power conversion
technology, OEMs are demanding products which are more portable, reliable,
energy efficient and better performing. It is Power Products' belief that large
companies worldwide are not investing significant resources in this area and
instead depend upon low technology vendors, primarily in the Far East, for
supply and technological developments. Power Products' further believes that the
high quality, low cost manufacturing capability it has established at its ISO
9002 certified plant in Reynosa, Mexico, coupled with its North American
distribution capabilities out of Texas can be leveraged to provide
cost-competitive power conversion products. In addition, Power Products'
management believes the low labor costs and Power Products' skilled Mexican
labor force and recent ISO certification, allow them to compete effectively
against other suppliers of contract manufacturing services.
Acquisition of Zenith Power Conversion Products Group
On April 11, 1994, the Company consummated the first and primary phase
of an Asset Purchase Agreement with Zenith Electronics Corporation ("Zenith")
for the purchase of certain assets of Zenith's power conversion products group.
Through such acquisition, which was consummated simultaneously with the closing
of the Company's initial public offering, the Company acquired accounts
receivable, customer sales orders, manufacturing, research and development
equipment, computer equipment, engineering documents and certain intellectual
property rights relating to power conversion engineering and design, and office
furniture and fixtures. In connection with such acquisition, the Company also
agreed to assume warranty obligations associated with previous sales by the
Zenith power conversion products group. In December 1994, the Company began
taking possession of the inventories and manufacturing equipment of the Zenith
power conversion products group. The manufacturing equipment has been installed
at Power Products' manufacturing plant in Reynosa, Mexico and inventories are
held nearby at Power Products' new distribution center in McAllen, Texas.
The Company (a) paid Zenith a purchase price of approximately
$6,285,000 and assumed warranty obligations of $20,000, and (b) incurred
approximately $364,000 of expenses associated with the power conversion products
group acquisition. The purchase price to Zenith was paid $3,600,000 in cash,
$624,000 withheld by Zenith on collection of acquired receivables, $20,000 by
assumption of warranty obligations and in the form of a promissory note issued
by the Company to Zenith in the principal amount of $2,061,000 (the "Zenith
Note"). The purchase price for the acquisition, based on the closing date
valuation of assets of the Zenith power conversion products group, increased by
approximately $1,000,000 from the Company's initial estimate due primarily to
greater than anticipated inventory. Zenith agreed that $624,000 of such increase
would be withheld by Zenith on accounts receivable.
As part of the terms of the acquisition, the Company contracted with
Zenith to manufacture the Company's power conversion products during a
transition period of up to 12 months on a fixed price per unit basis, with the
Company having an option to extend the manufacturing arrangement for up to three
additional months on terms to be negotiated in the future. Upon the termination
of that contract manufacturing arrangement in April 1995, Zenith delivered to
the Company the inventories and manufacturing equipment of the Zenith power
conversion products group.
On October 30, 1995, The Company received notice from Zenith that the
Company had defaulted on the Zenith Note, entitling Zenith to declare all
amounts immediately due and owing. On February 28, 1996 Power Products entered
into a settlement agreement with Zenith which, together with subsequent
amendments, resulted in Zenith's agreement to forgive all outstanding
indebtedness, including the amounts due on the Zenith Note and certain accounts
payable, in exchange for (a) $1,000,000 payable over the course of seven months,
bearing interest at a rate of 12 percent per annum, and (b) warrants to purchase
400,000 common shares at $1.00 per share and 100,000 common shares at $5.00 per
share. The warrants expire March 15, 2001. The amount due under the settlement
was paid off in fiscal year 1997 and there are no outstanding balances due to
Zenith. In connection with the settlement agreement, the Company reported an
extraordinary gain in fiscal year 1996 of $1,433,000.
Acquisition of Power Sensors Corporation
On December 19, 1996, Power Products acquired all the assets, assumed a
portion of the liabilities, and hired key personnel of Power Sensors
Corporation, an Illinois corporation, for 6 percent of the outstanding Series A
Common Stock of Power Products and cash payment of $120,000. Power Products
believes this acquisition will facilitate its entry into one of the fastest
growing segments of the power conversion product market. In addition, adding
DC/DC power conversion products to its current product line, allows Power
Products to offer a more complete power conversion solution.
Business
Power Products manufactures its products at its own manufacturing
facility in the border city of Reynosa, Mexico, and distributes the products
from a facility in nearby McAllen, Texas. Product design, engineering, marketing
and sales are based at Power Products' facility in Mount Prospect, Illinois.
Custom products are specifically designed for a particular customer's products,
whereas standard products are designed to be used "off the shelf." Over ninety
percent of Power Products' offerings are distributed in the United States with
the balance marketed overseas, primarily in Europe.
In fiscal year 1996, Power Products' management, as part of the
Company's new overall strategic focus, undertook an analysis of the current
business and the future business direction in order to increase the number of
units sold and eventually, achieve profitability. As a result, in addition to
focusing on growing the custom power supply business, management decided to
actively pursue manufacturing contracts utilizing the low cost manufacturing
capability afforded by its Mexican facilities. In the fiscal year ended February
28, 1997, contract manufacturing was significantly below expectations due to
delays in starting up one major contract.
During the fiscal year ended February 28, 1997, Power Products was
notified by its largest customer, Pitney Bowes Corp., that they would
discontinue purchasing one of the power supply products they had purchased
during fiscal years 1996 and 1997. Revenues from this custom power supply during
the fiscal year ended February 28, 1997 represented 63% of total revenues for
Power Products and 48% of consolidated revenue of the Company. Sales for Power
Products' standard product line during the fiscal year 1997 increased after two
years of decline due to increased marketing efforts and the addition of regional
sales managers. Contract manufacturing activity increased during the fourth
quarter of fiscal year 1997 and Power Products expects continued growth in these
services during fiscal year 1998.
Due to the loss of substantially all of Pitney Bowes revenues, Power Products'
fiscal year 1998 revenues are expected to be significantly below its fiscal year
1997 revenues. Power Products expects that the addition of the DC/DC product
line and the anticipated growth in contract manufacturing services will help
offset some of the lost revenues attributable to Pitney Bowes, however, there
can no assurance that Power Products will be able to increase revenues enough to
achieve profitably for fiscal year 1998.
Products and Distribution. The major customers for custom power
conversion products are IBM Corporation, Pitney Bowes Corp., and Xerox Corp. The
standard products fall into the low-to-mid power range with 30-400 watt
offerings in the electronics industry such as telecommunications, computers and
medical equipment. All product distribution is done from Power Products'
McAllen, Texas location. All sales and marketing, including customer order
processing, is handled out of Power Products' Mt. Prospect, Illinois location.
Power Products' standard power supplies are sold in the United States
through both manufacturers representatives and distributors. There are
approximately seven manufacturers representative organizations in the United
States who have exclusive territories and generally handle all order activity
for customers who purchase in excess of 1,000 units annually. There are also
approximately 32 distributors in the United States, with 72 sales locations, who
do not have exclusive territories. Allied Electronics, Inc. is the only national
distributor, distributing Power Products supplies in over 70 sales locations.
The other 32 distributors are local or regional in marketing scope. Several of
the distributors perform value-added services, such as cable and harness
assembly and voltage settings, in addition to local stocking. European sales are
handled through four master international distributors consisting of Powersolve
(England), Elbatex (Switzerland), Acal Auriema (Netherlands), and Powerbox
(Sweden). Master distributors do not have exclusive territories and can sell in
any European country where they maintain an office. Agreements with
manufacturers representatives and distributors generally do not provide rights
to return product.
Power Products' current marketing strategy includes utilizing its
manufacturers representatives to promote business both with existing accounts
and with new customers. Management recently hired a senior industry executive as
Vice President of Sales and Marketing to focus on developing relationships with
large OEMs in the telecommunications and data communications industries and to
further develop distribution channels for the AC/DC and DC/DC standard product
lines.
For standard products, Power Products' principal competitors are Astec
America, Ltd., Computer Products, Inc., Power One, Inc., Kepco, Inc., Lambda
Electronics, Inc. and Todd Products Group, Inc. Custom products competition
comes primarily from Zytec, Inc., Chloride Corporation, Lucent Technologies, and
ITT Corporation, as well as a number of Pacific Rim companies such as Delta
Products Corp. and Phihong.
Manufacturing. In December 1994, Power Products established and
commenced distribution from its warehouse located in McAllen, Texas. From this
distribution center, Power Products distributes finished products, and procures
raw materials for shipment to its manufacturing plant in Reynosa, Mexico, which
is approximately 10 miles from McAllen, Texas. The manufacturing equipment
purchased from Zenith was fully installed in the first half of fiscal year 1996.
In fiscal year 1997, an automated surface mount line was installed in the Mexico
plant which increased the plant's overall capacity and due to the technological
enhancements of this line, opened up additional market opportunities in the
custom products line. During fiscal year 1997, ISO 9002 certification was
achieved at the Mexico plant and the primary phase of DC/DC manufacturing was
transferred to the Mexico plant. Power Products employed approximately 250
manufacturing and support personnel at its Mexico plant as of April 30, 1997.
SURGX CORPORATION
SurgX Corporation ("SurgX") designs, manufactures and markets surge
protection components to OEMs in the computer and electronics industries to
provide protection against electrostatic discharge ("ESD") at the printed
circuit board level. SurgX is also attempting to migrate this solution into the
integrated circuit (IC) package.
Background
As the information technology industry progresses in capacity, speed
and performance, it is moving toward faster circuit performance, smaller chip
geometries and lower operating voltages. Coinciding with these trends is the
proliferation of various equipment and information networks. These developments
have been accompanied by increases in both product susceptibility to failure
from over-voltage threats as well as more widespread incidences of such threats,
resulting in the "burn-out" of chips and circuitry. These threats can originate
from inside or outside the products and can arise from such factors as human
body electrostatic discharge, induced lightning effects, spurious line
transients and other complex over-voltage sources. During the last decade, new
products emerged to address this need to protect integrated circuits from
electrostatic discharge damage. Related specialized products range from wrist
straps worn by electronics assembly workers, to special anti-static packaging of
both components and sub-assemblies.
The United States market for surge protection devices was estimated by
an industry commentator to have reached $800 million in 1995, and is comprised
of some mature devices such as gas discharge tubes, varistors, TVS (transient
voltage suppression), diodes and thyristors. Though proven for performance and
reliability, each of these technologies has only a narrow range of application.
In addition, none achieves the desired combination of high speed, elevated power
handling capability, low clamping voltage and low capacitance. Furthermore,
present conventional devices and methodology are expensive. At the present time,
approximately ten manufacturers supply over 70% of the surge protection products
sold worldwide. Among the major suppliers are Shinko, Harris Semiconductor,
Inc., Siemens Components, Inc., Panasonic, General Instrument Corp., AVX
Microsemi Corp. and Motorola Corp. It is estimated that over 50% of present ESD
protection devices are used in telecommunications, but the market for computer
equipment protection is now growing rapidly.
Business
In 1993, the Company assembled an experienced product design team for
the development and manufacture of a family of specialized components designed
to protect integrated circuits, integrated circuit modules, and assembled
printed circuit boards. The Company completed preliminary prototypes of its
SurgXTM products in fiscal year 1995 and commenced customer sampling of the
first components utilizing the SurgXTM technology, primarily connectors used in
the telecommunications and computer industries.
The proprietary SurgXTM technology for over-voltage protection is
comprised of a specialized polymer formulation containing inorganic solids,
metal particles and adhesion-promoting agents which can be tailored for use
against surge threats with different voltage and power levels. In 1994, the
company designed and packaged an ESD formulation for several connector
configurations as well as the two standard surface-mount packages. By
controlling the basic formulation and adapting solutions to various customer
designs, SurgX expects to become a major supplier of such devices. Toward this
objective, SurgX plans to undertake computer modeling of both the surge
protection phenomena as well as the predictive behavior of device performance
and applicability.
In 1994, the Company applied for trademarks for the SurgXTM, SurgAidTM
and SurgTapeTM varies for related products described below with the United
States Patent and Trademark Office. SurgX and SurgTape are in the final stages
of the trademarking process and a time extension has been filed for SurgAid. In
1995, the Company also filed two patents on surge suppressing devices, materials
and manufacturing processes, which are in the process of being split into eleven
patents. A third patent on devices was filed in 1996. In 1997, foreign filings
were initiated on the two initial patents. In 1997, SurgX filed a service mark
application for the SurgX logo design.
SurgX's approach to the market consists of two parallel paths. The
first product group will be a series of board-level devices and inserts for
board mount connectors initially addressing the less than 50 watt ESD segment of
the existing diode market with lower price and higher performance, and
ultimately, expanding to include the 500 watt line transient segment of the
diode market. In 1989, the diode market represented $100 million of the total
$250 million TVS components which were sold in the United States. Based upon an
industry analysis, the diode market is believed to represent $450 million of the
estimated total $800 million TVS components market in the United States in 1995.
Within this segment, traditionally packaged plug compatible devices less than 50
watts represented $89 million in 1989 and is estimated to have represented $400
million in 1995. The first product group is designed to address the ESD segment
of the 500 watt diode market.
The first product group is considered off-chip protection for
integrated circuits, that is the supplemental devices that are not contained
within the IC and/or the IC package. The first product group is discrete devices
typically added at the board level to protect the circuitry on printed circuit
boards. The second product group, SurgTape, is intended to supplement on-chip
ESD protection by placing SurgTape inside the IC package on the leadframe.
SurgTapeTM is intended to be an inexpensive, on-board surge protection
device to be installed directly into the IC package as well as into many
components or sub-assemblies. Management believes that the development of low
cost, small size, and easy to use SurgTapeTM devices for application inside the
integrated circuit package could be an alternative to existing ESD Protection
Devices of the high lead count, high value IC market. Management's preliminary
estimate of the high lead count, high value IC market is two billion units in
1998. Management is planning further market studies to obtain more detailed
information with respect to potential customers and market opportunities.
However, there can be no assurance that SurgX will be able to commercially
develop this product, or that IC manufacturers will replace or supplement
existing ESD protection devices with SurgTape(TM).
Products and Distribution
A limited number of SurgX components were supplied to various OEMs in
the fourth quarter of fiscal year 1995 and during fiscal year 1996. According to
feedback from potential customers, the samples were well received. However, it
became apparent to management that in order to effectively penetrate the market,
SurgX would have to mass produce the product. In fiscal year 1996, a strategic
review of the business was undertaken as part of the Company's overall
restructuring. The Company determined that it would be more efficient to
establish a relationship with an experienced corporate partner who could provide
the necessary high volume manufacturing and distribution channels. It was also
determined that SurgX should seek development partners to develop SurgTapeTM in
order to reduce the associated development expenses.
In fiscal year 1997, an exclusive, world wide (except for Japan)
license was granted to Bussmann, a subsidiary of Cooper Industries for the
manufacture and marketing of SurgX surface mount and connector array components.
In consideration for this license, Bussmann paid $750,000 in development
funding, and, subject to terms of the license agreement, will pay royalties for
approximately 11 years to SurgX based upon Bussmann's sales of surface mount
components and connectors. The product is marketed by Bussmann under the SurgX
trademark. Bussmann is a leading manufacturer of fuses and was seeking new
circuit protection technology for rapid market expansion. Bussmann's target
market for SurgX is the rapidly growing electronics market. Since the signing of
the license agreement in July 1996, Bussmann has taken on the manufacturing of
SurgX components using liquid SurgX manufactured by SurgX. Bussmann has also
commenced sampling customers, and has launched a world wide advertising
campaign.
In fiscal year 1997, SurgX entered into two SurgTape milestone-based
product development agreements with two major manufacturers of integrated
circuits. Currently, SurgX has completed the electrical proof of concept
milestone with one IC manufacturer and is in the final stages of the proof of
concept with the second IC manufacturer. Management anticipates the
co-development contracts may lead to supply contracts with the development
partners in calendar year 1998. There can be no assurance, however, that SurgX
will be able to consummate any of these relationships, that any such
relationship will be on commercially advantageous terms to SurgX, or that any of
the products developed will be commercially successful.
ORYX INSTRUMENTS AND MATERIALS CORPORATION
Oryx Instruments and Materials Corporation ("Instruments and
Materials") designs, manufactures and markets materials analysis and test
equipment, specialized materials and electromagnet systems for the hard disk
drive and semiconductor industries.
Background
Instruments and Materials is comprised of two core businesses:
specialized materials assemblies based upon the patented IntrageneTM ceramic
metallization and joining system, and a materials analysis and test equipment
business which includes secondary ion mass spectrometer (SIMS) and electrostatic
discharge (ESD) simulator product lines.
The most mature product line consists of IntrageneTM-based sputtering
target assemblies. These have been sold into the rigid disk market since 1986
and are still considered one of the most reliable such assemblies in the market
today.
Sputtering target assemblies are manufactured by materials companies
and sold to end-users as source materials for coating other materials via a
vacuum based process called sputtering. Sputtering is employed as the primary
method for depositing thin film functional layers on rigid magnetic media (hard
disks), as well as in many semiconductor manufacturing operations. Once a target
is made, it must usually be incorporated into the sputtering apparatus by
joining it to a backing plate to make sound electrical, thermal and mechanical
contact. The bonding of a target to the backing plate, which is usually made of
copper, forms what is known as the "bonded target assembly."
The ESD simulator line has been part of the Company's product offering
since 1993 and serves both chip design and QA/Reliability departments of several
semiconductor companies. The installed base of ESD simulators made by
Instruments and Materials and its predecessor company, IMCS, exceeds 700
systems, world-wide.
The most recent addition to the Instruments and Materials product
offering is the TTS 2000 Process Monitoring Tool, a SIMS system. The fundamental
development and prototype system build was completed in early fiscal year 1995
and subsequent productizing efforts have been geared to employing the system as
a semi-automatic process monitoring tool for the rigid disk and semiconductor
industries. This system is used to study the chemistry and distribution of
chemicals on the surface of rigid disks and semiconductor wafers.
Introduced in the mid-1970's, secondary ion mass spectrometry ("SIMS")
is a surface analytical technique used by the semiconductor, plastics and
metallurgical industries for diagnostic purposes. SIMS analysis has
traditionally been limited to custom analytical laboratories staffed with highly
skilled analysts. Due to the high costs and skill required as a result of the
complexity of its instrumentation, SIMS equipment has traditionally been
expensive, ranging in price from $750,000 to $2.0 million.
In response to perceived industry needs, Instruments and Materials has
developed a new generation of SIMS instrumentation, called the TTS-2000,
designed for production process monitoring, which is significantly smaller,
simpler and less expensive to operate compared to existing SIMS equipment which
is generally used in non-production environments. Instruments and Materials
began customer shipments of its TTS product in fiscal year 1997. The selling
price for the instrumentation is between $280,000 and $350,000, depending upon
the configuration.
Acquisition of IMCS
In August 1993, the Company entered into an agreement for the purchase
of stock from Intek Diversified Corporation ("Intek") pursuant to which the
Company acquired all of the outstanding capital stock of IMCS Corporation (a
wholly-owned subsidiary of Intek). In connection with this transaction, the
Company also acquired product inventory owned by IMCX Corporation, another
wholly-owned subsidiary of Intek, obtained the right to employ certain
technology pertaining to IMCS' products presently owned by IMCX, and a license
for the use of additional proprietary technology of IMCX relating to U.S. Patent
No. 4,617,542. The IMCS products license relates to electrostatic discharge
simulation equipment, and the patent license relates to a high voltage switching
device. In consideration for the stock, the Company paid to Intek the cash sum
of $75,000, issued a non-interest bearing promissory note in the amount of
$180,000 in exchange for the aforementioned inventory, payable in 24
installments of $7,500 each commencing October 1, 1993 through September 1,
1995, and agreed to pay to IMCX various royalties for a specified term. In
conjunction with the purchase of IMCS, the Company entered into a royalty
agreement with Intek whereby the Company will pay, for a 15-year term, a royalty
to IMCX on all IMCS product sales. During the initial twelve months following
the acquisition or until IMCS generates $750,000 of product sales, whichever
occurs first, the royalty will be 6% of IMCS product sales. The royalty will be
8% of IMCS product sales for the remainder of the royalty period with the
aggregate maximum royalty not to exceed $800,000. IMCS also agreed to pay AT&T a
supplemental royalty for the same 15-year term equal to 3% of sales over
$333,000 of certain IMCS products with the maximum supplemental royalty limited
to $150,000.
Business
Through the IMCS acquisition, the Instruments and Materials product
group offers to semiconductor chip and product manufacturers a series of
products for testing over-voltage susceptibility as a result of ESD. Instruments
and Materials manufactures four different models: Model 700, a low cost, manual
electrostatic discharge (ESD) simulator; Model 7000, an automated ESD simulator;
and Model 9000, an automated charged device model (CDM) simulator based on a
licensed AT&T design and Model 11000, an automated multifunctional tester. The
prices for these models range from $12,000 to $300,000, and are primarily being
marketed directly to Instruments and Materials' customer base. There were four
system installations of the 11000 in fiscal year 1997.
The introduction of the TTS-2000 Process Monitoring Tool in fiscal year
1997 has brought about a high level of interest in implementing the SIMS
technique on the factory floor of rigid disk manufacturers. There were four
systems shipped in fiscal year 1997. These systems are utilized on production
lines with the intent of producing extensive surface chemistry data, over
several months, in order to begin correlating trends in surface contamination
with overall process yields. As a result, the TTS-2000 may be able to establish
its utility to the customer as a process monitoring tool - a system which will
ultimately help increase yields while detecting process problems before they
become catastrophic yield losses for the customer.
Instruments and Materials' primary strategic market is rigid disk
manufacturers. There are projected to be over 200 disk production lines in the
world by the year 2000. With the potential to monitor a number of different
types of production processes, a dedicated TTS-2000 could be used in multiple
places in a single production line. However, there can be assurance that this
product will meet the customer's technical requirement for a process
manufacturing tool, or that the yield detection capabilities will provide
utility to the manufacturing process.
Another potential market is the semiconductor market for monitoring
production wafers for various contamination problems or other chemistry-related
phenomena. This market is believed to be even larger than that for the rigid
disk market. With additional resources, Instruments and Materials believes that
some system modifications and re-engineering of the TTS-2000 could make the
adoption of a TTS system into the semiconductor market a reality in the coming
years. However, there can be no assurance that Instruments and Materials will be
able to develop this product or be willing to invest the necessary resources to
participate in this market.
Instruments and Materials also manufactures high quality sputtering
target assemblies based primarily on its patented IntrageneTM metal to non-metal
and metal to metal joining process. The IntrageneTM process is a proprietary
methodology developed by metallurgists and materials scientists at Instruments
and Materials and has been granted six U.S. patents as well as national phase
patents based on two European patent applications and three Japanese patents.
The IntrageneTM process allows for the ability to metallize, solder or braze a
wide range of engineering ceramics, graphite and refractory metals.
Instruments and Materials' background in engineering materials and
joining has allowed it to develop several approaches to bonding brittle solids
of low to intermediate thermal expansion to typical high-expansion backing plate
materials such as copper and aluminum. Instruments and Materials' experience in
assembly design and stress reduction combined with the ability to produce bonded
target assemblies has enabled it to become a supplier of such products selling
directly to the thin-film magnetic media manufacturers.
Instruments and Materials' primary customers of the bonded targets are
Akashic Memories Corporation, Seagate Recording Media, Inc. (formerly, Conner
Peripherals and Seagate Magnetics), Trace Technology, and Western Digital Media
Corporation. The company has also undertaken research programs with NASA and the
Department of Defense, and has been the recipient of four Phase I and two Phase
II research contracts from NASA, two Phase I research contracts from the
Department of Defense, and one Phase I research contract from the National
Science Foundation during its 1992-1997 fiscal years, most of which involve
applications of its IntrageneTM and related core technology. The contracts
represent grants totaling over $2 million. Instruments and Materials also is
negotiating joint product development and research programs with major companies
in the information technology industry, and intends to continue pursuing
additional research contracts with the United States government.
Instruments and Materials derived its revenues primarily from sales of
its bonded sputtering target assemblies in the fiscal year ended February 28,
1997. Demand for these products has increased as world-wide demand for rigid
magnetic media has increased and produced a corresponding expansion in
manufacturing capacity. Management currently believes that the business will
sustain this growth in fiscal year 1998. In fiscal year 1998, Instruments and
Materials intends to emphasize the growth of its TTS and test equipment
businesses due to the high margin and the large market potential. Management
believes that the initial system installations performed in fiscal year 1997
will enable it to establish an installed base for reference selling in the
future. However, there can be no assurance that these systems will meet the
technical requirements of customers or that a significant market for such
products will develop. If Instruments and Materials fails to establish a market
presence for these products, it will have to consider taking steps to reduce
losses in this line of business.
Regulation and Environmental Matters
Instruments and Materials is subject to various federal, state and
local laws, regulations and recommendations relating to safe working conditions,
laboratory and manufacturing practices, and the use and disposal of hazardous or
potentially hazardous substances. Instruments and Materials believes that its
facilities and practices for controlling and disposing of the limited amount of
waste and potentially hazardous materials it produces are in compliance with
applicable environmental laws and regulations. The development of any additional
manufacturing operations by Instruments and Materials may require the Company to
comply with government regulations designed to protect the environment from
wastes and emissions and from hazardous substances, particularly with respect to
the emission of air pollutants, the discharge of cooling water, the disposal of
residues and the storage of hazardous substances. The extent of government
regulation which might result from any future legislation or administrative
action cannot be accurately predicted.
Patents and Proprietary Rights
Proprietary protection for Instruments and Materials' products,
processes and know-how is important to its business, and Instruments and
Materials plans to prosecute and defend its patents and proprietary technology.
Instruments and Materials' policy is to file patent applications to protect its
technology, inventions and improvements as soon as practicable. Instruments and
Materials also relies upon trade secrets, know-how and continuing technological
innovation to develop and maintain its competitive position.
Instruments and Materials owns and will maintain seven patents, five of
which are associated with the IntrageneTM process. The IntrageneTM patents
expire in 1999 and 2000. Instruments and Materials plans to file improvement
patent applications which may effectively broaden Instruments and Materials'
proprietary protection, but there can be no assurances that such improvement
patent applications will be granted. Instruments and Materials does not believe
that the expiration of such patents will have a materially adverse effect on its
competitive position relative to the marketing of its ceramic metallization and
bonding system products.
The Company has also filed for two patents with respect to its SurgX
product line for surge suppressing devices, and materials manufacturing process
which are in the process of being split into eleven patents and a third patent
application on devices was filed in 1996. In 1997, foreign filings were
initiated on the two initial patents.
EMPLOYEES
As of April 30, 1997 the Company employed 360 persons on a full-time
basis. Included among full time employees are 5 executive officers, 20 managers
and executive personnel, 30 engineering personnel, 10 sales and marketing
personnel, 21 administrative personnel and 274 manufacturing personnel. Of the
Company's full-time employees, some hold Ph.D. or Masters Degrees in one or more
fields of science. The Company's employees are not covered by any collective
bargaining agreements, and the Company believes its employee relations are
satisfactory.
<PAGE>
RISK FACTORS
History of Unprofitability; Substantial Recent Operating Losses and
Accumulated Deficit
Since its initial public offering in April 1994, the Company has not
been profitable on a quarterly or annual basis except for the quarters
ended May 31, 1996, August 31, 1996 and November 30, 1996. At February 28, 1997,
the Company had an accumulated deficit of $10,243,000. During the fiscal year
ended February 28, 1997, the Company's largest customer, Pitney Bowes, notified
the Company it would significantly reduce its purchases during the fourth
quarter ended February 28, 1997 and in the ensuing year. Due to the significant
reduction in sales to Pitney Bowes, the Company expects that it will not be
profitable for the fiscal year ending February 28, 1998 and there can be no
assurance that the Company will be profitable thereafter.
Liquidity and Capital Resources
The Company's working capital increased from $4,698,000 at February 29,
1996 to $6,514,000 at February 28, 1997. The Company's ratio of current assets
to current liabilities was 1.77:1 at February 29, 1996 and 2.31:1 at February
28, 1997. In the fiscal year ended February 28, 1997, the Company raised
additional capital of $4,143,000, net of issuance costs of $681,000 pursuant to
private placement offerings in which it issued and sold an aggregate of 2.8
million shares of its common stock to certain qualified institutional investors
under Regulation S of the Securities Act of 1933, as amended. In addition,
during fiscal year 1997, some of the Company's Warrants, Underwriters Units and
Stock Options were exercised, providing the Company with $842,200 of proceeds.
The Company recently closed a $5,500,000 asset based borrowing facility and
believes, based upon the Company's projections which include significant revenue
growth from new product lines, that this financing will be sufficient to satisfy
all of the Company's anticipated financing needs through at least February 28,
1998. In the event the Company requires additional equity or debt financing, or
attempts to raise capital through an asset sale, there can be no assurance that
such transactions can be effected in a timely manner to meet all of the
Company's needs, or at all, or that any such transaction will be on terms
acceptable to the Company or in the interest of its stockholders.
Risks of New Phase of Development
The Company has invested substantially in the development of
proprietary technologies in surface analysis, electrostatic surge testing of
integrated circuits and surge protection, and has shipped four units of its new
secondary ion mass spectrometer. The Company has also completed a licensing
agreement for part of its SurgX technology with an electronic component
manufacturer. There can be no assurance that the Company will be successful in
further commercializing these technologies or any other products, or developing
financially viable businesses based on these technologies. Results of operations
in the future will be influenced by numerous factors, including technological
developments by the Company, its customers and competitors, increases in
expenses associated with product development and sales growth, market acceptance
of the Company's products, the ability of the Company to successfully control
its costs of development, overhead and other costs, and manage its operations,
the capacity of the Company to develop and manage the introduction of new
products, and competition. There can be no assurance that revenue growth will be
sustained or profitability on a quarterly or annual basis will be achieved.
Accordingly, there can be no assurance that the Company will be able to
implement its business plan, expand its operations and develop and sustain
profitable operations.
On December 19, 1996, Oryx Power Products Corporation ("Power
Products"), the Company's power products subsidiary, acquired all of the assets,
assumed a portion of the liabilities, and hired key personnel of Power Sensors
Corporation, an Illinois corporation ("Power Sensors") for 6 percent of the
outstanding Series A Common Stock of Power Products and cash payments of
$120,000. The Asset Purchase Agreement for this acquisition provides that if,
within 3 years of December 19, 1996, Power Products is not itself sold in its
entirety to, or purchased by, a third party for cash or public securities of
such third party or publicly traded as a company whose securities are registered
under the Securities Act of 1993 or is a reporting company under the Securities
Act of 1934, then each of the holders of the Power Products Series A Common
Stock issued in the acquisition, shall have the option on that date to exchange
such Common Stock into a non-interest bearing promissory note of Power Products
in an amount equal to $2.50 per share of Common Stock for a total indebtedness
of $1,500,000. Power Sensors is a developer and manufacturer of DC/DC power
conversion products. While this acquisition is intended to provide the Company
with the entry into the DC/DC power supply market and to generate sales
sufficient to help offset the reduction in sales to Pitney Bowes as discussed
above, there can be no assurance that the Company will be able to successfully
market such products or that any sales of such products will offset any
reductions in the Company's sales to Pitney Bowes or any other customer.
Risks Associated with Management of Growth; Internal Control Deficiencies
The Company has recently experienced and may continue to experience
substantial growth in the number of employees and the scope if its operations,
resulting in increased responsibilities and changes in management. To manage
growth effectively, the Company will need to continue to improve its
operational, financial and management information systems and to develop and
maintain sound internal controls. Failure to do so could result in a material
adverse effect on the Company's financial condition and results of operations
and could result in a misstatement of operating results. In connection with the
audit of fiscal year 1995,a reportable condition was identified with respect to
the Company's record keeping for equity financing and share issuance
transactions. In connection with the Company's audit for the fiscal year ended
February 29, 1996, the Company's independent accountants identified a further
reportable condition relating to physical inventory procedures specifically with
regard to substantial adjustments that resulted from physical inventories taken
during the fiscal year ended February 29, 1996. The resulting adjustments were
reflected in the fiscal year 1996 financial statements. A reportable condition
indicates that a material error or irregularity may occur in the Company's
quarterly and year-end financial statements and may not be detected on a timely
basis by the Company's employees, thereby possibly resulting in a misstatement
of the Company's financial statements. Management has taken actions to resolve
these conditions, although there can be no assurance that the controls put in
place will lead to an adequate internal control structure.
Significant Customer Dependence
For the fiscal years ended February 28, 1997, February 29, 1996 and
February 28, 1995, sales to Pitney Bowes accounted for approximately 52%, 41%,
and 27% of consolidated revenues, respectively. The Company will experience a
significant reduction in sales to Pitney Bowes during the 1998 fiscal year.
Accordingly, the Company's operating results will be materially and adversely
affected by the loss of business from Pitney Bowes. There can be no assurance
that such customer or any other customers will in the future purchase products
from the Company at levels that equal or exceed those of prior periods, if at
all. While the Company actively pursues new customers, there can be no assurance
that the Company will be successful in its efforts, and any significant
weakening in customer demand would have a material adverse effect on the
Company.
Reliance on Third Party Manufacturers May Disrupt Operations
The Company relies on third-party manufacturers for the supply of
substantially all key components for all of its products. The Company's reliance
on outside manufacturers generally, and a sole manufacturer or a limited group
of manufacturers in particular, involves several risks, including without
limitation, a potential inability to obtain an adequate supply of required
components and reduced control over pricing, quality, cost, and timely delivery
of components. Any inability to obtain adequate deliveries or any other
circumstances that would require the Company to seek alternative sources of
supply or to manufacture such components internally could lead to disruption of
the operations of the Company, product deficiencies, unanticipated and
fluctuating expenses, unpredictable revenues, and sales and marketing
dislocations that are beyond the Company's control, and may have a material
adverse effect on the Company's business and operations.
Technological Changes Affecting Products and Product Development Risks
The design and manufacture of technologically advanced components and
equipment continually undergo rapid and significant technological change. The
Company's success will depend upon its ability to maintain a competitive
position with respect to its proprietary and other enhanced technology and to
continue to attract and retain qualified personnel in all phases of its
operations. The Company's business is, to a large degree, dependent upon the
enhancement of its current products and the development of new products.
Critical to the Company's success and future profitability will be its capacity
to develop new technologies for new product lines and product upgrades. Product
development and enhancement involve substantial research and development
expenditures and a high degree of risk, and there is no assurance that the
Company's product development efforts will be successful, will be accepted by
the market, or that such development efforts can be completed on a
cost-effective or timely basis. There can be no assurance that future
technological developments will not render existing or proposed products of the
Company uneconomical obsolete or that the Company will not be adversely affected
by competition or by the future development of commercially viable products by
others.
Quarterly Fluctuations of Operating Results
The Company's quarterly operating results have in the past been, and
will in the future be, subject to significant fluctuation. The Company's
operating results are impacted by numerous factors, such as product
introductions or modifications by competitors, market acceptance of the
Company's products and its customers' products, product price changes, product
mix, purchasing patterns of original equipment manufacturers ("OEMs") and other
customers, delays in, or failure to receive, orders due to customer financial
difficulties, and overall economic trends. The Company plans to introduce
product upgrades or new product lines from time-to-time, which could generate
short-term fluctuations and have a material adverse impact on sales of certain
existing products. In addition, customer orders may involve competing capital
budget considerations for the customer, thus making the timing of customer
orders difficult to predict and uneven. Any delay or failure to receive
anticipated orders, or any deferrals or cancellation of existing orders, would
adversely affect the Company's financial performance. The Company's expense
levels are based in part on its expectations as to future revenues and, in
particular, revenue growth, and the Company may be unable to adjust spending in
a timely manner to compensate for any revenue shortfall. Accordingly, operating
results in any one quarter could be materially adversely affected by, among
other factors, a failure to receive, ship or obtain customer acceptance of
sufficient orders in that quarter and any weakening in demand for the Company's
products could have a material adverse effect on the Company's operating results
and the Company's ability to achieve profitability.
Backlog and Inventory
Power Products historically has generally operated with a substantial
backlog. However, as a result of the reduction in business from Pitney Bowes,
Power Products no longer operates with significant backlog. Moreover, backlog at
the beginning of a quarter typically does not include all sales required to
achieve the Company's sales and operating targets for a quarter, which targets
depend on the Company's shipping orders scheduled to be sold during that
quarter. The terms of customer purchase orders generally provide that the
customer may cancel or reschedule all or a substantial portion of the order with
limited notice and with little or no penalty. The Company has experienced
rescheduling in the past and, to a lesser extent, cancellations, and expects
that it will experience such changes in the future. If the Company is unable
timely to adjust its parts orders to meet actual product demand from customers,
the result may be that the Company has a parts or product inventory which is
substantially different from the number and mix of products actually sold. Any
such inventory imbalance could result in inventory write downs or other
unexpected charges, contributing to significant fluctuations in operating
results from quarter to quarter.
Additionally, the Company's other subsidiaries operate with virtually
no backlog. Therefore, because the Company ships most of its products within a
short period after receipt of an order, the Company's net sales and operating
results for a quarter depend on the Company's ability to obtain orders for and
ship products within the same quarter. There can be no assurance, that the
Company will be able to obtain a sufficient level of orders to achieve
profitability on a quarterly basis.
Competition
The Company is engaged in certain highly competitive and rapidly
changing segments of the electronic components and systems manufacturing
industry in which technological advances, costs, consistency and reliability of
supply are critical to competitive position. In addition, the competition for
recruitment of personnel in the technologically-advanced manufacturing industry
is continuous and highly intense. The Company competes or may subsequently
compete, directly or indirectly, with a large number of companies which may
provide products or components comparable to those provided by the Company. In
addition, many present or prospective competitors are larger, better
capitalized, more established and have greater access to resources necessary to
produce a competitive advantage. In particular, there are a large number of
competitors producing power conversion products, many of which are larger and
more established technology oriented companies in the United States. In
addition, many low cost manufacturers exist in the Far East who may be expected
to introduce more technologically advanced power conversion products in the
future. There can be no assurance that the Company will be able to compete
effectively in the Power Conversion market or any other of its markets.
No Assurances of Protection for Patents and Proprietary Rights; Reliance on
Trade Secrets
The Company relies on a combination of patent, copyright, trademark and
trade secret laws, non-disclosure agreements and other intellectual property
protection methods to protect its proprietary technology. There can be no
assurance that any existing or subsequently obtained patents will provide the
Company with substantial competitive advantages, or that challenges will not be
instituted against the validity or enforceability of any patents owned by the
Company, or if initiated, that such challenges will not be successful. To the
extent the Company wishes to assert its patent rights, there can be no assurance
that any claims of the Company's patents will be sufficient to protect the
Company's technology, and the cost of any litigation to uphold the validity of a
patent and prevent infringement can be substantial even if the Company prevails.
In addition, there can be no assurance that others will not independently
develop similar technologies, duplicate the Company's technology, or
legitimately design around the patented aspects of the Company's technology.
Competitors or potential competitors may have filed applications for or received
patents, and may obtain additional patents and proprietary rights relating to
technology competitive with that of the Company. Furthermore, if additional
patents do not issue from present or future patent applications, the Company may
be subject to greater competition.
In certain cases, the Company also relies on trade secrets to protect
proprietary technology and processes which it has developed or may develop in
the future. There can be no assurance that secrecy obligations will be honored
or that others will not independently develop similar or superior technology.
The protection of proprietary technology through claims of trade secrets status
has been the subject of increasing claims and litigation by various companies,
both in order to protect proprietary rights, and for competitive purposes, even
where proprietary claims are unsubstantiated. The prosecution of proprietary
claims or the defense of such claims is costly and uncertain given the rapid
development of the principles of law pertaining to this area.
No Dividends on Common Stock
The Company has not paid any cash dividends on its Common Stock since
its inception and does not anticipate paying cash dividends on its Common Stock
in the foreseeable future. The future payment of dividends is directly dependent
upon future earnings of the Company, its financial requirements and other
factors to be determined by the Company's Board of Directors, as well as the
possible consent of lenders, underwriters or others. For the foreseeable future,
it is anticipated that any earnings which may be generated from the Company's
operations will be used to finance the growth of the Company and will not be
paid to holders of Common Stock.
Risk of Significant Dilution
On December 23, 1996, the Company issued and sold 1,134,130 shares of
Common Stock to various investors in a private placement exempt from the
registration requirements of the Securities Act under Regulation S thereunder.
On February 7, 1997, the Company issued and sold an additional 910,000 shares of
Common Stock in a second closing of the same offering described above (the
transactions described in the previous two sentences shall be referred to herein
collectively as the "Regulation S Offering.")
In connection with the Regulation S Offering, the Company retained
Yorkton Securities, Inc. ("Yorkton") to act as placement agent pursuant to that
certain Agency Agreement dated as of December 4, 1996 and amended as of January
23, 1997 (the "Agency Agreement"). Under the terms of the Agency Agreement, the
Company issued Yorkton warrants to purchase 90,730 and 72,800 shares of Common
Stock for a per share exercise price of $1.90 (the "Yorkton Warrants"). The
Yorkton Warrants are exercisable for a period of five years from the date of
each closing of the Regulation S offering.
As a result of these and various other transactions previously
undertaken by the Company, as of February 28, 1997, there were convertible
securities and warrants and options of the Company currently outstanding for the
conversion and purchase of up to approximately 5,480,000 shares of Common Stock,
which represent significant additional potential dilution for existing
stockholders of the Company. These underlying shares of Common Stock are not
included in currently outstanding shares. In addition, as a result of the
anti-dilution provisions included in certain of these derivative securities,
there may be further dilution based on the price that the Company issues other
securities in the future.
Volatility of Stock Price
The market price of the Company's Common Stock has fluctuated
substantially since the Company's initial public offering in April 1994. The
Company believes that a variety of factors could cause the price of the
Company's Common Stock to continue to fluctuate substantially, including, for
example, announcements of developments related to the Company's business,
liquidity and financial viability, fluctuations in the Company's operating
results and order levels, general conditions in the industries served by the
Company, the technology industry in general or the United States or worldwide
economy, announcements of technological innovations, new products or product
enhancements by the Company or its competitors, developments in patents or other
intellectual property rights, and developments in the Company's relationships
with its customers, distributors and suppliers. In addition, in recent years,
the stock market in general and the market for shares of small capitalization
stocks in particular has experienced extreme price fluctuations which have often
been unrelated to the operating performance of affected companies. Such
fluctuations could adversely affect the market price of the Company's
Csecurities and ability to obtain additional financing.
Authorization of Preferred Stock
The Board of Directors is authorized to issue shares of preferred stock
and to fix the dividend, liquidation, conversion, redemption and the rights,
preferences and limitation of such shares without any further vote or action of
the stockholders. Accordingly, the Board of Directors is empowered, without
stockholder approval, to issue preferred stock with dividend, liquidation,
conversion, voting or other rights which could adversely affect the voting power
of other rights of the holder of the Company's Common Stock. In the event of
issuance, the preferred stock could be utilized, under certain circumstances, as
a method of discouraging and delaying or preventing a change of control of the
Company. As of February 28, 1997, the Company had 4500 shares of Preferred Stock
outstanding with an obligation to pay dividends thereon. Although the Company
has no present intention to issue any additional shares of its preferred stock,
there can be no assurance that the Company will not do so in the future.
Item 2. Description of Property
The Company presently occupies an approximately 18,000 square foot
office, laboratory and manufacturing facility in Fremont, California under a
lease with Renco Investment Company that expires on June 15, 1998. Rent for the
remaining term of the lease is $15,688 through June 15, 1998, subject to annual
adjustments based on increases in the lessor's costs of operating the building.
The Company also presently leases other manufacturing space in Fremont,
California on a shorter term basis. On July 12, 1995, the Company entered into a
lease agreement with SCI Limited Partnership, for 3,600 square feet of
manufacturing space also located in Fremont, California. The term of the lease
is three years and lease payments are $3,359 per month including operating
expenses. On January 1, 1995, the Company entered into a 3 year lease with
FINSA, a Mexican property company, for a 40,000 square foot manufacturing plant
in Reynosa, Mexico. The cost is $217,890 per year plus additional park fees and
taxes. The Company also leases an 8,000 square foot warehouse in McAllen, Texas
from Hospitak/Meditron which began on November 15, 1994, and continues for 3
years at $3,520 per month. In addition, on October 19, 1995, the Company began
leasing 9,697 square feet in Mt. Prospect, Illinois under an agreement with OTR
(State Teachers Retirement System of Ohio). Rental costs on such facility are
$6,869 per month, and the lease continues for a period of five years. On August
12, 1996, SurgX entered into an agreement with E.B.J. Partners LP to lease a
22,000 square foot facility in Fremont, California. The monthly rental fee is
approximately $21,100 and the term of the lease expires August 30, 2001.
Each of the properties described above is in satisfactory condition for
the purpose for which it is used.
Item 3. Legal Proceedings
The Company knows of no material litigation or claims pending,
threatened or contemplated to which the Company is or may become a party.
Item 4. Submission of Matters to a Vote of Security Holders
During the fourth quarter of the Company's fiscal year ended February
28, 1997, no matters were submitted to a vote of security holders.
PART II
Item 5. Market for the Company's Units, Common Stock and Warrants and
Related Stockholder Matters
Since the Company's initial public offering of the Common Stock and
Warrants on April 6, 1994, the Company's Common Stock and Warrants have traded
principally on the NASDAQ Small Cap Market under the symbols "ORYX" AND "ORYXW,"
respectively. Prior to April 6, 1994, there was no public market for the
Company's securities. From April 6, 1994 through June 6, 1994, the Company had
Units which were also traded on NASDAQ, at which time the Company requested
withdrawal of such listing. The following table sets forth the high and low bid
quotations for the Common Stock and Warrants for the periods indicated, as
reported by NASDAQ. These quotations reflect prices between dealers, do not
include retail mark-ups, mark-downs or commissions and may not necessarily
represent actual transactions.
Common Stock Warrants
High Low High Low
1996 Fiscal year
1st Quarter $1-9/16 $1-3/16 $17/32 $1/4
2nd Quarter $2-1/4 $1 $3/4 $1/4
3rd Quarter $2-1/8 $1-1/4 $27/32 $5/8
4th Quarter $1-3/4 $7/8 $25/32 $3/8
1997 Fiscal year
1st Quarter $3-11/16 $1-1/4 $2-11/16 $1/2
2nd Quarter $4-1/16 $2-5/16 $3-5/8 $1-7/8
3rd Quarter $3-3/16 $2-1/8 $2-19/32 $1-1/2
4th Quarter $2-15/16 $2-1/16 $2-7/8 $1-9/16
On May 20, 1997, the per share closing price for the Common Stock was
$1-1/4, and for the Warrants was $1-1/2.
The Company's Common Stock and Warrants are also listed for trading on
the Pacific Stock Exchange under the symbols "ORYX" and "ORYXW," respectively.
Prior to June 6, 1994, the Company's Units were also traded on the Pacific Stock
Exchange, at which time the Company requested withdrawal of the listing for the
Units. On May 20, 1997, the closing sales prices for the Common Stock and
Warrants, as reported on the Pacific Stock Exchange were the same as on NASDAQ.
As of April 30, 1997 the number of record holders of the Company's Common
Stock and Warrants were approximately 120 and 14, respectively.
The Company has never paid cash dividends on its Common Stock. The
Company presently intends to retain future earnings, if any, to finance the
expansion of its business and does not anticipate that any cash dividends will
be paid in the foreseeable future. The Company is also substantially restricted
from the payment of dividends under the terms of its Underwriting Agreement with
J.W. Charles, Inc. Future dividend policy will depend on the Company's earnings,
capital requirements, expansion plans, financial condition and other relevant
factors as well as the possible need to obtain the consent of any of its
lenders, J. W.
Charles and placement agents, for its recent private offerings.
Item 6. Management's Discussion and Analysis of Financial Conditions and
Results of Operations
The following discussion in the Section "Management's Discussion and
Analysis of Financial Conditions and Results of Operations" contains trend
analysis and other forward-looking statements within the meaning of Section 27A
of the Securities Act of 1933, as amended, and Section 21E of the Securities
Exchange Act of 1934, as amended. Actual results could differ materially from
those projected in the forward-looking statements as a result of risk factors,
including, without limitation, those set forth above in the section "Risk
Factors."
Business Segments
The Company has organized its operations into three operating segments:
Power Products, Instruments and Materials, and SurgX. In addition, a Corporate
segment includes certain activities that are not directly related to any other
operations. In November 1995, the Company undertook strategic evaluations of
each of its businesses with the objective of maximizing stockholder value and
creating improved focus and execution in its core businesses. The businesses
were segregated and incorporated into three wholly owned subsidiaries as
follows.
Segment/Subsidiary Businesses
Oryx Power Products - Power Conversion Products
Corporation (OPP) - Contract Manufacturing
Oryx Instruments and Materials - Material Analysis and Test
Corporation (OIM) Equipment
- Specialized Materials
Assemblies
- Contract R&D
SurgX Corporation (SC) - Surge Protection Components
Consolidated Results of Operations
For the fiscal year ended February 28, 1997, revenues increased
$10,724,000 or 66% from $16,136,000 for the year ended February 29, 1996 to
$26,860,000. The growth in revenues was primarily attributable to the increased
volume from custom power conversion products and, in particular, one significant
OEM customer which will significantly reduce its purchases in fiscal year 1998.
Such customer accounted for 52% of consolidated revenues in fiscal year 1997.
Revenues from the Company's specialized materials product line increased and
initial shipments of the Company's TTS 2000 Process Monitoring Tool were made in
fiscal year 1997. Management expects that revenues for fiscal 1998 will be
slightly less than in fiscal 1997 as increases in sales of DC/DC power
conversion products, TTS 2000 process monitoring tools and contract
manufacturing services are expected to substantially offset the loss of Pitney
Bowes business. See Risk Factors "Customer Dependence". However, there can be no
assurance that such increase in revenues will occur.
The Company's gross profit increased from $3,116,000 for the year ended
February 29, 1996 to $8,385,000 for the year ended February 28, 1997,
representing an increase of $5,269,000 or 169%. Cost of sales as a percentage of
revenues was 81% for the year ended February 29, 1996, which decreased to and
69% for the year ended February 28, 1997. The increase in gross profit for
the year ended February 28, 1997 was primarily attributable to
the increased volume from custom power conversion products, initial shipments of
the higher margin TTS 2000 Process Monitoring Tool, and manufacturing
efficiencies at the Reynosa, Mexico plant. Due to the anticipated reduction in
sales of the Company's custom power conversion products, management expects
gross profits both in absolute terms and as a percentage of gross revenue to be
lower in fiscal year 1998. Management is currently instituting cost containment
programs in addition to increasing sales activities of new product lines.
However, there can be no assurances that additional sales will be achieved or
savings from cost control activities realized.
Operating expenses increased from $6,751,000 for the year ended
February 29, 1996 to $10,280,000 for the year ended February 28, 1997,
representing an increase of $3,529,000, or 52%. This increase reflects (i) the
establishment of administration activities within the three business units, (ii)
the increased investment by the Company in research and development for the TTS
2000 process monitoring tool and ESD test equipment and surge protection product
areas, (iii) manufacturing development of the surge protection product, and (iv)
the product launch of the TTS 2000.
More specifically, marketing and selling expenses increased $623,000 or
45%, from $1,387,000 for the year ended February 29, 1996 to $2,010,000 for the
year ended February 28, 1997. This increase is attributable to product launch
efforts associated with the TTS 2000 Process Monitoring Tool and surge
protection products. These product launch efforts will continue in fiscal
year 1998 and the Company expects selling and marketing expenses will
increase in line with revenue increases from these products.
General and administrative expenses increased from $2,541,000 for the
year ended February 29, 1996 to $4,499,000 for the year ended February 28, 1997,
representing an increase of $1,958,000 or 77%. This increase in general and
administrative expenses reflects the creation of infrastructure to support the
three separate business units, higher personnel costs due to increased headcount
and higher salaries, increased facilities costs, higher professional services
fees associated with regulatory compliance and investor relations. The Company
does not expect general and administrative costs to increase during fiscal year
1998 as the segregation of the business units was completed in fiscal year 1997.
While there can be no assurance that costs can be contained at the same levels
as in 1997, the Company is currently taking active steps to reduce general and
administrative expenses.
Research and development expenses increased $278,000 or 10%, from
$2,823,000 for the year ended February 29, 1996 to $3,101,000 for the year ended
February 28, 1997. The increase in expenses was offset, to some extent, by
development funding of $1,107,000 recognized by SurgX, which is recorded as an
offset to research and development expenses, from third parties to assist in the
development and commercialization of certain products. The Company expects
research and development expenses will increase as development efforts continue
on the commercialization of SurgX's products. However, there can be no
assurances that SurgX will receive additional development funding and therefore
that development efforts will continue at current levels. During fiscal year
1997, in conjunction with its acquisition of the assets of Power Sensors, Inc.,
the Company wrote-off approximately $670,000 of in process research and
development costs associated with the development of a high density DC/DC custom
power supply.
Net interest expense decreased from $320,000 for the year ended
February 29, 1996 to $10,000 for the year ended February 28, 1997, a decrease of
$310,000 or 93%. This decrease is primarily associated with the Company paying
off bridge loans, the Zenith note and a credit facility at the beginning of
fiscal 1997.
The Company recorded a $20,000 loss on its equity investment in DAS
Devices, Inc. during fiscal 1997. This compares to a loss of $195,000 recorded
in fiscal year 1996. During fiscal 1997, Das Devices announced and partially
completed a plan of recapitalization involving the sale of additional securities
which, when entirely implemented, would reduce the Company's ownership interest
in Das Devices, Inc. from 40% to approximately 5% on a fully diluted basis.
On February 29, 1996 the Company entered into a settlement agreement
with Zenith which resulted in an extraordinary gain from a debt restructuring of
$1,433,000 from the reduction of the Company's indebtedness to Zenith and
settlement of other claims offset by expenses. See Description of Business,
"Acquisition of Zenith Power Conversion Products Group" above.
Prior to the extraordinary gain related to the Zenith debt, the Company
incurred a loss of $ 4,192,000 in the fiscal year ended February 29, 1996
compared to a net loss of $1,965,000 for the fiscal year ended February 29,
1997, a decrease of $2,227,000 or 53%. This was attributable to the increased
volume for one power conversion product which resulted in increased revenues,
manufacturing efficiencies and reduced raw material purchase prices.
During the fiscal year commencing March 1, 1997, the Company
anticipates that it will experience additional operating losses primarily as a
result of the loss of revenue from the custom power conversion product mentioned
above. The Company plans to continue to invest in the TTS 2000 process
monitoring tool and ESD test equipment product lines and Surge protection
devices product lines and does not anticipate that it will achieve profitable
operation until the fourth quarter of fiscal 1998, and thus expects to report a
loss for the entire 1998 fiscal year. Management expects sales to increase
during the second half of fiscal 1998 as market acceptance expands for the TTS
2000, the newly acquired DC/DC power conversion product line is successfully
launched, and replacement business for custom power conversion products is
achieved. The Company does not expect that its surge protection business will be
profitable for an indefinite period beyond the 1998 fiscal year, and the Company
may, in light of other considerations, be forced to evaluate its strategy for
such business. However, there can be no assurance that the Company will be able
to achieve such profitability or, if it does, that it will be able to sustain
profitable operations.
Segment Results
ORYX POWER PRODUCTS CORPORATION
<TABLE>
Year Ended Year Ended
February 28, February 29,
(dollars in thousands) 1997 1996
- -----------------------------------------------------------------------------------------------------
<S> <C> <C>
Revenues $20,390 $12,014
Cost of Sales 13,870 9,947
------ -----
Gross Profit 6,520 2,067
Operating Expenses 4,075 2,611
------ -----
Operating Income(Loss) $2,445 $( 544)
===== =====
</TABLE>
In April 1994, the Company acquired the Power Products division of
Zenith. In early fiscal 1996, the Company commenced manufacturing products at
its facility in Reynosa, Mexico that were previously acquired under a fixed
price contract with Zenith.
In December 1996, the Company acquired all assets, assumed certain
liabilities, and hired key personnel of Power Sensors, Inc., a designer and
manufacturer of DC/DC power converters. In early 1997, Power Sensors personnel
moved to the Oryx Power Products offices in Mt. Prospect, Illinois, and DC/DC
production was transferred to the Company's manufacturing facility in Reynosa,
Mexico.
Revenues for the year ended February 28, 1997 increased $8,376,0000 or
70% from $12,014,000 for the year ended February 29, 1996 to $ 20,390,000 for
the year ended February 28, 1997. The revenue increase primarily relates to the
ramp up of volume shipments of a custom power supply to Power Products' largest
customer. Gross Profit increased by $4,453,000 or 215%, from $2,067,000 for the
year ended February 29, 1996 to $6,520,000 for the year ended February 28, 1997.
This increase relates primarily to manufacturing efficiencies and favorable
procurement programs associated with the Company's significantly higher
production volumes.
Operating expenses increased $1,464,000 or 56%, from $2,611,000 for
the year ended February 29, 1996 to $4,075,000 for the year ended February 28,
1997. The increase is attributable to additional engineering, sales and
administrative expenses as resources were brought on board to support growing
customer requirements in both the AC/DC and DC/DC produce lines. A one time
write-off of $670,000 of incomplete R&D costs associated with the acquisition of
the assets of Power Sensors, Inc. is included in fiscal year 1997 operating
expenses.
Power Products' income from operations for the year ended February 28,
1997 was $2,445,000, an increase of $2,989,000 from the $544,000 loss for the
year ended February 29, 1996.
<PAGE>
ORYX INSTRUMENTS AND MATERIALS CORPORATION
<TABLE>
Year Ended Year Ended
February 28, February 29,
(dollars in thousands) 1997 1996
- -----------------------------------------------------------------------------------------------------
<S> <C> <C>
Revenues $6,434 $4,114
Cost of Sales 4,323 3,073
----- -----
Gross Profit 2,111 1,041
Operating Expenses 3,422 1,956
----- -----
Operating Income(Loss) $(1,311) $( 915)
===== ====
</TABLE>
Revenues for fiscal year 1997 increased $2,320,000 or 56% to $6,434,000
for the year ended February 28, 1997 from $4,114,000 for the year ended February
29, 1996. The increase in revenues was primarily attributable to growth in the
ceramic metallization and joining system business which experienced increased
demand as the hard disk drive industry expanded manufacturing capacity. In
addition, initial shipments of the TTS Process Monitoring Tool began in the
second quarter of fiscal year 1997.
Gross profit increased $1,070,000 or 103% from $1,041,000 for the
year ended February 29, 1996 to $2,110,000 for the year ended February 28, 1997.
The improvement in gross profit was primarily due to increased revenues.
Operating expenses increased $1,466,000 or 75% from $1,956,000 for
the year ended February 29, 1996 to $3,422,000 for the year ended February 28,
1997. This increase was primarily a result of greater costs associated with the
product introduction and rollout of the TTS Process Monitoring Tool.
The loss from operations for the year increased $397,000 or 43% from
$915,000 for the year ended February 29, 1996 to $1,311,000 for the year ended
February 28, 1997. During fiscal 1997, due to indications of market acceptance
of the TTS Process Monitoring Tool, Instruments and Materials invested in the
organization by hiring scientists, hardware and software engineers, field
service engineers and application engineers to support the successful
commercialization of this product. These increased costs more than offset the
increase in gross margins. However, there can be no assurance that future sales
will be at a level to offset additional operating costs or that profitability
will be achieved for the business.
SURGX CORPORATION
<TABLE>
Year Ended Year Ended
February 28, February 29,
(dollars in thousands) 1997 1996
- -----------------------------------------------------------------------------------------------------
<S> <C> <C>
Revenues $ 36 $ 8
Cost of Sales 282 0
Operating Expenses 1,741 561
Development Funding* (1,107) 0
------- ---------
*(Offset against R &D)
Operating Income (Loss) $(880) $(553)
=== ===
</TABLE>
Cost of sales for fiscal 1997 represent the costs associated with
establishing and testing the manufacturing process to sell SurgX material to
Bussmann pursuant to a license agreement executed in fiscal 1997. Operating
expenses increased $1,180,000 or 210% from $561,000 for the year ended February
29, 1996 to $1,741,000 for the year ended February 28, 1997. The increase in
operating expenses primarily reflects additional research and development
expenses to develop commercial products. During fiscal 1997, SurgX received
$1,107,000 in development funding from third parties which defrayed the cost of
research, development and the commercialization of certain products. Due to the
higher level of research and development expenses and the cost associated with
the manufacturing launch of the Bussmann product, the loss from operations
increased $327,000 or 59% from $553,000 for the year ended February 29, 1996 to
$880,000 for the year ended February 28, 1997. While SurgX is looking to its
customer or joint venture partners to continue to fund development efforts,
there can be no assurance that those efforts will be successful, and in the
event that SurgX is unable to secure additional development funding, there can
be no assurance that the current or proposed level of development efforts for
fiscal 1998 can continue or that any other product other than the Bussmann
product will be made commercially available.
CORPORATE
Year Ended Year Ended
February 28, February 29,
(dollars in thousands) 1997 1996
- --------------------------------------------------------------------------------
Operating Expenses $ 2,149 $ 1,623
----- -----
Operating Income(Loss) $(2,149) $(1,623)
===== =====
The increase in operating expenses and loss from corporate operations
of $526,000 or 32% from $1,623,000 for the year ended February 29, 1996 to
$2,149,000 for the year ended February 28, 1997 primarily relates to increases
in costs of professional services fees associated with statutory compliance
activities and investor relations activities related to the separation of the
Company's businesses and management of same.
Liquidity and Capital Resources
The Company's working capital improved $1,816,000 or 42% from a
surplus of $4,698,000 at February 29, 1996, to a surplus of $6,514,000 at
February 28, 1997. This increase resulted from the reduction of current
liabilities through a payoff of a bank line of credit and retiring a note to
Zenith, principally with cash raised in a number of unregistered equity
offerings. The Company's ratio of current assets to current liabilities was
1.77:1 at February 29, 1996, and 2.31:1 at February 28, 1997. The Company's
operating losses, and inventory build-up have continued in the fiscal year ended
February 28, 1997, and together with the revenue loss from its largest customer,
have prompted the Company to secure debt financing, in order to fund anticipated
operating losses, as described below.
Net cash used in operating activities was $1,997,000 for the year ended
February 29, 1996, compared with net cash used in operations of $2,277,000 for
the year ended February 28, 1997, an increase of 14%. The increase in cash used
in operating activities in fiscal year 1997 principally related to paying off of
accounts payable that accumulated in late fiscal year 1996. In fiscal year 1996,
the Company completed private placements of Common Stock, resulting in net
proceeds of $4,759,000. The net proceeds from these offerings funded the
Company's operating deficit. In the fiscal year ended February 28, 1997, the
Company raised additional capital of $4,143,000, net of issuance costs of
$681,000 pursuant to private placement offerings in which it issued and sold an
aggregate of 2.8 million shares of its common stock to certain qualified
institutional investors under Regulation S of the Securities Act of 1933, as
amended. In consideration for these offering, the Company issued warrants to its
placement agent to purchase 32,000 shares of common stock at $ 1.375 per share
and 163,530
shares of Common stock at $ 1.90 per share. In September 1996 the placement
agent exercised 100,000 warrants issued in connection with the prior Regulation
S financings, resulting in proceeds to the Company of $137,500. In September
1996, the Company's underwriters in its initial public offering exercised
100,000 unit purchase warrants resulting in net proceeds of $371,000. Subject to
terms of the unit purchase warrant, 200,000 common shares and 100,000 warrants
to purchase 190,000 shares of common at $3.50 per warrant were issued to the
underwriters. In December 1996, the Company repurchased and retired from the
underwriters the remaining 223,961 unit purchase warrants for $475,000 and
40,000 warrants to purchase 76,000 common shares at $3.50 per warrant.
The Company entered into a revolving line of credit facility of up to
$1,500,000 with Comerica Bank on November 15, 1994, which was subject to
maintaining certain financial covenants. The Company was in default of such
covenants during the fiscal year ended February 29, 1996; the Bank and the
Company entered into a Modification and Forbearance Agreement in January 1996
terminating the line of credit facility and requiring all amounts outstanding to
be repaid to Comerica Bank by February 28, 1996. All such amounts were repaid in
March 1996.
In May 1997, the Company closed a $ 5,500,000 borrowing facility. The
facility includes an Accounts Receivable Revolving Batch Facility and an
Inventory Line of Credit. The Account Receivable Revolving Batch Facility allows
the Company to borrow up to a maximum of $4,000,000, provided that any amount in
excess of $3,500,000 must be supported by an equal amount of unused availability
under the Inventory Line of Credit. The Inventory Line of Credit allows the
Company to borrow up to $1,500,000 ($750,000 which is subject to an inventory
appraisal). The Company anticipates that this borrowing facility will be
sufficient to cover its fiscal 1998 cash requirements provided that sales
increases and expense reductions anticipated in the Company's current operating
plan are achieved. In the event its sales objectives or cost reduction targets
are not achieved, the Company will need to secure additional funding by selling
assets, raising additional equity, or taking other steps to obtain the financing
necessary to continue operations at their anticipated level. In the event the
Company requires additional equity financing, or attempts to raise capital
through an asset sale, there can be no assurance that such transactions can be
effected in time to meet the Company's needs, or at all, or that any such
transaction will be on terms acceptable to the Company or in the interest of its
stockholders.
Item 7. Financial Statements
The response to this item is submitted in a separate section of this
report.
Item 8. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
Not applicable.
Item 9. Directors, Executive Officers, Promoters and Control Persons;
Compliance with Section 16(a) of the Exchange Act
The information required by this item is incorporated by reference from
the information under the caption "Election of Directors," with respect to
Directors, and under the caption "Management," with respect to Executive
Officers, contained in the Company's definitive Proxy Statement which will be
filed with the Commission in connection with the solicitation of proxies for the
Company's 1997 Annual Meeting of Stockholders (the "Proxy Statement").
Item 10. Executive Compensation
The information required by this item is incorporated by reference to
the information under the caption "Executive Compensation" to be contained in
the Proxy Statement.
Item 11. Security Ownership of Certain Beneficial Owners and Management
The information required by this item is incorporated by reference to
the information under the caption "Security Ownership of Certain Beneficial
Owners and Management" to be contained in the Proxy Statement.
Item 12. Certain Relationships and Related Transactions
The information required by this item is incorporated by reference to
the information under the caption "Certain Transactions" to be contained in the
Proxy Statement.
Item 13. Exhibits, Lists and Reports on Form 8-K
Financial Statements and Schedules
The financial statements listed on the index to financial statements on
page F-1 are filed as part of this Form 10-KSB.
(b) Reports on Form 8-K
The Company filed with the Commission two Reports on Form 8-K during
the fiscal quarter ended February 28, 1997. The first such Report was filed on
February 7, 1997 for the purpose of reporting the private placement of the
Company's common stock pursuant to Regulation S. The second such Report was
filed on December 19, 1996 for the purpose of reporting the private placement of
the Company's common stock pursuant to Regulation S and the acquisition of the
assets of Power Sensors Corporation.
(c) Exhibits
Exhibit No. Description of Exhibits
F-1 Financial Statements
3.1 Certificate of Incorporation of the Registrant dated July 26,
1993(1) 3.2 Bylaws of the Registrant dated July 26, 1993(1)
3.3 Certificate of Amendment to Certificate of Incorporation
dated July 23, 1993(1) 3.3A Certificate of Amendment of
Certificate of Incorporation dated February 7, 1996(4) 4.1
Specimen Common Stock Certificate(1) 4.2 Specimen Common Stock
Purchase Warrant(1) 4.3 Warrant Agency Agreement including
Statement of Rights, Terms and Conditions for Callable Stock
Purchase Warrants(2)
4.4 Incentive and Nonqualified Stock Option Plan, as Amended(5)
4.4A 1996 Directors Stock Option Plan(5)
4.5 Form of Promissory Note issued to Series A Preferred Stock
investors(1) 4.6 Unit Purchase Warrant(1)
4.7 Form of Warrants issued to Yorkton Securities, Inc. in
December 1996 and February 1997(7)
10.1 Lease Agreement with Renco Investment Company re: Fremont,
California office, a laboratory and manufacturing facility(1)
10.2 Lease Agreement with FINSA re: Reynosa, Mexico, manufacturing
facility(3)
10.3 Lease Agreement with Greer Enterprises re: Fremont, California
manufacturing facility(3)
10.4 Lease Agreement with Hospitak/Meditron re: McAllen, Texas,
warehouse facility(3)
10.5 Lease Agreement with Security Capital Industrial Trust re:
Fremont, California manufacturing facility(4)
10.6 Lease Agreement with OTR, State Teachers Retirement System of
Ohio re: Mt. Prospect, Illinois office(4)
10.7 Lease Agreement with E.B.J. Partners LP re: Fremont,
California office and manufacturing facility*
10.8 Letter of Separation Agreement with Andrew Wilson*
10.9 Letter of Employment Agreement with Mitchel Underseth*
10.10 Letter of Employment Agreement with Philip Micciche*
10.11 Letter of Employment and Non-Competition Agreement with Andrew
Intrater(1)
10.12 Agreement for the Purchase and Sale of Stock with Intek
Diversified Corporation(1)
10.13 Asset Purchase Agreement with Zenith Electronics
Corporation(1)
10.14 Promissory Notes issued in interim debt financing(1)
10.15 Common Stock Purchase Warrants issued in interim debt
financing(3)
10.16 Placement Agency Agreement between the Company and Yorkton
Securities, Inc. dated February 8, 1996, as amended April 22,
1996(4)
10.17 Form of Subscription Agreement between the Company and various
investors in Yorkton Private Placement dated February 29, 1996
and May 13, 1996(4)
10.18 Offering Memorandum dated February 8, 1996 and Supplement
thereto dated April 22, 1996, relating to Yorkton private
placement(4)
10.19 Settlement Agreement between the Company and Zenith
Electronics Corporation dated February 29, 1996, as amended
April 16, 1996(4)
10.20 Agreement between the Company and Bussmann dated July, 1996*
10.21 Agreement between the Company and National Semiconductor
dated June 7, 1996*
10.22 Agreement between the Company and LSI Logic dated September
30, 1996*
10.23 Lease Agreement between Power Sensors Corporation and Copelco
dated December 7, 1995*
10.24 Agency Agreement between the Company and Yorkton Securities,
Inc. dated December 4, 1996, as amended January 23, 1997(7)
10.25 Form of Subscription Agreement between the Company and various
investors in Yorkton Private Placement dated December 4,
1996(8)
10.26 Asset Purchase Agreement relating to the acquisition of Power
Sensors Corporation by Oryx Power Products Corporation dated
December 19, 1996(6)
21 Subsidiaries of the Registrant(4)
23 Consent of Independent Accountants*
* Filed herewith.
(1) Previously filed as an exhibit to the Company's Registration Statement on
Form SB-2 (Registration No. 33-72104) which became effective on April 6,
1994 and is incorporated herein by reference.
(2) Previously filed as an exhibit to the Company's Current Report on Form 8-K
filed with the Commission on March 27, 1995.
(3) Previously filed as an exhibit to the Company's Annual Report on Form
10-KSB for the fiscal year ended February 28, 1995.
(4) Previously filed as an exhibit to the Company's Annual Report on Form
10-KSB (as Amended) for the fiscal year ended February 29, 1996.
(5) Previously filed as an exhibit to the Company's Registration Statement on
Form S-8 (Registration No. 333-13887) filed with the Commission on October
10, 1996 and is incorporated herein by reference.
(6) Previously filed as an exhibit to the Company's Current Report on Form 8-K
filed with the Commission on January 3, 1997.
(7) Previously filed as an exhibit to the Company's Current Report on Form 8-K
filed with the Commission on February 21, 1997.
(8) Previously filed as an exhibit to the Company's Registration Statement on
Form S-3 Registration No. 333- 23317) which became effective on March 31,
1997 and is incorporated herein by reference.
<PAGE>
SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act, the
Registrant caused this Report to be signed on its behalf by the undersigned
thereunto duly authorized on this 29th day of May, 1996.
ORYX TECHNOLOGY CORP.
By: /S/ Philip J. Micciche
Philip J. Micciche,
President & CEO
In accordance with the Exchange Act, this report has been signed below
by the following persons on behalf of the Registrant, and in the capacities and
on the date indicated.
Signature Title Date
President, CEO
/s/ Philip J. Micciche and Director May 29, 1997
- ----------------------
Philip J. Micciche
Secretary, Treasurer May 29, 1997
/s/ Andrew Intrater and Director
Andrew Intrater
Chief Financial May 29, 1997
/s/ Mitchel Underseth Officer
Mitchel Underseth
Chairman of the May 29, 1997
/s/ Arvind Patel Board and Director
Arvind Patel
(signatures continued next page)
<PAGE>
(signatures continued from previous page)
Signature Title Date
/s/ John H. Abeles Director May 29, 1997
- ----------------------
John H. Abeles
/s/ Jay M. Haft Director May 29, 1997
- ----------------------
Jay M. Haft
/s/ Ted D. Morgan Director May 29, 1997
- ----------------------
Ted D. Morgan
<PAGE>
EXHIBIT F-1
FINANCIAL STATEMENTS
FEBRUARY 28, 1997
<PAGE>
Index to Consolidated Financial Statements
Page
Report of Independent Accountants................................... F-2
Sheet at February 28, 1997
and February 29, 1996.......................................... F-3
Consolidated Statement of Operations for the years
ended February 28, 1997 and February 29, 1996.................. F-4
Consolidated Statement of Stockholders' Equity for the
years ended February 28, 1997 and February 29, 1996............ F-5
Consolidated Statement of Cash Flows for the years
ended February 28, 1997 and February 29, 1996.................. F-6
Notes to Consolidated Financial Statements........................... F-7
<PAGE>
Report of Independent Accountants
To the Board of Directors and Shareholders of
Oryx Technology Corp.
In our opinion, the accompanying consolidated balance sheet and the related
consolidated statements of operations, of stockholders' equity and of cash flows
present fairly, in all material respects, the financial position of Oryx
Technology Corp. and its subsidiaries at February 28, 1997 and February 29,
1996, and the results of their operations and their cash flows for the years
then ended in conformity with generally accepted accounting principles. These
financial statements are the responsibility of the Company's management; our
responsibility is to express an opinion on these financial statements based on
our audits. We conducted our audits of these statements in accordance with
generally accepted auditing standards which require that we plan and perform the
audit to obtain reasonable assurance about whether the financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements,
assessing the accounting principles used and significant estimates made by
management, and evaluating the overall financial statement presentation. We
believe that our audits provide a reasonable basis for the opinion expressed
above.
PRICE WATERHOUSE LLP
San Jose, California
May 16, 1997, except for Note 14, which is as of May 29, 1997
<PAGE>
- --------------------------------------------------------------------------------
Oryx Technology Corp.
Consolidated Balance Sheet
- --------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
F-44
<TABLE>
February 28, February 29,
1997 1996
Assets
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 3,080,000 $ 3,939,000
Accounts receivable, net of allowance for doubtful
accounts of $97,000 and $139,000 3,457,000 2,690,000
Inventories 4,795,000 3,880,000
Other current assets 171,000 256,000
--------------- ----------------
Total current assets 11,503,000 10,765,000
Property and equipment, net 2,674,000 1,298,000
Intangible assets, net 755,000 49,000
Other assets 380,000 228,000
--------------- ---------------
$ 15,312,000 $ 12,340,000
Liabilities, Mandatorily Redeemable Securities,
and Stockholders' Equity
Current liabilities:
Bank borrowings $ 215,000 $ -
Capital lease obligations 137,000 16,000
Bank line of credit - 352,000
Notes payable - 1,428,000
Accounts payable 2,686,000 3,186,000
Accrued liabilities 1,951,000 1,085,000
--------------- ----------------
Total current liabilities 4,989,000 6,067,000
Capital lease obligations, less current portion 184,000 34,000
Bank borrowings, less current portion 705,000 -
--------------- ----------------
Total liabilities 5,878,000 6,101,000
--------------- ----------------
Mandatorily redeemable securities (Note 4) 637,000 -
Commitments and contingencies (Notes 1 and 12)
Stockholders' equity: (Notes 4,5,6,7, and 8)
Series A 2% Convertible Cumulative Preferred Stock, $0.001 par value;
3,000,000 shares authorized; 4,500 and 34,875 shares issued and
outstanding,
liquidation value $113,000 and $872,000 107,000 832,000
Common Stock, $0.001 par value; 25,000,000 shares
authorized; 12,968,581 and 9,228,668 issued
and outstanding 13,000 9,000
Additional paid-in capital 18,920,000 13,629,000
Accumulated deficit (10,243,000) (8,231,000)
--------------- ----------------
Total stockholders' equity 8,797,000 6,239,000
--------------- ----------------
$ 15,312,000 $ 12,340,000
</TABLE>
<PAGE>
- --------------------------------------------------------------------------------
Oryx Technology Corp.
Consolidated Statement of Operations
- --------------------------------------------------------------------------------
<TABLE>
Year Ended Year Ended
February 28, February 29,
1997 1996
<S> <C> <C>
Net revenue $ 26,860,000 $ 16,136,000
Cost of sales 18,475,000 13,020,000
--------------- ----------------
Gross profit 8,385,000 3,116,000
--------------- ----------------
Operating expenses:
Marketing and selling 2,010,000 1,387,000
General and administrative 4,499,000 2,541,000
Research and development, net 3,101,000 2,823,000
Acquired in-process research and development 670,000 -
--------------- ----------------
Total operating expenses 10,280,000 6,751,000
--------------- ----------------
Loss from operations (1,895,000) (3,635,000)
Interest expense, net 10,000 320,000
Equity in losses of investee 20,000 195,000
--------------- ----------------
Loss before income taxes and extraordinary gain (1,925,000) (4,150,000)
Provision for income taxes 40,000 42,000
--------------- ----------------
Loss before extraordinary gain (1,965,000) (4,192,000)
Extraordinary gain from debt restructuring - 1,433,000
Net loss (1,965,000) (2,759,000)
Dividends and accretion (47,000) (20,000)
--------------- ----------------
Net loss attributable to Common Stock $ (2,012,000) $ (2,779,000)
=============== ===============
Net loss per common share before extraordinary gain $ (0.19) $ (0.73)
Extraordinary gain from debt restructuring - 0.25
--------------- ----------------
Net loss per common share $ (0.19) $ (0.48)
=============== ================
Weighted average common shares outstanding 10,650,000 5,789,642
=============== ================
</TABLE>
<PAGE>
- --------------------------------------------------------------------------------
Oryx Technology Corp.
Consolidated Statement of Stockholders' Equity
- --------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
F-66
<TABLE>
Series A 2%
Convertible Cumulative Additional
Preferred Stock Common Stock Paid-In Accumulated
Shares Amount Shares Amount Capital Deficit Total
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at February 28, 1995 43,500 $1,038,000 4,325,020 $ 4,000 $8,137,000 $(5,452,000) $3,727,000
Issuance of Common Stock and warrants in private
placements, net of issuance costs of $560,000 - - 4,835,831 5,000 4,754,000 - 4,759,000
Issuance of warrants in connection with debt
restructuring - - - - 366,000 - 366,000
Issuance of warrants in connection with shareholder - - 213,000 - 213,000
notes payable
Issuance of Common Stock upon exercise of options - - 525 - 1,000 - 1,000
Conversion of Preferred Stock to Common Stock (8,625) (206,000) 100,625 - 206,000 - -
Repurchase of Common Stock - - (33,333) - (48,000) - (48,000)
Net Loss - - - - - (2,759,000) (2,759,000)
Preferred stock dividend - - - - - (20,000) (20,000)
--------- ---------- ---------- --------- ---------- ---------- -----------
Balance at February 29, 1996 34,875 832,000 9,228,668 9,000 13,629,000 (8,231,000) 6,239,000
Issuance of Common Stock and warrants in private
placements, net of issuance costs of $681,000 - - 2,836,130 4,000 4,139,000 - 4,143,000
Issuance of Common Stock upon exercise of options - - 199,818 - 243,000 - 243,000
Issuance of Common Stock upon exercise of warrants - - 349,590 - 599,000 - 599,000
Issuance of warrants in exchange for services - - - - 60,000 - 60,000
Repurchase of underwriter units - - - - (475,000) - (475,000)
Conversion of Preferred Stock to Common Stock (30,375) (725,000) 354,375 - 725,000 - -
Accretion of redemption value on manditorily
redeemable securities - - - - - (37,000) (37,000)
Net Loss - - - - - (1,965,000) (1,965,000)
Preferred Stock dividend - - - - - (10,000) (10,000)
--------- ---------- ---------- --------- ---------- ---------- -----------
Balance at February 28, 1997 4,500 $ 107,000 12,968,581 $ 13,000 $18,920,000$(10,243,000) $ 8,797,000
========= ========== ========== ========= ========== ==========
</TABLE>
<PAGE>
- --------------------------------------------------------------------------------
Oryx Technology Corp.
Consolidated Statement of Cash Flows
- --------------------------------------------------------------------------------
<TABLE>
Year Ended Year Ended
February 28, February 29,
1997 1996
Cash flows from operating activities:
<S> <C> <C>
Net loss $ (1,965,000) $ (2,759,000)
Adjustments to reconcile net loss to net cash used in operating activities:
Equity in losses of investee 20,000 195,000
Extraordinary gain on debt restructuring - (1,433,000)
Value of warrants issued for services and in connection with notes payable 60,000 213,000
Depreciation and amortization 558,000 421,000
Acquired in-process research and development 670,000 -
Changes in assets and liabilities (net of effects of Power Sensors
acquisition and debt restructuring):
Accounts receivable (645,000) (170,000)
Inventories (764,000) (789,000)
Other current assets 150,000 (191,000)
Other assets (147,000) (68,000)
Accounts payable (688,000) 2,258,000
Accrued liabilities 474,000 326,000
--------------- ---------------
Net cash used in operating activities (2,277,000) (1,997,000)
--------------- ---------------
Cash flows from investing activities:
Capital expenditures (1,553,000) (726,000)
Purchase of Power Sensors (120,000) -
Investment in development stage company (25,000) (29,000)
---------------- ---------------
Net cash used in investing activities (1,698,000) (755,000)
--------------- ---------------
Cash flows from financing activities:
Borrowings/(repayment) of bank line of credit (352,000) 352,000
Proceeds from (repayment of) notes payable (1,428,000) 400,000
Repayment of long-term debt (25,000) (52,000)
Borrowings of long-term debt 390,000 -
Payment of capital lease obligations (51,000) (77,000)
Proceeds from issuance of Common Stock/warrants, net 4,143,000 4,760,000
Proceeds from exercise of options for Common Stock 243,000 -
Proceeds from exercise of warrants for Common Stock 599,000 -
Repurchase of underwriter units (475,000) -
Other 72,000 (68,000)
--------------- ---------------
Net cash provided by financing activities 3,116,000 5,315,000
--------------- ---------------
Net increase (decrease) in cash and cash equivalents (859,000) 2,563,000
Cash and cash equivalents at beginning of period 3,939,000 1,376,000
--------------- ---------------
Cash and cash equivalents at end of period $ 3,080,000 $ 3,939,000
=============== ===============
Supplemental disclosures of cash flow information:
Interest paid during the period $ 50,000 $ 42,000
=============== ===============
Supplemental disclosure of noncash investing and financing activities:
Property and equipment acquired under capital lease obligations $ 54,000 $ -
=============== ===============
Accretion of redemption value $ 37,000 $ -
=============== ===============
</TABLE>
600,000 shares of subsidiary common stock were issued in connection with
the acquisition of Power Sensors Corporation.
<PAGE>
Oryx Technology Corp.
Notes to Consolidated Financial Statements
1. The Company
Oryx Technology Corp. ("Oryx" or the "Company"), a Delaware corporation,
and its subsidiaries manufacture power conversion products, assemblies used
in the production of computer memory disks, electromagnets, electrostatic
discharge test, and secondary ion mass spectrometer measurement devices.
In April 1994, the Company completed an initial public offering of 2.2
million shares of Common Stock which resulted in proceeds to the Company of
approximately $6.0 million, net of issuance costs of approximately $1.7
million. Since its initial public offering, the Company has completed a
number of private placement sales of its Common Stock. Common Stock sold in
private placement offerings during fiscal years 1997, 1996 and 1995 totaled
approximately 2.8 million shares, 4.8 million shares and 0.9 million shares
and resulted in net proceeds of $4,143,000, $4,759,000 and $575,000,
respectively.
The Company's cumulative losses, its loss of a significant customer's
orders that represented approximately 48% of fiscal 1997 consolidated
revenues, and cash used in fiscal 1997 operations result in uncertainty
about the Company's future viability. However, management believes that
liquidity from the combination of existing and new product revenues,
savings from planned cost reduction measures, new focus resulting from
recent management changes, ability to generate asset and or technology
sales and the Company's recently secured bank financing (see Note 14) will
be sufficient to enable the Company to continue as a going concern through
February 28, 1998.
Management estimates
The preparation of financial statements in accordance with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities,
disclosures of contingent assets and liabilities at the date of the
financial statements, and the reported amounts of revenues and expenses
during the reported period. Actual results could differ from those
estimates.
2. Summary of Significant Accounting Policies
Basis of presentation
The Company's fiscal year ends on the last day of February. The year ended
February 28, 1997 is referred to as fiscal 1997.
Principles of consolidation
The consolidated financial statements include the accounts of Oryx
Technology Corporation and its wholly owned subsidiaries. All significant
intercompany transactions and accounts have been eliminated.
Cash and cash equivalents
The Company considers all highly liquid instruments with an original
maturity of three months or less to be cash equivalents.
Inventories
Inventories are stated at the lower of cost, determined on a first-in,
first-out basis, or market.
Property and equipment
Property and equipment are stated at cost. Depreciation is computed using
the straight-line method over the estimated useful lives of the assets,
generally three to ten years. Leasehold improvements are amortized using
the straight-line method over the shorter of the lease term or the
estimated useful lives of the assets. The Company periodically reviews the
recovery of property and equipment based upon estimated cash flows.
Intangible assets
The cost of intangible assets is amortized using the straight line method
over the estimated useful lives of the assets, seventeen years for patents
and ten years for goodwill and purchased technology. The Company
periodically reviews recoverability of intangible assets based upon
estimated future cash flows.
Equity in net loss of investee
The fiscal 1997 and 1996 consolidated statements of operations include
charges of $20,000 and $195,000 for the equity in net loss of an investee
accounted for on the equity method. As a result of additional outside
investments in the investee during fiscal 1997, the Company's
net ownership in the investee was reduced from 40% to less than 5%. As a
result of this reduction, the Company's investment subsequent to February
28, 1997, will be accounted for using the cost method.
Revenue recognition
Revenues are generally recognized upon shipment of product. However, where
a shipment is subject to customer acceptance criteria, revenue is deferred
until customer acceptance. Revenue from research contracts in process is
recognized under the percentage of completion method.
Income taxes
Deferred income taxes are provided for temporary differences between the
financial reporting basis and the tax basis of the Company's assets and
liabilities. The benefits from utilization of net operating loss
carryforwards will be reflected as part of the income tax provision if and
when realizable.
Net loss per share
Net loss per share is computed using the weighted average number of common
and dilutive equivalent shares outstanding during each period presented.
Common equivalent shares include Common Stock issuable upon the exercise of
stock options and warrants using the treasury stock method, or upon
conversion of preferred stock. Common equivalent shares are excluded from
the computation if their effects are antidilutive. As a result of net
losses, common stock equivalents of the Company were antidilutive for the
years ended February 28, 1997 and February 29, 1996. Additionally, net
income in the calculation of earnings per share for the year ended February
28, 1997 includes an adjustment to reflect the earnings attributable to
holders of dilutive securities in subsidiaries of the Company.
New accounting standards
In February 1997, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards ("SFAS") No. 128, "Earnings Per Share."
This statement will be effective for the Company's fiscal year ending
February 28, 1998. Under SFAS No. 128, primary earnings per share is
replaced by basic earnings per share and fully diluted earnings per share
is replaced by diluted earnings per share. If the Company had adopted SFAS
No. 128 for the year ended February 28, 1997, basic loss per share and
diluted loss per share would not have differed from the net loss per share
presented in the Statement of Operations because the effect of stock
equivalents was antidilutive. SFAS No. 128 will require the retroactive
restatement of all previously reported amounts upon adoption.
3. Details of Balance Sheet Components
<TABLE>
February 28, February 29,
1997 1996
<S> <C> <C>
Inventories:
Raw materials $ 3,090,000 $ 2,453,000
Work-in-progress 153,000 136,000
Finished goods 1,552,000 1,291,000
--------------- ----------------
$ 4,795,000 $ 3,880,000
=============== ================
Property and equipment:
Machinery and equipment $ 2,427,000 $ 1,236,000
Furniture and fixtures 1,060,000 595,000
Automobiles 11,000 11,000
Leasehold improvements 362,000 111,000
--------------- ----------------
3,860,000 1,953,000
Less: Accumulated depreciation (1,186,000) (655,000)
--------------- ----------------
$ 2,674,000 $ 1,298,000
=============== ================
Accrued liabilities:
Compensation $ 417,000 $ 272,000
Deferred revenues 450,000 333,000
Professional fees 163,000 60,000
Warranty 276,000 26,000
Facilities 76,000 73,000
Other 569,000 321,000
------------------------------------------------------------------------- -----------
$ 1,951,000 $ 1,085,000
=============== ================
</TABLE>
<PAGE>
4. Acquisition of Power Sensors Corporation
In December 1996, the Company acquired certain assets and assumed certain
liabilities of Power Sensors Corporation ("PSC") in exchange for 600,000
shares of Class A Common Stock of Oryx Power Products Corporation, a
wholly-owned subsidiary of the Company. The stock issued represents
approximately 6% of the outstanding stock of Oryx Power Products
Corporation at February 28, 1997. The acquisition was accounted for as a
purchase; accordingly, the purchase price and costs of the acquisition were
allocated to the assets and liabilities acquired based upon their estimated
fair market values at the date of acquisition as follows:
Current assets $ 338,000
Furniture and equipment 300,000
Research and development in process 670,000
Purchased technology 340,000
Goodwill 355,000
---------------
Total assets 2,003,000
Accounts payable and accrued liabilities 460,000
Capital lease assumed 268,000
Bank loans assumed 555,000
---------------
Total liabilities 1,283,000
---------------
Total purchase price $ 720,000
===============
The total purchase price was derived based on the estimated fair value of
the stock issued of $600,000 and acquisition expenses of $120,000. The
agreement allows the holders of such stock, under certain conditions, on
the three year anniversary of the acquisition to require the Company to
redeem the stock issued for a promissory note of $1.5 million payable in
equal annual installments over four years commencing in the year 2000.
Accordingly, the stock was recorded in the consolidated balance sheet as
mandatorily redeemable securities at estimated fair value and will accrete
up to the redemption value in accordance with the terms of the agreement.
<PAGE>
Pro forma information (unaudited)
The following unaudited pro forma information reflects the results of
operations for the year ended February 28, 1997, as if the acquisition of
Power Sensors Corporation had occurred prior to March 1, 1996, and after
giving effect to certain adjustments. These pro forma results have been
prepared for comparative purposes only and do not purport to be indicative
of what operating results would have been had the acquisition actually
taken place prior to March 1, 1996, or what operating results may occur in
the future.
Net revenues $ 27,403
===============
Net loss $ (2,812)
===============
Net loss per share $ (0.26)
===============
5. Acquisition of Power Conversion Products Group and Debt Restructuring
In April 1994, the Company acquired certain assets of the Power Conversion
Products Group of Zenith Electronics Corporation ("Zenith"). As part of the
acquisition, the Company signed a $2.1 million convertible promissory note
payable to Zenith which bore interest at 6% per year and was payable in
three annual installments commencing October 1995.
In February 1996, the Company entered into the Settlement Agreement with
Zenith covering the principal amount outstanding of the promissory note,
accrued interest, and certain accounts payable and inventory relating to
the Company's agreements with Zenith. In accordance with the Settlement
Agreement and subsequent amendments, Zenith agreed to forgive all amounts
owed by the Company in exchange for a $1,000,000 note payable and warrants
to purchase 400,000 common shares for $1.00 per share and warrants to
purchase 100,000 common shares for $5.00 per share. The warrants are
exercisable until March 2001.
<PAGE>
In connection with the settlement, the Company recorded an extraordinary
gain of $1,433,000 which was calculated as follows:
Principal amount of promissory note $ 2,061,000
Accrued interest on promissory note 225,000
Accounts payable for inventory purchases 541,000
---------------
Total consideration received by Oryx 2,827,000
Amounts due pursuant to the Settlement Agreement (1,028,000)
Value of warrants issued to Zenith (366,000)
---------------
Net extraordinary gain on debt restructuring $ 1,433,000
===============
The $1,028,000 owed to Zenith under the Settlement Agreement was repaid
during fiscal 1997.
6. Financing Arrangements
On December 4, 1996, the Company entered into a credit facility with a
financial institution for borrowings of $530,000 bearing interest at 10.5%.
The credit facility is payable over 48 monthly payments of principal and
interest and is collaterized by specified manufacturing equipment. At
February 28, 1997, the Company had borrowings outstanding of $390,000, with
a remaining unused credit facility of $140,000.
In conjunction with the Power Sensors acquisition, the Company assumed a
loan with a financial institution in the amount of $555,000. The loan is
payable over 60 monthly payments of principal and interest. The loan is
collaterized by business assets of the Company. The interest rate is
determined as 2% over a specified bank index and was 10.25% at February 28,
1997. At February 28, 1997, the Company had borrowings outstanding of
$530,000.
The aggregate payments for each of the next five years of long-term debt
outstanding at February 28, 1997 are $215,000 in fiscal 1998, $251,000 in
fiscal 1999, $216,000 in fiscal 2000, $124,000 in fiscal 2001, and $114,000
in fiscal 2002.
On February 29, 1996, the Company had outstanding borrowings of $352,000
under a line of credit agreement with a financial institution. The line of
credit was terminated and the borrowings were repaid during fiscal 1997.
In fiscal 1996, the Company issued $400,000 in notes payable to certain
shareholders bearing interest at 10%. As additional consideration, the
shareholders received warrants to purchase 322,551 shares of common stock
exercisable through January 2001 at an exercise price of $1.25. The Company
recorded as interest expense $213,000 representing the value of the
warrants, as determined by the Company and supported by an independent
appraisal, during the year ended February 29, 1996. The notes payable were
repaid during fiscal 1997.
7. Series A 2% Convertible Cumulative Preferred Stock
The Company has authorized 3,000,000 shares of Preferred Stock with a par
value of $0.001 per share and of which 45,000 of such shares are designated
Series A 2% Convertible Cumulative Preferred Stock (the Series A Stock).
Each share of Series A Stock may be converted, at the option of the holder,
into approximately 11.67 shares of Common Stock. As of February 28, 1997,
the Company had reserved 52,515 shares of Common Stock for issuance upon
conversion of the Series A Stock. The holders of Series A Stock are
entitled to receive a cumulative dividend of $0.50 per share per annum,
subject to any restrictions imposed by the Delaware General Corporation
Law. The dividend is payable semi-annually. In the event of liquidation and
to the extent assets are available, the holders of the Series A Stock are
entitled to a liquidation preference distribution of $25.00 per share plus
accrued but unpaid dividends. Each share of the Series A Stock is entitled
to one vote per share on all matters submitted to a vote of stockholders of
the Company.
8. Stock Plans and Warrants
Oryx Stock Plans
In March 1993, the Company adopted the Incentive and Nonqualified Stock
Option Plan (the "1993 Plan"). The 1993 Plan, which expires in 2003,
provides for incentive as well as nonstatutory stock options. The Board of
Directors may terminate the 1993 Plan at any time at its discretion.
Options under the 1993 Plan are granted at prices determined by the Board
of Directors, subject to certain conditions. Generally, these conditions
require that the exercise price of options granted may not be below a) for
incentive options, 110%, for persons owning more than 10% of the Company's
capital stock and 100% for options issued to other persons, or b) for
nonstatutory options, 85% of the fair market value of the stock at the date
of grant. Options granted to persons owning more than 10% of the Company's
capital stock may not have a term in excess of five years, and all other
options must expire within ten years. Options vest over a period determined
by the Board of Directors, generally four years, and are adjusted pro rata
for any changes in the capitalization of the Company, such as stock splits
and stock dividends.
In August 1995, the Company adopted the 1995 Directors Stock Option Plan
(the "Directors' Plan"). The Directors' Plan, which expires in 2005,
provides for nonstatutory stock options to be granted to nonemployee
directors of the Company. The Board of Directors may terminate the
Directors' Plan at anytime at its discretion. Options under the Directors'
Plan are granted at prices determined by the Board of Directors, subject to
certain conditions more fully described in the Directors' Plan. Generally,
these conditions require that the exercise price of options granted may not
be below 110% for persons owning more than 10% of the Company's capital
stock and 100% for options issued to other persons of the fair market valve
of the stock at the date of grant. Options must expire within ten years of
grant. The Directors' Plan provides that each nonemployee director receive
options to purchase 45,000 shares of the Company's Common Stock with 15,000
vested and exercisable upon grant with the remainder vesting in equal
annual installments over a three year period. The Company has 225,000
shares authorized under the Directors' Plan of which 180,000 options have
been granted at $1.81 per share as of February 28, 1997.
A summary of stock option activity under the 1993 Plan and the Directors'
Plan is as follows:
<TABLE>
Options Outstanding
Shares Weighted-
Available Average
For Exercise Price
Grant Shares Per Share
<S> <C> <C> <C>
Balance at February 28, 1995 56,020 465,980 $1.29
Additional shares authorized 825,000 - -
Options granted (294,500) 294,500 $1.89
Options canceled 21,862 (21,862) $1.72
Options exercised - (525) $1.13
--------------- ---------------
Balance at February 29, 1996 608,382 738,093 $1.52
Additional shares authorized 500,000 - -
Options granted (786,500) 786,500 $1.94
Options canceled 24,565 (24,565) $1.03
Options exercised - (199,818) $1.18
--------------- ---------------
Balance at February 28, 1997 346,447 1,300,210 $1.82
=============== ===============
</TABLE>
<PAGE>
The following table summarizes information about employee stock options
outstanding at February 28, 1997:
<TABLE>
Options Outstanding Options Exercisable
Weighted-Average
Remaining Weighted- Weighted-
Range ofNumber Contractual Average Number Average
Exercise Prices Outstanding Life Exercise Price Exercisable Exercise Price
<S> <C> <C> <C> <C> <C>
$0.80 472 0.2 $ 0.80 472 $ 0.80
$1.00-1.97 1,066,738 8.4 1.72 482,765 1.58
$2.00-2.38 189,500 9.1 2.12 50,650 2.03
$3.00 43,500 7.2 3.00 23,925 3.00
------------- -------------
Total 1,300,210 8.5 $ 1.82 557,812 $ 1.67
============= =============
</TABLE>
Fair Value Disclosures
Had compensation cost for the Plans been determined based on the fair value
of each stock option on its grant date, as prescribed in SFAS 123, the
Company's net loss and net loss per share for fiscal 1997 would have been
$2,395,000 and $0.22, respectively, and in fiscal 1996 would have been
$2,855,000 and $0.49, respectively.
The fair value of each option is estimated on the date of grant using the
Black-Scholes option pricing model with the following weighted average
assumptions used for grants during the applicable period: dividend yields
of 0% for both periods; expected volatility of 60% for both periods;
risk-free interest rate of 6.07% for fiscal 1996 and 6.29% for fiscal 1997
for options granted; and a weighted average expected option term of five
years for fiscal 1996 and five years for fiscal 1997. The weighted average
fair value of options granted during fiscal years 1997 and 1996 was $0.73
and $0.47, respectively. The weighted average fair value of options to
purchase common shares of the Company's subsidiaries were not material
during fiscal years 1997 and 1996.
The above pro forma amounts include compensation expense based on the fair
value of options granted and vesting during the years ended February 28,
1997 and February 29, 1996 and exclude the effects of options granted prior
to March 1, 1995. Accordingly, the above pro forma net loss and net loss
per share are not representative of the effects of computing stock option
compensation expense using the fair value method for future periods.
Subsidiary Stock Plans
In November 1995, the Company's wholly owned subsidiaries, Oryx Power
Products Corporation, Oryx Instruments and Materials Corporation and SurgX
Corporation, each adopted stock option plans under which the Board of
Directors granted options to management to purchase Class B common shares
in the subsidiaries at their fair market values as determined by the Board
of Directors. Class B common shares authorized for issuance in each of the
subsidiaries are identical to the ten million shares of Class A common
shares owned by the Company, except the Class A shares possess a
liquidation preference. The Board of Directors authorized 1.5 million
shares of Class B common shares for each of the three subsidiaries to be
available for issuance under these stock plans. Such options are not
transferable except in the event of a public offering of the subsidiary's
stock or an acquisition of the subsidiary, and may be repurchased by the
Company at its option. Grants under the plan are for amounts, vesting
periods and option terms established by the Company's Board of Directors.
The Company's ownership percentage of these subsidiaries will change as a
result of future exercises of stock options and, to the extent these
subsidiaries contribute profits, outstanding subsidiary stock options may
dilute the Company's share of profits in the calculation of earnings per
share.
The number of subsidiary shares of common stock and options to purchase
common stock, which vest ratably over a five year period, outstanding at
February 28, 1997 were as follows:
<TABLE>
Class B Class B Class A
Options Options Vested Shares
<S> <C> <C> <C>
Oryx Instrument and Materials Corporation 1,139,000 184,000 10,000,000
Oryx Power Products Corporation 1,381,000 201,000 10,600,000
SurgX Corporation 282,500 56,500 10,000,000
</TABLE>
At February 28, 1997, with the exception of 600,000 shares of Oryx Power
Products Corporation, all of the subsidiary Class A shares outstanding were
owned by the Company. Warrants The following warrants at February 28, 1997,
and the number of shares of the Company's Common Stock which may be
purchased at exercise,
were outstanding and exercisable at February 28, 1997:
<TABLE>
Original Issuable Warrant Warrant Warrant
Warrants Common Commencement Expiration Exercise
Outstanding Shares Date Date Price
<S> <C> <C> <C> <C>
1,173,900 2,230,410 Oct. 1994 Oct. 1999 $3.50
37,500 37,500 Oct. 1994 Oct. 2004 $2.00
379,000 541,030 Nov. 1994 Oct. 2004 $2.00
322,551 322,551 Feb. 1996 Jan. 2001 $1.25
400,000 400,000 Feb. 1996 Mar. 2001 $1.00
100,000 100,000 Feb. 1996 Mar. 2001 $5.00
124,560 124,560 Feb. 1996 Feb. 2001 $1.38
100,000 100,000 Apr. 1996 Mar. 2001 $1.31
32,000 32,000 May 1996 May 2001 $1.38
90,730 90,730 Dec. 1996 Dec. 2001 $1.90
72,800 72,800 Feb. 1997 Feb. 2002 $1.90
------------- -------------
2,833,041 4,051,581
============= =============
</TABLE>
In addition to the foregoing, in connection with the Company's initial
public offering, the Company sold to the underwriters, for an aggregate
price of $110, noncallable warrants ("Underwriters' Warrants") entitling
the holder to purchase from the Company 110,000 units at an exercise price
of $11.55 per unit, subject to dilution provisions. Each unit consisted of
two shares of Common Stock and one callable warrant to purchase one
additional share of Common Stock at an exercise price of $3.50 (also
subject to dilution provisions). As a result of subsequent dilutive
offerings, the Underwriters' Warrants were convertible into 323,916 units
at a exercise price of $3.71 per unit and each underlying warrant was
convertible into 1.9 common shares. During 1997, 100,000 units were
exercised resulting in proceeds of $371,000. In December 1996, the Company
repurchased and retired the remaining Underwriters' Warrants in exchange
for $475,000 and 40,000 warrants to purchase 76,000 shares at $3.50 per
warrant, which may be exercised through April 1999.
In certain circumstances and defined time frames, the Company may call many
of the above warrants. The terms of most warrants are subject to adjustment
in certain circumstances (including antidilution protection).
<PAGE>
9. Research Contracts and Development Funding
The Company is party to certain research contracts which are accounted for
on a percentage of completion basis. Revenues and cost of sales recorded
under such contracts totaled $627,000 and $403,000 during fiscal 1997 and
$439,000 and $366,000 during fiscal 1996, respectively.
During fiscal 1997, the Company received development funding from third
parties to assist in the commercialization of certain of the Company's
products. Such funding is recorded as an offset to research and development
expenses when contract specified technical milestones have been achieved.
During fiscal 1997, $1,107,000 was credited to research and development
expenses under these arrangements.
10. Sales to Major Customers and Concentration of Credit Risk
The Company's customers are primarily in the office equipment,
semiconductor and computer disk drive manufacturing industries. The Company
maintains reserves for potential credit losses; historically, such losses
have been minor and within management's expectations. The Company's
accounts receivable are principally derived from sales in the United
States. All transactions are denominated in U.S. dollars. At February 28,
1997, accounts receivable from three customers represented 16%, 14% and
12%, respectively, of total accounts receivable. During fiscal 1997 and
1996, sales to a single customer of the Power Products segment represented
52% and 41% of consolidated net revenues. The contract related to the
majority of sales to this customer was terminated at the end of fiscal
1997.
11. Income Taxes
The tax provisions for the years ended February 28, 1997 and 1996 consist
of state taxes currently payable and foreign tax provisions. No provision
for federal income taxes has been recorded because of losses incurred.
Deferred tax assets (liabilities) comprise the following:
February 28, February 29,
1997 1996
Net operating loss carryforwards $ 2,438,000 $ 1,200,000
Inventory reserves 257,000 540,000
R&D credit carryforwards 331,000 180,000
Intangibles 759,000 517,000
Other 503,000 331,000
----------- ---------
Gross deferred tax assets 4,288,000 2,768,000
Fixed assets (87,000) (58,000)
---------- ---------
Net deferred tax assets 4,201,000 2,710,000
Valuation allowance (4,201,000) (2,710,000)
--------------- ---------------
Net deferred tax asset $ - $ -
=============== ===============
Due to uncertainty of realization, no benefit for deferred tax assets has
been recognized in the accompanying financial statements.
At February 28, 1997, the Company had net operating loss carryforwards of
approximately $6,400,000 which may be utilized to reduce future taxable
income through 2011, subject to certain limitations. Under the Tax Reform
Act of 1986, the amounts of and the benefits from net operating losses that
can be carried forward may be impaired or limited in certain circumstances,
including a cumulative stock ownership change of more than 50% over a
three-year period. The Company's initial public offering and subsequent
private placements have triggered ownership changes of greater than 50%
and, accordingly, the potential benefits from utilization of tax
carryforwards generated through the date of such offerings are limited.
12. Commitments and Contingencies
In conjunction with a fiscal 1994 acquisition, the Company entered into an
agreement whereby the Company will pay an 8% royalty through August 5, 2008
on sales of certain Instruments and Materials products with the aggregate
maximum royalty not to exceed $800,000. Additionally, a supplemental
royalty of 3% of sales over $333,000 of certain products is to be paid,
with the maximum supplemental royalty limited to $150,000. Aggregate
royalty expense has not been significant for the 1997 or 1996 fiscal years.
The Company leases its facilities and certain equipment under operating
lease agreements, which expire in various periods through 2002. The Company
also leases certain assets under long-term lease agreements that are
classified as capital leases. The total amount of assets acquired under
capital lease arrangements which are included in property and equipment is
$406,000 and $252,000 and accumulated amortization on such assets totaled
of $137,000 and $85,000, at February 28, 1997 and February 29, 1996,
respectively.
Future minimum lease obligations are payable as follows:
<TABLE>
Capitalized Operating
Year Ending February Leases Leases Total
<S> <C> <C> <C>
1998 $ 140,000 $ 875,000 $ 1,015,000
1999 103,000 600,000 703,000
2000 90,000 555,000 645,000
2001 33,000 479,000 512,000
2002 - 325,000 325,000
--------------------------------------------------- ------------ -----------
Total minimum lease payments 366,000 $ 2,834,000 $ 3,200,000
============= =============
Less amount representing interest (45,000)
------------
Present value of minimum lease payments 321,000
Less current portion (137,000)
-------------
Long-term portion of obligations
under capitalized leases $ 184,000
=============
</TABLE>
Rental expense for the years ended February 28, 1997 and February 29, 1996
was $739,000 and $602,000, respectively.
In the course of its business, the Company has been named as a defendant in
a certain action and could incur an uninsured liability. In the opinion of
management, the outcome of such litigation will not have a material adverse
effect on the results of operations or financial condition of the Company.
13. Segment Information
The Company groups its business into three operating segments and a
corporate segment: (i) Power Products includes the Company's standard and
custom AC to DC and DC to DC power supplies; (ii) Instruments and Materials
includes specialized materials produced through a patented bonding process
and the Company's electrostatic discharge and secondary ion mass
spectrometer measurement devices; and (iii) SurgX, a development stage
operation that utilizes the Company's patented technology that protects
microchips and related products from overvoltage. Consolidated business
segment information as of February 28, 1997 and February 29, 1996, and for
each of the years then ended is summarized as follows:
<TABLE>
1997 1996
<S> <C> <C>
Revenues:
Power Products $ 20,390,000 $ 12,014,000
Instruments and Materials 6,434,000 4,114,000
SurgX 36,000 8,000
Corporate - -
--------------- ----------------
$ 26,860,000 $16,136,000
=============== ===========
Operating income/(loss):
Power Products $ 2,445,000 $ (544,000)
Instruments and Materials (1,311,000) (915,000)
SurgX (880,000) (553,000)
Corporate (2,149,000) (1,623,000)
--------------- ----------------
$ (1,895,000) $ (3,635,000)
=============== ================
Identifiable assets:
Power Products $ 7,676,000 $ 5,487,000
Instruments and Materials 4,625,000 2,914,000
SurgX 507,000 -
Corporate 2,504,000 3,939,000
--------------- ----------------
$ 15,312,000 $ 12,340,000
=============== ================
Depreciation and amortization expense:
Power Products $ 310,000 $ 252,000
Instruments and Materials 218,000 169,000
SurgX 13,000 -
Corporate 17,000 -
--------------- ----------------
$ 558,000 $ 421,000
=============== ================
Capital expenditures:
Power Products $ 622,000 $ 418,000
Instruments and Materials 558,000 308,000
SurgX 317,000 -
Corporate 56,000 -
--------------- ----------------
$ 1,553,000 $ 726,000
=============== ================
</TABLE>
As is more fully discussed in Note 4, the Power Products' 1997 loss from
operations includes a $670,000 write-off of research and development in
process related to the Company's acquisition of the assets of Power Sensors
Corporation. Additionally, 1997 Power Products capital expenditures include
$120,000 for this acquisition. The 1996 extraordinary gain of $1,433,000
resulted from the restructuring of certain obligations owed by the Company
related to the acquisition of the Power Conversion Products Group and Power
Products' subsequent activities.
14. Subsequent Event
In May 1997, the Company entered into a borrowing facility which included
an Accounts Receivable Revolving Batch Facility and an Inventory Line of
Credit with a financial institution. The Inventory Line of Credit provides
for borrowings of up to $1.5 million ($750,000 of which is subject to an
inventory appraisal). The Accounts Receivable Revolving Batch Facility
allows the Company to borrow up to a maximum of $4 million, provided that
any amount in excess of $3.5 million must be supported by an equal amount
of unused availability under the Inventory Line of Credit. Under the
Facility, the Company is required to sell on an undiscounted, limited
recourse basis all accounts receivable. In exchange, the Company may borrow
under the Facility up to 85% of the face amount of eligible accounts
receivable (as defined) up to the maximum lending amount of $4 million. The
interest rate is equal to the greater of the institution's base rate plus
1.25% or 7.0%.
EXHIBIT 10.7
STANDARD INDUSTRIAL/COMMERCIAL MULTI-TENANT LEASE - MODIFIED NET
AMERICAN INDUSTRIAL REAL ESTATE ASSOCIATION
1. Basic Provisions ['Basic Provisions")
1.1 Parties: This Lease ("Lease"), dated for reference purposes only,
AUGUST 12, 1996,is made by and between EBJ PARTNERS, L.P., A CALIFORNIA
LIMITED PARTNERSHIP ("lessor") and ORYX TECHNOLOGY CORPORATION & SURGX
CORPORATION ("Lessee:) (collectively the '"Parties," or individually a
"Party")
1.2(a) Premises: That certain portion of the Building, including ail
Improvements therein or to be provided by Lessor under the terms of this Lease,
commonly known by the street address of 1100 AUBURN STREET , located In the City
of FREMONT County of ALAMEDA , State Or CALIFORNIA , with zip code 94538 , as
outlined on Exhibit A attached hereto ['Premises',. The "Building" is that
certain building containing the Premises and generally described as (describe
briefly the nature of the Building): Approximately 22,689 square feet of R & D
building and offices of a larger 38,628 square foot building . In addition to
Lessee's rights to use and occupy the Premises as hereinafter specified, Lessee
shall have non-exclusive rights to the Common Areas (as defined In Paragraph 2.7
below) as hereinafter specified, but shall not have any rights to the roof,
exterior walls or utility raceways of the Building or to any other buildings In
the Industrial Center. The Premises, the Building, the Common Areas, the land
upon which they are located, along with all other buildings and Improvements
thereon, are herein collectively referred to as the "Industrial Center." (Also
see Paragraph 2.)
1.2(b) Parking: Its prorata share unreserved vehicle parking spaces
(Unreserved Parking Spaces; and Not Applicable reserved vehicle parking spaces
['Reserved Parking Spaces") (Also see Paragraph 2.6.)
1.3 Term: Five years and O months ("Original Term") commencing September 1,
1996 (Commencement Date), and ending August 30, 2001 ['Expiration
Date") (Also see Paragraph 3.)
1.4 Early Possession: See Addendum ("Early Possession Date"). (Also see
Paragraphs 3.2 and 3.3.) 1.5 Base Rent: $ 18,151.2D per month ("Base
Rent") payable on the first ( 1st)day of each month commencing
September 1, 1996 (Also see Paragraph 4.)
If this box is checked, this Lease provides for the Base Rent to be adjusted per
Addendum One, attached hereto.
1.6(a) Base Rent Paid Upon Execution: $18,151.20 as Base Rent for the period
September 1 through September 30 1.6(b) Lessee's Share of Common Area
Operating Expenses: 58. 70 percent (58.70 %) {'Lessee's Share") as
determined by prorate square footage of the Premises as compared to the
total square footage of the Building or other criteria as described in
Addendum .
1.7 Securely Deposit: 18,151.20 ('Security Deposit) (Also see Paragraph 5.)
1.8 Permitted use: manufacturing and research and development of
electronics equipment, administrative, and other related uses.
(Permitted Use-) (Also see Paragraph 6.)
1.9 Insuring Party. Lessor Is the "Insuring Party. (Also see Paragraph 8)
1.10(a) Real Estate Brokers. The following real estate broker(s) (collectively,
the "Brokers', and brokerage relationships exist in this transaction
and are consented to by the Parties (check applicable boxes):
BISHOP HAWK represents Lessor exclusively ('Lessor's Broker); GRUBB & ELLIS
represents Lessee exclusively ['Lessee's Broker 1; or represents both
Lessor and Lessee (Dual Agency-). (Also see Paragraph 15.)
1. 10(b) Payment to Brokers. Upon the execution of this Lease by both
Parties, Lessor shall pay to said Broker(s) jointly or in such separate
shares as they may mutually designate In writing, a fee as set forth in
a separate written agreement between Lessor and said Broker(s)
for-brokerage services rendered by said Broker(s) In connection with
this transaction.
1.11 Guarantor. The Obligations of the Lessee under
this Lease are to be guaranteed by NOT APPLICABLE ("Guarantor") (also
see Paragraph 37.) NO. 1 & 2 1.12 Addendum and Exhibits. Attached
hereto is an Addendum or Addenda/consisting of Paragraphs 49 through
66, and Exhibits A through C, all of which constitute a part of this
Lease.
2. Premises, Parking and Common Areas.
2.1 Letting. Lessor hereby leases to Lessee, and Lessee hereby leases from
Lessor, the Premises, for the term, at the rental; and upon all of the terms,
covenants and conditions set forth in this Lease. Unless otherwise provided
herein, any statement of square footage set forth in this Lease, or that may
have been used In calculating rental and/or Common Area Operating Expenses, is
an approximation which Lessor and Lessee agree is reasonable and the rental and
Lessee's Share (as defined In Paragraph 1.6(b)) based thereon is not subject to
revision whether or not the actual square footage is more or less.
2.2 Condition. Lessor shall deliver the Premises to Lessee clean and free
of debris on the Commencement Date and warrants to Lessee that the existing
plumbing, electrical systems, fire sprinkler system, lighting, all conditioning
and heating systems and loading doors, inane, in the Premises, other than those
constructed by Lessee, shall be in good operating condition on the Commencement
Date. If a non-compliance with said warranty exists as of the Commencement Date,
Lessor shall, except as otherwise provided In this Lease, promptly under receipt
of written notice from Lessee setting forth with specificity the nature and
extent of such non-compliance, rectify same at Lessor's expense. If Lessee does
not give Lessor written notice of a non-compliance with this warranty within
thirty (30) days after the Commencement Date, correction of that non-compliance
shall be the obligation of Lessee at Lessee's sole cost and expense.
2.3 Compliance with Covenants, Restrictions and Building Code. Lessor
warrants that any improvements (other than those constructed by Lessee or at
Lessee's direction) on or In the Premises which have been constructed or
installed by Lessor or with Lessor's consent or at Lessor's direction shall
comply with all applicable covenants or restrictions of record and applicable
building codes, regulations and ordinances in effect on the Commencement Date.
Lessor further warrants to Lessee that Lessor has no knowledge of any claim
having been made by any governmental agency that a violation or violations of
applicable building codes, regulations, or ordinances exist with regard to the
Premises as of the Commencement Date. Said warranties shall not apply to any
Alterations or Utility Installations (defined In Paragraph 7.3(a)) made or to be
made by Lessee. If the Premises do not comply with said warranties, Lessor
shall, except as otherwise provided in this Lease, promptly after receipt of
written notice from Lessee given within six (6) months following the
Commencement Date and setting forth with specificity the nature and extent of
such non-compliance, take such action, at Lessor's expense, as may be reasonable
or appropriate to rectify the non-compliance. Lessor makes no warranty that the
Permitted Use in Paragraph 1.8 Is permitted for the Premises under Applicable
Laws (as defined In Paragraph 2.4).
2.4 Acceptance of Premises. Lessee hereby acknowledges (a) that it has
been advised by the Broker(s) to satisfy itself with respect to the condition of
the Premises including but not limited to the electrical and fire sprinkler
systems, security, environmental aspects, and compliance with the Americans with
Disabilities Act and applicable zoning, municipal, county, state and federal
laws, ordinances and regulations and any covenants or restrictions of record
(collectively, "Applicable Laws" ) and the present and future suitability of the
Premises for Lessee's intended use; (b) that Lessee has made such investigation
as It deems necessary with reference to such matters, if satisfied with
reference thereto, and assume" all responsibility therefore as the same relate
to Lessee's occupancy of the Premises and/or the terms of this Lease; and (c)
that neither Lessor, nor any of Lessor's agents, has made any oral or written
representations or warranties with respect to said matters other than as set
forth in this Lease.
2.5 Lessee as Prior Owner/Occupant. The warranties made by Lessor in this
Paragraph 2 shall be of no force or effect it Immediately prior to the dale set
forth In Paragraph 1.1 Lessee was the owner or occupant of the Premises. In such
event, Lessee shall, at Lessee's sole cost and expense, correct any
non-compliance of the Premises with said warranties.
2.6 Vehicle Parking. Lessee shall be entitled to use the number of
Unreserved Parking Spaces and Reserved Parking Spaces specified in Paragraph
1.2(b) on those portions of the Common Areas designated from time to time by
Lessor for parking. Lessee shall not use more parking spaces than said number.
Said parking spaces shall be used for parking by vehicles no larger than
full-size passenger automobiles or pick-up trucks, herein called "Permitted size
Vehicles." Vehicles other than Permitted Size Vehicles shall be parked and
loaded or unloaded as directed by Lessor In the Rules and Regulations (as
defined in Paragraph 40) Issued by Lessor. (Also see Paragraph 2.9.)
(a) Lessee shall not permit or allow any vehicles that belong to or
are controlled by Lessee or Lessee's employees, suppliers, shippers, customers,
contractors or Invitees to be loaded, unloaded, or parked in areas other than
those designated by Lessor for such activities.
(b) If Lessee permits or allows any of the prohibited activities
described In this Paragraph 2.6, then Lessor shall have the right, without
notice, In addition to such other rights and remedies that it may have, to
remove or tow away the vehicle Involved and charge the cost to Lessee, which
cost shall be Immediately payable upon demand by Lessor.
(c) Lessor shall at the Commencement Dale of this Lease, provide the parking
facilities required by Applicable Law.
2.7 Common Arena - Definition. The term "Common Areas Is defined as all
areas and facilities outside the Premises and within the exterior boundary line
of the Industrial Center and Interior utility raceways within the Premises that
are provided and designated by the Lessor from time to time for the general
non-exclusive use of Lessor, Lessee and other lessees of the Industrial Center
and their respective employees, suppliers, shippers, customers contractors and
Invitees, Including parking areas, loading and unloading areas, trash areas,
roadways, sidewalks, walkways, parkways, driveways and landscaped areas.
2.8 Common Areas - Lessee's Right. Lessor hereby grants to Lessee, for the
benefit of Lessee and Its employees, suppliers, shippers contractors, customers
and invitees, during the term of this Lease, the non-exclusive right to use, In
common with others entitled to such use, the Common Areas as they exist from
time to time, subject to any rights, powers, and privileges reserved by Lessor
under the terms hereof or under the terms of any rules and regulations or
restrictions governing the use of the Industrial Center. Under no circumstances
shall the right herein granted to use the Common Areas be deemed to Include the
right to store any property, temporarily or permanently, In the Common Areas.
Any such storage shall be permitted only by the prior written consent of Lessor
or Lessor's designated agent, which consent may be revoked at any time. In the
event that any unauthorized storage shall occur then Lessor shall have the
right, without notice, In addition to such other rights and remedies that It may
have, to remove the property and charge the cost to Lessee, which cost shall be
immediately payable upon demand by Lessor.
2.9 Common Arena - Rules and Regulations. Lessor or such other person(s)
as Lessor may appoint shall have the exclusive control and management of the
Common Areas and shall have the right, from time to time, to establish, modify,
amend and enforce reasonable rules and Regulations with respect thereto In
accordance with Paragraph 40. Lessee agrees to abide by and conform to all such
Rules and Regulations, and to cause its employees, suppliers, shippers,
customers, contractors and Invitees to so abide and conform. Lessor shall not be
responsible for Lessee for the non-compliance with said rules and regulations by
other lessees of the Industrial Center.
2.10 Common Area - Changes. Lessor shall have the right, In Lessor's sole
discretion, from time to time: (a) To make changes to the Common Areas,
including, without limitation, changes in the location, size, shape and
number of driveways, enhances, parking spaces, parking areas, loading
and unloading areas, ingress, egress, direction of traffic, landscaped
areas, walkways and utility raceways;
(b) To close temporarily any of the Common Areas for maintenance purposes
so long as reasonable access to the Premises remains available;
(c) To designate other land outside the boundaries of the Industrial Center
to be a part of the Common Areas
(d) To add additional buildings and Improvements to the Common Areas;
(e) To use the Common Areas while engaged In making additional
Improvements, repairs or alterations to the Industrial Center, or any
portion thereof; and
(f) To do and perform such other acts and make such other changes in, to or
with respect to the Common Areas and Industrial Center as Lessor may,
In the exercise of sound business Judgment, deem to be appropriate.
3. Term
3.1 The Commencement Data, Expiration Data and Original Term of this Lease
are as specified in Paragraph 1.3.
3.2 Early Possession. If an Early Possession Data Is specified In
Paragraph 1.4 and if Lessee totally or partially occupies the Premises alter the
Early Possession Date but prior to the Commencement Date, the obligation to pay
Base Rent shall be abated for the period of such early occupancy. All other
terms of this lease, however, (including but not limited to the obligations to
pay Lessee's Share of Common Area Operating Expenses and to carry the Insurance
required by Paragraph 8) shall be in effect during such period. Any such early
possession shall not affect nor advance the Expiration Date of the Original
Term.
3.3 Delay In Possession. If for any reason Lessor cannot deliver
possession of the Premises to lessee by the Early Possession Date, if one Is
specified In Paragraph 1.4, or if no Early Possession Date is specified, by the
Commencement Date, Lessor shall not be subject to any liability therefore, nor
shall such failure affect the validity of this Lease, or the obligations of
Lessee hereunder, or extend the term hereof, but In such case, Lessee shall not,
except as otherwise provided herein, be obligated to pay rent or perform any
other obligation of Lessee under the terms of this Lease until Lessor delivers
possession of the Premises to Lessee. If possession of the Premises is not
delivered to Lessee within sixty (60) days after the Commencement Data Lessee
may, at Its option, by notice In writing to Lessor within ten (10) days after
the end of said sixty (60) day period, cancel this Lease, In which event the
parties shall be discharged from all obligations hereunder; provided further,
however, that if such written notice of Lessee is not received by Lessor within
said ten (10) day period, Lessee's right to cancel this Lease hereunder shall
terminate and be of no further force or effect. Except as may be otherwise
provided, and regardless of when the Original Term actually commences, If
possession is not tendered to Lessee when required by this Lease and Lessee does
not terminate this Lessee as aforesaid, the period free of the obligation to pay
Base Rent, if any, that Lessee would otherwise have enjoyed shall run from the
date of delivery of possession and continue for a period equal to the period
during which the Lessee would have otherwise enjoyed under the terms hereof, but
minus any days of delay caused by the acts, changes or omissions of Lessee.
4. Rent.
4.1 Base Rent. Lessee shall pay Base rent and other rent or charges, as
the same may be adjusted from time to time, to Lessor in lawful money of the
United States, without offset or deduction, on or before the day on which it Is
due under the terms of this Lease. Base Rent and all other rent and charges for
any period during the term hereof which Is for less than one full month shall be
prorated based upon the actual number of days of the month involved.
Payment of Base rent and other charges shall be made to Lessor at its address
stated herein or to such other persons or at such other addresses as Lessor may
from time to time designate in writing to Lessee.
4.2 Common Area Operating Expenses. Lessee shall pay to Lessor during the term
hereof, In addition to the Lease Rent, Lessee's Share as specified In Paragraph
1.6(b)) of all Common Area Operating Expenses, as hereinafter defined, during
each calendar year of the term of this Lease, In accordance with the following
provisions:
(a) "Common Area Operating Expenses" are defined, for purposes of this
Lease, as all costs Incurred by Lessor relating to the ownership and operation
of the Industrial Center, Including, but not limited to, the following:
(i) The operation, repair and maintenance, in neat, clean,
good order and condition, of the following:
(aa) The Common Areas, Including parking areas, loading
and unloading areas, trash areas, roadways,
sidewalks, walkways, parkways, driveways, landscaped areas, striping, bumpers,
Irrigation systems, Common Area lighting facilities, fences and gates, elevators
and roof.
(bb) Exterior signs and any tenant directories.
(cc) Fire detection and sprinkler systems.
(ii) The cost of water, gas, electricity and telephone to
service the Common Areas.
(iii) Trash disposal, property management and security services and
the costs of any environmental inspections.
(iv) Reserves set aside for maintenance and repair of Common
Areas.
(v) Real Property Taxes (as defined in Paragraph 10.2) to
be paid by Lessor for the Building and the Common Areas
under Paragraph 10 hereof.
(vi) The cost of the premiums for the Insurance policies
maintained by Lessor under Paragraph 8 hereof. (vii) Any
deductible portion of an Insured IOSB concerning the Building
or the Common Areas.
(viii) Any other services to be provided by Lessor that are
stated elsewhere In this Lease to be a Common Area Operating Expanse.
(b) Any Common Area Operating Expenses and Real Property Taxes
that are specifically attributable to the Building or to any other building in
the industrial Center or to the operation, repair and maintenance thereof, shall
be allocated entirely to the Building or to such other building. However, any
Common Area Operating Expenses and Real Property Taxes that are not specifically
attributable to the Building or to any other building or to the operation repair
and maintenance thereof, shall be equitably allocated by Lessor to all buildings
In the Industrial Center.
(c) The Inclusion of the Improvements, facilities and services set
forth In Subparagraph 4.2(a) shall not be deemed to Impose an obligation upon
Lessor to either have said Improvements or facilities or to provide those
services unless the Industrial Center already has the same, Lessor already
Provides the services, or Lessor has agreed elsewhere in this Lease to provide
the same or some of them.
(d) Lessee's Share of Common Area Operating Expenses shall be
payable by Lessee within ten (10) days after a reasonably detailed statement of
actual expenses is presented to Lessee by Lessor. At Lessor's option, however,
an amount may be estimated by Lessor from time to time of Lessee's Share of
annual Common Area Operating Expenses and the same shall be payable monthly or
quarterly, as Lessor shall designate, during each 12-month period of The Lease
term, on the same day as the Base rent Is due hereunder. Lessor shall deliver to
Lessee within sixty (60) days after the expiration of each calendar year a
reasonably detailed statement showing Lessee's Share of the actual Common Area
Operating Expenses Incurred during the preceding year. If lessee's payments
under this Paragraph 4.2(d) during said preceding year exceed Lessee's Share as
Indicated on said statement, Lessor shall be credited the amount of such
overpayment against Lessee's Share of Common Area Operating Expenses next
becoming due. If Lessee's payments under This Paragraph 4.2(d) during said
preceding year were less than Lessee's Share as indicated on said statement,
Lessee shall pay to Lessor the amount of the deficiency within tan ,10) days
after delivery by Lessor to Lessee of said statement.
5. Security Deposit. Lessee shall deposit with Lessor upon Lessee's execution
hereof the Security Deposit set forth in Paragraph 1.7 as security for Lessee's
faithful performance of Lessee's obligations under this Lease. If Lessee fails
to pay Base Rent or other rent or charges due hereunder, or otherwise Defaults
under this Lease (as defined in Paragraph 13.1), Lessor may use, apply or retain
all or any portion of said Security Deposit for the payment of any amount due
Lessor or to reimburse or compensate Lessor for any liability, cost, expense,
loss or damage (including attorney's fees) which Lessor may suffer or incur by
reason thereof. If Lessor uses or applies all or any portion of said Security
Deposit, Lessee shall within ten (10) days alter written request therefore
deposit monies with Lessor sufficient to restore said Security Deposit to the
full amount required by this Lease. Any time the Base Rent increases during the
term of this Lease, Lessee shall, upon written request from Lessor, deposit
additional monies with Lessor as an addition to the Security Deposit so that the
total amount of the Security Deposit shall at all times bear the same proportion
to the then current Base Rent as the initial Security Deposit bears to the
initial Base Rent set forth in Paragraph 1.5. Lessor shall not be required to
keep all or any part of the Security Deposit separate from Its general accounts.
Lessor shall, at the expiration or earlier termination of the term hereof and
after Lessees has vacated the Premises, return to Lessee (or, at Lessor's
option, to the last assignee, If any, of Lessee's Interest herein), that portlon
of the Security Deposit not used or applied by Lessor. Unless otherwise
expressly agreed In writing by Lessor, no part of the Security Deposit shall be
considered to be held in trust, to bear interest of other increment for Its use,
or to be prepayment for any monies to be paid by Lessee under this Lease.
6. Use
6.1 Permitted Use
(a) Lessee shall use and occupy the Premises only for the Permitted
Use set forth In Paragraph 1.8, or any other legal use which is reasonably
comparable thereto, and for no other purpose. Lessee shall not use or permit the
use of the Premises in a manner that is unlawful, creates waste or a nuisance,
or that disturbs owners and/or occupants of, or causes damage to the Premises or
neighboring premises or properties.
(b)) Lessor hereby agrees to not unreasonably withhold or delay Its
consent to any written request by Lessee, Lessee's assignees or subtenants and
by prospective assignees and subtenants of Lessee, Its assignees and subtenants,
for a modification of said Permitted Use, so long as the same will not Impair
the structural integrity of the Improvements on the Premises or In the Building
or the mechanical or electrical systems therein, does not conflict with uses by
other lessees, is not significantly more burdensome to the Premises or the
Building and the Improvements thereon, and is otherwise permissible pursuant to
this Paragraph 6. If Lessor elects to withhold such content, Lessor shall within
five (5) business days after such request give a written notification of same,
which notice shelf Include an explanation of Lessor's reasonable objections to
the change In use.
6.2 Hazardous Substances.
(a) Reportable Uses Require Consent. The term "Hazardous Substance.
as used In this Lease shall mean any product, substance, chemical, malarial or
waste whose presence, nature, quantify and/or intensity of existence, use,
manufacture, disposal, transportation, spill, release or effect either by Itself
or In combination with other materials expected to be on the Premises, is either
p) potentially Injurious to the public health, safety or welfare, the
environment, or the Premises; (ii) regulated or monitored by any governmental
authority; or (iii) a basis for potential liability of Lessor to any
governmental agency or third party under any applicable statute or common law
theory. hazardous Substance shall include, but not be limited to, hydrocarbons,
petroleum, gasoline, crude oil or any products or by-products thereof. Lessee
shall not engage In any activity In or about the Premises which constitutes a
Reportable Use (as hereinafter defined) of Hazardous Substances without the
express prior written consent of Lessor and compliance in a timely manner (at
Lessee's sole cost and expense) with all Applicable Requirements (as defined In
Paragraph 6.3). reportable use" shall mean (i) the Installation or use of any
above or below ground storage tank, pi) the generation, possession, storage,
use, transportation, or disposal of a Hazardous Substance that requires a permit
from, or with respect to which a report, notice, registration or business plan
is required to be filed with, any governmental authority, and (ii) the presence
In, on or about the Premises o1 a Hazardous Substance with respect to which any
Applicable Laws require that a notice be given to persons entering or occupying
the Premises or neighboring propels. Notwithstanding the foregoing, Lessee may,
without Lessor's prior consent, but upon notice to Lessor and In compliance with
all Applicable Requirements, use any ordinary and customary materials reasonably
required to be used by Lessee In the normal course of the permitted Use, so long
as such use is not a reportable Use and does not expose the Premises or
neigboring properties to any meaningful risk of contamination or damage or
expose Lessor to any liability therefor. In addition, Lessor may (but without
any obligation to do so) condition its consent to any Reportable use of any
Hazardous Substance by Lessee upon Lessee's giving Lessor such additional
assurances as Lessor, in its reasonable discretion, deems necessary to protect
Itself, the public, the Premises and the environment against damage,
contamination or injury and/or liability therefor, including but not limited to
the installation (and, at Lessor's option, removal on or before Lease expiration
or earlier termination) of reasonably necessary protective modifications to the
Premises (such as concrete encasements) and/or the deposit of an additional
Security Deposit under Paragraph 5 hereof.
(b) Duty to Inform Lessor, If Lessee knows, or has reasonable cause
to believe, that a Hazardous Substance has come to be located In, on, under or
about the Premises or the Building, other than as previously consented to by
Lessor, Lessee shall Immediately give Lessor written notice thereof, together
with a copy of any statement, report, notice, registration, application, permit,
business plan, license, claim, action, or proceeding given to, or received from,
any governmental authority or private party concerning the presence, spill,
release, discharge of, or exposure to, such Hazardous Substance including but
not limited 10 all such documents as may be Involved In any Reportable Use
Involving the Premises. Lessee shall not cause or permit any Hazardous Substance
to be spilled or released in, on, under or about the Premises (Including,
without limitation, through the plumbing or sanitary sewer system).
(c) Indemnification. Lessee shall Indemnify, protect, defend and
hold Lessor, its agents, employees, lenders and ground lessor, if any, and the
Premises, harmless from and against any and all damages, liabilities, judgments,
costs, claims, liens, expenses, penalties, loss of permits and attorneys' and
consultant's fees along out of or involving any Hazardous Substance brought onto
the Premises by or for Lessee or by anyone under Lessee's control. Lessee's
obligations under this Paragraph 6.2(c) shall Include, but not be limited to,
the effects of any contamination or injury to person, property or the
environment created or suffered by Lessee, and the cost of investigation
including consultants' and attorneys' fees and testing), removal, remediation,
restoration and/or abatement thereof, or of any contamination therein involved,
and shall survive the expiration or earlier termination of this Lease. No
termination, cancellation or release agreement entered Into by Lessor and Lessee
shall release Lessee from its obligations under this Lease with respect to
Hazardous Substances, unless specifically so agreed by Lessor In writing at the
time of such agreement.
6.3 Lessee's Compliance with Requirements. Lessee shall, a1 Lessee's sole
cost and expense, fully, diligently and In a timely manner, comply with all
"Applicable Requirements; which term is used In this Lease to mean all laws,
rules, regulations, ordinances, directives, covenants, easements and
restrictions of record, permits, the requirements of any applicable fire
Insurance underwriter or rating bureau, and the recommendations of Lessor's
engineers and/or consultants, relating In any manner to the Premises (including
but not limited to matters pertaining to (i) industrial hygiene, (i)
environmental conditions on, In, under or about the Premises, Including soil and
groundwater conditions, and (iii) the use, generation, manufacture, production,
installation maintenance, removal, transportation, storage, spill, or release of
any Hazardous Substance), now In effect or which may hereafter come Into effect.
Lessee shall, within five (5) days after receipt of Lessor's written request,
provide Lessor with copies of all documents and information, including but not
limited to permits, registrations, manifests, applications, reports and
certificates, evidencing Lessee's compliance with any Applicable Requirements
specified by Lessor, and shall Immediately upon receipt, notify Lessor In
writing (with copies of any documents involved) of any threatened or actual
claim, notice, citation warning, complaint or report pertaining to or Involving
failure by Lessee or the Premises to comply with any Applicable Requirements.
6.4 Inspection;; Compliance with Law:. Lessor, Lessor's agents, employees,
contractors and designated representatives, and the holders of any mortgages,
deeds of trust or ground leases on the Premises ['Lenders', shall have the right
to enter the Premises at any time In the case of an emergency, and otherwise at
reasonable times, for the purpose of Inspecting the condition of the Premises
and for verifying compliance by Lessee with this Lease and all Applicable
Requirements (as defined in Paragraph 6.3), and Lessor shall be entitled to
employ experts and/or consultants In connection therewith to advise Lessor with
respect to Lessee's activities, Including but not limited to Lessee's
Installation, operation, use, monitoring, maintenance, or removal of any
Hazardous Substance on or from the Premises. The costs and expenses of any such
Inspections shall be paid by the party requesting same, unless a Default or
Breach of this Lease by Lessee or a violation of Applicable Requirements or a
contamination, caused or materially contributed to by Lessee, is found to exist
or to be imminent, or unless the Inspection requested or ordered by a
governmental authority as the result of any such existing or Imminent violation
or contamination. In such case, Lessee shall upon request reimburse Lessor or
Lessor's Lender, as the case maybe, for the costs and expenses/such inspection.
7, Maintenance, Repairs, Utility Installations, Trade Fixtures and Alterations.
7.1 Lessee's Obligations,
(a) Subject to the provisions of Paragraphs 2.2 (Condition), 2.3
(Compliance with Covenants, Restrictions and Building Code), 7.2 (Lessor's
Obligations), 9 (Damage or Destruction), and 14 (Condemnation), Lessee shall, at
Lessee's sole cost and expense and at all times keep the Premises end every part
thereof In good order, condition and repair (whether or not such portion of the
Premises requiring repair, or the means of repairing the same, are reasonably or
readily accessible to Lessee, and whether or not the need for such repairs
occurs as a result of Lessee's use, any prior use, the elements or the age of
such portion of the Premises), Including, without limiting the generality of the
foregoing, all equipment or facilities specifically serving the Premises, such
as plumbing, heating, air conditioning, ventilating, electrical, lighting
facilities, boilers, fired or unfired pressure vessels, fire hose connections if
within the Premises, fixtures, Interior walls, Interior surfaces of exterior
walls, ceilings, floors, windows, doors, plate glass, and skylights, but
excluding any items which are the responsibility of Lessor pursuant to Paragraph
7.2 below. Lessee, in keeping the Premises in good order, condition and repair,
shall exercise and perform good maintenance practices. Lessee's obligations
shall Include restorations, replacements or renewals when necessary to keep the
Premises and all Improvements thereon or a part thereof In good order, condition
and state of repair.
(b) Lessee shall, at Lessee's sole cost and expense, procure and
maintain a contract, with copies to Lessor, in customary form and substance for
and with a contractor specializing and experienced In the inspection,
maintenance and service of the heating, air conditioning and ventilation system
for the Premises. However, Lessor reserve the right, upon notice to Lessee, to
procure and maintain the contract for the heating, air conditioning and
ventilating systems, and If Lessor so elects, Lessee shall reimburse Lessor,
upon demand, for the cost thereof.
(c) If Lessee fails to perform Lessee's obligations under this
Paragraph 7.1, Lessor may enter upon the Premises under ten (10) days' prior
written notice to Lessee (except In the case of an emergency, In which case no
notice shall be required), perform such obligations on Lessee's behalf, and put
the Premises In good order condition and repair, In accordance with Paragraph
13.2 below.
7.2 Lessor's Obligations. Sublet to the provisions of Paragraphs 2.2
(Condition), 2.3 (Compliance with Covenants, Restrictions and Building Coda),
4.2 (Common Area Operating expenses), 6. (Use) 7.1 (Lessee's Obligations), 9
(Damage or Destruction) and 14 (Condemnation), Lessor, subject to reimbursement
pursuant to Paragraph 4.2, shall keep In good order, condition and repair the
foundations, exterior walls, structural condition of Interior bearing walls,
exterior roof, fire sprinkler and/or standpipe and hose (11 located In the
Common Areas) or other automatic fire extinguishing system Including fire alarm
Initials:
ore,. -~
<PAGE>
and/or smoke detection systems and equipment, fire hydrants, parking lots,
walkways, parkways, driveways, landscaping, fences, signs and utility system
serving' the Common Areas and all parts thereof, as well as providing the
services for which there is a Common Area Operating Expense pursuant to
Paragraph 4.2. Lessor shall not be obligated to paint the exterior or Interior
surfaces of exterior walls nor shall Lessor be obligated to maintain, repair or
replace windows, doors or plate glass of the Premises. Lessee expressly waives
the benefit of any statute now or hereafter In effect which would otherwise
afford Lessee the right to make repairs at Lessor's expense or to terminate this
Lease because of Lessor's failure to keep the building, Industrial Center or
Common Areas In good order, conditlon and repair
7.3 Utility Installations, Trade Fixtures, Alterations.
(a) Definitions; Consent required. The term "Utility Installations"
is used In this Lease to refer to all air lines, power panels, electrical
distribution, security, fire protection systems, communications systems,
lighting fixtures, heating, ventilating and alr conditioning equipment,
plumbing, and fencing In, on or about the Premises. The term "Trade Fixtures"
shall mean Lessee's machinery and equipment which can be removed without doing
material damage to the Premises. The term "Alterations" shall mean any
modification of the improvements on the Premises which are provided by Lessor
under the terms of this Lease, other than Utility Installations or Trade
Fixtures. "Lessee-Owned Alterations and/or utility installations. are defined as
Alterations and/or Utility Installations made by Lessee that are not yet owned
by Lessor pursuant to Paragraph 7.4(a). Lessee shall not make nor cause to be
made any Alterations or Utility Installations in, on, under or about the
Premises without Lessor's prior written consent. Lessee may, however, make
non-structural Utility Installations to the Interior of the Premises (excluding
the roof) without Lessor's consent but upon notice to Lessor, so long as they
are not visible from the outside of the Premises do not involve puncturing,
relocating or removing the roof or any existing walls, or changing or
Interfering with the fire sprinkler or fire detection systems and the cumulative
cost thereof during the term of this Lease as extended does not exceed
$2,500.00.
(b) Consent. Any Alterations or Utility Installations that Lessee
shall desire to make and which require the consent of the Lessor shall be
presented to Lessor In written form with detailed plans. All consents given by
Lessor, whether by virtue of Paragraph 7.3(a) or by subsequent specific consent,
shall be deemed conditioned upon: p) Lessee's acquiring all applicable permits
required by governmental authorities; pi) the furnishing of copies of such
permits together with a copy of the plans and specifications for the Alteration
or Utility Installation to Lessor prior to commencement of the work thereon; and
(ii) the compliance by Lessee with all conditions of said permits In R prompt
and expeditious manner. Any Alterations or Utility Installations by Lessee
during the term of this Lease shall be done In a good and workmanlike manner,
with good and sufficient materials, and be the compliance with all Applicable
requirements. Lessee shall promptly upon completion thereof furnish Lessor with
as-built plans and specifications therefor. Lessor may, (but without obligation
to do so) condition Its consent to any requested Alteration or Utility
Installation that costs $2,500.00 or more upon Lessee's providing Lessor with a
lien and completion bond in an amount equal to one and one-half times the
estimated cost of such Alteration or Utility Installation.
(c) Lien Protection. Lessee shall pay when due all claims for labor
or material furnished or alleged to have been furnished to or for Lessee at or
for use on the Premises, which claims are or may be secured by any mechanic's or
materialmen's lien against the Premises or any interest therein. Lessee shall
give Lessor not lass than tan (10) days' notice prior to the commencement of any
work in, on, or about the Premises, and Lessor shall have the right to post
notices of non-responsibility In or on the Premises as provided by law. If
Lessee shall, In good faith, contest the validity of any such lien, claim or
demand, then Lessee shall, at Its sole expense, defend and protect itself,
Lessor and the Premises against the same and shall pay and satisfy any such
adverse judgement that may be rendered thereon before the enforcement thereof
against the Lessor or the Premises. If Lessor shall require, Lessee shall
furnish to Lessor a surety bond satisfactory to Lessor In an amount equal to one
and one-half times the amount of such contested lien claim or demand,
Indemnifying Lessor against liability for the same, as required by law for the
holding of the Premises free from the effect of such lien or claim. In addition,
Lessor may require Lessee to pay Lessor's attorneys' fees and costs In
participating In such action If Lessor shall decide It is to Its best interest
to do so.
7.4 Ownership, removal, Surrender, and Restoration.
(a) Ownership. Sublet to Lessor's right to require their removal
and to cause Lessee to become the owner thereof as hereinafter provided In this
Paragraph 7.4, all Alterations and Utility Installations made to the Premises by
Lessee shall be the property of and owned by Lessee, but considered a part of
the Premises. Lessor may, at any time and at Its option, elect In writing to
Lessee to be the owner of all or any specified part of the Lessee-Owned
Alterations and Utility Installations. Unless otherwise Instructed per
Subparagraph 7.4(b) hereof, all Lessee-Owned Alterations and Utility
Installations shall, at the expiration or earlier termination of this Lease,
become the property of Lessor and remain upon the Premises and be surrendered
with the Premises by Lessee.
(b) removal. Unless otherwise agreed In writing, Lessor may
require that any or all Lessee-Owned Alterations or Utility Installations be
removed by the expiration or earlier termination of this Lease, notwithstanding
that their Installation may have been consented to by Lessor. Lessor may require
the removal at any time of all or any part of any Alterations or Utility
Installations made without the required consent of Lessor.
(c) Surrender/Restoration. Lessee shall surrender the Premises by
the end of the last day of the Lease term or any earlier terminatlon date, clean
and free of debris and In good operating order, condition and state of repair,
ordinary wear and tear excepted. Ordinary wear and tear shall not Include any
damage or deterioration that would have been prevented by good maintenance
practice or by Lessee performing all of Its obligations under this Lease. Except
as otherwise agreed or specified herein, the Premises, as surrendered, shall
Include the Alterations and Utility Installations. The obligation of Lessee
shall Include the repair of any damage occasioned by the installation,
maintenance or removal of Lessee's Trade f fixtures, furnishings, equipment, and
Lessee-Owned Alterations and Utility Installations, as well as the removal of
any storage tank Installed by or for Lessee, and the removal, replacement, or
remediation of any soil, material or ground water contaminated by Lessee, all as
may then be required by Applicable requirements and/or good practice. Lessee's
Trade Fixtures shall remain the property of Lessee and shall be removed by
Lessee subject to Its obligation to repair and restore the Premises per this
Lease.
8. Insurance; Indemnity.
8.1 Payment of Premiums. the cost of the premiums for the Insurance
policies maintained by Lessor under this Paragraph 8 shall be a Common Area
Operating Expense pursuant to Paragraph 4.2 hereof. Premiums for policy periods
commencing prior to, or extending beyond, the term of this Lease shall be
prorated to coincide with the corresponding Commencement Date or Expiration
Date.
8.2 Liability Insurance.
(a) Carried by Lessee. Lessee shall obtain and keep In force during
the term of this Lease a Commercial General Liability policy of Insurance
protecting Lessee, Lessor and any Lender(s) whose names have been provided to
Lessee In writing (as additional Insured) agalnst clalms for bodlly injury,
personal injury and property damage based upon, Involving or arising out of the
ownership, use, occupancy or maintenance of the Premises and all areas
appurtenant thereto. Such Insurance shall be on an occurrence basis providing
single limit coverage In an amount not less than $1,000,000 per occurrence with
an 'Additional Insured-Managers or Lessors of premises endorsement and contain
the Amendment of the Pollution Exclusion endorsement for damage caused by heat,
smoke or fumes from a hostile fire. The policy shall not contain any
Intra-lnsured exclusions as between insured persons or organizations, but shall
Include coverage for liability assumed under this Lease as an "insured contract"
for the performance of Lessee's indemnity obligations under this Lease. The
limits of said insurance required by this Lease ores carried by Lessee shall
not, however, limited liability of Lessee nor relieve Lessesof any obilgatlon
hereunder. All Insurance to be carrled by lessee shall be prlmary to and not
contrlbutory with any similar insurance carried by Lessor, whose insurance shall
be considered excess Insurance only.
(b) Carried by Lessor. Lessor shall also maintain liability
Insurance described In Paragraph 8.2(a) above, In addition to and not In lieu
of, the Insurance required to be maintained by Lessee. Lessee shall not be named
as an additional Insured therein.
8.3 Property Insurance-Buliding, Improvements and Rental Value.
(a) Building and Improvement. Lessor shall obtain and keep in force
during the term of this Lease a policy or policies In the name of Lessor, with
JOBS payable to Lessor and to any Lender(s), Insuring against loss or damage to
the Premises. Such Insurance shall be for full replacement cost, as the same
shall exist from time to time, or the amount required by any Lender(s), but In
no event more than the commercially reasonable and available Insurable value
thereof If, by reason of the unique nature or age of the Improvements Involved,
such later amount Is less than full replacement cost. Lessee-Owned Alterations
and Utility Installations, Trade Fixtures and Lessee's personal property shall
be Insured by Lessee pursuant to Paragraph 8.4. H the coverage Is available and
commercially appropriate, Lessor's policy or policies shall Insure against all
risks of direct physical loss or damage (except the perils of flood and/or
earthquake unless required by a Lender), Including coverage for any additional
costs resulting from debris removal and reasonable amounts of coverage for the
enforcement of any ordinance or law regulating the reconstruction or replacement
of any undamaged sections of the Building required to be demolished or removed
by reason of the enforcement of any building, zoning, safety or land use laws as
the result of a covered loss, but not including plate glass Insurance. Said
policy or policies shall also contain an agreed valuation provision in lieu of
any co-insurance clause, waiver of subrogation, and inflation ',guard protection
causing an Increase In the annual property Insurance coverage amount by a factor
of not less than the adjusted U.S. Department of Labor Consumer Price Index for
All Urban Consumers for the city nearest to where the Premises are located.
(b) Rental Value. Lessor shall also obtain and keepin force during
the term of this Lease a pollcy or policies In the name of Lessor, with loss
payable to Lessor and any Lender(s), insuring the loss of the full rental and
other charges payable by all lessees of the building to Lessor for one year
including all f teal Property Taxes, Insurance costs, all Common Area Operating
Expenses and any scheduled rental Increases). Said Insurance may provide that In
the event the Lease 18 terminated by reason of an Insured loss, the period of
indemnity for such coverage shall be extended beyond the date of the completion
of repairs or replaceme to the Premises, to provide for one full year's loss of
rental revenues from the date of any such loss. Said Insurance shall contain an
agreed valuation provision In lieu of any co-insurance clause, and the amount of
coverage shall be adjusted annually to reflect the projected rental income, Real
Property Taxes, insurance premium costs and other expenses, If any, otherwise
payable, for the next 1 2-month period. Common Area Operating Expenses shall
Include any deductible amount in the event of such loss.
(c) Adjacent Premises. Lessee shall pay for any Increase In the
premiums for the property Insurance of the Building and for the Common Areas or
other buildings In the Industrial Center If said Increase Is caused by Lessee's
acts, omissions, use or occupancy of the Premises.
(d) Lessee's Improvements. Since Lessor is the insuring Party,
Lessor shall not be required to insure Lessee-Owned Alterations and Utility
installations unless the Item in question has become the property of Lessor
under the terms of this Lease.
8.4 Lessee's Property Insurance. subject to the requirements of Paragraph
8.5, Lessee at Its cost shall either by separate policy or, at Lessor's option,
by endorsement to a policy already carried, maintain Insurance coverage on all
of Lessee's personal property, Trade Fixtures and Lessee-Owned Alterations and
Utility Installations In, on, or about the Premises similar In coverage to that
carried by Lessor as the Insuring Party under Paragraph 8.3(a).
Such Insurance shall be full replacement cost coverage with a deductible not to
exceed $1,000 per occurrence. The proceeds from any such Insurance shall be used
by Lessee for the replacement of personal property and the restoration of Trade
Fixtures and Lessee-Owned Alterations and Utility Installations. Upon request
from Lessor, Lessee shall provide Lessor with written evidence that such
Insurance Is In force.
8.5 Insurance Policies. Insurance required hereunder shall be In companies
duly licensed to transact business In the state where the Premises are
located, and maintaining during the policy term a General Policyholders
Rating. of at least B +, V, or such other rating as may be required by
a Lender, as set
Initial:
<PAGE>
forth in the most current Issue of "Best's Insurance Guide.. Lessee shall not do
or permit to be d `~,e anything which shall Invalidate the insurance policies
referred to In this Paragraph 8. Lessee shall cause to be delivered to Lessor,
within seven p) days alter the earlier of the Early Possession Date or the
Commencement Date, certified copies of, or certificates evidencing the existence
and amounts of, the insurance required under Paragraph 8.2(a) and e.4. No such
policy shall be cancelable or subject to modification except after thirty (30)
days' prior written notice to Lessor. Lessee shall at least thirty (30) days
prior to the expiration of such policies, furnish Lessor with evidence of
renewals or insurance binders evidencing renewal thereof, or Lessor may order
such Insurance and charge the cost thereof to Lessee, which amount shall be
payable by Lessee to Lessor upon demand.
8.6 Waiver of Subrogatlon. Without affecting any other rights or remedies,
Lessee and Lessor each hereby release and relieve the other, and waive their
entire right to recover damages (whether In contract or In tort) against the
other, for loss or damage to their property arising out of or Incident to the
perils required to be Insured against under Paragraph 8. The effect of such
releases and waivers of the right to recover damages shall not be limited by the
amount of insurance carried or required, or by any deductibles applicable
thereto. Lessor and Lessee agree to have their respective Insurance companies
issuing property damage insurance waive any right to subrogation that such
companies may have against Lessor Lessee, as the case maybe, so long as the
insurance is not invalidated thereby.
8.7 Indemnity. Except for Lessor's negligence and/or breach of express
warranties, Lessee shall Indemnify, protect, de/end and hold harmless the
Premises, Lessor and Its agents, Lessor's master or ground lessor, partners and
Lenders, from and against any and all claims, loss of rents and/or damages,
costs, liens, |judgements, penalties, loss of permits, attorneys' and
consultants' fees, expenses and/or liabilities arising out of, involving, or In
connection with the occupancy of the Premises by Lessee, the conduct of Lessee's
business, any act, omission or neglect of Lessee, Its agents, contractors,
employees or Invitees, and out of any Default or Breach by Lessee In the
performance In a timely manner of any obligation on Lessee's part to be
performed under this Lease. The foregoing shall Include, but not be limited to,
the defense or pursuit of any claim or any action or proceeding Involved
therein, and whether or not (In the case of claims made against Lessor)
litigated and/or reduced to judgement. In case any action or proceeding be
brought against Lessor by reason of any of the foregoing matters, Lessee upon
notice from Lessor shall defend the same at Lessee's expense by counsel
reasonably satisfactory to Lessor and Lessor shall cooperate with Lessee In such
defense. Lessor need not have first paid any such claim In order to be so
Indemnified.
8.8 Exemption of Lessor from Liability. Lessor shall not be liable for
injury or damage to the person or goods, wares, merchandise or other property of
Lessee, Lessee's employees, contractors, Invitees, customers, or any other
person In or about the Premises, whether such damage or injury Is caused by or
results from fire, steam, electricity, gas, water or rain, or from the breakage,
leakage, obstruction or other defects of pipes, fire sprinklers, wires,
appliances, plumbing, air conditioning or lighting fixtures, or from any other
cause, whether said injury or damage results from conditions arising upon the
Premises or upon other portions of the Building of which the Premises are a
part, from other sources or places, and regardless of whether the cause of such
damage or Injury or the means of repairing the same Is accessible or not. Lessor
shall not be liable for any damages arising from any act or neglect of any other
lessee of Lessor nor from the failure by Lessor to enforce the provisions of any
other lease in the Industrial Center. Notwithstanding Lessor's negligence or
breach of this Lease, Lessor shall under no circumstances be liable for Injury
to Lessee's business or for any loss of income or profit therefrom.
9. Damage or Destruction.
9.1 Definitions.
(a) "Premises Partial Damage" shall mean damage or destruction to
the Premises, other than Lessee-Owned Alterations and Utility Installations, the
repair cost of which damage or destruction is less than fifty percent (50%) of
the then Replacement Cost (as defined In Paragraph 9.1(d)) of the Premises
(excluding Lessee-Owned alterations and utility installations and Trade
fixtures) Immediately prior to such damage or destruction.
(b) "Premises Total Destruction. shall mean damage or destruction
to the Premises, other than Lessee-Owned Alterations and Utility Installations,
the repair cost of which damage or destruction Is fifty percent (50%) or more of
the then Replacement Cost of the Premises (excluding Lessee-Owned alterations
and utility Installations and Trade fixtures) immediately prior to such damage
or destruction. In addition, damage or destruction to the building, other than
Lessee-Owned alterations and utility installations and Trade fixtures of any
lessees of the building, the cost of which damage or destruction of fifty
percent (50%) or more of the then Replacement Cost (excluding Lessee-Owned
alterations and utility installations and Trade fixtures of any lessees of the
Building) of the building shall, at the option of Lessor, be deemed to be
Premises Total Destruction.
(c) "Insured Loss" shall mean damage or destruction to the
Premises, other than Lessee-Owned Alterations and Utility Installations and
trade fixtures was caused by an event required to be covered by the Insurance
described In Paragraph B.3(a) irrespective of any deductible amounts or coverage
limits Involved.
(d) "Replacement Cost" shall mean the cost to repair or rebuild the
Improvements owned by Lessor at the time of the occurrence to their condition
existing Immediately prior thereto, including demolition, debris removal and
upgrading required by the operation of applicable building codes, ordinances or
laws, and without deduction for depreciation.
(e) "Hazardous Substance Condition" shall mean the occurrence or
discovery of a condition Involving the presence of, or a contamination by, a
Hazardous Substance as deemed In Paragraph 6.2(a), In, on. or under the
Premises.
9.2 Premises Partial Damage - Insured Loss. If Premises Partial Damage
that is an Insured Loss occurs, then Lessor shall, at Lessor s expense, repair
such damage (but not Lessee s Trade fixtures or Lessee-Owned Alterations and
Utility Installations as soon as reasonably possible end the Lease shall
continue In full force and effect. In the event, however, that there Is a
shortage of Insurance proceeds and such shortage is due to the fact that, by
reason of the unique nature of the Improvements In the Premises, full
replacement cost Insurance coverage was not commercially reasonable and
available, Lessor shall have no obligation to pay for the shortage In Insurance
proceeds or to fully restore the unique aspects of the Premises unless Lessee
provides Lessor with the funds to cover same, or adequate assurance thereof,
within ten (10) days following receipt of written notice of such shortage and
request therefor. If Lessor receives said funds or adequate assurance thereof
within said ten (t0) day period, Lessor shall complete them as soon as
reasonably possible and this Lease shall remain In full force and effect. If
Lessor does not receive such funds or assurance within said period, Lessor may
nevertheless elect by written notice to Lessee within ten (t0) days thereafter
to make such restoration and repair as Is commercially reasonable with Lessor
paying any shortage in proceeds, In which case this Lease shall remain In full
force and effect. If Lessor does not receive such funds or assurance within such
ten (10) day period, and if Lessor does not so elect to restore and repair, then
this Lease shall terminate sixty (60) days following the occurrence of the
damage or destruction. Unless otherwise agreed, Lessee shall In no event have
any right to reimbursement from Lessor for any funds contributed by Lessee to
repair any such damage or destruction. Premises Partial Damage due to flood or
earthquake shall be subject to Paragraph 9.3 rather than Paragraph 9.2,
notwithstanding that there may be some Insurance coverage, but the net proceeds
of any such insurance shall be made available for the repairs if made by either
Party.
9.3 Partial Damage - Uninsured Lose. If Premises Partial Damage that if
not an Insured Loss occurs, unless caused by a negligent or willful act of
Lessee (in which event Lessee shall make the repairs at Lessee's expense and
this Lease shall continue In full force and effect), Lessor may at Lessor's
option, either (1) repair such damage as soon as reasonably possible at Lessor's
expense, In which event this Lease shall continue in full force and effect, or
(ii) give written notice to Lessee within thirty (30) days after receipt by
Lessor of knowledge of the occurrence of such damage of Lessor's desire to
terminate this Lease as of the date sixty (60) days following the date of such
notice. In the event Lessor elects to give such notice of Lessor's intention to
terminate this Lease, Lessee shall have the right within ten (10) days after the
receipt of such notice to give written notice to Lessor of Lessee's commitment
to pay for the repair of such damage totally at Lessee's expense and without
reimbursement from Lessor. Lessee shall provide Lessor with the required funds
or satisfactory assurance thereof within thirty (30) days following such
commitment form Lessee. In such event this Lease shall continue In lull force
and effect, and Lessor shall proceed to make such repairs as soon as reasonably
possible after the required funds are available. H Lessee does not give such
notice and provide the funds or assurance thereof within the times specified
above, this Lease shall terminate as of the date specified in Lessor's notice of
termination.
9.4 Total Destruction. Notwithstanding any other provision hereof, if
Premises Total Destruction occurs (including any destruction required by any
authorized public authority), this Lease shall terminate sixty (60) days
following the date of such Premises Total Destruction, whether or not the damage
or destruction Is an insured Loss or was caused by a negligent or willful act of
Lessee. in the event, however, that the damage or destruction was caused by
Lessee, Lessor shall have the right to recover Lessor's damages from Lessee
except as released and waived In Paragraph 9.7.
9.5 Damage Near End of Term. H at anytime during the last six (6) months
of the term of this Lease there Is damage for which the cost to repair exceeds
one month's Base rent, whether or not an Insured Loss, Lessor may, at Lessor's
option, terminate this Lease effective sixty (60) days following the date of
occurrence of such damage by giving written notice to Lessee of Lessor's
election to do so within thirty (30) days after the date of occurrence of such
damage. Provided, however, if Lessee at that time has an exercisable option to
extend this Lease or to purchase the Premises, then Lessee may preserve this
Lease by (a) exercising such option, and (b)providing Lessor wlth any shortage
in insurance proceeds (or adequate assurance/hereof) needed to make the repairs
on or before the earlier of 0) the date which is ten (10) days after Lessee's
receipt of Lessor's written notice purporting to terminate this Lease, or (ii)
the day prior to the date upon which such option expires. If Lessee duly
exercises such option during such period and provides Lessor with funds (or
adequate assurance thereof) to cover any shortage in insurance proceeds, Lessor
shall, at Lessor's expense repair such damage as soon as reasonably possible and
this Lease shall continue in full force and effect. If Lessee fails to exercise
such option and provide such funds or assurance during such period, then this
Lease shall terminate as of the date set forth in the first sentence of this
Paragraph 9.5.
9.6 Abatement of Rent; Lessee'e Remedies
(a) In the event of (i) Premises Partial Damage or (ii) Hazardous
Substance Condition for which Lessee is not legally responsible, the Base Rent,
Common Area Operating Expenses and other charges, if any, payable by Lessee
hereunder for the period during which such damage or condition, Its repair,
remediation or restoration continues, shall be abated In proportion to the
degree to which Lessee's use of the Premises is impaired, but not In excess of
proceeds from Insurance required to be canted under Paragraph 8.3(b). Except for
abatement of Base Rent, Common Area Operating f expenses and other charges, If
any, as aforesaid, all other obligations of Lessee hereunder shall be performed
by Lessee, and Lessee shall have no claim against Lessor for any damage suffered
by reason of any such damage destruction, repair, remediation or restoration.
(b) The Lessor shall be obligated to repair or restore the Premises
under the provisions of this Paragraph 9 and shall not commence, In a
substantial and meaningful way, the repair or restoration of the Premises within
ninety (90) days after such obligation shall accrue, Lessee may, at any time
prior to the commencement of such repair or restoration, give written notice to
Lessor and to any Lenders of which Lessee has actual notice of Lessee's election
to terminate this Lease on e date not less than sixty (60) days following the
giving of such notice. 11 Lessee gives such notice to Lessor and such Lenders
and such repair or restoration is not commenced within thirty (30) days after
receipt of such notice, this Lease shall terminate as of the date specified In
said notice. The Lessor or a Lender commences the repair or restoration of the
Premises within thirty (30) days after the receipt of such notice, this Lessee
shall continue In full force and affect. 'Commencement used In this Paragraph
9.6 shall mean after the unconditional authorization of the preparation of the
required plans, or the beginning of the actual work on the Premises, whichever
occurs first.
Initial:
9.7 Hazardous Substance Condition. If a Hazardous Substance Condition occurs,
unless Lessee Is legally responsible thereof (In which case lessee shall make
the investigation and remediation thereof required by Applicable requirements
and this Lease shall continue In full force and effect, but subject to Lessor's
rights under Paragraph 6.2(c) and Paragraph 13), Lessor may at Lessor s option
either p) Investigate and remediate such Hazardous Substance Condition, if
required, as soon as reasonably possible at Lessor s expense, In which event
this Lease shall continue In full force and effect, or (ii) if the estimated
cost to Investigate and remediate such condition exceeds twelve (12) times the
then monthly Base Rent or $100,000 whichever Is greater, give written notice to
Lessee within thirty (30) days after receipt by Lessor of knowledge of the
occurrence of such Hazardous Substance Condition of Lessor's desire to terminate
this Lease as of the date sixty (60) days following the date of such notice. In
the event Lessor elects to give such notice of Lessor's Intention to terminate
this Lease, Lessee shall have the right within ten (10) days alter the receipt
of such notice to give written notice to Lessor of Lessee's commitment 10 pay
for the excess costs of (a) investigation end remediation of such Hazardous
Substance Condition to the extent required by Applicable requirements, over (b)
an amount equal to twelve (12) times the then monthly Base Rent or S100,000,
whichever 19 greater. Lessee shall provide Lessor with the /funds required of
Lessee or satisfactory assurance thereof within thirty (30) days following said
commitment by Lessee. In such event this Lease shall continue In full force and
effect and Lessor shall proceed to make such Investigation and remediation as
soon as reasonably possible after the required funds are available. If Lessee
does not give such notice and provide the required funds or assurance thereof
within the time period specified above, this Lease shall terminate as of the
data specified In Lessor's notice of termination.
9.8 Termination - Advance Payments. Upon termination of this Lease
pursuant to this Paragraph 9, Lessor shall return to Lessee any advance payment
made by Lessee to Lessor and so much of Lessee's Security Deposit as has not
been, or is not then required to be, used by Lessor under the terms of this
Lease.
9.9 Waiver of Statutes Lessor and Lessee agree that the terms of this
Lease shall govern the effect of any damage to destruction of the Premises and
the building with respect to the termination of this Lease and hereby waive the
provisions of any present or future statute to the extent It Is inconsistent
herewlth.
10. Real Property Taxes.
10.1 Payment ot Taxes. Lessor shall pay the Real Property Taxes, as
defined in Paragraph 10.2, applicable to the Industrial Center, and except as
otherwise provided in Paragraph 10.3, any such amounts shall be Included In the
calculation of Common Area Operating Expenses In accordance with the provisions
of Paragraph 4.2.
10.2 Real Property Tax Definition. As used herein, the term "Real Property
Taxes" shall Include any form of real estate tax or assessment, general special,
ordinary or extraordinary, and any license fee, commercial rental tax,
Improvement bond or bonds, levy or tax (other than Inheritance, personal Income
or estate taxes) Imposed upon the Industrial Center by any authority having the
direct or Indirect power to tax, Including any city, state or federal
government, or any school, agricultural, sanitary, fire, street, drainage, or
other Improvement district hereof, levied against any legal or equitable
Interest of Lessor In the Industrial Center or any portion thereof, Lessor ~
right to rent or other Income therefrom, and/or Lessor's business of leasing the
Premises. The term Real Property Taxes" shall also Include any tax, fee, levy,
assessment or charge, or any Increase therein, Imposed by reason of events
occurring, or changes In Applicable Law taking effect, during the term of this
Lease, Including but not limited to a change In the ownership of the Industrial
Canter or In the improvements thereon, the execution of this Lease, or any
modification, amendment or transfer thereof, and whether or not contemplated by
the Parties. In calculating Real Property Taxes for any calendar year, the Real
Property taxes for any real estate tax year shall be Included In the calculation
of Real Property Taxes hr such calendar year based upon the number of days which
such calendar year and tax year have In common.
10.3 Additional Improvements. Common Area Operating Expenses shall not
Include Real Property Taxes specified In the tax assessor s records and work
sheets as being caused by additional Improvements placed upon the Industrial
Center by other lessees or by Lessor for the exclusive enjoyment of such other
lessees. Notwithstanding Paragraph 10.1 hereof, Lessee shall, however, pay to
Lessor at the time Common Area Operating expenses are payable under Paragraph
4.2, the entirety of any increase In f teal Property Taxes If assessed solely by
reason of alterations, Trade fixtures or Utility installations placed upon the
Premises by Lessesor at lessee's request.
10.4 Joint Assessment. If the Buliding is not separately assessed, Peal
Property Taxes allocated to the Building shall be an equitable proportion of the
Real Property Taxes for all of the land and Improvements Included within the tax
parcel assessed, such proportion to be determined by Lessor from the respective
valuations assigned in the assessor's work sheets or such other Information as
maybe reasonably available. Lessor's reasonable determination thereof, In good
faith, shall be conclusive.
10.5 Lessee's Properly Taxes. Lessee shall pay prior to delinquency all
taxes assessed against and levied upon Lessee-Owned Alterations and Utility
installations, Trade fixtures, furnishings, equipment and all personal property
of Lessee contained In the Premises or stored within the Industrial Center. When
possible, Lessee shall cause Its Lessee-Owned Alterations and Utility
Installations, Trade fixtures, furnishings, equipment and all other personal
property to be assessed and billed separately from the real property of Lessor.
If any of Lessee's said property shall be assessed with Lessor's real property,
Lessee shall pay lessor the taxes attributable to Lessee's property within ten
(10) days after recelpt of written statement setting forth the taxes applicable
to Lessee's property.
11. Utilities. Lessee shall pay directly for all utilities and services supplied
to the Premises, Including but not limited to electricity, telephone, security,
gas and cleaning of the Premises, together with any taxes thereon. If any such
utilities or services are not separately metered to the Premises or separately
billed to the Premises, Lessee shall pay to Lessor a reasonable proportion to be
determined by Lessor of all such charges jointly metered or billed with other
premises In the Building, In the manner and within the time periods set forth In
Paragraph 4.2(d).
12. Assignment and Subletting.
12.1 Lessor's Consent Required.
(a) Lessee shall not voluntarily or by operation of law assign,
transfer, mortgage or otherwise transfer or encumber collectively, assign.) or
sublet all or any part of Lessee's Interest in this Lease or in the Premises
without Lessor's prior written consent given under and subject to the terms of
Paragraph 36.
(b) A change In the control of Lessee shall constitute an
assignment requiring Lessor's consent. The transfer, on a cumulative basis, of
twenty-five percent (25%) or more of the voting control of Lessee shall
constitute a change In control for this purpose.
(c) The Involvement of Lessee or Its assets In any transaction, or
series of transactions (by way of merger, sale, acquisition, financing,
refinancing, transfer, leveraged buy-out or otherwise), whether or not a formal
assignment or hypothecatlon of this Lease or Lessee's assets occurs, which
results or will result In a reduction of the Net Worth of Lessee, as hereinafter
defined, by an amount equal to or greater than twenty-five percent (2516) of
such Net Worth of Lessee as It was represented to Lessor at the time of full
execution and delivery of this Lease or at the time of the most recent
assignment to which Lessor has consented, or as It exists immediately prior to
said transaction or transactions consulting such reduction, at whichever time
said Net Worth of Lessee was or Is greater, shall be considered an assignment of
this Lease by Lessee to which Lessor may reasonably withhold Its consent. "Net
Worth of Lessee for purposes of this Lease shall be the net worth of lessee
(excluding any Guarantors) established under generally accepted accounting
principles consistently supplied.
(d) An assignment or subletting of Lessee's interest in this Lease
without Lessor specific prior written consent shall, at Lessor's option, be a
Default curable after notice per Paragraph 13.1, or a non-curable Breach without
the necessity of any notice and grace period. If Lessor elects to treat such
unconsented to assignment or subletting as a non-curable Breach, Lessor shall
have the right to either: p) terminate this Lease, or 01) upon thirty (30) days
written notice {'Lessor's Notice',, Increase the monthly Base Rent for the
Premises to the greater of the then fairmarket rental value of the Premises as
easonably determined by Lessor,or one hundred ten percent (1 t016) of the Base
Rent then In effect. Pending determination of the new fair market rental value
if disputed by Lessee, Lessee shall pay the amount set forth In Lessor's Notice,
with any overpayment credited against the next Installment(s) of Base Rent
coming due, and any underpayment for the period retroactively to the effective
date of the adjustment being due and payable immediately upon the determinatlon
thereof. Further, in the event of such Breach and rental adjustment, the
purchase price of any option to purchase the Premises held by Lessee shall be
subject to similar adjustment to the then fair market value as reasonably
determined by Lessor (without the Lease being considered an encumbrance or any
deduction for depreciation or obsolescence, and considering the Premises at Its
highest and best use and in good condition) or one hundred ten percent (110%)of
the price previously in effect, pi) any lndex-orlented rental or price
adjustment formulas contained In this Lease shall be adjusted to require that
the base Index be determined with reference to the index applicable to the time
of such adjustment, and (iii) any fixed rental adjustments scheduled during the
remainder of the Lease term shall be Increased In the same ratio as the new
rental bears to the Base Rent in effect Immediately prior to the adjustment
specified in Lessor's Notice.
(e) Lessee's remedy for any breach of this Paragraph 12.1 by Lessor shall
be Itemized to compensatory damages and/or Injunctive relief.
12.2 Terms and Conditions Applicable to Assignment and Subletting.
(a) regardless of Lessor's consent, any assignment or subletting
shall not (i) be effective without the express written assumption by such
assignee or sublessee of the obligations of Lessee under this Lease, (ii)
release Lessee of any obligations hereunder, nor (iii) alter the primary
liability of Lessee for the payment of Base Rent and other sums due Lessor
hereunder or for the performance of any other obilgatlons to be performed by
Lessee under this Lease.
(b) Lessor may accept any rent or performance of Lessee's
obligations from any person other than Lessee pending approval or disapproval of
an assignment. Neither a delay In the approval or disapproval of such assignment
nor the acceptance of any rent for performance shall constitute a waiver or
estoppel of Lessor's right to exercise its remedies for the Default or Breach by
Lessee of any of the terms covenants or conditions of this Lease.
(c) The consent of Lessor to any assignment or subletting shall not
constitute a consent with any subsequent assignment or subletting by Lessee or
to any subsequent or successive assignment or subletting by the assignee or
sublessee. However, Lessor may consent to subsequent sublettings and assignments
of the sublease or any amendments or modifications thereto without notifying
Lessee or anyone else liable under this Lease or the sublease and without
obtaining their consent, and such action shall not relieve such persons from
liability under this Lease or the sublease.
(d) In the event of any default or Breach of Lessee's obligation
under this Lease, Lessor may proceed directly against Lessee, any Guarantors or
anyone else responsible for the performance of the Lessee's obligations under
this Lease, Including any sublessee, without first exhausting Lessor's remedies
against any other person or entity responsible therefor to Lessor, or any
security held by Lessor.
(e) Each request for consent to an assignment or subletting shall
be In writing, accompanied by Information relevant to Lessor's determination to
the financial and operational responsibility and appropriateness of the proposed
assignee or sublessee, Including but not limited to the Intended use and/or
required modificatlon of the Premises, If any, together wlth anon-refundable
deposit of $1,000 or ten percent (10%) of the monthly base rent applicable to
the portion of the Premises which Is the Subject of the proposed assignment or
sublease, whichever is greater, as reasonable consideration for Lessor's
considering and processing the request for consent. Lessee agrees to provide
Lessor with such other or additlonal Information and/or documentatlon as maybe
reasonably requested by Lessor.
(f) Any assignee of, or sublessee under, this Lease shall, by
reason of accepting such assignment or entering Into such sublease, be deemed
for the benefit of Lessor, to have assumed and agreed to conform and comply with
each and every term, covenant, condition and obligation herein to be observed or
performed by Lessee during the term of said assignment or sublease, other than
such obligations as are contrary to or Inconsistent with provisions of an
assignment or sublease to which Lessor has specifically consented In writing.
Initials:
<PAGE>
(9) The occurrence of a transaction described In Paragraph 12.2(c) shall give
Lessor the right (but not the obligation) to require that the Security Deposit
be Increased by an amount equal to six (6) times the then monthly Base Rent, and
Lessor may make the actual receipt by Lessor of the Security Deposit increase a
condition to Lessor's consent to such transactlon.
(h) Lessor, as a condition to giving its consent to any assignment
or subletting, may require that the amount and adjustment schedule of the rent
payable under this Lease be adjusted to what is then the market value and/or
adjustment schedule for property similar to the Premises and then constituted,
as determined by Lessor.
12.3 Additional Terms and Conditions Applicable to Subletting. The
following terms and conditions shall apply to any subletting by Lessee of all or
any part of the Premises and shall be deemed Included In all subleases under
this Lease whether or not expressly incorporated therein:
(a) Lessee hereby assigns and transfers to Lessor all of Lessee's
Interest In all rentals and income arising from any sublease of all or a portion
of the Premises heretofore or hereafter made by Lessee, and Lessor may collect
such rent and income and apply same toward Lessee's obligations under this
Lease; provided, however, that until a Breach (as defined in Paragraph 13.1)
Shall occur In the performance of Lessee's obligations under this Lease, Lessee
may, except 8B otherwise provided In this Lease, receive, collect and enjoy the
rents accruing under such sublease. Lessor shall not, by reason of the foregoing
provision or any other assignment of such sublease to Lessor, nor by reason of
the collection of the rents from a sublessee, be deemed liable to the sublessee
for any failure of Lessee to perform and comply with any of Lessee's obligations
to such sublessee under such Sublease. Lessee hereby Irrevocably authorizes and
directs any such sublessee, upon receipt of a written notice from Lessor stating
that a Breach exists in the performance of Lessee's obligations under this
Lease, to pay to Lessor the rents and other charges due and to become due under
the sublease. Sublessee shall rely upon any such statement end request from
Lessor and shall pay such rents and other charges to Lessor without any
obligation or right to inquire as to whether such Breach exists and
notwithstanding any notice from or claim from Lessee to the contrary. Lessee
shall have no right or claim against such sublessee, or, until the Breach has
been cured, against Lessor, for any such rents and other charges so paid by said
sublessee to Lessor.
(b) In the event of a Breach by Lessee in the performance of its
obligations under this Lease, Lessor, at its option and without any obligation
to do so, may require any sublessee to attorn to Lessor, in which event Lessor
shall undertake the obligations of the sublessor under such sublease from the
time of the exercise of said option to the expiration of such sublease;
provided, however, Lessor shall not be liable for any prepaid rents or security
deposit paid by such sublessee to such sublessor or for any other prior defaults
or breaches of such sublessor under such sublease.
(c) Any matter or thing requiring the consent of the sublessor
under a sublease shall also require the consent of Lessor herein.
(d) No sublessee under a sublease approved by Lessor shall further
assign or sublet and or any part of the Premises without Lessor's prior written
consent.
(e) Lessor shall deliver a copy of any notice of Defaultor Breach
by Lessee to the sublessee, who shall have the right to cure the Default of
Lessee within the grace period, If any, specified In such notice. The sublessee
shall have a right of reimbursement and offset from and against Lessee for any
such Defaults cured by the sublessee.
13. Default; Breach; Remedies.
13.1 Default; Breach. Lessor and Lessee agree that If an attorney Is
consulted by Lessor In connection with a Lessee Default or Breach (as
hereinafter defined), $350.00 Is a reasonable minimum sum per such occurrence
for legal services and costs in the preparation and service of a notice of
Default, and that Lessor may Include the cost of such services and costs In said
notice as rent due and payable to cure said default. A "Default" by Lessee is
defined as a failure by Lessee to observe, comply with or perform any of the
terms, covenants, conditions or rules applicable to Lessee under this Lease. A
"Breach" by Lessee Is defined as the occurrence of any one or more of the
following Defaults, and, where a grace period for cure after notice Is specified
herein, the failure by Lessee to cure such Default prior to the expiration of
the applicable grace period, and shall entitle Lessor to pursue the remedies set
forth in Paragraphs 1 3.2 and/or 13.3:
(a) The vacating of the Premises without the intention to reoccupy same, or
the abandonment of the Premises.
(b)Except as expressly otherwise provided in this Lease, the failure by Lessee
to make any payment of Base Rent, Lessee's Share of Common Area Operating
Expenses, or any other monetary payment required to be made by Lessee hereunder
as and when due, the failure by Lessee to provide Lessor with reasonable
evidence of Insurance or surety bond required under this Lease, or the failure
of Lessee to fulfill any obligation under this Lease which endangers or
threatens life or property, where such failure continues for a period of three
(3) days following written notice thereof by or on behalf of Lessor to Lessee.
(c) Except as expressly otherwise provided In this Lease, the
failure by Lessee to provide Lessor with reasonable written evidence given duly
executed original form, If applicable) to (i) compliance with Applicable
Requirements per Paragraph 6.3, (ii) the Inspection, maintenance and service
contracts required under Paragraph 7.1(b), {ill) the rescission of an
unauthorized assignment or subletting per Paragraph 12.1, (iv) a Tenancy
Statement per Paragraphs 16 or 37, {v) the subordination or non-subordination of
this Lease per Paragraph 30, (vi) the guaranty of the performance of Lessee's
obligations under this Lease if required under Paragraphs 1.11 and 37, (vii) the
execution of any document requested under Paragraph 42 (easements), or (viii)
any other documentation or Information which Lessor may reasonably require of
Lessee under the terms of this lease, where any such failure continues for a
period of ten (10) days following written notice by or on behalf of Lessor to
Lessee.
(d) A Default by Lessee en to the terms, covenants, conditions or
provisions of this Lease, or of the rules adopted under Paragraph 40 hereof that
are to be observed, complied with or performed by Lessee, other than those
described In Subparagraphs 13.1(a), (b) or (c), above, where such Default
continues for a period of thirty (30) days after written notice thereof by or on
behalf of Lessor to Lessee; provided, however, that if the nature of Lessee's
Default Is such that more than thirty (30) days are reasonably required for its
cure, then it shall not be deemed to be a Breach of this Lease by Lessee If
Lessee commences such cure within said thirty (30) day period and thereafter
diligently prosecutes such cure to completion.
(e) The occurrence of any of the following events: 0) the making by
Lessee of any general arrangement or assignment for the benefit of creditors;
{ii) Lessee's becoming a debtor. as defined In 11 U.S. Code Section 101 or any
successor statute thereto (unless, in the case of a petition filed against
Lessee, the same 1s dismissed within sixty (60) days); (vii)) the appointment of
a trustee or receiver to take possession of substantially all of Lessee's assets
located at the Premises or of Lessee's interest in this Lease, where possession
is not restored to Lessee within thirty (30) days; or liv) the attachment,
execution or other judicial seizure of substantially all of Lessee's assess
located at the Premises or of Lessee's Interest In this Lease, where such
seizure is not discharged within thirty (30) days; provided, however, In the
event that any provision of this Subparagraph 13.t(e) Is contrary to any
applicable law, such provision shall be of no force or effect, and shall not
affect the validity of the remaining provisions.
p) The discovery by Lessor that any financial statement of Lessee
or of any Guarantor, given to Lessor by Lessee or any Guarantor, was materially
false.
(g) If the performance of Lessee's obligations under this Lease is
guaranteed: (~) the death of a Guarantor, (11) the termination of a Guarantor's
liability with respect to this lease other than In accordance with the term of
such guaranty, (iii) a Guarantor's becoming insolvent or the subject of a
bankruptcy filing, (iv) a Guarantor's refusal to honor the guaranty, or (v)a
Guarantor's breach of Its guaranty obilgation on an anticipatory breach basis,
and Lessee's failure, within sixty(60) days following written notice by or on
behalf of Lessor to Lessee of any such event, to provide Lessor with written
alternative assurances of security, which, when coupled with the then existing
resources of Lessee, equals or exceeds the combined financial resources of
Lessee and the Guarantors that existed at the time of execution of this Lease.
13.2 Remedies. If Lessee fails to perform any affirmative duty or
obligation of Lessee under this Lease, within ten (10) days after written notice
to Lessee (or In case of an emergency, without notice), Lessor may at Its option
(but without obligation to do so), perform such duty or obligation on Lessee's
behalf, Including but not limited to the obtaining of reasonably required bonds,
Insurance policies, or governmental licenses, permits or approvals. The costs
and expenses of any such performance by Lessor shall be due and payable by
Lessee to Lessor upon invoice therefor. N any check given to Lessor by Lessee
shall not be honored by the bank upon which It is drawn, Lessor, at its own
option, may require all future payments to be made under this Lease by Lessee to
be made only by cashier's check. In the event of a Breach of this Lease by
Lessee (as defined In Paragraph 13.1), with or without further notice or demand,
and without limiting Lessor In the exercise of any right or remedy which Lessor
may have by reason of such Breach, Lessor may:
(a) Terminate Lessee's right to possession of the Premises by any
lawful means, In which case this Lease and the term hereof shall terminate and
Lessee shall Immediately surrender possession of the Premises to Lessor. In such
event Lessor shall be entitled to recover from Lessee: (i) the worth at the time
of the award of the unpaid rent which had been earned at the time of
termination; (ii) the worth at the time of award of the amount by which the
unpaid rent which would have been earned a termination until the time of award
exceeds the amount of such rental loss that the Lessee proves could have been
reasonably avoided; (iii) the worth at the time of award of the amount by which
the unpaid rent for the balance of the term after the time of award exceeds the
amount of such rental loss that the Lessee proves could be reasonably avoided;
and (iv) any other amount necessary to compensate Lessor for all the detriment
approximately caused by the Lessee's failure to perform Its obligations under
this Lease or which In the ordinary course of things would be likely to result
therefrom, including but not limited to the cost of recovering possession of the
Premises, expenses of reletting, including necessary renovation and alteration
o/ the Premises, reasonable attorneys' fees, and that portion of any leasing
commission paid by Lessor In connection with this Lease applicable to the
unexpired term of this Lease. The worth in the time of award of the amount
referred to In provision f~lH) of the Immediately preceding sentence shall be
computed by discounting such amount at the discount rate of the Federal Reserve
Bank of San Francisco or the Federal Reserve Bank District In Which the Premises
are located at the time of award plus one percent (1%). Efforts by Lessor to
mitigate damages caused by Lessee's Default or Breach of this Lease shall not
waive Lessor's right to recover damages under this Paragraph 13.2. If
termination of this Lease is obtained through the provisional remedy of unlawful
detainer, Lessor shall have the right to recovering such proceeding the unpaid
rent and damages as are recoverable therein, or Lessor may reserve the right to
recover all or any part thereof in a separate suit for such rent and/or damages.
If a notice and grace period required under Subparagraph 13.1 (b), (c) or (d)
was not previously given, a notice to pay rent or quit, or to perform or quit,
as the case may be, given to Lessee under any statute authorizing the forfeiture
of leases for unlawful detainer shall also constitute the applicable notice for
grace period purposes required by Subparagraph 13.1 (b), (c) or (d). In such
case, the applicable grace period under the unlawful detainer statue shall run
concurrently after the one such statutory notice, and the failure of Lessee to
cure the default within the greater of the two (2) such grace perlods shall
constitute both an unlawful detainer and a Breach of this Lease entitling Lessor
to the remedial provided for in this Lease and/or by said statute.
(b) Continue the Lease and Lessee's right to possession In effect
in California under California Civil Code Section 1951.4) after Lessee's Breach
and recover the rent as It becomes due, provided Lessee has the right to sublet
or assign, subject only to reasonable limitations. Lessor and Lessee agree that
the limitations on assignment and subletting in this Lease are reasonable. Acts
of maintenance or preservation, efforts to reflect the Premises, or the
appointment of a receive to protect the Lessor's Interest under this Lease,
shall not constitute a termination of the Lessee's right to possession.
(c) Pursue any other remedy now or hereafter available to Lessor under
the laws or judicial decisions of the state wherein the Premises are located.
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(d) The expiration or termination of this Lease and/or the termination
of Lessee B right to possession shall not relieve Lessee from liability
under any indemnity provisions of this Lease as to matters occurring or
accruing during the term hereof or by reason of Lessee's occupancy of the
Premises.
13.3 Inducement recapture In Event of Breach. Any agreement by Lessor for
free or abated rent or other charges applicable to the Premises, or for the
giving or paying by Lessor to or for Lessee of any cash or other bonus,
inducement or consideration for Lessee's entering Into this Lease, all of which
concessions are hereinafter referred to as "Inducement Provisions" shall be
deemed conditioned upon Lessee s full and faithful performance of all of the
terms, covenants and conditions of this Lease to be performed or observed by
Lessee during the term hereof as the same may be extended. Upon the occurrence
of a Breach (as defined in Paragraph 13.1)on this Lease by lessee, any such
Inducement Provision shall automatically be deemed deleted from this Lease end
of no further force or effect, and any rent, other charge, bonus, Inducement or
consideratlon therefore debated, given or pald by Lessor under such an
Inducement Provision shall be Immedlately due and payable by Lessee to Lessor,
and recoverable by Lessor, as additional rent due under this Lease,
notwithstanding any subsequent cure of said Breach by Lessee, The acceptance by
Lessor of rent or the cure of the Breach which initialed the operation of this
Paragraph 13.3 shall not be deemed a waiver by Lessor of the provisions of this
Paragraph 13.3 unless specifically so stated in writing by Lessor at the time of
such acceptance.
13.4 Late Charges. Lessee hereby acknowledges that late payment by Lessee
to Lessor of rent and other sums due hereunder will cause Lessor to Incur costs
not contemplated by this Lease, the exact amount of which will be extremely
difficult to ascertain. Such costs Include, but are not limited to, processing
and accounting charges, and late charges which may be Imposed upon Lessor by the
terms of any ground lease, mortgage or deed of trust covering the Premises.
Accordingly, If any Installment of rent or other sum due from Lessee shall not
be received by Lessor or Lessor's designee within ten (10) days after such
amount shall be due, then, without any requirement for notice to Lessee, Lessee
shall pay to Lessor a late charge equal to six percent (6%) of such overdue
amount. The parties hereby agree that such late charge represents a fair and
reasonable estimate of the costs Leasor will Incur by reason of late payment by
Lessee. Acceptance o/ such late charge by Lessor shall In no event constitute a
waiver of Lessee's Default or Breach with respect to such overdue amount, nor
prevent Lessor from exercising any of the other rights and remedies granted
hereunder. In the event that a late charge Is payable hereunder, whether or not
collected, for three (3) consecutive Installments of Base Rent, then
notwithstanding Paragraph 4.1 or any other provision of this Lease to the
contrary, Base Rent shall, at Lessor's option, become due and payable quarterly
In advance.
13.5 Breach by Lessor. Lessor shall not be deemed In breach of this Lease
unless Lessor fails within a reasonable time to perform an obligation required
to be performed by Lessor. For purposes of this Paragraph 13.5, a reasonable
time shall In no event be less than thirty (30) days after receipt by Lessor,
and by any Lender(s) whose name and address shall have been furnished to Lessee
In writing for such purpose, of written notice specifying wherein such
obligation of Lessor has not been performed: provided, however, that if the
nature of Lessor's obligation Is such that more then thirty (30) days after such
notice arer easonably required for its performance, then Lessor shall not be In
breach of this Lease If performance is commenced within such thirty (30) day
period and thereafter diligently pursued to completion.
14. Condemnation. K the Premises or any portion thereof are taken under the
power of eminent domain or sold under the threat of the exercise of said power
(all of which are herein called condemnation.), this Lease shall terminate as to
the part so taken as of the date the condemning authority taken title or
possession, whichever first occurs. If more than ten percent (1096) of the floor
area of the Premises, or more than twenty-five percent (25%) of the portion of
the Common Areas designated for Lessee's parking, Is taken by condemnation,
Lessee may, at Lessee's option, to be exercised In writing within ten (10) days
after Lessor shall have given Lessee written notice of such taking (or In the
absence of such notice, within ten (10) days after the condemning authority
shall have taken possession) terminate this Lease as of the date the condemning
authority takes such possession. If Lessee does not terminate this Lease In
accordance with the foregoing, this Lease shall remain In full force and effect
as to the portion of the Premises remaining, except that the Base Rent shall be
reduced In the same proportion as the rentable floor area of the Premises taken
bears to the total rentable floor area of the Premises. No reduction of Base
Rent shall occur If the condemnation does not apply to any portion of the
Premises. Any award for the taking of all or any part of the Premises under the
power of eminent domain or any payment made under threat of the exercise of such
power shall be the property of Lessor, whether such award shall be made as
compensation for diminution of value of the leasehold or for the taking of the
fee, or as severance damages: provided, however, that Lessee shall be entitled
to any compensation, separately awarded to Lessee for Lessee's relocation
expenses and/or loss of Lessee's Trade Fixtures. In the event that this Lease Is
not terminated by reason of such condemnation, Lessor shall to the extent of Its
net severance damages received, over and above Lessee's Share of the legal and
other expenses Incurred by Lessor In the condemnation matter, repair any damage
to the Premises caused by such condemnation authority. Lessee shall be
responsible for the payment of any amount In excess of such net severance
damages required to complete such repair.
15. Brokers Fees.
15.1 Procuring Cause. The Broker(s) named In Paragraph 1.10 Is/are the
procuring cause of this Lease.
15.2 Additional Terms. Unless Lessor and broker(s) have otherwise agreed
In writing, Lessor agrees that: (a) If Lessee exercises any option (as defined
In Paragraph 39.1) granted under this Lessor any Option subsequently granted, or
(b) If Lessee acquires any rights to the Premises or other premises in which
Lessor has an Interest, or (c) If Lessee remains In possession of the Premises
with the consent of Lessor alter the expiration of the term of this Lease alter
having failed to exercise an Option, or (d) If said Brokers are the procuring
cause of any other lease or sale entered Into between the Parties pertaining to
the Premises and/or any adjacent property In which Lessor has an Interest, or
(e) If Base Rent Is Increased, whether by agreement or operation of an
escalation clause herein, then as to any of said ransactlons, Lessor shall be
said Broker(s) a fee in accordance with the schedule of said Broker(s) In effect
at the time of the execution of this Lease.
15 3 Assumption of Obligations. Any buyer or transferee of Lessor s
Interest In this Lease, whether such transfer Is by agreement or by operation of
law, shall be deemed to have assumed Lessor's obligation under this Paragraph
15. Each Broker shall be an Intended third party benificiary of the provisions
of Paragraph 1.10 and of this Paragraph 15 to the extent of its interest in any
commisslon arising from this Lease and may enforce that right directly agalnst
Lessor and Its successors.
15.4 Representation and Warranties. Lessee and Lessor each represent and
warrant to the other that It has had no dealings with any person, firm broker or
finder other than as named In Paragraph 1.10(a) In connection with the
negotiation of this Lease and/or the consummation of the transaction
contemplated hereby, and that no broker or other person, firm or entity other
than said named Broker(s) Is entitled to any commission or finder's fee in
connection with said transaction. Lessee and Lessor do each hereby agree to
Indemnify, protect, defend and hold the other harmless from and against
liability for compensation or charges which may be claimed by any such unnamed
broker, finder or other similar party by reason of any dealings or actions of
the indemnifying Party, Including any costs, expenses, and/or attorneys' fees
reasonably Incurred with respect thereto.
16. Tenancy and Financial Statements.
16.1 Tenancy Statement. Each Party (as "Responding Party', shall within
ten (10) days after written notice from the other Party (the "Requesting Party',
execute, acknowledge and deliver to the Requesting Party a statement In writing
In a form similar to the then most current tenancy Statement" form published by
the American industrial Real Estate Association, plus such additional
Information, confirmation and/or statements as may be reasonably requested by
the Requesting Party.
16.2 Financial Statement. If Lessor decides to finance, refinance, or sell
the Premises or the Building, or any part thereof, Lessee and all Guarantors
shall deliver to any potential lender or purchaser designated by Lessor such
financial statements of Lessee and such Guarantors as may be reasonably required
by such lender or purchaser, including but not limited to Lessee's financial
statements for the past three (3) years. All such financial statements shall be
received by Lessor and such lender or purchaser In confidence and shall be used
only for the purposes herein set forth.
17. Lessor's Liability. The term "Lessor" as used herein shall mean the owner or
owners at the time In question of the fee title to the Premises. In the event of
a transfer of Lessor's title or Interest In the Premises or In this Lease,
Lessor shall deliver to the transferee or assignee on cash or by credit} any
unused Security Deposit held by Lessor at the time of such transfer of
assignment. Except as provided Paragraph 15.3, upon such transfer or assignment
and delivery of the Security Deposit, as aforesaid, the prior Lessor shall be
relieved of all liability with respect to the obligations and/or covenants under
this Lease thereafter to be performed by the Lessor. Subject to the foregoing,
the obligations and/or covenants In this Lease to be performed by the Lessor
shall be binding only upon the Lessor as hereinabove defined. 18. Severabillty.
The Invalidity of any provision of this Lease, as determined by a court of
competent jurisdiction, shall in no way affect the validity of any other
provision hereof.
19. Interest on Past-Due Obligation. Any monetary payment due Lessor hereunder,
other than late charges, not received by Lessor within ten (10) days following
the date on which It was due, shall bear interest from the date due at the prime
rate charged by the largest state chartered bank in the state In which the
Premises are located plus four percent (496) per annum, but not exceeding the
maximum rate allowed by law, In addition to the potential late charge provided
for In Paragraph 13.4.
20. Time of Essence. Time is of the essence with respect to the performance of
all obligations to be performed or observed by the Partied under this Lease.
21. Rent Defined . All monetary obilgatlons of Lessee to Lessor under the terms
of this Lease are deemed to be rent.
22. No Prior or other Agreement; Broker Disclaimer. This Lease contains all
agreements between the Parties with respect to any matter mentioned herein, and
no other prior or contemporaneous agreement or understanding shall be effective.
Lessor and Lessee each represents and warrants to the Brokers that It has made,
and Is relying solely upon, its own investigaton as to the nature, quality,
character and financial responsibillty of the other Party to this Lease and as
to the nature, quality and character of the Premises. Brokers have no
responsibility wlth respect thereto or wlth respect to any default or breach
hereof by either Party. Each Broker shall be an intended third party beneflclary
of the provislons of this Paragraph 22.
23. Notices.
23.1 Notice requirements. All notices required or premitted by this Lease
shall be In writing and may be delivered In person (by hand or by messenger or
courier service) or may be sent by regular, certified or registered mail or U.S.
Postal Service Express Mall, with postage prepaid, or by facsimile transmission
during normal business hours, and shall be deemed sufficiently given if served
In a manner specified In this Paragraph 23. The addresses noted adjacent to a
Party's signature on this Lease shall be that Party's address for delivery or
mailing of notice purposes. Either Party may by written notice to the other
specify a different address for notice purposes, except that upon Lessee's
taking possession of the Premises, the Premises shall constitute Lessee's
address for the purpose of mailing or delivering notices to Lessee. A copy of
all notices required or permitted to be given to Lessor hereunder shall be
concurrently transmitted to such party or parties at such addresses as Lessor
may from time to time hereafter designate by written notice to Lessee.
23.2 Date of Notice. Any notice sent by registered or certified mall, return
receipt requested, shall be deemed given on the date of delivery shown on the
receipt card, or If no delivery date is shown, the postmark thereon. If sent by
regular mail, the notice shall be deemed given forty-eight (48) hours after the
name is addressed as required herein and mailed with postage prepaid. Notices
delivered by United States Express Mail or overnight courier that guarantees
next day
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delivery shall be deemed given twenty-four (24) hours after delivery of the same
to the United States Postal Service or courier. If any notice Is transmitted by
facsimile transmission or similar means, the same shall be deemed served or
delivered upon telephone or facsimile confirmation of receipt of the
transmission thereof, provided a copy Is also delivered via delivery or mail. If
notice Is received on a Saturday or a Sunday or a legal holiday, it shall be
deemed received on the next business day.
24. Waivers. No waiver by Lessor of the Default or Breach of any term, covenant
or condition hereof by Lessee, shall be deemed a waiver of any other term,
covenant or condition hereof, or of any subsequent Default or Breach by Lessee
of the same or any other term, covenant or condition hereof. Lessor's consent
to, or approval of, any such act shall not be deemed to render unnecessary the
obtaining of Lessor's consent to, or approval of, any subsequent or similar act
by Lessee, or be construed as the basis of an estoppel to enforce the provision
or provisions of this Lease requiring such consent. regardless of Lessor's
knowledge of a Default or breach at the time of accepting rent, the acceptance
of rent by Lessor shall not be a waiver of any Default or Breach by Lessee of
any provision hereof. Any payment given Lessor by Lessee may be accepted by
Lessor on account of moneys or damages due Lessor, notwithstanding any
qualifying statements or conditions made by Lessee In connection therewith,
which statements and/or conditions shall be of no force or effect whatsoever
unless specifically agreed to In writing by Lessor at or before the time of
deposit of such payment.
25. Recording. Wither Lessor or Lessee shall, upon request of the other,
execute, acknowledge and deliver to the other a short form memorandum of this
Lease for recording purposes. The Party requesting recordation shall be
responsible for payment of any fees or taxes applicable thereto.
26. No Right To Holdover. Lessee has no right to retain possession of the
Premises or any part thereof beyond the expiration or earlier termination of
this Lease. In the event that Lessee holds over In violation of this Paragraph
26 then the Base Rent payable from and after the time of the expiration or
earlier termination of this Lease shall be Increased to two hundred percent
(20016) of the Base Rent applicable during the month Immediately preceding such
expiration or earlier termination. Nothing contained herein shall be construed
as a consent by Lessor to any holding over by Lessee.
27. Cumulative Remedies No remedy or election hereunder shall be deemed
exclusive but shall, wherever possible, be cumulative with all other remediesat
law or In equity.
28. Covenants and Conditions. Ml provisions of this Lease to be observed or
performed by Lessee are both covenants and conditions.
29. Binding Effect; Choice of Law. This Lease shall be binding upon the Parties,
their personal representatives, successors and assigns and be governed by the
laws of the State In which the Premises are located. Any litigation between the
Parties hereto concerning this Lease shall be Initiated In the county In which
the Premises are located.
30. Subordination; Attornment; Non-Disturbance.
30.1 Subordination. This Lease and any Option granted hereby shall be
subject and subordinate to any ground lease, mortgage, deed of trust, or other
hypothecatlon or security device (collectively, "Security Device"), now or
hereafter placed by Lessor upon the real property of which the Premises are a
part, to any and all advances made on the security thereof, and to all renewals,
modifications, consolidations, replacements and extensions thereof. Lessee
agrees that the Lenders holding any such Security Device shall have no duty,
llabillty or obligation to perform any of the obligations of Lessor under this
Lease but that In the event of Lessor's default with respect to any such
obligation, Lessee will give any Lender whose name and address have been
furnished Lessee In writing for such purpose notice of Lessor's default pursuant
to Paragraph 13.5. If any Lender shall elect to have this Lease and/or any
Optlon granted hereby superior to the lien of Its Security Device and shall give
written notice thereof to Lessee, this Lease and such Options shall be deemed
prior to such Security Device, notwithstanding the relative dates of the
documentation or recordation thereof.
30.2 Attornment. Subject to the non-disturbance provisions of Paragraph
30.3, Lessee agrees to attorn to a Lender or any other party who acquires
ownership of the Premises by reason of a foreclosure of a Security Device, and
that In the event of such foreclosure, such new owner shall not: (i) be liable
for any act or omission of any prior lessor or with respect to events occurring
prior to acquisition of ownership, (ii) be sublet to any offsets or defenses
which Lessee might have against any prior lessor, or (iii) be bound by
prepayment of more than one month's rent.
30.3 Non-Disturbance. With respect to Security Devices entered into by
Lessor after the execution of this lease, Lessee's subordination of this Lease
shall be subject to receiving assurance (a non-disturbance agreement") from the
Lender that Lessee's possession and this Lease, including any options to extend
the term hereof, will not be disturbed so long as Lessee Is not In Breach hereof
and attorns to the record owner of the Premises.
30.4 Self-Executing. The agreements contained in this Paragraph 30 shall
be effective without the execution of any further documents, provided however,
that upon written request from Lessor or a Lender In connection with a sale,
financing or refinancing of Premises, Lessee and Lessor shall execute; such
further writings as may be reasonably required to separately document any such
subordination or non-subordination, attornment and/or non-disturbance agreement
as is provided for herein.
31. Attorneys' Fees. If any Party or Broker brings an action or proceeding to
enforce the terms hereof or declare rights hereunder, the Prevailing Party (as
hereafter defined) In any such proceeding, action, or appeal thereon, shall be
entitled to reasonable Attorneys' fees. Such fees may be awarded In the same
suit or recovered In a separate suit, whether or not such action or proceeding
Is pursued to decision or judgment. The term "Prevailing Party" shall Include,
without limitation, a Party or Broker who substantially obtains or defeats the
relief sought, as the case may be, whether by compromise, settlement, judgement,
or the abandonment by the other Party or Broker of its claim or defense. The
attorneys' fee award shall not be computed In accordance with any court fee
schedule, but shall be such as to fully reimburse all attorneys' fees reasonably
Incurred. Lessor shall be entitled to attorneys' fees, costs and expenses
Incurred In preparation and service of notices of Default and consultations In
connection therewith, whether or not a legal action Is subsequently commenced in
connection with such Default or resulting Breach. Broker(s) shall be Intended
third party beneficiaries of this Paragraph 31.
32. Lessor's Access; Showing Premise; Repairs. Lessor and Lessor's agents shall
have the right to enter the Premises at any time, In the case of an emergency,
and otherwise at reasonable times for the purpose of showing the same to
prospective purchasers, lenders, or lessees, and making such alterations,
repairs, Improvements or additions to the Premises or to the Building, as Lessor
may reasonably deem necessary. Lessor may at any time place on or about the
Premises or Building any ordinary "For Sale" signs and Lessor may at any time
during the last one hundred eighty (180) days of the term hereof place on or
about the Premises any ordinary "For Lease" signs. As such activities of Lessor
shall be without abatement of rent or liability to Lessee.
33. Auctions. Lessee shall not conduct, nor permit to be conducted, either
voluntarily or involuntarily, any auction upon the Premises without first having
obtained Lessor's prior written consent. Notwithstanding anything to the
contrary In this Lease, Lessor shall not be obligated to exercise any standard
of reasonableness In determining whether to grant such consent.
34. Signs. Lessee shall not place any sign upon the exterior of the Premises or
the Building, except that Lessee may, with Lessor's prior written consent,
install (but not on the roof)such signs as are reasonably required to advertise
Lessee's own business so long assuch signs are in a location designated by
Lessor and comply with Applicable requirements and the signage criteria
established for the Industrial Center by Lessor. The Installation of any sign on
the Premises by or for Lessee shall be subject to the provisions of Paragraph 7
(Maintenance, Repairs, Utility Installations, Trade Fixtures and Alterations).
Unless otherwise expressly agreed herein, Lessor reserves all rights to the use
of the roof of the Building, and the right to Install advertising signs on the
Building, Including the roof, which do not unreasonably interfere with the
conduct of Lessee's business; Lessor shall be entitled to all revenues from such
advertising signs.
35. Termination; Merger. Unless specifically stated otherwise In writing by
Lessor, the voluntary or other surrender of this Lease by Lessee, the mutual
termination or cancellation hereof, or a termination hereof by Lessor for Breach
by Lessee, shall automatically terminate any sublease or lesser estate In the
Premises: provided, however, Lessor shall, In the event of any such surrender,
termination or cancellation, have the option to continue any one or all of any
existing subtenancles. Lessor's failure within ten (10) days following any such
event to make a written election to the contrary by written notice to the holder
of any such lesser Interest, shall constitute Lessor's election to have such
event constitute the termination of such interest.
36. Consents.
(a) Except for Paragraph 33 hereof (Auctions) or as otherwise
provided herein, wherever In this Lease the consent of a Party is required to an
act by or for the other Party, such consent shall not be unreasonably withheld
or delayed. Lessor's actual reasonable costs and expenses (Including but not
limited to architects', attorneys', engineers' end other consultants' fees)
Incurred In the consideration of, or response to, a request by Lessee for any
Lessor consent pertaining to this Lease or the Premises, Including but not
limited to consents to an assignment a subletting or the presence or use of a
Hazardous Substance, shall be paid by Lessee to Lessor upon receipt of an
invoice and supporting documentation therefor. In addition to the deposit
described in Paragraph 12.2(e), Lessor may, as a condition to considering any
such request by Lessee, require that Lessee deposit with Lessor an amount of
money (In addition to the Security Deposit held under Paragraph 5) reasonably
calculated by Lessor to represent the cost Lessor will Incur in considering and
responding to Lessee's request. Any unused portion of said deposit shall be
refunded to Lessee without interest. Lessor's consent to any act, assignment of
this Lease or subletting of the Premises by Lessee shall not constitute an
acknowledgment that no Default or Breach by Lessee of this Lease exists, nor
shall such consent be deemed a waiver of any then existing Default or Breach,
except as may be otherwise specifically stated In writing by Lessor at the time
of such consent.
(b) All conditions to Lessor's consent authorized by this Lease are
acknowledged by Lessee as being reasonable. The failure to specify herein any
particular condition to Lessor's consent shall not preclude the impositions by
Lessor at the time of consent of such further or other conditions as are then
reasonable with reference to the particular matter for which consent is being
given.
37. Guarantor.
37.1 Form of Guaranty. If there are to be any Guarantors of this Lease per
Paragraph 1.11 the form of the guaranty to be executed by each such Guarantor
shall be In the form most recently published by the American Industrial Real
Estate Association, and each such Guarantor shall have the same obligations as
Lessee under this lease, Including but not limited to the obligation to provide
the Tenancy Statement and Information required In Paragraph 16.
37.2 Additional Obligations of Guarantor. It shall constitute a Default of
the Lessee under this Lease If any such Guarantor fails or refuses, upon
reasonable request by Lessor to give: (a) evidence of the due execution of the
guaranty called for by this Lease, Including the authority of the Guarantor (and
of the party signing on Guarantor's behalf) to obligate such Guarantor on said
guaranty, and resolution of Its board of directors authorizing the making of
such guaranty, together with a certificate of incumbency showing the signature
of the persons authorized to sign on its behalf, (b) current financial
statements of Guarantor as may from time to time be requested by Lessor, (c) a
Tenancy Statement, or (d) written confirmation that the guaranty is still In
effect.
38. Quite Possession. Upon payment by Lessee of the rent for the Premises and
the performance of all of the covenants, conditions and provisions on Lessee's
part to be observed and performed under this Lease, Lessee shall have quiet
possession of the Premises for the entire term hereof subject to all of the
provisions of this Lease.
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39. Optlons.
39.1 Dentition. As used In this Lease, the word "Option" has the following
meaning: (A) the right to extend the term of this Lease or to renew this Lease
or to extend or renew any lease that Lessee has on other property of Lessor;
(b) the right of first refusal to lease the Premises or the right of first
offer to lease the Premises or the right of first refusal to lease other
property of Lessor or the right of first offer to lease other property of
Lessor; (c) the right to purchase the Premises, or the right of first refusal
to purchase the Premises, or the right of first offer to purchase the
Premises, or the right to purchase other property of Lessor, or the right of
first refusal to purchase other property of Lessor, or the right of first
offer to purchase other property of Lessor.
39.2 Options Personal 10 Original Lease. Each Option granted to Lessee In
the Lease is personal to the original Lessee named In Paragraph 1.1 hereof, and
cannot be voluntarily or involuntarily assigned or exercised by any person or
entity other than said original Lessee while the original Lessee Is In full and
actual possession of the Premises and without the Intention of thereafter
assigning or subletting. The Options, If any, herein granted to Lessee are not
assignable, either as a part of an assignment of this Lease or separately or
apart therefrom, and no Option may be separated from this Lease In any manner,
by reservation or otherwise.
39.3 Multiple Options. In the event that Lessee has any multiple options
to extend or renew the Lease, a later option cannot be exercised unless the
prior Options to extend or renew this Lease have been validly exercised.
39.4 Effect of Default on Options.
(a) Lessee shall have no right to exercise an option,
notwithstanding any provision In the grant of option to the contrary: (1) during
the period commencing with the giving of any notice of Default under Paragraph
13.1 and continuing until the noticed Default Is cured, or (i) during the period
of time any monetary obligation due Lessor from Lessee is unpaid (without regard
to whether notice thereof is given Lessee), or (ii) during the time Lessee Is In
Breach of this tease, or ~v) in the event that Lessor has given to Lessee three
(3) or more notices of separate Defaults under Paragraph 13.1 during the twelve
(12) month period Immediately preceding the exercise of the Option, whether or
not the Defaults are cured.
(b) The period of time within which an Option may be exercised
shall not be extended or enlarged by reason of Lessee's inability to exercise an
option because of the provisions of Paragraph 39.4(a)
(c) All rights of Lessee under the provisions of an option shall
terminate and be of no further force or effect, notwithstanding Lessee's due and
timely exercise of the Option, If, after such exercise and during the term of
this Lease, 0) Lessee fails to pay to Lessor a monetary obligation of Lessee for
a period of thirty (30) days after such obligation becomes due (without any
necessity of Lessor to give notice thereof to Lessee), or (i) Lessor gives to
Lessee three (3) or more notices of separate defaults under Paragraph 13.1
during any twelve (12) month period, whether or not the Defaults are cured, or
(ii) If Lessee commits a Breach of this Lease.
40. Rules and Regulation Lessee agrees that It will abide by, and keep and
observe all reasonable rules and regulations (-Rules and Regulations.) which
Lessor may make from time to time for the management, safety, care, and
cleanliness of the grounds, the parking and unloading of vehicles and the
preservation of good order, as well as for the convenience of other occupants or
tenants of the Building and the Industrial Center and their invitees.
4t. Security Measures. Lessee hereby acknowledges that the rental payable to
Lessor hereunder does not Include the cost of guard service or other security
measures, and that Lessor shall have no obligation whatsoever to provide same.
Lessee assumes all responsibility for the protection of the Premises Lessee, Its
agents and Invitees and their property from the acts of third parties.
42. Reservations. Lessor reserves the right, from time to time, to grant,
without the consent or joinder of Lessee, such easements, rights of way, utility
raceways, and dedications that Lessor deems necessary, and to cause the
recordation of parcel maps and restrictions, so long as such easements, rights
of way, utility raceways, dedications, maps and restrictions do not reasonably
Interfere with the use of the Premises by Lessee. Lessee agrees to sign any
documents reasonably requested by Lessor to effectuate any such easement rights,
dedication, map or restriction.
43. Performance Under Protest. If at any time a dispute shall arise as to any
amount or sum of money to be paid by one Party to the other under the provisions
hereof, the Party against whom the obligation to pay the money Is asserted shall
have the right to make payment under protest. and such payment shall not be
regarded as a voluntary payment and there shall survive the right on the part of
said Party to Institute suit for recovery of such sum. If It shall be adjudged
that there was no legal obligation on the part of said Party to pay such sum or
any part thereof, said Party shall be entitled to recover such sum or so much
thereof as It was not legally required to pay under the provisions of this
Lease.
44. Authority. If either Party hereto Is a corporation, trust, or general or
limited partnership, each individual executing this Lease on behalf of such
entity represents and warrants that he or she Is duly authorized to execute and
deliver this Lease on its behalf. If Lessee Is a corporation, trust or
partnership, Lessee shall, within thirty (30) days after request by Lessor,
deliver to Lessor evidence satisfactory to Lessor of such authority.
45. Conflict. Any conflict between the printed provisions of this Lease and the
typewritten or handwritten provisions shall be controlled by the typewritten or
handwritten provisions.
46. Offer. Preparation of this Lease by either Lessor or Lessee or Lessor's
agent or Lessee's agent and submission of same to Lessee or Lessor shall not be
deemed an offer to lease. This Lease is not Intended to be binding until
executed and delivered by all Parties hereto.
47. Amendment. This Lease may be modified only in writing, signed by the parties
In interest at the time of the modification. The Parties shall amend this Lease
from time to time to reflect any adjustments that are made to the Base Rent or
other rant payable under this Lease. AB long as they do not materially change
Lessee's obligations hereunder, Lessee agrees to make such reasonable
non-monetary modifications to this Lease as may be reasonably required by an
Institutional Insurance company or pension plan Lender In connection with the
obtaining of normal financing or refinancing of the property of which the
Premises are a part.
48. Multiple Parties. Except as otherwise expressly provided herein, If more
than one person or entity is named herein as either Lessor or Lessee, the
obligation of such multiple parties shall be the joint and several
responsibility of all persons or entitles named herein as such Lessor or Lessee.
Initials:
<PAGE>
ADDENDUM TO STANDARD INDUSTRIAL/COMMERCIAL MULTI-TENANT LEASE -
MODIFIED NET DATED AUGUST 1996 BY AND BETWEEN EBJ PARTNERS, L.P., A
CALIFORNIA LIMITED PARTNERSHIP AS ~LESSOR. AND ORYX TECHNOLOGY
CORPORATION AND SURGX CORPORATION AS "LESSEE" FOR THE PREMISES
COMMONLY KNOWN AS 1100 AUBURN STREET, FREMONT, CALIFORNIA
49. CONTINGENT UPON TERMINATION OF EXISTING LEASE: This Lease is contingent upon
the early termination of the lease dated June 2, 1994 with Concept Systems
Design, Inc. on terms acceptable to Lessor and Lessor's counsel.
50. REFER TO LEASE AGREEMENT. PARAGRAPH 1.4 [EARLY POSSESSION1: The Early
Possession date shall commence upon the occurrence of Lessor's receipt of the
following: (i) a fully executed Lease, (ii) all required deposits under the
Lease, and (iii) Lessee's liability insurance endorsement naming Lessor as an
additional insured party. Additionally, Lessee will change all utilities into
Lessee's name as of the Early Possession Date.
51. BASE RENT SCHEDULE: The following monthly Base Rent Schedule shall apply
during the term of this Lease:
Months 01 - 30: $18,151.20
Months 31 - 60: $19,285.65
52. TENANT IMPROVEMENTS BY LESSOR: Prior to the Lease Commencement Date, Lessor
shall, at Lessor's sole cost and expense:
A. Professionally shampoo and clean all carpets.
B. Repaint or touch-up interior office walls as needed as agreed
by Lessor and Lessee during inspection.
C. Professionally clean and wax all VCT tile.
53. LOADING DOCK: Lessee acknowledges that the loading dock to the rear of the
Premises is common to the entire building and Lessee agrees to cooperate with
other Lessee's of the building regarding the use of the loading dock. The
loading dock may not be used by persons and/or entities which are not tenants of
the building.
54. HVAC MAINTENANCE: Lessor will contract for the HVAC quarterly maintenance
and will pass through the expenses and any repairs to Lessee as an operating
expense.
55. OPERATING EXPENSES: Lessor estimates that the 1996/97 Operating Expenses are
approximately $.13 per square foot per month and Lessee agrees to pay Lessee's
pro rate share of Operating Expenses monthly as provided herein commencing
September 1, 1996. Lessee's share of Operating Expenses shall be $2,949.57 per
month commencing on September 1, 1996 which shall be payable in advance on the
first day of each and every month. Lessor shall guarantee that Lessee's pro rata
share of Operating Expenses shall not exceed $.13 per square foot per month
through December 31, 1997. The Operating Expenses shall be determined on a
calendar year basis in a detailed statement of the actual expenses, and shall be
delivered to Lessee within ninety (90) days after expiration of each calendar
year as set forth in the Lease.
56. OPTION TO EXTENT): Provided that Lessee has not been in default of any of
the provisions of this Lease during the then current term, Lessee shall have the
right to extend the initial term hereof for one (1) additional period of three
(3) years upon the same terms and conditions as stated herein, except for the
Minimum Monthly Rent. Such extension is herein referred to as the "Extended
Term". Lessee must exercise its right, if at all, by written notification (the
"Notice of Exercise-) to Lessor not less than twelve (12) months, nor more than
fifteen (15) months prior to the expiration of the initial term hereof.
The option to extend granted herein is personal to the
original Lessee executing this Lease and is not assignable or transferable by
such original Lessee. Lessor grants the rights contained herein to Lessee in
consideration of Lessee's strict compliance with the provisions hereof,
including, without limitation, the manner of exercise of this option.
If Lessee exercises the right to extend the term then the
Minimum Monthly Rent shall be adjusted to equal the Fair Market Rental (the
~Newly Established Base Rent.) for the premises as of the date of the
commencement of such Extended Term, pursuant to the procedures hereinafter set
forth. The term ~Fair Market Rental. means the Minimum Monthly Rent chargeable
for the Premises based upon the following factors applicable to the Premises or
any comparable premises:
A. Rental rates being charged for comparable premises in the same geographical
location.
B. The relative locations of the comparable premises.
C. Yearly rental adjustments
D. Services and utilities provided or to be provided.
E. Any other relevant Lease terms or conditions.
In no event. however. shall the Newly Established Base Rent
be less than the Minimum Monthly Rent in effect immediately prior to the
commencement date of the Extended Term. The Fair Market Rental evaluation shall
include provision for yearly rent adjustments during the Extended Term if such
adjustments are common in the market place similar types of leases.
Upon exercise of the right to extend the term, and included within the Notice of
Exercise, Lessee shall notify Lessor of its opinion of Fair Market Rental as
above defined for the Extended Term. If the parties are unable to agree upon a
Minimal Monthly Rent for the Extended Term within thirty (30) days after
exercise of the right to extend the term, within ten (10) days after the
expiration thereof, either party at its own cost and expense and by giving
notice to the other party in writing, may appoint a MAI real estate appraiser
(.Qualified Appraiser.) to set the Minimum Monthly Rent for the Extended Term.
The terms ~Minimum Monthly Rent. and "Fair Market Rental" as used in this
paragraph shall be interchangeable.
If a party does not appoint a Qualified Appraiser within ten
(10) days after the first party has given notice of the name of its Qualified
Appraiser, the single Qualified Appraiser appointed shall be the sole appraiser
and shall set the Fair Market Rent for the Extended Term.
If two Qualified Appraisers are appointed by the parties,
they shall meet promptly, on ten (10) days' notice to the parties, to take such
evidence and other information as the parties may deem reasonable to submit to
the Qualified Appraisers. Within thirty (30) days after the selection of the
last of the two Qualified Appraisers to be appointed by the parties, the
Qualified Appraisers shall render their opinions of the Fair Market Rental of
the premises as above qualified. If the two valuations are within five percent
(5%) of each other (using the lower valuation as the basis for computing the
5%), they shall be averaged and the average of the two shall be the Minimum
Monthly Rent for the Extended Term. If only one appraisal is timely submitted
that appraisal shall constitute the Minimum Monthly Rent for the Extended Term.
If the two valuations are separated by more than five percent
(5%), then the two Qualified Appraisers shall, within ten (10) days following
the last date for submission of the two appraisals of Fair Market Rental,
appoint a third Qualified Appraiser. If they are unable to agree upon a third
Qualified Appraiser within such ten (10) day period, either of the parties to
this Lease, by giving five (5) days' notice to the other party, may demand
arbitration as specified below. If neither party applies for Arbitration within
the ten (10) day period herein specified, the two appraisals of value shall be
averaged as stated above.
In the event the parties are unable to mutually agree upon a
Minimum Monthly Rent for the Extended Term, and in such event proceed to the
Appraisal or Arbitration procedures herein specified, both parties shall be
bound to submit the matter for such determination. The procedure specified in
this paragraph for appointment of Qualified Appraisers, delivery of appraisals,
appointment of an Arbitrator, and determination of Fair Market Value thereby, is
herein collectively referred to as ~Arbitration.. The Arbitration shall be
conducted and determined in the County where the Leased Premises are situated.
If the Arbitration is not concluded before commencement of the Extended Term,
Lessee shall pay Minimum Monthly Rent to Lessor in an amount equal to the Fair
Market Rental set forth in the appraisal by Lessor's Qualified Appraiser until
the Fair Market Rental is determined in accordance with the arbitration
provisions hereof. If the Fair Market Rental as determined by Arbitration
differs from that stated by Lessor's Qualified Appraiser, then any adjustment
required to correct the amount previously paid by Lessee shall be made by
payment by the appropriate party within thirty (30) days after the determination
of Fair Market Rental by Arbitration has been concluded, as provided herein.
Lessee shall be obligated to make payment during the entire Extended Term of the
Minimum Monthly Rent determined in accordance with the Arbitration procedures
hereunder.
A party demanding Arbitration hereunder shall make its demand
in writing (-Demand Notice.) within ten (10) days after delivery of the last of
the two appraisals presented by the Qualified Appraisers as specified above. A
copy of the Demand Notice shall be sent to the local office of the American
Arbitration Association, or any successor thereto, for the appointment of an
arbitrator satisfactory to both parties to render a final determination as
hereinafter provided. If agreement regarding selection of an arbitrator is not
reached within ten (10) days, then a copy of the Demand Notice shall be sent to
the Presiding Judge of the highest trial court in such county for the state in
which the premises are located. The Presiding Judge is hereinafter referred to
as the ~Appointer-. The Appointer shall appoint within ten (10) days thereafter
a Arbitrator. The Arbitrator shall be qualified to serve as an expert witness,
over objection, to give opinion testimony addressed to the issue in a court of
competent jurisdiction.
As used herein, the term Arbitrator refers to a third
Qualified Appraiser, selected by any of the methods heretofore set forth. The
Arbitrator shall, within ninety (90) days after his appointment, state in
writing his determination of the Fair Market Rental. The Arbitrator shall have
the right to consult experts and competent authorities with factual information
or evidence pertaining to a determination of Fair Market Rental, but any such
consultation shall be made in the presence of both parties with full right to
cross examine. If the Arbitrator's determination of Fair Market Rental is an
amount which falls between the respective values stated by Lessor's and Lessee's
Qualified Appraisers, the value of the Qualified Appraiser which is closest to
that of the Arbitrator shall be averaged with that of the Arbitrator and the
resultant amount shall be the Fair Market Rental for the Extended Term. If the
Arbitrator's valuation is exactly between that of the two Qualified Appraisers,
the Arbitrator's valuation shall be the Fair Market Rental for the Extended
Term. If, however, the Arbitrator's valuation is either higher than the higher
valuation posed by the two Qualified Appraisers or lower than the lower
valuation of the two Qualified Appraisers, then the valuation of the Qualified
Appraiser which is closest to that of the Arbitrator shall be the Fair Market
Rental for the Extended Term. The Fair Market Rental so determined shall be
subject to increase both as to manner and time(s) as determined by the
Arbitrator, based on then prevailing market conditions. The Arbitrator shall
render a decision and award in writing, with counterpart copies to each party.
Judgment may be entered thereon in any court of competent jurisdiction.
In the event of failure, refusal, or inability of the
Arbitrator to act in a timely manner, a successor shall be appointed in the same
manner as such Arbitrator was first chosen hereunder. The fees and expenses of
the Arbitrator and for the administrative hearing fee, if any, shall be divided
equally between the parties. Each party shall bear its own attorneys' fees and
other expenses including fees of witness in presenting evidence, and the fees
and cost of its own Qualified Appraiser.
57. CONDITION UPON TERMINATION: Upon termination or expiration of this Lease,
Lessee shall surrender the premises to Lessor, broom clean and in the same
condition as received, except for ordinary wear and tear. For purposes of this
Lease, items which are not ~ordinary wear and tear. shall include, but not be
limited to, the following items, which shall be the Lessee's obligation to
repair or correct: (i) damage to or defacement of partitions, woodwork or
plaster or any portion of the Premises from any cause (including, without
limitation, from nails or screws); (ii) soiled carpet or woodwork through the
over-watering of plants or other misuse; (iii) defacement to the warehouse
floor: (iv) damage to the Premises not caused by the passage of time and
ordinary use; (v) excessive wear to carpeting from Lessee's failure to use
carpet protectors under desk chairs; and (vi) any disrepair in the Premises that
is capable of being repaired and which is Lessee's obligation to repair pursuant
to the Lease (for example, light fixtures, door knobs, ceiling panels and
interior walls.)
[Signatures on Following Pages]
<PAGE>
READ AND APPROVED:
LESSEE: ORYX TECHNOLOGY CORPORATION
By: /s/ Andrew Wilson
By:
LESSEE: SURGX CORPORATION
By: /s/ Andrew Wilson
By:
LESSOR: EBJ PARTNERS L.P.
A CALIFORNIA Limited PARTNERSHIP
By: SEE ATTACHED EXHIBIT "B"
EXHIBIT "A"
LESSOR: EBJ PARTNERS, L.P., A CALIFORNIA LIMITED PARTNERSHIP
By: RICHARD LEVIN
RICHARD LEVIN, GENERAL PARTNER
By: /s/ ALAN J.LEVIN
ALAN J. LEVEN, his Co-Attorney In Fact
By: /s/ SYDNEY LEVIN
SYDNEY LEVIN, his Co-Attorney In Fact
UNDER DURABLE ATTORNEY POWER OF ATTORNEY
EXECUTED DECEMBER 4, 1991
By: EMILY LEVIN
EMILY LEVIN, GENERAL PARTNER
By: /s/ ALAN J. LEVIN
ALAN J. LEVIN, her Co-Attorney In Fact
By: /s/ SYDNEY LEVIN
SYDNEY LEVIN, her Co-Attorney In Fact
UNDER DURABLE POWER OF ATTORNEY
EXECUTED FEBRUARY 17, 1992
<PAGE>
EXHIBIT "B"
LESSOR: EBJ PARTNERS, L.P., A CALIFORNIA LIMITED PARTNERSHIP
By: RICHARD LEVIN
RICHARD LEVIN, GENERAL PARTNER
By: /s/ ALAN J.LEVIN
ALAN J. LEVEN, his Co-Attorney In Fact
By: /s/ SYDNEY LEVIN
SYDNEY LEVIN, his Co-Attorney In Fact
UNDER DURABLE ATTORNEY POWER OF ATTORNEY
EXECUTED DECEMBER 4, 1991
By: EMILY LEVIN
EMILY LEVIN, GENERAL PARTNER
By: /s/ ALAN J. LEVIN
ALAN J. LEVIN, her Co-Attorney In Fact
By: /s/ SYDNEY LEVIN
SYDNEY LEVIN, her Co-Attorney In Fact
UNDER DURABLE POWER OF ATTORNEY
EXECUTED FEBRUARY 17, 1992
<PAGE>
ADDENDUM II TO STANDARD INDUSTRIAL/COMMERICAL MULTI-TENANT LEASE - MODIFtED NET
DATISD AUGUST 1996 BY AND BETWEEN EBJ PARTNERS, L.P., A CALIFORMA LIMITED
PARTNERSHIP ("LESSOR") ~`{D ORYX TECHNOLOGY CORPORATION AND SURGX CORPORATION
("LESSEE") FOR THE PREMISES COMMONLY KNOWN AS 1lOO AUBURN STREET, FREMONT,
CALIFORNIA
58. Tenant Improvement by Lessor: In addition to Addendum ~ Paragraph S2, prior
to Lease Commencement Date. Lessor shall, at Lessor's 501e cost and expense:
A. Replace cracked or damaged VCT tiles as needed.
B. Clean and punt building' exterior wall' &s indicated on Exhibit "C"
C. Retexture and repaint planter box, as shown on Exhibit ~C". Additionally,
existing plants shall be removed and replaced with new plants to be
mutually acceptable by Lessor and Lessee.
59. Early Possession; Lessee's early possession as described in Addendum I
Paragraph 50 shall be free from base rent and CAM charge.
60. Operating Expenses: In addition to Addendum I Paragraph S5, operating
expense increases shall not exceed 1S% annually.
61. Signage: Lessee shall have the right to use one-half (1/2) of the existing
monument sign. Lessee will initially use the entire sign until such time
that the Tenant at 1120 Auburn Street opts to use their one half (l/2) of
the existing monument sign, at which time Lessee shall reduce their use of
the sign to one-half (1/2).
62. Hazardous Materials: Lessee shall have no obligation to clean up., to
comply with any law regulating, or to reimburse, release, indemnify, or
defend lessor with respect to any hazardous materials or waste which
Lessee did not store, dispose, or transport in, use, or cause to be on the
Premises in violation of applicable law. However, Lessee shall be
obligated to clean up. to comply with any law regarding, or to reimburse,
release, indemnify or defend Lessor with respect to any hazardous
materials or waste which Lessee, its agents, or future subtenants, if any,
does store, dispose, or transport in, use or cause to be on the Premises
in violation of applicable law. Lessee also agrees not to use or dispose
of any toxic waste or hazardous materials on the premises without first
obtaining Lessor's consent. In the event consent is granted by Lessor,
Lessee agrees to complete compliance with governmental regulations, and
Lessee also agrees to install such toxic waste or hazardous materials
monitoring device as Lessor deems necessary.
63. ADA Compliance: Paragreph 2.3 shall also apply to the Americans with
Disabilites Act ("ADA")
64. Assignment and Subletting:
64.1 Paragraph 12.1 (b) of Lease shall be changed from 2S % or more of voting
control to 50% or more of voting control.
64.2 Paragraph 12.2 (c) shall be changed from "... a non-refundable deposit of
S1,000..." to "...a non-refundable deposit of $500...".
<PAGE>
65. Holding Over: Paragraph 26 shall be changed from "...two hundred percent
(200%) of the base rent" to "...one hundred fifty percent (150%) of the base
rent".
66. Additional Security Deposit: Upon execution of the Lease, Lessee shall pay
to Lessor a sum equal to two month's rent (S36,302.40) as an additional
security deposit and shall be refundable to Tenant upon fulfillment of all
terms and conditions of the Lease after twelve (12) months. This additional
security deposit shall bear interest at five percent (5%) if Tenant fulfills
all terms and conditions of Lease during the first twelve (12) months.
Read and Approved:
Lessee: ORYX TECHNOLOGY CORPORATION Lessor: EBJ PARTNERS, L.P.,
A CALFORNIA LIMIT PARTNERSIflP
By: /s/ Andrew Wilson By: See attached Exhibit "B1"
Date: 8/15/96 Date:
Lessee: SURGX CORPORATION
By: /s/ Andrew Wilson
Date: 8/15/96
EXHIBIT 10.8
October 28, 1996
Mr. Andrew Wilson
29 Moore Court
Alameda, California 94502
Re: Separation Agreement
Dear Andrew:
As you are aware, Oryx Technology Corp. ("Oryx" or "the Company")
determined to terminate its employment relationship with you (also referred to
as "Wilson"). This letter agreement ("Agreement") summarizes the understanding
that we have reached regarding your departure as CFO (including all related
positions held by you in various subsidiaries) and the resolution of certain
claims arising out of that decision, which claims the Company expressly denies.
1. Your last day of active employment with the Company was October 14, 1996. You
have been paid for all unused accrued vacation and time worked through that
date. Upon execution of this Agreement and the expiration of the revocation
period set forth in paragraph 11, below, you will receive the following
payments:
Four months severance payments in the amount of your ordinary monthly
salary (less all applicable withholdings) at the same rate as prior to the
termination, payable in the course of the Company's ordinary payroll date(s), to
begin once the Agreement revocation period described below has ended. You will
receive six months of Company medical, dental, and life insurance benefits, paid
by the Company on the same terms, counted from your separation date of October
14, 1996. You acknowledge that these payments in this paragraph 1 are in excess
of any to which you would be entitled under Company policy.
2. You will continue to vest in Oryx stock options previously granted to you by
the Board of Directors until October 14, 1997. All such options will be
considered "statutory" options after the October 14, 1996, employment
termination date. The Company hereby extends the period of time within which the
vested options may be exercised until September 15, 1999.
3. You may continue to keep the computer and cellular telephone you have in your
possession, identified as __________________ and ______________________________,
however you acknowledge that are personally responsible for all bills or charges
incurred with respect to the use of such items. You further acknowledge and
agree to maintain the confidentiality of any Company information contained on
the computer.
4. You will make yourself available to the company for consultation on an
as-needed basis at a rate of $75.00 per hour.
5. (a) In consideration for the promises made by Oryx in this Agreement, you on
behalf of yourself, your agents, assignees, attorneys, heirs, executors, and
administrators, hereby fully and forever release and discharge Oryx and its
respective successors, assigns, parents, subsidiaries, divisions, affiliates,
officers, directors, shareholders, employees, heirs, agents and representatives,
from any and all claims (which term includes demands, actions and causes of
action) of every kind or nature whatsoever, past, present or future, arising out
of or in connection with your employment or termination of such employment with
Oryx. These claims include, but are not limited to, any claims of personal
injury and charges of employment discrimination in violation of state, federal
or local law, including, but not limited to the Americans with Disabilities Act,
Age Discrimination in Employment Act, the Older Workers' Benefit Protection Act,
and Title VII of the Civil Rights Act, and any other claims of wrongful
termination under state or federal law. Notwithstanding the foregoing, nothing
in this paragraph shall preclude you from bringing any claim in the future with
respect to your retirement benefits or for indemnification sought by you as an
officer of the Company for claims brought against you on account of your
position as an officer of Oryx under Delaware law.
(b) In consideration for the promises made by you in this Agreement,
Oryx on behalf of itself, its respective successors, assigns, parents,
subsidiaries, divisions, affiliates, officers, directors, shareholders,
employees, heirs, agents and representatives, hereby fully and forever releases
and discharges you and your agents, assignees, attorneys, heirs, executors, and
administrators from any and all claims (which term includes demands, actions and
causes of action) of every kind or nature whatsoever, past, present or future,
arising out of or in connection with your employment or termination of such
employment with Oryx, excluding those claims for intentional misconduct.
6. Except as qualified above in sub-paragraphs 5 (a) and (b), each party
respectively expressly waives all rights and remedies under Section 1542 of the
Civil Code of the State of California which provides as follows:
A general release does not extend to claims which the creditor
does not know or suspect to exist in its favor at the time of
executing the release, which if known by it must have
materially affected its settlement with the debtor.
Each party understands that if the facts with respect to which this Agreement is
executed are found hereafter to be different from the facts which such party now
believes to be true, each party expressly accepts and assumes the risk of such
possible differences in facts and agree that this Agreement shall be and remain
effective notwithstanding such differences in facts.
7. Each party covenants and agrees that it (he) will not ever, either
individually, or with any person or in any way, commence, aid in any way, except
as required by due legal process, prosecute or cause or permit to be commenced
or prosecuted against any of the persons released, any action or other
proceeding based upon any claim which is the subject of the Agreement.
8. Wilson further understands and agrees that during the course of his
employment he executed a confidentiality and trade secret agreement and that he
has had access to proprietary or confidential information belonging to Oryx
including, but not limited to, technical data, research and development, plans
and results, sales and customer data, overall marketing and sales programs, and
financial and planning data. Wilson acknowledges that his obligation to maintain
the confidentiality of such information continues after his employment with Oryx
ends, and that he will not disclose, transfer, publish or otherwise use, either
directly or indirectly, any of such information that is proprietary to Oryx and
maintained by it as confidential, for so long as such information is not in the
public domain. Wilson understands that a breach of his obligations under this
Paragraph could cause the Company irreparable harm for which the Company may
seek injunctive relief. Wilson further understand that if there is a violation
of this Paragraph during the period of salary continuation, all further payments
shall cease and Wilson shall have no further entitlement to such payments.
9. Both Wilson and Oryx agree that neither of them shall disparage the other to
any third party. In the event that the Company receives any inquiries concerning
Wilson's employment, it shall not release any information other than Wilson's
dates of employment, job title, last salary. Wilson further agrees that he will
not discuss any of Oryx's personnel or business with any third party or parties
excluding that which is necessary in connection with his job search.
10. This Agreement is entered into by Oryx without any admission of liability,
but solely for the purpose of avoiding uncertainty, controversy and legal
expense.
11. By entering into this Agreement, Wilson understands that he is not waiving
any rights that he may have under either the California Labor and/or
Corporations Codes with respect to indemnification for acts or omissions that
occurred within the course and scope of his employment.
12. If any withholding or income tax liability is imposed upon Wilson based on
the sums provided herein, Wilson understands that Wilson shall be solely
responsible for paying any such determined liability from any government agency
(including any penalties and surcharges assessed against Wilson), other than
those taxes that are ordinarily owed by the employer, such as FICA.
13. Wilson acknowledges that he is aware that under the Older Workers' Benefit
Protection Act, he has twenty-one (21) calendar days to decide whether to enter
into this Agreement, which was originally provided to Wilson on October 25,
1996. Wilson further acknowledges that he is aware that under the Older Workers'
Benefit Protection Act he may revoke this Agreement within seven (7) calendar
days after it is signed. Wilson further agrees that this Agreement shall not be
effective until after this revocation period has expired and that he is aware
that in the event Wilson timely exercises his right of rescission he will have
no rights under this Agreement.
14. This Agreement shall inure to the benefit of and be binding on each of the
parties hereto and on their successors, heirs and assigns.
15. This Agreement shall in all respects be interpreted, enforced and governed
under the laws of the State of California.
16. The parties agree that with respect to any controversy arising out of or
relating to this Agreement, or the subject matter thereof, such controversy
shall be settled before a single arbitrator by final and binding arbitration in
San Francisco, California, in accordance with the then-existing rules (the
"Rules") of the American Arbitration Association ("AAA") and judgment upon the
award rendered by the arbitrators may be entered in any court having
jurisdiction thereof; provided, however, that the law applicable to any
controversy shall be the law of California, regardless of its or any
jurisdiction's choice of law principles. In any such arbitration, no discovery
shall be permitted and the maximum number of hearing days shall be two (2). The
award or decision shall be rendered within fourteen (14) days after the last
hearing date. The arbitrator shall be appointed by the AAA in accordance with
the Rules. Any award made in Wilson's favor shall be limited to a recovery of
contract damages limited to foreseeable damages which are a direct consequence
of a breach of this Agreement; the arbitrator is not empowered to award
compensatory or punitive damages. The arbitrators are empowered to award to the
prevailing party or parties all expenses of said arbitration, including
reasonable attorneys' fees.
17. If any party hereto shall commence any other legal proceedings against any
other party hereto with respect to any of the terms or conditions of this
Agreement, the non-prevailing party or parties shall pay to the prevailing party
or parties all expenses of said litigation, including reasonable attorneys,
fees.
18. This Agreement contains the entire Agreement and understanding concerning
the subject matter between us and supersedes and replaces all prior
negotiations.
EACH PARTY AGREES THAT IT (HE) HAS HAD THE OPPORTUNITY TO CONSULT WITH THE
ADVISOR(S) OF ITS (HIS) CHOICE AND IS ENTERING INTO THIS AGREEMENT FREELY AND
VOLUNTARILY.
ANDREW WILSON, an individual ORYX TECHNOLOGY CORP.
/s/ Andrew Wilson By: /s/ Arvind Patel ________________
(Signature)
Dated: 10/31/96 Title: CEO _______________________
Dated: 10/28/96___________________
EXHIBIT 10.9
Offer of Employment -Mitchel Underseth
4
ORYX CONFIDENTIAL
[GRAPHIC OMITTED]
November 1, 1996
Mr. Mitchel Underseth
1776 Alameda Diablo
Diablo, CA. 94528
Dear Mitch:
I am pleased to present the following offer of regular full-time employment with
Oryx Technology Corporation:
1. Title: Chief Financial Officer (CFO)
2. Starting Date: Two weeks after acceptance of offer or a
negotiated start date.
3. Agreements
Needed: None at this time
4. Starting Salary: $120,000/year paid semi-monthly
$25,000 one time hire on bonus paid after
30 days of employment. Should you leave
Oryx Technology Corporation for any reason,
prior to completing one year of employment,
this amount is to be reimbursed on a pro
rata basis based on the months of service
completed.
5. Incentives: You will receive 90,000 shares of stock in
Oryx Technology Corporation's stock
option plan, subject to approval by
the Board of Directors. The shares are
vested over a period of five years.
You will be eligible to participate in the
Oryx Technology Corporation bonus plan that
is currently being developed.
6. Benefits: o Major medical plan as per Oryx
in-house policy for you, plus family
dependents. There is a contributory amount
paid for you or your dependents depending
upon the elected HMO or PPO coverage.
Benefit coverage will begin the first of the
month following completion of 30 days of
employment. You may opt out of the Oryx plan
and receive a $300/month cash allowance (opt
out credit) for your entire,
self-administered coverage.
o Vacation: Two weeks after one year of
continuous service.
o Holidays: Selected statutory holidays as
observed by Oryx.
o 401K plan employee participation to a
maximum of $9,500.00 a year.
o Optional participation in a FSA
deferred income account.
o Participation in the employee stock plan.
7. Assignment of As per Oryx corporate policy, any patents,
Intellectual trade secrets, etc. will be
Property: assigned to Oryx.
8. Confidential Informa- To be signed consistent with Oryx policy of
tion Agreement: information protection.
9. Business Conduct: As per Oryx Published guidelines for all
employees and associates.
10. Severance: Should your employment terminate
for any reason, other than a voluntary
resignation, you are guaranteed to receive
six (6) months of severance pay. Payments
are made semi-monthly during the normal
paycheck distribution.
11. Working conditions: As per Oryx policies
12. Performance Plan/
Evaluation: There is an annual performance review cycle.
Job Description: You will be Oryx Technology Corporation's Chief
Financial Officer (CFO), responsible for the Finance function of the corporate
holding company as well as direct and indirect responsibility for the financial
operations in each of the subsidiaries. Responsibilities include consolidated
reporting of several locations, press releases, and working with the corporate
and subsidiary Board of Directors. As CFO, you will provide corporate financial
strategy and work with the financial community to improve the shareholders ROI.
Until each subsidiary is an independent operation, you will have the
responsibility for finance and controller activities including accounts payable,
accounts receivable, general ledger, and the functions of Human Resources and
Administration.
All employment offers at Oryx Technology Corp. are contingent upon the applicant
completing documentation and providing verification of eligibility to work in
the United States per the Public Law, the Immigration Reform and Control Act of
1986. Employment is also subject to your completion of an application for
employment and the company's proprietary information agreement; and agreement to
comply with the company's rules and policies.
I am pleased to make this offer of employment and look forward to a highly
successful working relationship. If you have any questions, please do not
hesitate to contact me or any of the other appropriate executive staff in the
corporation. If you accept this offer, please sign and return at your earliest
convenience
Sincerely,
/s/ Arvind Patel
Arvind Patel
President & CEO
Oryx Technology Corporation
Date: November 1, 1996
I accept this offer of full-time regular employment. I understand that I may
voluntarily terminate my employment at any time; and acknowledge that,
correspondingly, the foregoing does not in any way limit the right of the
company to terminate my employment at any time, for any reason.
Agreed to by:
/s/ Mitchel Underseth
Mitchel Underseth
Date November 1, 1996
EXHIBIT 10.10
Offer of Employment -Philip Micciche
ORYX CONFIDENTIAL
[GRAPHIC OMITTED]
April 25, 1997
Mr. Philip Micciche
220 Alexander Ave.
Los Gatos, CA. 95030
Dear Philip:
I am pleased to present the following offer of regular full-time employment with
Oryx Technology Corporation:
1. Title: CEO
2. Starting Date: April 25, 1997
3. Agreements
Needed: N/A
4. Starting Salary: $150,000/year paid semi-monthly
5. Benefits: o Major medical plan as per Oryx
in-house policy for you, plus family dependents.
There is a contributory amount paid for you or
your dependents depending upon the elected HMO or
PPO coverage. Benefit coverage will begin the
first of the month following completion of 30 days
of employment. You may opt out of the Oryx plan
and receive a $300/month cash allowance (opt out
credit) for your entire, self-administered
coverage.
o Vacation: Ten days per year.
o Holidays: Selected statutory holidays as observed
by Oryx.
o 401K plan employee participation to a maximum of
$9,500.00 a year.
o Optional participation in a FSA deferred income
account.
o Participation in the employee stock plan.
6. Assignment of As per Oryx corporate policy, any patents, trade
Intellectual secrets, etc. will be assigned to Oryx.
Property:
7. Confidential Informa- To be signed consistent with Oryx policy of
tion Agreement: information protection.
8. Business Conduct: As per Oryx Published guidelines for all employees
and associates.
9. Incentives: Board of Directors will issue a stock option award
in the next few weeks.
10. Severance: Oryx may offer severance pay in certain
circumstances. Such offers will be solely at the
discretion of management.
11. Working conditions: As per Oryx policies
12. Performance Plan/
Evaluation: Every 6 months, if applicable.
Job Description: All normal CEO duties.
All employment offers at Oryx Technology Corp. are contingent upon the applicant
completing documentation and providing verification of eligibility to work in
the United States per the Public Law, the Immigration Reform and Control Act of
1986. Employment is also subject to your completion of an application for
employment and the company's proprietary information agreement; and agreement to
comply with the company's rules and policies.
If you accept this offer, please sign and return at your earliest convenience.
If you have any questions, please let me know.
Sincerely,
/s/ Andrew Intrater
Andrew Intrater
Director
Oryx Technology Corporation
Date: April 25, 1997
I accept this offer of full-time regular employment. I understand that I may
voluntarily terminate my employment at any time; and acknowledge that,
correspondingly, the foregoing does not in any way limit the right of the
company to terminate my employment at any time, for any reason.
Agreed to by:
/s/ Philip Micciche
Philip Micciche
Date April 25, 1997
EXHIBIT 10.20
INTELLECTUAL PROPERTY RIGHTS
LICENSE AGREEMENT
between
SURGX CORPORATION
(LICENSOR)
and
MCGRAW-EDISON COMPANY
(LICENSEE)
Dated July_, 1996
<PAGE>
INTELLECTUAL PROPERTY RIGHTS LICENSE AGREEMENT
THIS AGREEMENT, is made on July ~ 1996, between SurgX
Corporation, a Delaware corporation having its principal office at 47341 Bayside
Parkway, Fremont, California 94538 (hereinafter "Licensor") and McGraw-Edison
Company, a Delaware corporation having a principal office at 114 Old State Road,
Ellisville, Missouri 63178 (hereinafter "Licensee").
WHEREAS, Licensor has been engaged in the development of
products, with respect to which it is possessed of proprietary rights and
engineering production knowledge essential to or helpful in the manufacture of
the Licensed Products as defined herein, and owns or has the right to grant
licenses with respect to certain inventions, copyrights, and other industrial
and intellectual property, technical and production data, and other secret and
confidential information relating to the manufacture of the Licensed Products;
and
WHEREAS, Licensee desires to obtain from Licensor certain
patent rights, technical assistance, technical and production know-how, and
services of technical representatives, including drawings, designs, and
specifications, formulae, data, information and engineering assistance relating
to Licensed Products, to the extent the same is possessed by Licensor, and
Licensor has the right to grant the same, to assist Licensee in manufacturing
and selling the Licensed Products as hereinafter set forth; and
WHEREAS, Licensor is willing to provide Licensee with the
technical assistance, technical and production know-how, and services of
technical representatives, in connection with the manufacture and sale of
Licensed Products hereunder, to the extent and upon the terms and conditions
hereinafter set forth.
NOW, THEREFORE, in consideration of the premises and the
mutual covenants hereinafter contained, Licensor and Licensee covenant and agree
as follows:
1. DEFINED TERMS.
1.1 "Affiliate" means any person controlling, controlled by
(either directly or indirectly) or under common control with Licensee or
Licensor as applicable.
1.2 "Agreement" means this Intellectual Property Rights
License Agreement between Licensee and Licensor.
1.3 "Confidential Information" has the meaning set forth in
Section 12.1.
1.4 "Disclosing Party" shall mean a Party that discloses
Confidential Information to the other Party.
1
1.5 "Gross Profit" means under United States generally
accepted accounting principles: (i) the aggregate sum of revenue recognized by
Licensee, its Affiliates and any sublicensee from sales or other dispositions of
Licensed Products to unaffiliated third parties net of freight out, returns and
credits allowed and taken ("Net Sales"); (ii) minus Licensee's cost of sales at
standard costs including direct and indirect labor and associated fringe
benefits, scrap, perishable tooling, supplies and maintenance on machinery and
equipment (only costs associated with the manufacture of Licensed Products will
be included in standard costs); (iii) plus or minus, as applicable, operating
variances from standard costs of sales; (iv) minus semi-variable costs equal to
5~o of Net Sales for selling commissions and distribution costs; (v) minus
amortization associated with incremental machinery and equipment used in the
manufacture of the Licensed Products (using a 10 year useful life); and (vi)
minus amortization associated with development costs incurred by Licensor and
reimbursed by Licensee as described in Section 3.3 hereof using a 5-year
amortization period.
1.6 "Improvements" shall mean those supplements, changes,
revisions, updates, advancements, corrections, and modifications to the
Technical Information or Licensed Intellectual Property Rights including
manufacturing process improvements made during the term of this Agreement which
are necessary or useful for the manufacture, use or sale of Licensed Products.
1.7 "Licensee Components" means the materials, components and
processes of Licensee which are not covered by the Licensed Intellectual
Property Rights and which, in combination with the Liquid Polymer Material, form
the Licensed Products.
1.8 "Licensed Intellectual Property Rights" means Licensor's
interest in any patents, patent applications, inventions (including the
inventions and patent applications listed on Attachment 1.5), the "Surging"
trademark and trade name, Technical Information and copyrights owned,
controlled, applied for or obtained by Licensor at any time before or during the
term of this Agreement to the extent such rights are necessary or essential for
the manufacture, use and sale of the Licensed Products. Wherever used in this
Agreement, Licensed Intellectual Property Rights includes any such rights
relating to Improvements of Licensor.
1.9 "Licensed Products" means discrete components and
connector products described on Attachment 1.6 which utilize the Licensed
Intellectual Property Rights and incorporate the Liquid Polymer Material.
1.10 "Liquid Polymer Material" means a polymeric provided in
a solvated liquid form that can be used to provide electrical overstress (EOS)
or electrostatic discharge (ESD) protection for integrated circuits (IC's). The
Liquid Polymer material can be applied between signal lines and the ground plane
of an electrical board assembly, a connector and other applications where it can
be positioned between signal lines and ground. The Liquid Polymer material has a
high impedance, and low leakage state during normal circuit operation. During an
EOS or an ESD event, the Liquid Polymer material has a low impedance state that
shunts the offending charge to the ground plane. The capacitance of the devices
using Liquid Polymer Material is typically less than 1 picofarad. The mechanical
flexibility and the semiconducting characteristics of the Liquid Polymer
material allow for a wide variety of packaging concepts, including arrays in
which a common ground is used with multiple signal lines. Specifically, the
Liquid Polymer material is covered by the patent applications listed on
Attachment 1.5. The Liquid Polymer material shall specifically exclude other
SurgX products, such as, without limitation, the family of products identified
by Licensor as SurgTape, SurgX Epoxy Packages, or custom SurgX applications such
as a layer in a panted circuit board and novel packaging, including hybrid
designs and multichip modules.
1.11 "Minimum Annual Royalties" has the meaning set forth in
Section 5.2.
1.12 "Parties" shall mean McGraw-Edison Company and SurgX
Corporation.
1.13 "Receiving Party" has the meaning set forth in Section
12.2.
1.14 "Royalty Year" means a period of 12 months used to
measure the royalties payable to Licensor. The "First Royalty Year" is the 12
month period which commences on the first day of the month in which the Licensee
makes its initial sale of the Licensed Products, the "Second Royalty Year" is
the 12 month period which immediately follows the "First Royalty Year", etc.
1.15 "Technical Assistance" means providing the appropriate
Licensor personnel to assist personnel of Licensee in becoming trained in the
use of Technical Information to be delivered or provided hereunder to the extent
such Technical Information is necessary or essential for the manufacture, use or
sale of Licensed Products and Improvements thereto.
1.16 "Technical Information" means trade secrets, know-how,
drawings, designs, specifications and industrial, commercial and scientific
information controlled by Licensor and disclosed to Licensee under this
Agreement. Whenever used in this Agreement, Technical Information includes any
information relating to Improvements of Licensor.
1.17 "Territory" means worldwide.
2. GRANT OF LICENSE.
2.1 Licensor grants to Licensee a license, within the
Territory, to use (i) the Licensed Intellectual Property Rights; and (ii) the
Technical Information solely to manufacture, use, and sell Licensed Products;
provided, however, that, except as provided in Section 11 hereof, Licensee
shall have no right to manufacture the Liquid Polymer Material.
2.2 Subject to Section 5.2 hereof, the license granted to
Licensee under the terms of this Agreement is an exclusive license with respect
to the manufacture, use and sale of Licensed Products for a period of 10 years
commencing on the first day of the month in which Licensee makes its initial
sale of the Licensed Products, but in no event shall the period of exclusivity
extend beyond a date which is 12 years after the date of this Agreement.
Thereafter the license granted to Licensee hereunder shall continue on a
nonexclusive basis. Notwithstanding the foregoing, Licensee will permit Licensor
to grant a nonexclusive license to Iriso Electronics Company, Ltd., a Japanese
corporation ("Iriso") allowing Iriso to manufacture, use and sell in Japan
products incorporating the Licensed Intellectual Property Rights and to utilize
the Technical Information, provided that Iriso shall have no right to sell any
such products (a) outside of Japan or (b) to a distributor that would sell any
such products outside of Japan. However, Licensor may grant Iriso the right to
sell any such products to an original equipment manufacturer or to an added
value reseller in Japan that may incorporate any such products into goods that
are sold outside of Japan.
2.3 Licensee is not authorized to grant a sublicense to any
third party without Licensor's prior written consent; provided, however, that
Licensee may grant a sublicense to any of its Affiliates without prior written
consent. No Affiliate or sublicensee may be granted a sublicense pursuant to the
terms of this Agreement unless it shall first agree in writing to be bound by
all of the terms of this Agreement. The revenues and costs of any Affiliate or
sublicensee, directly related to any sublicense granted hereunder and falling
within the definition of Gross Profit, shall be aggregated with the revenues and
costs of Licensee for the purpose of determining the royalties payable to
Licensor pursuant to Section 5.1 hereof.
3. DEVELOPMENT AND COMMERCIALIZATION OF THE LICENSED PRODUCTS AND PRODUCT
MODIFICATIONS.
3.1 In consideration for granting the license to Licensee
hereunder and the development of the Licensed Products and product modifications
and enhancements as described in this Section 3, Licensee has previously paid
Licensor $100,000. In addition, Licensee shall pay Licensor an additional
$650,000 by check delivered by courier next day delivery contemporaneously with
the execution and delivery of this Agreement by both Parties.
3.2 Upon execution of the Agreement both Parties will use
their good faith reasonable efforts to develop the Licensed Products and bring
them to commercialization as soon as feasible. In connection therewith, Licensor
will provide Licensee with the following:
3.2.1 During the term of this Agreement, Training,
Technical Information and Technical Assistance required to allow Licensee to
manufacture the Licensed Products in its facilities;
3.2.2 As soon as reasonably possible, a final report
documenting all processing requirements and procedures necessary for Licensee to
manufacture the Licensed Products; and
3.2.3 As soon as reasonably possible, the technology
necessary to improve the Licensed Products for broader product application as
follows:
(a) Trigger voltage = 200 V.
(b) Clamping voltage = 25 V.
- - 3.3 To the extent that Licensor specifically undertakes any Licensed Product
modifications or enhancements at Licensee's written request (other than-the
product modifications and enhancements described in Section 3.2.3 above which
will be undertaken by Licensor at its sole expense), Licensee shall reimburse
Licensor for its development costs as described below in conducting such
modifications or enhancements, including any additional capital equipment that
Licensee requires to perform such modifications and enhancements. The
development costs incurred by Licensor to be reimbursed by Licensee shall
consist of direct and indirect labor and associated fringe benefits of
Licensor's employees and independent contractors as allocated to the project,
scrap, perishable tooling, supplies, maintenance on machinery and equipment,
capital equipment costs, material costs and travel costs. The development costs
incurred by Licensor will be amortized over a period of 5 years and capital
equipment cost incurred by Licensee will be amortized over a period of 10 years
and the annual amortization will be included in the cost structure of the
Licensed Products for the purpose of determining annual royalties based on Gross
Profits (or if annual royalties are based on net sales, the royalties based on
net sales will be reduced by an equivalent amount to account for the annual
amortization).
3.4 All inventions or other intellectual property conceived or
reduced to practice jointly by the employees or independent contractors of the
Parties, as a result of this collaboration and during the term of this
Agreement, shall be jointly owned by the Parties and shall be included in the
license without charge to Licensee. Licensee shall not grant a sublicense in
such jointly owned inventions or intellectual property without the prior written
consent of Licensor.
3.5 Licensee shall utilize the SurgX trade name or trademark
in connection with the sale and promotion of the Licensed Products. Licensee may
also utilize its trade names or trademarks in conjunction with the SurgX trade
name or trademark in connection with the sale and promotion of the Licensed
Products. Licensor and Licensee shall enter into a Trademark License Agreement
in the form attached hereto as Attachment 3.5.
4. DISCLOSURE OF TECHNICAL INFORMATION.
4.1 Licensor shall disclose and furnish to Licensee all
Technical Information necessary or essential for the incorporation and use of
Liquid Polymer Material in the manufacture, use and sale of the Licensed
Products. Disclosure of Technical Information, to the extent such Technical
Information is in documentary or fixed form, shall be by delivery of two copies
of the most recent versions thereof. Delivery of Technical Information shall be
completed in compliance with the schedule of Attachment 4.1.
4.2 To the extent that Technical Information is not available
in documentary or fixed form, disclosure shall be made by Licensor, at its
expense, providing Technical Assistance to Licensee, including training and
consultation normally sufficient to demonstrate the practical use of the
Technical Information, and to communicate information applicable thereto in such
detail as to reasonably permit Licensee to understand and make full use thereof
in the establishment and operation of a production capability for Licensed
Products, and to exercise the rights and licenses granted herein. Such Technical
Assistance will be performed at the request of Licensee, consistent with the
Technical Information delivery schedule of Attachment 4.1, by qualified Licensor
technical personnel, at Licensee's manufacturing plants and locations. During
such visits, Licensor personnel shall observe such rules and regulations as are
applicable to employees of Licensee, and Licensor shall indemnify Licensee from
any liability which might be asserted or claimed against Licensee, arising out
of said visits by Licensor's personnel, including personal injury to or property
damage caused by such personnel. Licensee will provide, at no cost to Licensor,
reasonable facilities for such training and Technical Assistance, including
access to office space, secretarial support and local phone use for Licensor
personnel engaged in such training and Technical Assistance. Notwithstanding
Section 2.3 hereof, Licensee may not sublicense the rights contained in this
Section 4.2 without the specific prior written approval of Licensor.
4.3 By arrangement with Licensor, Licensee may, at its
expense, send qualified personnel to Licensor's establishment for training for
the purpose of enabling Licensor to demonstrate and Licensee's employees to
observe, the manufacturing and engineering operations and the application and
use of Technical Information pertaining to the Licensed Products. The identity
and number of any such personnel, and the date and duration of each such visit
shall be such as Licensor and Licensee mutually agree. During such visits,
Licensee's personnel shall observe such rules and regulations as are applicable
to employees of Licensor, and Licensee shall indemnify Licensor from any
liability which might be asserted or claimed against Licensor arising out of
said visits by Licensee's personnel, including personal injury to or property
damage caused by such personnel. Licensor will provide, at no cost to Licensee,
reasonable facilities for such training, including access to office space,
secretarial support and local phone use for Licensee's personnel engaged in such
training.
4.4 After delivery of the Technical Information pursuant to
Attachment 4.1, Licensee's personnel may direct correspondence or telephone
inquiries to Licensor's
personnel requesting reasonable amounts of Technical Assistance and oral
explanation concerning Licensor's method of manufacturing, Technical Information
or operation of the Licensed Products, and Licensor agrees to promptly respond
to such inquiries and to supply such assistance to the extent it is in the
possession of, or known to, Licensor, and at the place and times upon which the
Parties may mutually agree.
4.5 Licensor agrees to promptly notify Licensee of any defect
or error discovered in the Technical Information, and of any corrective action,
revisions or customer notice made by Licensor with regard thereto.
4.6 During the term of this Agreement, Licensor shall promptly
disclose and deliver to Licensee any Improvements conceived or reduced to
practice in whole or in part by Licensor. Licensor also agrees to promptly
deliver sufficient information to allow Licensee to incorporate such
Improvements into the Licensed Products. During the term of this Agreement,
Licensee shall promptly deliver to Licensor any Improvements conceived or
reduced to practice in whole or in part by Licensee. Licensee also agrees to
promptly deliver sufficient information to allow Licensor to incorporate such
Improvements into the Licensed Products.
5. ROYALTIES.
5.1 Commencing with the First Royalty Year, Licensee shall pay
to Licensor an annual royalty for the license granted herein equal to 25% of the
Gross Profit recognized by Licensee, its Affiliates and any sublicensee on the
sale of Licensed Products during the relevant Royalty Year. The Parties
acknowledge that it is their desire to ultimately convert this royalty to a
royalty based upon net sales of the Licensed Products (instead of Gross Profit)
but they do not have sufficient experience to currently calculate the
appropriate royalty rate. Therefore, the Parties agree that after two years from
the date of this Agreement, they shall discuss in good faith a royalty rate
based on net sales which provides the same economic allocation as that intended
by the royalty based on Gross Profit. Unless both Parties execute a written
amendment to this Agreement setting forth the terms of the royalty based on net
sales, any promises, agreements or understandings made by the Parties during
their discussions and negotiations will not be binding on the Parties. If the
Parties do not execute a written amendment to this Agreement setting forth the
terms of the royalty based on net sales, then Licensee shall continue to pay
Licensor an annual royalty based on Gross Profit as described above.
5.2 In order to maintain the exclusive nature of the license
for the 10 year exclusivity period described in Section 2.2, Licensee shall
insure that the annual royalties payable to Licensor are no less than the
following amounts ("Minimum Annual Royalties"):
Royalty Year Minimum Annual Royalties
1st $0
2nd $200,000
3rd $500,000
4th-5th $1,000,000 (each Royalty Year)
6th-lOth $2,500,000 (each Royalty Year)
If in any Royalty Year, the royalties based on Gross Profit (or net sales, if
applicable) are less than the Minimum Annual Royalties, Licensee, at its option,
has the right to pay up the difference to a total equalling the respective
year's Minimum Annual Royalty. If Licensee elects not to pay up the difference
to a total equalling the respective year's Minimum Annual Royalty, then the
license granted hereunder shall become a non-exclusive license for the remaining
term of this Agreement subject to the rights of the Licensor to terminate this
Agreement as set forth in Section 14.4. In the event the license reverts to a
nonexclusive license because Licensee elects not to pay the Minimum Annual
Royalties, the Licensee shall no longer be liable for payment of Minimum Annual
Royalties but shall continue to be liable for royalties based on the Gross
Profit (or net sales, if applicable) of Licensed Products sold.
5.3 As a matter of convenience, to protect Licensor's Licensed
Intellectual Property Rights and as an acknowledgment that Licensee is not
currently in the business of producing any resettable electrostatic discharge
protection products or products incorporating any resettable electrostatic
discharge protection products, Licensee agrees that the royalty under this
Section 5 shall apply to all resettable electrostatic discharge protection
products which are covered by (a) the Licensed Intellectual Property Rights or
(b) Improvements of Licensee.
5.4 Subject to Section 5.3, nothing in this Agreement shall be
deemed to prohibit Licensee from conceiving, reducing to practice, developing,
making, using, marketing or otherwise distributing or promoting products
competitive with the Licensed Products produced hereunder, provided that
Licensee does not breach any provision of Section 12 or disparage the Licensed
Products produced hereunder in doing so.
6. PAYMENTS.
6.1 Royalties (including Minimum Annual Royalties) are due and
payable for each quarter of each Royalty Year within 45 days after each quarter
of each such Royalty Year.
6.2 All payments payable by Licensee to Licensor shall be paid
in U.S. dollars to Licensor at the address set out in Section 19.
7. RECORDS. REPORTS AND INSPECTION.
7.1 Licensee shall at all times keep complete and proper
records of all Licensed Products manufactured, used or sold by Licensee, its
Affiliates and any sublicensee.
Sales or dispositions shall be considered as made on the date of the invoice or
shipment, whichever occurs first.
7.2 Within 45 days after each quarter of each Royalty Year
during the term of this Agreement, Licensee shall send to Licensor a full
statement in writing identifying separately the total number of pieces in each
product category of Licensed Products sold by Licensee, its Affiliates and any
sublicensee during the preceding quarter of such Royalty Year, together with a
computation of royalties due Licensor.
7.3 Licensor shall have the right, upon giving at least 30
days' advance notice, at any time during normal business hours, to audit the
records of Licensee, any sublicensee and any Affiliate to which Licensee has
granted a sublicense by having an independent auditor examine the books and
records of Licensee, any sublicensee and any Affiliate to which Licensee has
granted a sublicense relating to the computation of royalties on the Licensed
Products. Licensee, any sublicensee and any Affiliate to which Licensee has
granted a sublicense shall keep the records available for inspection for three
years after expiration of the Royalty Year in which they are made and Licensor's
right to audit the records of Licensee, any sublicensee and any Affiliate to
which Licensee has granted a sublicense shall not extend beyond such three year
period. Licensor shall, and shall cause its independent auditor to, maintain the
confidentiality of all information, books and records examined during such
audit. Licensor will bear the expense of any such audit unless the audit shows
an underpayment of more than 5% for the applicable period, in which case
Licensee shall bear the expense of the audit.
8. WARRANTY.
8.1 Licensor warrants that it has the right to grant the
rights licensed hereunder and there are no outstanding assignments, grants,
licenses, encumbrances or obligations inconsistent with this Agreement.
8.2 To the knowledge of Licensor and its Affiliates, Licensor
warrants that the Licensed Intellectual Property Rights do not interfere with,
infringe upon, misappropriate or otherwise conflict with any intellectual
property rights of third parties and Licensor and its Affiliates have never
received any charge, complaint, claim or notice alleging any such interference,
infringement, misappropriation or violation. To the knowledge of Licensor and
its Affiliates, no third party has interfered with, infringed upon,
misappropriated or otherwise come into conflict with any of the Licensed
Intellectual Property Rights.
9 INDEMNIFICATION.
9.1 Licensor agrees to indemnify Licensee, its agents,
employees, officers, directors and representatives (the "Licensee Group")
against any and all losses and expenses arising from any claims, demands,
actions, suits, or prosecution (collectively, a "Claim") that may be initiated
against the Licensee Group by an unaffiliated third party relating to
infringement claims (specifically including claims that may arise from the
patents described in Attachment 9.1 hereof) which are the result of the Liquid
Polymer Material or the incorporation or combination of the Liquid Polymer
Material with Licensee Components in the Licensed Products manufactured, used or
sold by Licensee in the Territory pursuant to the terms of this Agreement.
Licensor will have no such obligation (i) unless it is promptly notified by
Licensee of any Claim or threat of a Claim provided, however, that delay or
failure to so notify shall not relieve Licensor of its indemnity obligations
unless and to the extent Licensor is thereby damaged, (ii) unless upon
Licensor's request and expense, Licensee cooperates reasonably in any such
Claim, (iii) to the extent the Claim involves specifications provided by
Licensee or any change or addition to or modification of such Licensed
Intellectual Property Rights or any use or application thereof different from
the commercial uses and applications of Licensor as of the date of this
Agreement or (iv) for any settlement Licensor does not approve in advance in
writing. Licensee, at its sole cost and expense, may elect to join Licensor to
defend such Claim so long as Licensee is an exclusive licensee hereunder. If any
resolution of such a Claim results in the payment of a royalty by Licensee to a
third party as necessary to make, use, or sell Licensed Products, such royalty
shall be allocated to Gross Profit to the extent such royalty accrues on the
manufacture, use or sale of the Licensed Products (or if royalties are based on
net sales rather than Gross Profit, 25% of such third party royalties shall be
deducted from and credited against any royalties otherwise due to Licensor under
this Agreement).
9.2 Licensee agrees to indemnify Licensor, its agents,
employees, officers, directors and representatives (the "Licensor Group")
against any and all losses and expenses arising from any claims, demands,
actions, suits or prosecution (collectively, a "Claim") that may be initiated
against the Licensor Group by an unaffiliated third party relating to
infringement claims which are the result of the use or sale of Licensee
Components which are incorporated in the Licensed Products manufactured, used or
sold by Licensee in the Territory pursuant to the terms of this Agreement.
Licensee will have no such obligation (i) unless it is promptly notified by
Licensor of any Claim or threat of a Claim provided, however, that delay or
failure to so notify shall not relieve Licensee of its indemnity obligations
unless and to the extent Licensee is thereby damaged, (ii) unless upon
Licensee's request and expense Licensor cooperates reasonably in any such Claim
and (iii) for any settlement Licensee does not approve in advance in writing.
Licensor, at its sole cost and expense, may elect to join Licensee to defend
such Claim. If any resolution of such a Claim results in the payment of a
royalty by Licensor to a third party as necessary to make, use or sell Licensed
Products (other than the patent rights specified in Attachment 1.5 to the extent
such patent rights are incorporated in the Licensed Products), such royalty
shall be allocated to Gross Profit to the extent such royalty accrues on the
manufacture, use or sale of the Licensed Products (or if royalties are based on
net sales rather than Gross Profit, 25% of such third party royalties shall be
deducted from and credited against any royalties otherwise due to Licensor under
this Agreement).
10. IMPROVEMENTS.
10.1 Licensor agrees to disclose to Licensee any Improvements
made by Licensor relating to the Licensed Intellectual Property Rights
developed, conceived or reduced to practice by Licensor during the term of this
Agreement and to grant Licensee the right to use the Improvements in the
manufacture, use and sale of the Licensed Products at no additional cost under
the same terms and conditions of this Agreement for the term of this Agreement.
10.2 Licensee agrees to disclose to Licensor any Improvements
made by Licensee, its Affiliates or any sublicensee relating to the Licensed
Intellectual Property Rights developed, conceived or reduced to practice by
Licensee during the term of this Agreement and to grant Licensor a worldwide,
royalty-free license to any such Improvements for the term of this Agreement. To
the extent that any such Improvement as made by Licensee can only be used or
sold with reference to the Licensed Products or such Improvement constitutes an
enhancement or improvement to the Liquid Polymer Material, Licensor shall have
the full right to sublicense such Improvement. Conversely, to the extent any
such Improvement has uses both with reference to the Licensed Products and other
products of Licensee, Licensor shall have no right to sublicense such Licensee
Improvement without the prior written consent of Licensee.
11. MANUFACTURE AND SUPPLY OF LIQUID POLYMER MATERIAL.
11.1 Pursuant to the terms of a Supply Agreement to be
negotiated and entered into by the Parties, Licensor shall manufacture, or have
manufactured for it, and shall sell to Licensee all of Licensee's forecasted
requirements for the Liquid Polymer Material at a price equal to Licensor's cost
for such material as defined on Attachment 11.1. In the event the Parties are
unable in good faith to negotiate and enter into a Supply Agreement, the terms
and conditions of the supply arrangement will be governed by this Section 11. At
least four months prior to each delivery date, Licensee shall deliver a forecast
to Licensor of Licensee's quantity requirements for the Liquid Polymer Material.
Licensee shall act in a commercially reasonable manner to schedule orders to
avoid creating production capacity problems for Licensor. The Liquid Polymer
Material delivered to Licensee shall be F.O.B. Licensee's manufacturing facility
in the Continental United States. Licensor shall use reasonable commercial
efforts to deliver the Liquid Polymer Material by the applicable delivery date.
All customs, duties, costs, taxes, insurance premiums and other expenses related
to transportation and delivery shall be at Licensee's expense. Licensor agrees
to deliver Liquid Polymer Material to Licensee in conformity with Licensee's
forecast, free of material and workmanship defects and meeting the Parties'
mutually agreed upon quality control requirements.
11.2 Licensee shall have the right, upon giving at least thirty (30) days'
advance notice, at any time during normal business hours, to audit Licensor's
records by having an independent auditor examine the books and records of
Licensor relating to the cost of the Liquid Polymer Material. Licensor shall
keep the records available for inspection for three years after each date of
delivery of the Liquid Polymer Material and Licensee's right to audit Licensor's
records shall not extend beyond such three year period. Licensee shall, and
shall cause its independent auditor to, maintain the confidentiality of all
information, books and records examined during such audit. Licensee shall bear
the expense of any such audit unless the audit shows an overpayment of more than
5% for the applicable period, in which case Licensor shall bear the cost of the
audit.
11.3 Licensee shall have the right to self-manufacture the
Liquid Polymer Material i(pound) (i) Licensor fails to meet its obligations
under the Supply Agreement, or under this Section 11 if the Parties have not
entered into a Supply-Agreement, with regard to delivering Licensee's forecasted
requirements for the Liquid Polymer Material under the terms and conditions of
the Supply Agreement, or under this Section 11 if the Parties have not entered
into a Supply Agreement (unless such failure is a result of a breach or
anticipatory breach of this Agreement by Licensee), and such failure continues
for a period of 60 days after written notice thereof to Licensor, or (ii)
Licensor becomes insolvent, or a case or proceeding under bankruptcy, insolvency
or similar law is commenced by or against Licensor and is not dismissed within
45 days or Licensor makes an general assignment for the benefit of creditors. If
Licensee has the right to self-manufacture the Liquid Polymer Material pursuant
to Section 11.3(i) or (ii) hereof, Licensee shall exercise its right to
self-manufacture the Liquid Polymer Material by giving written notice thereof to
Licensor and immediately upon receipt of such notice Licensor shall provide
Licensee with any and all Technical Information and Technical Assistance to
allow Licensee to manufacture the Liquid Polymer Material. If any event of force
majeure disrupts the supply of Liquid Polymer Material to Licensee which
disruption continues for a period of 60 days, then, notwithstanding Section
22.2, Licensor shall find an alternate source to supply the Liquid Polymer
Material to Licensee or shall allow Licensee to self-manufacture the Liquid
Polymer Material; provided, however, that the foregoing shall apply only during
the time period that the disruption in the supply of Liquid Polymer Material as
a result of an event of force majeure continues.
11.4 Upon execution of this Agreement, as a precautionary
measure to insure all information relating to the manufacture of the Liquid
Polymer Material is available to Licensee in the event Licensee exercises its
right to self-manufacture the Liquid Polymer Material, Licensor shall deliver
all of the documents relating to the manufacture of the Liquid Polymer Material
that are necessary for Licensee to self-manufacture the Liquid Polymer Material
to an escrow agent mutually agreed to by the parties. The escrow agent shall
hold all of such documents in escrow pursuant to the terms of an Escrow
Agreement between the parties. The Escrow Agreement shall provide that the
escrow agent will not disclose such documents to Licensee unless and until
Licensee issues its written notice to both Licensor and the escrow agent that it
is exercising its right to self-manufacture the Liquid Polymer Material and
Licensor has not provided the escrow agent with notice within ten days
thereafter that it is disputing Licensee's right to self-manufacture the Liquid
Polymer Material. Licensor and Licensee shall enter into an Escrow Agreement in
the form attached hereto as Attachment 11.4.
12. NONDISCLOSURE.
12.1 Prior to and during the term of this Agreement, the
Parties have made and will make certain disclosures to each other regarding
information which is proprietary and confidential to them in their businesses
(the "Confidential Information"). In order to constitute Confidential
Information, information being disclosed must either be in writing and marked as
being proprietary or confidential or, if given orally, must be identified as
proprietary when stated and confirmed in writing to be proprietary within 30
days of the original oral disclosure. In particular Licensee recognizes that the
Licensed Intellectual Property Rights (and the confidential nature thereof) are
critical to the business of Licensor and that Licensor would not enter into this
Agreement without assurance that such technology and information and the value
thereof will be protected as provided in this Section 12 and elsewhere in this
Agreement. Accordingly, each party agrees as follows:
12.2 The party receiving such information (the "Receiving
Party") agrees (i) to hold the Disclosing Party's Confidential Information in
confidence and to take all reasonable precautions to protect such Confidential
Information (including, without limitation, all precautions the Receiving Party
employs with respect to its confidential materials), (ii) not to divulge any
such Confidential Information or any information derived therefrom to any third
person, (iii) not to make any use whatsoever at any time of such Confidential
Information except as expressly authorized in this Agreement, and (iv) not to
remove or export from the United States or re-export any such Confidential
Information or any direct product thereof (e.g., Licensed Products by whomever
made) to Afghanistan, the Peoples' Republic of China or any Group Q, S, W, Y or
Z country (as specified in Supplement No. 1 to Section 770 of the U.S. Export
Administration Regulations, or a successor thereto) or otherwise except in
compliance with and with all licenses and approvals required under applicable
export laws and regulations, including without limitation, those of the U.S.
Department of Commerce. Any employee given access to any such Confidential
Information must have a legitimate "need to know" and shall have executed the
standard form of the confidentiality agreement of the Receiving Party. Without
granting any right or license, the Disclosing Party agrees that the foregoing
clauses (i), (ii) and (iii) shall not apply with respect to information the
Receiving Party can document (i) is in or (through no improper action or
inaction by the Receiving Party or any Affiliate, sublicensee, agent or
employee) enters the public domain, or (ii) was rightfully in its possession or
known by it prior to receipt from the Disclosing Party, or (iii) was rightfully
disclosed to it by another person without restriction, (iv) was disclosed by the
Disclosing Party to a third party on an unrestricted nonconfidential basis, or
(v) was independently developed by the Receiving Party by persons without access
to such information and without use of any Confidential Information of the
Disclosing Party. If the Receiving Party believes that information that a
Disclosing Party has identified as Confidential Information is no longer
Confidential Information due to the circumstances in the immediately preceding
sentence, the Receiving Party shall establish same by clear and convincing
evidence prior to making a disclosure of such information. Each party's
obligations under this Section 12.2 (except under clause (iv) of the first
sentence) shall terminate five (5) years after the termination of this
Agreement.
12.3 Immediately upon any termination or expiration of the
Receiving Party's license under Section 13, the Receiving Party will turn over
to the Disclosing Party all Confidential Information of the Disclosing Party and
all documents or media containing any such Confidential Information and any and
all copies or extracts thereo(pound)
12.4 Licensor recognizes that Licensee may have a need to
furnish Technical Information received hereunder to third parties in the
exercise of rights granted hereunder, and to customers (e.g., OEM) incorporating
Licensed Products into other equipment. Licensee may disclose such Technical
Information to any such third party for its use in the exercise of the rights
granted by Licensor hereunder, solely for the benefit of Licensee, provided such
disclosure is made to such third parties under a written agreement containing
restrictions on disclosure and use equivalent to those contained in this Section
12.
13. TERM. This Agreement shall begin on the date first above written. This-
Agreement shall remain in effect, unless terminated at an earlier date pursuant
to Section 14 herein, for a period of 15 years or until the expiration of the
last issuing patent which is included in Licensed Intellectual Property Rights,
whichever is greater. Notwithstanding the foregoing, Licensee shall have the
option to extend the term of this Agreement on a year-to-year basis by providing
written notice of its election to extend the term within 60 days prior to the
expiration of the initial term or any extended term. Any extension of this
Agreement shall be subject to all terms and conditions herein, provided that
Licensee shall be obligated to pay only 75% of the royalties that it would have
been obligated to pay during the initial term of this Agreement.
14. TERMINATION.
14.1 This Agreement may be terminated at any time prior to
the expiration of its normal term by the mutual written agreement of the
Parties.
14.2 This Agreement may be terminated by Licensor upon
written notice to Licensee if Licensee fails to make any payment when due
hereunder and such payment is not remedied within 30 days from written notice
thereof. However, the Licensor may not terminate the Agreement to the extent
there is a bona fide dispute as to the amount of royalties due provided the
amount of royalties not in dispute are paid by Licensee within the 30 day cure
period.
14.3 This Agreement may be terminated by either party upon
written notice to the other party:
14.3.1 immediately, if the other party defaults under
or breaches any of the terms of this Agreement and such default or breach is not
remedied within a period of 60 days after written notification thereof (except
breach of the payment obligation, as set out above); or
14.3.2 immediately, if a material provision of this Agreement is held invalid or
unenforceable by the determination of a court of competent jurisdiction.
14.4 This Agreement may be terminated by Licensor upon 30
days' prior notice to Licensee given within the one-year period following the
applicable Royalty Year and the payment of $750,000 to Licensee in the event:
14.4.1 Licensee has failed to pay the Minimum Annual
Royalties applicable to the Second or Third Royalty Year and has not cured
within the 30 day notice period; or
14.4.2 Licensee has failed to pay a minimum of
$1,000,000 in royalties to Licensor each year during the Fourth through Tenth,
inclusive, Royalty Year and has not cured such default within the 30 day notice
period.
14.5 If this Agreement is terminated pursuant to Section 14.4
above, the Licensee shall retain a license to manufacture, use and sell the
Licensed Products under the Licensed Intellectual Property Rights, but such
license shall be limited to the manufacture, use and sale of Licensed Products
to those customers of Licensee who have previously purchased Licensed Products
(such customers to be derived by a customer/product sales history and Licensee
may sell to any such existing customer only those pieces in each product
category of the Licensed Products that such customer had purchased from Licensee
prior to the termination of this Agreement). During the term of such limited
license and until the expiration of the term of this Agreement under Section 13
hereof: (i) Licensee shall continue to pay Licensor royalties based on Gross
Profit (or net sales, if applicable) as provided in Section 5.1; and (ii)
Licensee may continue to obtain Liquid Polymer Material according to the terms
of Section 11.
15. RIGHTS AFTER TERMINATION OR EXPIRATION.
15.1 Except to the extent necessary for Licensee to exercise
its rights under Section 14.5, upon the termination of this Agreement under
Sections 14.1, 14.2, 14.3 or 14.4, Licensee shall: (i) immediately cease all
further use of Technical Information and manufacture of Licensed Products, but
shall be allowed to continue to use or sell Licensed Products manufactured prior
to the date of termination of this Agreement provided, Licensee continues to pay
Licensor any royalties relating to such use or sales; (ii) Licensee shall cease
all use of the Licensed Intellectual Property Rights; (iii) Licensee will return
to Licensor or destroy and provide Licensor a complete list of all Technical
Information, including all specifications and drawings, and all copies thereof.
<PAGE>
15.2 Termination or expiration of this Agreement (i) shall
not release Licensee from its obligation to make payment in full of all
royalties which have accrued to that date, (ii) shall not relieve the Parties
from all other obligations or liabilities under this Agreement which expressly
extend beyond the termination or expiration and (iii) shall not be construed as
a waiver of any rights, claims (including claims for damages), or obligations
that have accrued up to and including the date of termination or expiration. In
particular, it is understood that Sections 3.4, 5, 6, 7, 9, 12, 15, 16 and 20
hereof shall survive any termination or expiration of this Agreement.
16. LITIGATION AND FILING MATTERS.
16.1 Licensor retains the sole right and discretion to file
and prosecute patent applications, maintain patents and apply for intellectual
property rights in the Territory relating to the Licensed Intellectual Property
Rights or any Improvements. At Licensee's request while Licensee remains an
exclusive licensee hereunder, Licensor will discuss its decision on these
matters with Licensee, but Licensee will not attempt to file or prosecute any
such patent applications or maintain any such patent (i) except as Licensor may,
in its sole discretion, approve in writing and (ii) except that Licensee may
continue maintenance of licensed patents issued in the Territory if Licensor
elects not to do so. Licensor's existing relevant patents and patent
applications in the Territory are listed on Attachment 1.5.
16.2 If Licensee becomes aware of any product or activity of
any third party that involves infringement or violation of any Licensed
Intellectual Property Right in the Territory, then Licensee shall promptly
notify Licensor in writing of such infringement or violation. Licensor may in
its discretion take or not take whatever action it believes is appropriate; if
Licensor elects to take action, Licensee will reasonably cooperate therewith at
Licensor's expense. Licensor will indemnify Licensee for any damages, expenses,
costs and fees in connection with Licensor's actions under this Section 16.2.
If Licensor does not, within 90 days after receipt of such a notice of a patent
infringement within the scope of Licensee's license hereunder, commence action
directed towards restraining or enjoining such patent infringement, Licensee, so
long as it is an exclusive licensee hereunder, may take such legally permissible
action as it deems necessary or appropriate to enforce Licensor's patent rights
and restrain such infringement. Licensor agrees to cooperate reasonably in any
such action initiated by Licensee including supplying essential documentary
evidence and making essential witnesses then in Licensor's employment available.
As part of such cooperation, Licensee may join Licensor as a party, if the need
arises, although such joinder shall be entirely at Licensee's expense. Licensee
will indemnify Licensor for any damages, expenses, costs and fees in connection
with Licensee's actions under this Section 16.2 Nothing in this Section 16.2
allows Licensee or requires Licensor to disclose the Licensed Intellectual
Property Rights except the patent rights set forth in Attachment 1.5.
If Licensor solely initiates and prosecutes any such an
action under this Section 16.2, all legal expense (including court costs and
attorneys' fees) shall be for Licensor's account and it shall be entitled to all
amounts awarded by way of judgment, settlement or compromise.
Licensee may join, solely at its own expense, an action
prosecuted by Licensor and any amounts awarded by way of judgment shall be
allocated between Licensor and Licensee as the court shall determine each party
has been damaged.
In the event Licensor elects not to initiate suit and if
Licensee solely initiates and prosecutes such an action, all legal expenses
(including court costs and attorneys' fees) shall be for Licensee's account and
it shall be entitled to all amounts awarded by way of judgment, settlement, or
compromise.
16.3 Licensee understands that Licensor has not conducted
comprehensive patent searches in all of the countries in the Territory.
16.4 INCIDENTAL AND CONSEQUENTIAL DAMAGES. NEITHER PARTY WILL
BE LIABLE UNDER ANY CONTRACT, NEGLIGENCE, STRICT LIABILITY OR OTHER THEORY FOR
ANY INCIDENTAL OR CONSEQUENTIAL DAMAGES WITH RESPECT TO ANY SUBJECT MATTER OF
THIS AGREEMENT EXCEPT A BREACH OF SECTION 12. NOTWITHSTANDING THE FOREGOING,
THIS SECTION 16.4 SHALL NOT LIMIT THE INDEMNITY OBLIGATION OF THE PARTIES UNDER
SECTION 9 WITH RESPECT TO CLAIMS OF THIRD PARTIES.
16.5 LIMITATION OF OBLIGATIONS AND LIABILITY. LICENSOR
WILL NOT BE LIABLE WITH RESPECT TO ANY SUBJECT MATTER OF THIS AGREEMENT UNDER
ANY CONTRACT, NEGLIGENCE, STRICT LIABILITY OR OTHER THEORY FOR COST OF
PROCUREMENT OF SUBSTITUTE GOODS, SERVICES, TECHNOLOGY OR RIGHTS OR FOR ANY
AMOUNTS AGGREGATING IN EXCESS OF AMOUNTS PAID TO IT HEREUNDER.
17. WAIVER OF DEFAULT. The failure of either party at any time to enforce or
require performance of any of the provisions of this Agreement, or to exercise
any right or option herein provided, shall in no way be construed to be a waiver
of that or any other provision of this Agreement or to affect the right of such
party thereafter to enforce each and every such provision. All waivers shall be
in writing and signed by the waiving party. No waiver by either party of any
default of the other party shall be held to be a waiver of any other or
subsequent default.
18. RELATIONSHIP OF PARTIES. It is agreed that the Parties are independent
contractors and not partners, joint venturers or otherwise affiliated. Neither
party has any right or authority to assume, create or incur any liability or
obligation of any kind, express or implied, against, in the name of, or on
behalf of the other party.
19. NOTICE. Any notice pursuant to this Agreement shall be in writing and shall
be deemed given (i) when delivered by hand or mail, (ii) when transmitted by
telecopier, with confirmation of receipt; provided that a copy is sent at about
the same time by registered or certified mail, return receipt requested, or
(iii) three days after being sent by Express Mail, Federal Express or other
express delivery service, to the addressee at the following addresses or
telecopier numbers (or to such other address or telecopier number as a party may
specify from time to time by notice):
If to Licensor: SurgX Corporation -
Attention: President
47341 Bayside Parkway
Fremont, CA 94538
Facsimile: (510) 249-1150
if to Licensee: Bussmann Division of McGraw-Edison Company
Attention: President
114 Old State Road
Ellisville, MO 63178
Facsimile: (314) 527-1497
with copy to: Cooper Industries, Inc.
Attention: General Counsel
P.O. Box 4446
Houston, Texas 77210 USA
Facsimile: (713) 209-8991
20. Dispute RESOLUTION. Any dispute or claim arising out of, or in connection
with, this Agreement which is not settled to the mutual satisfaction of the
Parties within thirty (30) days (or such longer period as may be mutually agreed
upon) from the date that either party informs the other in writing that such
dispute or disagreement exists, shall be submitted to mediation conducted by a
mediator mutually acceptable to the Parties. In the event the Parties cannot
resolve the dispute or claim through mediation, then the claim or dispute shall
be finally settled by binding arbitration in the counties of Alameda, San Mateo
or Santa Clara, California in accordance with the rules of the American
Arbitration Association by three (3) arbitrators appointed in accordance with
said rules in effect on the date that such notice is given. The decision of the
arbitrators shall be final and binding upon the Parties and judgment upon any
award rendered by all or a majority of the arbitrators may be entered in any
court of competent jurisdiction. Each party shall bear the cost of preparing its
case. The cost of the arbitration, including the fees and expenses of the
arbitrators, will be shared equally by the Parties unless the arbitrators' award
otherwise provides. The Parties agree that, any provision of applicable law
notwithstanding, they will not request, and the arbitrators shall not have
authority to award punitive damages against any party or Parties. Either party
may request a court to provide interim or provisional relief and such a request
shall not be deemed incompatible with the agreement to arbitrate or as a waiver
of that agreement.
21. ASSIGNMENT. This Agreement shall be binding upon the Parties and their
permitted successors and assigns. Licensor may assign or delegate any of its
rights or obligations under this Agreement to an Affiliate with notice to
Licensee provided the Licensor remains liable for its performance under this
Agreement. Licensee may assign or delegate any of its rights or obligations
under this Agreement to an Affiliate with notice to Licensor provided Licensee
remains liable for its performance under this Agreement. Except for assignments
to Affiliates as described above, neither party may assign any of its rights or
obligations to a third party without the prior written consent of the other
party which consent shall not be unreasonably withheld or delayed.
22. MISCELLANEOUS.
22.1 Governing Law. This Agreement shall be governed by and
construed in accordance with the substantive laws of Delaware and the United
States without regard to conflicts of laws provisions thereof and without regard
to the United Nations Convention on Contracts for the International Sale of
Goods. Subject to Section 20 and unless otherwise elected by Licensor in writing
for the particular instance (which Licensor may do at its option), the sole
jurisdiction and venue for actions related to the subject matter hereof shall be
the U.S. federal courts having within their jurisdiction the location of
Licensor's principal place of business. Both parties consent to the jurisdiction
of such courts and agree that process may be served in the manner provided
herein for giving of notices or otherwise as allowed by California or federal
law. In any action or proceeding to enforce rights under this Agreement, the
prevailing party shall be entitled to recover costs and attorneys' fees.
22.2 Force Majeure. Neither party hereto shall be responsible
for any failure to perform its obligations under this Agreement (other than
obligations to pay money or obligations under Sections 9, 12 or 16) if such
failure is caused by acts of God, war, strikes, revolutions, lack or failure of
transportation facilities, laws or governmental regulations or other causes
which are beyond the reasonable control of such party. Obligations hereunder,
however, shall in no event be excused but shall be suspended only until the
cessation of any cause of such failure. In the event that such force majeure
should obstruct performance of this Agreement for more than three (3) months,
the parties hereto shall consult with each other to determine whether this
Agreement should be modified. The party facing an event of force majeure shall
use its best endeavors in order to remedy that situation as well as to minimize
its effects. A case of force majeure shall be notified to the other party by
telex or telefax within five (5) days after its occurrence and shall be
confirmed by a letter.
22.3 Export Control. Each party hereby agrees to comply with
all export laws and restrictions and regulations of the Department of Commerce
or other United States or foreign agency or authority, and not to knowingly
export, or allow the export or re-export of any Licensed Intellectual Property
Rights or Licensed Products or derivative of the Licensed Intellectual Property
Rights or the Licensed Products or any direct product thereof in violation of
any such restrictions, laws or regulations, or, without all required licenses
and authorizations, to Afghanistan, the Peoples' Republic of China or any Group
Q, S, W, Y or Z country specified in the then current Supplement No. 1 to
Section 770 of the U.S. Export Administration Regulations (or any successor
supplement or regulations).
22.4 Severabilitv. If any provision of this Agreement is held
illegal, invalid or unenforceable by a court of competent jurisdiction, that
provision will be limited or eliminated to the minimum extent necessary so that
this Agreement shall otherwise remain in full force and effect and enforceable.
22.5 Entire Agreement. This Agreement constitutes the entire
agreement between the Parties and supersedes all prior agreements, negotiations
or discussions between them regarding the subject matter.
22.6 No Third-Party Beneficiaries. This Agreement shall not
confer any rights or remedies upon any person or entity other than the Parties
and their respective successors and permitted assigns.
22.7 Headings. The section headings contained in this
Agreement and in the attachments are inserted for convenience only and shall not
affect the meaning or interpretation of this Agreement.
22.8 Amendments and Waivers. No amendment of any provision of
this Agreement or any Attachments hereto shall be valid unless it is in writing
and signed by each party.
22.9 Severabilitv. Any provision of this Agreement that is
invalid or unenforceable in any situation in any jurisdiction shall not affect
the validity or enforceability of the remaining provisions or the validity or
enforceability of the offending provision in any other situation or in any other
jurisdiction.
22.10 Incorporation of Schedules. The attachments identified
in this Agreement are incorporated by reference and made a part of this
Agreement.
22.11 Counterparts. This Agreement may be executed in any
number of counterparts with the same effect as if the signatures to each
counterpart were upon a single instrument, and all such counterparts together
shall be deemed an original of this Agreement.
On the date first above written, each party by an authorized
representative executes this Agreement in duplicate, each of which shall be
considered an original.
SURGX CORPORATION
/s/Karen Shrier
Name: Karen Shrier
Title: V.P.Operations
McGRAW-EDISON COMPANY
Name:
Title:
<PAGE>
ATTACHMENT 1.5
Invention: Licensed Polymer Material
The inventions constituting the Liquid Polymer Material are covered by the
following patent applications and any continuations, divisionals, continuations
in part, as well as foreign counterparts which may be assigned to Licensor, it
being understood that these patents and applications cover inventions which may
be broader than those used solely in the Liquid Polymer Material:
Patent Application File Date
020327-002 07/14/94 SurgX Devices
020327-003 07/14/94 SurgX Manufacturing-
and ESD Devices
020327-005 01/22/96 Printed Circuit Board
Designs for ESD
ATTACHMENT 1.6
The term "Licensed Products" shall mean: Discrete products to be mounted on
printed circuit boards for the purpose of providing ESD protection, which
discrete products are manufactured by depositing Liquid Polymer Material on a
rigid substrate such as a FR-4 printed circuit board or a ceramic substrate.
Examples of such discrete products include 1206, 0805, 0603 surface mount
packages and board mounted network array packages. Such discrete products shall
also include discrete arrays for placement on or in connectors such as RJ,
D-subminiature and other connectors.
Licensed Products shall not include any other SurgX products, such as, without
limitation, the family of products identified by SurgX as SurgTape (including
discrete components and connector arrays made from SurgTape), SurgX Epoxy
Packages, or custom SurgX applications such as a layer in a printed circuit
board and novel packaging, including hybrid designs and multichip modules.
ATTACHMENT 3.5
Trademark License Agreement
TRADEMARK LICENSE AGREEMENT
This Trademark License Agreement ("Agreement") is effective as of this
_ day of June, 1996 ("Effective Date"), by and between SurgX Corporation
("Licensor"), a Delaware corporation, having offices at 47341 Bayside Parkway,
Fremont, California 94538, and McGraw-Edison Company ("Licensee"), a Delaware
corporation, having offices at 114 Old State Road, Ellisville, Missouri 63178. -
In consideration of the mutual covenants and promises contained herein,
the parties hereto agree as follows:
1. Definitions.
The following terms shall have the meanings set forth below:
a. "Affiliate" means any person controlling, controlled by (either
directly or indirectly) or under common control with Licensee.
b. "License Agreement" shall mean the Intellectual Property Rights
License Agreement, of even date herewith, entered into by the parties hereto.
c. "Licensed Mark" shall mean solely the trademark SurgX(R); provided,
however, that the appearance and/or style of the SurgX(R) mark may change from
time to time in Licensor's sole discretion. As of the Effective Date, the
Licensed Mark is the subject of the following trademark registrations and
pending applications: 74/461054
d. "Product" shall mean the "Licensed Products" as defined in the
License Agreement.
e. "Territory" shall mean the world.
2. License Right Granted.
a. In partial consideration of the consideration set forth in the
License Agreement, Licensor hereby grants to Licensee, and Licensee accepts,
upon the terms and conditions set forth herein, a non-exclusive,
non-transferable (subject to Section 9 herein), non-sublicensable (subject to
Section 9 herein), royalty-free license to use the Licensed Mark in the
Territory solely in connection with the Product.
b. Licensee hereby acknowledges and agrees that, except as set forth herein,
Licensee has no rights, title or interest in or to the Licensed Mark and that
all use of the Licensed Mark by Licensee shall inure to the benefit of Licensor.
Licensee shall not have the right to use the Licensed Mark as a trade name,
company name, trade style or fictitious business name.
c. Licensee understands and agrees that it does not have the right to
use the Licensed Mark in any manner that conflicts with the rights of any third
party. If, in Licensor's sole determination, Licensee's use of the Licensed Mark
infringes the rights of any third party or weakens or impairs Licensor's rights
in the Licensed Mark, then Licensee agrees to immediately terminate or modify
such use in accordance with Licensor's instructions. In the event Licensee fails
to terminate or modify such use as directed by Licensor, Licensor may terminate
this Agreement.
d. Licensee acknowledges that it is often difficult, particularly in
foreign countries, to obtain clear, registered title to trademarks. Accordingly,
Licensee agrees that the rights granted herein exist only to the extent that
Licensor owns such rights, and (except as specifically set forth herein or in
the License Agreement) no warranty, express or implied, is made with respect
thereto or to the Licensed Mark or with respect to the rights of any third
parties that may conflict with the rights granted herein. If the laws of any
country included in the Territory require that a trademark be registered prior
to use in order to fully protect the owner of the trademark, the license granted
herein with respect to the Licensed Mark shall not extend to such country until
the Licensed Mark has been registered there at Licensor's expense under
appropriate classes relating to the Product. Licensor and Licensee shall
cooperate in constituting Licensee as a registered user (or its equivalent) of
the Licensed Mark in each of the countries comprising the Territory in which
such Licensed Mark is registered or may be registered, and in which such
registered user is required. Any expenses for constituting Licensee as a
registered user in any country shall be borne by Licensee.
e. Licensor agrees to defend, indemnify and hold Licensee harmless from
any and all costs and expenses (including reasonable attorneys' fees),
liabilities, damages or other loss resulting from or relating to an infringement
by the Licensed Mark of any trademark, service mark or trade name right of a
third party, provided that (i) Licensor is promptly notified of any and all
threats, claims and proceedings related thereto, provided, however, that no
delay on the part of Licensee to notify Licensor shall relieve Licensor from its
indemnity obligations hereunder unless (and then solely to the extent) the
Licensor is thereby damaged (ii) Licensor shall have sole control of the defense
and/or settlement thereof, (iii) upon Licensor's request and expense, Licensee
immediately ceases use of the Licensed Mark and (iv) upon Licensor's request and
expense, Licensee provides Licensor with reasonable assistance and information
available to Licensee for such defense. The foregoing obligation of Licensor
does not apply to the extent any liabilities, costs or expenses result from (a)
Licensee continuing the allegedly infringing activity after being notified
thereof or after being informed of modifications that would have avoided the
alleged infringement or (b) Licensee's use of the Licensed Mark is not strictly
in accordance with the terms and provisions of this Agreement.
3. Quality Standards.
a. Licensor shall have the right to control the quality of the Product
sold under the Licensed Mark solely as provided herein. Licensee shall furnish
to Licensor, at no expense to Licensor, pre-production samples of the Product in
the form that Licensee intends to manufacture and sell under the Licensed Mark
to allow Licensor to review the quality of the Product, which shall be of a
quality at least equal to that of Licensee's other fuse products in production.
Thereafter, upon the request of Licensor, Licensee shall furnish, at no expense
to Licensor, production samples of the Product Licensee intends to sell under
the Licensed Mark to allow Licensor to monitor the quality of the Product.
b. Licensee agrees to adopt the level of quality as set forth in
Section 3(a) hereof for the Product manufactured and sold under the Licensed
Mark as the minimum standard of quality for the Product.
c. Licensor shall have the right to request Licensee to make any
changes and/or corrections to the Product manufactured and sold by Licensee
under the Licensed Mark as may be required to maintain the quality standard
prescribed by Licensor in Section 3(a) above, and Licensee agrees to make and
incorporate said changes or corrections at Licensee's sole cost and expense.
d. Licensee shall utilize the Licensed Mark in accordance with Section
3.5 of the License Agreement. Upon Licensor's request, Licensee shall furnish to
Licensor, at no expense to Licensor, samples of all literature and materials
containing the Licensed Mark that Licensee distributes or intends to distribute.
Licensor shall have the right to control the quality of all marketing materials
bearing the Licensed Mark and Licensee's use of the Licensed Mark solely as
provided herein. If Licensor believes that the Licensed Mark is being used in a
manner that could diminish Licensor's rights in or protection of the Licensed
Mark, Licensee agrees, at Licensee's sole cost and expense, to make whatever
reasonable changes and/or corrections Licensor deems necessary to protect the
Licensed Mark.
e. Licensee agrees that it shall not engage, participate or otherwise
become involved in any activity or course of action that diminishes and/or
tarnishes the image and/or reputation of the Licensed Mark.
(pound) Licensee agrees to comply with all applicable local, state,
federal and foreign laws and, at all times, to conduct its activities under this
Agreement in a lawful manner.
g. Licensee agrees to use the Licensed Mark in accordance with and only
on or in connection with the Product.
4. Use and Display of Licensed Mark.
a. Licensee acknowledges and agrees that the presentation and image of
the Licensed Mark should be uniform and consistent with respect to all services,
activities and products associated with the Licensed Mark. Accordingly, Licensee
agrees to use the Licensed Mark solely in the manner which Licensor shall
specify from time to time in Licensor's sole discretion.
b. All usage by Licensee of the Licensed Mark shall include the
registered trademark symbol and shall be in the following form, as appropriate:
SurgX(R). All marketing materials printed, distributed or electronically
transmitted by Licensee and containing the Licensed Mark shall include the
following notice:
SurgX(R) is a registered trademark of SurgX Corporation.
5. Term and Termination.
a. This Agreement shall commence on the Effective Date and shall
continue in effect for a period coterminous with the term of the License
Agreement, unless earlier terminated in accordance with the terms and conditions
set forth herein.
b. This Agreement shall automatically terminate upon termination (for
whatever reason) of the License Agreement. If under the License Agreement
Licensor extends to Licensee a sell-off period within which to sell the Product
to certain existing customers of Licensee, Licensee shall have the right to
continue using the Licensed Mark in connection with its marketing and
distribution efforts only for such products and only for the duration of such
sell-off period.
c. This Agreement and the license granted herein may be terminated by
Licensor if Licensee fails to perform or comply with a material provision of
this Agreement and such breach or default is not cured by Licensee within thirty
(30) days after written notice of termination is received by Licensee.
d. Except as expressly set forth in Section S(b) above, Licensee shall
immediately cease all use of the Licensed Mark upon expiration or termination of
this Agreement.
6. Cooperation and Protection.
a. Licensee agrees to reasonably cooperate with and assist Licensor in
protecting and defending the Licensed Mark and shall promptly notify Licensor in
writing of any infringements, claims or actions by others (which come to the
attention of Licensee) in derogation of the Licensed Mark; provided, however,
that Licensor shall have the sole right to determine whether any action shall be
taken on account of any such infringement, claim or action. Licensee shall not
take any action on account of any such infringement, claim or action without the
prior written consent of Licensor.
b. Licensee agrees not to apply for registration of the Licensed Mark
(or any mark confusingly similar thereto) anywhere in the Territory. Licensor
may elect to apply for registration of the Licensed Mark in a particular
country(ies) within the Territory at its expense, and, in such event and if
applicable, Licensee agrees to reasonably assist and cooperate with Licensor in
connection therewith.
7. Indemnification.
Licensee agrees to defend, indemnify and hold Licensor harmless from
and against any and all costs and expenses (including reasonable attorneys'
fees), liabilities, damages or other loss arising out of Licensee's actions or
omission to act under this Agreement or Licensee's organization, business or
activities.
8. Independent Contractors.
The parties hereto are independent contractors and are not partners,
joint venturers or otherwise affiliated, and neither party has any right or
authority to bind the other in any way.
9. Assignment.
Licensee may not assign this Agreement or any of its rights or
obligations under this Agreement without the prior written consent of Licensor,
provided, however, Licensee may assign or delegate any of its rights or
obligations under this Agreement to an Affiliate with notice to Licensor (and
without Licensor's consent), provided Licensee remains liable for its
performance under this Agreement.
10. Notice.
Any notice pursuant to this Agreement shall be in writing and shall be
deemed given (i) when delivered by hand or mail, (ii) when transmitted by
telecopier, with confirmation of receipt; provided that a copy is sent at about
the same time by registered or certified mail, return receipt requested, or
(iii) three days after being sent by Express Mail, Federal Express or other
express delivery service, to the addressee at the following addresses or
telecopier numbers (or to such other address or telecopier number as a party may
specify from time to time by notice):
If to Licensor: SurgX Corporation
Attention: President
47341 Bayside Parkway
Fremont, CA 94538
Facsimile: (510) 249-1150
if to Licensee: Bussmann Division of McGraw-Edison
Company
Attention: President
114 Old State Road
Ellisville, MO 63178
Facsimile: (314) 527-1497
with copy to: Cooper Industries, Inc.
Attention: General Counsel
P.O. Box 4446
Houston, Texas 77210 USA
Facsimile: (713) 209-8991
11. General.
a. Amendment. Modification and Waiver. The failure of either party to
enforce its rights or to require performance by the other party of any term or
condition of this Agreement shall not be construed as a waiver of such rights or
of its right to require future performance of that term or condition. Any
amendment or modification of this Agreement or any waiver of any breach of any
term or condition of this Agreement must be in a writing signed by both parties
in order to be effective, and any such waiver shall not be construed as a waiver
of any continuing or succeeding breach of such term or condition, a waiver of
the term or condition itself or a waiver of any right under this Agreement.
b. Governing Law. This Agreement shall be governed and interpreted
under the laws of the State of Delaware without regard to the conflicts of
interest provisions thereo(pound)
c. Headings. Headings and captions are for convenience of reference
only and shall not be deemed to interpret, supersede or modify any provisions of
this Agreement.
d. Severabilitv. In the event that any provision of this Agreement
shall be determined to be illegal or unenforceable, that provision will be
limited or eliminated to the minimum extent necessary so that this Agreement
shall otherwise remain in full force and effect and enforceable.
e. Entire Agreement. Upon execution by both parties, this Agreement
shall constitute the entire agreement between the parties with respect to the
subject matter hereof and supersedes all discussions, negotiations, agreements
and past dealings, either oral or written, between or among the parties relating
to the subject matter hereof.
f. Dispute Resolution. Any dispute or claim arising out of, or in
connection with, this Agreement which is not settled to the mutual satisfaction
of the parties within thirty (30) days (or such longer period as may be mutually
agreed upon) from the date that either party informs the other in writing that
such dispute or disagreement exists, shall be submitted to mediation conducted
by a mediator mutually acceptable to the parties. In the event the parties
cannot resolve the dispute or claim through mediation, then the claim or dispute
shall be finally settled by binding arbitration in the counties of Alameda, San
Mateo or Santa Clara, California in accordance with the rules of the American
Arbitration Association by three (3) arbitrators appointed in accordance with
said rules in effect on the date that such notice is given. The decision of the
arbitrators shall be final and binding upon the parties and judgment upon any
award rendered by all or a majority of the arbitrators may be entered in any
court of competent jurisdiction. Each party shall bear the cost of preparing its
case. The cost of the arbitration, including the fees and expenses of the
arbitrators, will be shared equally by the parties unless the arbitrators' award
otherwise provides. The parties agree that, any provision of applicable law
notwithstanding, they will not request, and the arbitrators shall not have
authority to award punitive damages against any party or parties. Either party
may request a court to provide interim or provisional relief and such a request
shall not be deemed incompatible with the agreement to arbitrate or as a waiver
of that agreement.
g. Survival. Sections 2(e), 5(b), 6(b), 7, 11(b) and 11(f) hereof shall
survive the termination of this Agreement.
h. Counterparts. This Agreement may be executed in any number of
counterparts with the same effect as if the signatures to each counterpart were
upon a single instrument, and all such counterparts together shall be deemed an
original of this Agreement.
IN WITNESS WHEREOF, the parties hereto have each caused this Agreement
to be executed by their authorized representatives as of the date first above
written.
SURGX CORPORATION McGRAW-EDISON COMPANY
By: By:
Printed Name Printed Name
Title Title
<PAGE>
ATTACHMENT 4.1
Delivery Schedule for
Technical Information
1. SurgX Specification and Manufacturing Procedures Control Documents
2. R5-11 Environmental Test Results
3. SurgX ESD QC Test Procedure
All items to be delivered on or before July 22, 1996.
<PAGE>
ATTACHMENT 11.1
Licensor's cost of the Liquid Polymer Material shall equal Licensor's standard
costs for the Liquid Polymer Material including direct and indirect labor and
associated fringe benefits, scrap, perishable tooling, supplies, and maintenance
on machinery and equipment. Only costs directly associated with the manufacture
of Liquid Polymer Material will be included in standard costs.
ATTACHMENT 11.4
Escrow Agreement
<PAGE>
ESCROW AGREEMENT
BETWEEN
SURGX CORPORATION
(Licensor)
AND
MCGRAW-EDISON COMPANY
(Licensee)
AND
BURNS, DONE, SVVECKER & MATHIS
(Escrow Agent)
AS OF
JULY 12, 1996
ESCROW AGREEMENT
Table of Contents
Page
1. Deposits
1
2. Representations of Licensor to Licensee
2
3. Notice of Default
2
4. Disputes
2
5. Payment to Escrow Agent
3
6. Termination
3
7. Waiver, Amendment or Modification; Severability
3
8. Notices
3
9. Limitation on Escrow Agent's Responsibility and Liability ........ 3
10. Counterparts .--------........................................... 4
Schedule A Description of Materials Containing the Escrow Information
Relating to the Manufacture of the Liquid Polymer Material . i
ESCROW AGREEMENT
ESCROW AGREEMENT dated as of July 12, 1996 by and among SurgX
Corporation, having its principal offices at 47341 Bayside Parkway, Fremont,
California (hereinafter the "Licensor"); McGraw-Edison Company, a Delaware
corporation having its principal offices at 114 Old State Road Ellisville,
Missouri (hereinafter the "Licensee"); and Burns, Doane, Swecker & Mathis, LLP,
a law firm having an office at 3000 Sand Hill Road, Building 4, Suite 160, Menlo
Park, California (hereinafter the "Escrow Agent").
W I T N E S S E T H:
WHEREAS, the Licensor and the Licensee have entered into a Intellectual
Property Rights License ("License Agreement"), a copy of which is appended
hereto and made a part hereof, pursuant to which the Licensor has agreed to
license to the Licensee patents, patent applications, information, technology
and rights relating to Licensed Products which incorporate the Liquid Polymer
Material; and
WHEREAS, it is the policy of the Licensor not to disclose the
information to allow another party to self-manufacture the Liquid Polymer
Material including technical and production know-how, drawings, designs,
specifications, formulas, data, trade secrets and other information relating to
the manufacture of the Liquid Polymer Material ("Escrow Information") except as
provided in an applicable Escrow Agreement; and
WHEREAS, Licensor and Licensee agree that upon the occurrence of
certain events described in Section 3(a) hereof, the Licensee shall be able to
obtain the Escrow Information for the Liquid Polymer Material, and accordingly,
the Licensor agrees to deliver said Escrow Information to the Escrow Agent; and
WHEREAS, capitalized terms not otherwise defined herein shall have the
meaning set forth in the License Agreement;
NOW, THEREFORE, in consideration of the mutual covenants contained
herein and for other valuable consideration, the adequacy and receipt of which
are hereby acknowledged, the Licensor, the Licensee and the Escrow Agent hereby
act and agree as follows:
1. Deposits
The Escrow Agent agrees to accept from the Licensor the Escrow
Information (as more fully described in Schedule A hereto) and revisions thereof
as provided in Section 2 hereof. The Escrow Agent will issue to the Licensor a
receipt for the Escrow Information upon delivery. The Escrow Information held by
the Escrow Agent shall remain the exclusive property of the Licensor, and the
Escrow Agent shall not use the Escrow Information or disclose the same to any
third party except as specifically provided for herein. The Escrow Agent will
hold the Escrow Information in safekeeping at its offices hereinabove indicated
unless and until the Escrow Agent receives notice pursuant to the terms of this
Agreement that the Escrow Agent is to deliver the Escrow Information to
Licensee, in which case the Escrow Agent shall deliver the Escrow Information to
Licensee, subject, however, to the provisions of this Escrow Agreement.
2. Representations of Licensor to Licensee
Licensor represents and warrants to Licensee that: (i) the Escrow
Information constitutes all of the information necessary to allow a reasonably
skilled engineer, without reference to any other material or the help of any
other person to manufacture the Liquid Polymer Material; and (ii) Licensor will
promptly supplement the Escrow Information delivered hereunder with all
Improvements thereof developed by Licensor from time to time pursuant to the
License Agreement so that the Escrow Information constitutes the most current
information available relating to the manufacture of the Liquid Polymer
Material.
3. Notice of Default
(a) The Licensor shall be deemed to be in default of its
responsibilities to Licensee for purposes of this Escrow Agreement if: (i)
Licensor fails to meet the obligations referred to in Section 11.3(i) of the
License Agreement; (ii) Licensor becomes insolvent, or a case or proceeding
under bankruptcy, insolvency or similar law is commenced by or against Licensor
and is not dismissed within 45 days or Licensor makes a general assignment for
the benefit of creditors; or (iii) if any event of force majeure disrupts the
supply of Liquid Polymer Material to Licensee which disruption continues for a
period of 60 days and Licensor fails to find an alternate source to supply the
Liquid Polymer Material to Licensee or allow Licensee to self-manufacture the
Liquid Polymer Material. Licensee shall give a sworn statement (the "Notice of
Default") to Licensor of any such default by the Licensor stating that such
default has not been cured with a copy of such notice to the Escrow Agent.
(b) If the Licensor desires to dispute the Notice of Default, the
Licensor shall, within ten business (10) days after the receipt of the copy of
the Notice of Default from the Licensee, deliver to Licensee a sworn statement
(the "Affidavit") saying that no default has occurred or such default has been
cured and Licensor shall provide a copy of such Affidavit to the Escrow Agent,
whereupon the provisions of Section 4 hereof will become applicable. If the
Escrow Agent receives the Affidavit within said ten (10) business days, the
Escrow Agent shall continue to hold the Escrow Information in accordance with
this Escrow Agreement. If the Escrow Agent does not receive the Affidavit within
said ten (10) business days, the Escrow Agent is authorized and directed to
deliver the Escrow Information to the Licensee. ~.
(c) Following a release of the Escrow Information as provided in
Section 3, Licensee shall have the non-exclusive right to use the released
material as and only as authorized by Section 11 of the License Agreement.
Additionally, Licensee shall be required to maintain the confidentiality of the
related materials and technology in accordance with the terms of the License
Agreement.
4. Disputes
(a) In the event that Licensor files the Affidavit with the Escrow
Agent in the manner and within the time period set forth in Section 3(b) hereof,
the Escrow Agent shall not release the Escrow Information to Licensee except in
accordance with (i) a final decision of the
Escrow Agreement
- 2 -
arbitration panel as hereinafter provided, or (ii) receipt of an agreement with
notarized signatures of both Licensor and Licensee, authorizing the release of
the Escrow Information to Licensee.
(b) Disputes arising under this Agreement shall be referred immediately
to, and finally settled by, binding arbitration pursuant to the provisions of
Section 20 of the License Agreement. The Escrow Agent shall give prompt effect
to any authenticated arbitration award. This agreement to arbitrate shall
survive termination of this Agreement.
5. Payment to Escrow Agent
As payment for its services hereunder, the Licensor shall reimburse the
Escrow Agent for its reasonable out-of-pocket expenses incurred in connection
with the discharge by the Escrow Agent of its duties and responsibilities under
this Escrow Agreement.
6; Termination
This Escrow Agreement shall terminate on the termination of the License
Agreement or upon the mutual written agreement of Licensor and Licensee.
7. Waiver. Amendment or Modification: Severabilitv
This Escrow Agreement shall not be waived, amended, or modified except
by the written agreement of all the parties hereto. Any invalidity, in whole or
in part, of any provision of this Escrow Agreement shall not affect the validity
of any other of its provisions.
8. Notices
All notices required to be given hereunder shall be in writing and
shall be deemed given if delivered personally (upon recipient's actual receipt),
if mailed by certified or registered mail, return receipt requested (upon the
date of delivery to recipient), or if by nationally recognized air courier which
confirms delivery (upon date of delivery to the recipient), to the parties at
their respective addresses hereinabove written, or at such other address as
shall be specified hereinabove in writing to all other parties.
9. Limitation on Escrow Agent's Responsibility and Liability
(a) The Escrow Agent shall maintain the Escrow Information in a safe
and shall provide the same degree of care for the Escrow Information as it
maintains for its valuable documents and those of its customers lodged in the
same location.
(b) The Escrow Agent shall be protected in acting upon any written
notice, request, waiver, consent, receipt or other paper or document furnished
to it, not only in assuming its due execution and the validity and effectiveness
of its provisions but also as to the truth and acceptability of any information
therein contained, which it in good faith believes to be genuine and what it
purports to be.
Escrow Agreement
- 3 -
(c) In no event shall the Escrow Agent be liable for any act or failure
to act under the provisions of this Escrow Agreement except where its acts are
the result of its gross negligence or willful misconduct. The Escrow Agent shall
have no duties except those which are expressly set forth herein, and it shall
not be bound by any notice of a claim, or demand with respect thereto, or any
waiver, notification, amendment, termination or rescission of this Escrow
Agreement, unless in writing received by it, and, if its duties are affected,
unless it shall have given its prior written consent thereto.
(d) The Licensor and Licensee hereby agree, jointly and severally, to
indemnify the Escrow Agent against any loss, liability, or damage (other than
any caused by the gross negligence or willful misconduct of the Escrow Agent),
including reasonable costs of litigation and counsel fees, arising from and in
connection with the performance of its duties under this Agreement. The Licensor
and Licensee will not bring a suit or file a claim against the Escrow Agent for
any act or failure to act under the provisions of this Escrow Agreement except
where its acts are the result of its gross negligence or willful misconduct.
10. Counterparts
This Escrow Agreement may be executed in any number of counterparts
with the same effect as if the signatures to each counterpart were upon a single
instrument, and all such counterparts together shall be deemed an original of
this Escrow Agreement.
IN WITNESS WHEREOF, the parties hereto have caused this Escrow
Agreement to be duly executed as of the year and date first above written.
SURGX CORPORATION ("Licensor")
Attest: By: /s/Karen Shrier
MCGRAW-EDISON COMPANY ("Licensee")
Attest:
By:
BURNS, DOANE, SWECKER & MATHIS
("Escrow Agent")
Attest:
By:
Escrow Agreement
SCHEDULE A
Description of Materials Containing the Escrow Information and related
Documentation:
On the date first above written, each party by an authorized
representative executes this Agreement in duplicate, each of which shall be
considered an original.
SURGX CORPORATION
/s/ Karen Shrier
Name: Karen Shrier
Title: V.P. Operations
McGRAW-EDISON COMPANY
/s/ Thomas J. Guzak
Name: Thomas J. Guzak
Title: V.P. Product & Market Development
EXHIBIT 10.21
SURGX PRODUCT INTRODUCTION AGREEMENT
This Agreement is made and entered into this 7th day of June, 1996 by
and between SURGX CORPORATION, a Delaware Corporation, with offices at 47341
Bayside Parkway, Fremont, California 94538 ("SURGX") and NATIONAL SEMICONDUCTOR
CORPORATION, a Delaware Corporation, with offices at 2900 Semiconductor Drive,
Santa Clara, California 95052 ("NATIONAL"). SURGX and NATIONAL may be
individually or collectively referred to in this Agreement as a "Party" or the
"Parties".
RECITALS
SURGX is a supplier to the semiconductor industry of polymeric
materials which provide electrostatic discharge ("ESD") control and protection
for semiconductor devices and packages, including new products providing
improved ESD control and- protection ("SURGX ESD Products") including SURGX's
product referred to as SurgTape (as further defined on Exhibit A hereto and
having the specifications set forth on Exhibit B. "SurgTape").
NATIONAL is a manufacturer of integrated circuit semiconductor devices
and packages in which there may be a need for ESD control and protection.
The new SURGX ESD Products may require some reconfiguration or
redesign, or a change in the method of manufacturing or assembly, to enable
their incorporation into semiconductor devices or packages.
SURGX desires to have SURGX ESD Products incorporated into commercial
NATIONAL semiconductor devices and packages as early as may be practical.
SURGX and NATIONAL desire to establish the basis under which the
parties can cooperate through a four phase program for the rapid incorporation
of SURGX ESD Products and the improved ESD performance provided by SURGX ESD
Products into NATIONAL devices and packages. The four phase program, presently
contemplates (a) feasibility study phase for setting the ESD performance
specification requirements for a particular device or package and determining
the design of the device or package incorporating the SURGX ESD Product, (b) a
prototype phase for preparing prototypes of the design and testing the
prototypes for reliability and performance, (c) test production of the design
for product qualification and shipment, and (d) commercial production of the
design. It is understood that several of these project phases may be in progress
simultaneously or sequentially for different designs.
NATIONAL is willing to pay to SURGX certain specified amounts for each
phase of the program, pending successful completion of earlier Phases, in order
to accelerate the early commercial use of the SURGX ESD Products in NATIONAL
semiconductor devices and packages.
NOW THEREFORE THE PARTIES HERETO AGREE AS FOLLOWS:
1. CONDUCT OF PRODUCT INTRODUCTION PROGRAM
1.1 Exhibit C sets forth each specific semiconductor device or package
in which NATIONAL desires to incorporate SURGX ESD Products for prototype
testing and eventual commercial production. Because the SURGX ESD Products are
available in various forms such as tapes, compositions, pastes, laminates,
components, etc., the design of and method of preparing a prototype device or
package will vary depending on the type of SURGX ESD Product employed for a
particular design or to meet particular specifications for a particular
semiconductor device or package. Such work (initially with respect to SurgTape)
is to occur in four (4) phases (each, a "Phase") as follows:
(a) Feasibility Phase (SurgTape Phase I): Setting the ESD
performance specifications for a particular device or package utilizing the
SURGX ESD Products and determining the design for the device or package.
Reformulating and redesigning SURGX ESD Products and demonstrating that SURGX
ESD Products provide ESD protection on individual leads for the selected device
or package. The specific tasks to be completed are as further detailed on
Exhibit D;
(b) Preliminary Phase (SurgTape Phase II): Preliminary
manufacturing of SurgTape from Phase I formulations and designs. Assembled
devices to be built and tested for reliability and performance.
(c) Test Production Phase (SurgTape Phase m): Low volume
production of the successful prototypes from Phase II for product qualification
and shipment; and
(d) Commercial Production Phase (SurgTape Phase IV): High
volume production of the successful device or package from Phase III.
The obligations of each Party to conduct work with respect to a Phase of the
program is contingent upon the prior agreement of the parties, as set forth in
Section 2 below, to the prior establishment of a mutually-acceptable development
timetable setting forth the appropriate compensation for each such Phase and, in
the case of Phase IV, the execution of a commercial supply agreement between the
parties which shall include a trademark license permitting NATIONAL to use the
SurgTape and SURGX trademarks in connection with SURGX ESD Products. The Parties
agree that such supply agreement shall grant NATIONAL preference over any supply
by SURGX to parties that have not engaged in a product introduction program
similar to the program conducted under this Agreement, and that such supply
agreement shall obligate SURGX to supply materials to NATIONAL in accordance
with agreed-upon forecasting requirements such that if SURGX materially fails to
meet such requirements, NATIONAL shall have the right to have the SURGX ESD
Products made for it by a third party supplier (on a royalty-bearing basis)
solely for NATIONAL's use in connection with its integrated circuit
semiconductor devices.
1.2 The Parties hereto agree to devote sufficient personnel and
resources to provide or make available the appropriate personnel and resources
including materials, devices, fabrication equipment, testing equipment and the
like, as the Parties agree is appropriate for each particular Phase of each
project.
1.3 The Parties agree to designate for each Phase at least one
management person whose duty will be to confer or meet on a weekly basis to
further the progress of each Phase and to prepare a weekly summary report for
distribution to those who are involved in the particular project and need to
know the progress of each Phase. Upon the successful or unsuccessful conclusion
of each Phase the managers shall jointly issue a final summary report on that
particular Phase.
2. SERVICE FEE AND COMMERCIAL DISCOUNT
2.1 Prior to the initiation of each Phase, the Parties will negotiate
in good faith the completion timetable and funding levels for such Phase. The
expected total funding for the project is $750,000 for all four Phases (the
"Service Fee"). The initial funding for Phase I of the SurgTape program and
timetable for establishing future funding levels shall be as follows:
(a) SurgTape Phase I: Total funding of S95,000 to be paid over
a project duration of five (5) months as follows: $19,000 as of March 15, 1996
and $19,000 on the 15th day of each month thereafter provided, however, that
each such payment shall be delayed until all weekly progress reports by SURGX
for the preceding month have been received by NATIONAL.
(b) SurgTape Phase II: Based upon NATIONAL's satisfaction that
the product specifications set forth in Exhibit B can be met and the
manufacturing costs of such products meeting reasonable profit expectations, the
expected start date would be August 15, 1996. Funding and specific deliverables
are to be negotiated by the Parties pending completion of Phase I.
(c) SurgTape Phase III: Initiation of low volume production
planned for the first quarter of 1997. Funding levels for this Phase are to be
negotiated by the parties prior to January 15, 1997 in order to permit time for
applicable equipment purchases.
(d) NATIONAL shall provide 5 quarters of commercial
requirements forecasting by November 1, 1996. SURGX shall provide a business
proposal for commercial production by December 1, 1996. Supply agreement and
discount pricing strategy are to be negotiated by the Parties with a targeted
signing date of February 1, 1997.
2.2 In partial consideration of the Service Fee, SURGX agrees that for any
device or package manufactured by NATIONAL under Phase IV incorporating a SURGX
ESD Product, SURGX will provide that SURGX ESD Product to NATIONAL at a
discounted price compared to the price paid by other manufacturers of similar
devices and/or packages where the other manufacturer has not engaged in a
product introduction program similar to the program conducted under this
Agreement. SURGX agrees to maintain an appropriate discount for NATIONAL on such
SURGX ESD Product for an appropriate period of time to provide NATIONAL an
economic benefit and a reasonable return on its investment of the Service Fees
paid to SURGX 3. CONFIDENTIALITY
3.1 All technical, business and other information exchanged by SURGX
and NATIONAL under this Agreement shall be deemed to be confidential and shall
include the terms and conditions of this Agreement. The Party receiving
confidential information under this Agreement shall for the period from the date
of this Agreement until five (5) years after its termination make use of such
information only for the purpose of fulfilling its obligations under this
Agreement and shall protect such information by using the same degree of care
but no less than reasonable degree of care to prevent unauthorized use,
dissemination or publication of such information as the receiving Party uses to
protect its own confidential information of a like nature.
3.2 The foregoing obligations shall not apply to the Party receiving
confidential information under the Agreement with respect to information that:
(a) was in the receiving Party's possession before receipt
thereof from the disclosing Party;
(b) is or becomes a matter of public knowledge through no
fault of the receiving Party;
(c) is rightfully received by the receiving Party from a
third Party without a duty of confidentiality;
(d) is disclosed by the disclosing Party to a third Party
without a duty of disclosure on the party of the third Party;
(e) is independently developed by the receiving Party by
personnel having no knowledge of the information received from the disclosing
Party; and
(f) is disclosed by the receiving Party after receipt of
prior written approval from the disclosing Party.
3.3 Disclosure of any confidential information by a Party shall not be
precluded by this agreement if such disclosure is required in response to a
valid court order or order of a government body provided that the receiving
Party promptly notifies the other Party of such order and makes a good faith
effort, but at the expense of the Party originating the confidential information
to obtain a protective order requiring the confidential information to be kept
in confidence and used only for the purpose of the court or governmental order.
3.4 Except as required by law neither Party to this Agreement shall,
without prior written consent of the other Party, make or cause to be made any
press release or non confidential disclosure that directly or indirectly
discloses the transactions contemplated by this Agreement or discloses the
identity of the Parties hereto.
3.5 This Agreement shall not supersede nor affect the rights,
obligations, terms or conditions of any prior confidentiality agreements between
SURGX and NATIONAL which shall continue for its full stated terms. It is
necessary that all such obligations of confidentiality be continued due to the
varied scope and coverage of each obligation.
4. INTELLECTUAL PROPERTY
4.1 Any invention directed toward any new SURGX ESD Product or any
change in, improvement of or modification of any SURGX ESD Product made pursuant
to this Agreement by either Party or jointly by the Parties and any intellectual
property based on or developed from the Confidential Information of SURGX shall
be the intellectual property of SURGX. NATIONAL shall take all actions necessary
to vest such intellectual property rights in SURGX and SURGX shall in turn grant
NATIONAL the right to use the intellectual property of SURGX covered by this
Paragraph 4.1 in NATIONAL's commercial manufacturing of its semiconductor
devices and packages by virtue of NATIONAL'S purchase from SURGX of proprietary
SURGX ESD Products utilized therein.
4.2 Any invention directed toward any new NATIONAL device or package or
any change in, improvement of or modification of any NATIONAL device or package
or method or process of packaging made pursuant to this Agreement by either
Party or jointly by the Parties shall be the intellectual property of NATIONAL
In the event that a method or process for the application or use of a SURGX ESD
Product is developed which would otherwise be deemed NATIONAL'S intellectual
property under this Paragraph 4.2, SURGX shall have the right to license from
NATIONAL such method orprocess in order to enable SURGX to commercially sell in
the industry the SURGX ESD Product for use in such method or process provided
that: (a) such method or process is necessary to enable that commercial use of
the SURGX ESD Product; (b) it is not necessary to use any patented semiconductor
device or package design of NATIONAL; and (c) SURGX agrees to negotiate in good
faith a reasonable royalty rate for such license.
4.3 The above Paragraphs 4.1 and 4.2 notwithstanding, all ESD
measurement equipment developed by the Parties during this Agreement shall be
the intellectual property of the party employing or contracting with inventor(s)
thereof, subject to the respective license rights, if any, of the parties
hereunder.
5. TERM AND TERMINATION
5.1 This Agreement shall remain in force until the later of (i) two
years from the date hereof or (ii) the completion of Phase IV, which unless
earlier terminated pursuant to this Section 5.
5.2 This Agreement may be terminated without cause by either Party upon
30 days written notice provided, however, that if SURGX is acquired by a direct
competitor of NATIONAL SURGX shall not terminate this Agreement without cause
until completion of Phase IV. If terminated by SURGX without cause under this
paragraph, SURGX shall not be entitled to any further payment under any schedule
established under Paragraph 1.1.
5.3 This Agreement may be terminated by either party for cause upon
breach of this Agreement by the other Party after 30 days written notice of such
breach and failure of the Party in breach to remedy the breach within said 30
days.
5.4 Upon completion or termination of this Agreement with or without
cause, no amounts paid by NATIONAL to SURGX shall be refunded by SURGX.
6. GENERAL TERMS
6.1 This Agreement shall be governed in all aspects by the laws of the
state of California except for any law in California which requires the
application of the law of another state or jurisdiction outside California.
6.2 SURGX represents and warrants that (i) the SURGX ESD Products
supplied by SURGX will meet the specifications agreed to for such products; (ii)
that the materials used by SURGX in the development of SURGX ESD Products are
the intellectual property of SURGX and may, to the best of SURGX's knowledge, be
used for the development of SURGX ESD Products without infringement of the
rights of third parties; (iii) that there are no infringement claims or actions
pending against SURGX with respect to any such products or materials; and (iv)
that SURGX has the right to grant all licenses granted herein to NATIONAL
without interference with the rights of others. SURGX agrees to indemnify and
hold NATIONAL harmless from any such claims of infringement based upon the
materials supplied by SURGX up to the amount paid therefore by NATIONAL.
However, SURGX makes no representation or warranty or guarantee that any SURGX
ESD Product will perform in any particular NATIONAL device or package as desired
by NATIONAL. It is the responsibility of NATIONAL to test such devices and
packages to insure that same perform in accordance with NATIONAL specifications
or the product specifications of the customer purchasing such device or package
from NATIONAL In the event of a product liability claim on any semiconductor
device or package sold by NATIONAL shall hold SURGX harmless with respect to
such claim, unless such claim would not have arisen but for the use of SURGX ESD
Products within such semiconductor device or package sold by NATIONAL, in which
case SURGX shall hold NATIONAL harmless with respect to such claim, and may, at
SURGX's option, take control of the liability claim. Except for the foregoing,
neither party shall a liable to the other for any special, indirect, incidental,
or consequential damages, losses, loss of profits, loss of data or use thereof,
or interruption of business, whether based on alleged breach of warranty, of
contract, tort or other legal theory.
6.3 This contract shall be considered personal between the Parties and
shall not be assignable or transferable to any other Party except any company or
entity controlling, controlled by, or under the common control with a Party
hereto (an "Affiliate"), without the prior written consent of the other Party.
The prohibition against assignment provided by this paragraph shall not apply if
this Agreement is being transferred to another entity as part of a sale, merger
or transfer the entire business of the Party to which this Agreement relates.
6.4 Neither SURGX nor NATIONAL are agents of the other. This Agreement
does not establish any joint venture, partnership, or agency relationship.
Neither Party has the right or authority to create any obligation,
representation or responsibility express or implied on behalf of the other
Party. The Parties hereto are independent contractors.
6.5 This Agreement is non exclusive in nature and it is expressly
understood that either Party may enter into the same or similar agreement with
other entities for the same or similar reasons for same or similar goals,
provided that the confidentiality of this Agreement is maintained.
6.6 If any provision of this Agreement is held invalid, illegal, or
unenforceable, the validity, legality, or enforceability of the remaining
provisions of this Agreement shall not be affected or impaired.
6.7 Except for any prior confidentiality agreements referred to in
Section 3.5, this Agreement and the Exhibits hereto constitutes the entire
agreement between the Parties with respect to the subject matter hereto and
shall not be amended or modified without written agreements signed by both
Parties.
6.8 In witness whereof the Parties have had this Agreement executed by
their respective authorized officers on the date written below with the
Agreement being effective the date appearing on the first page of this
Agreement, with the intent that the Parties by legally and equitably bound by
its terms.
NATIONAL SEMICONDUCTOR SURGX CORPORATION
CORPORATION
By: /s/ D.A. Handorf By: /s/ Arvind Patel
(Signature) (Signature)
D.A. Handorf Arvind Patel
(Print Name) (Print Name)
Title: Vice President Title: CEO
Date: June 7, 1996 Date: June 10, 1996
EXHIBIT A
Definition of SurgTape
The term "SurgTape" shall mean a tape product that can be used to provide ESD or
electrical overstress (EOS) protection for integrated circuits. SurgTape
incorporates a material than can be positioned between signal lines and the
ground line(s). The material has a high impedance, and low leakage during normal
circuit operation. During an EOS or an ESD event, the material transitions to a
low impedance state that shunts the offending charge to ground. The pin-to-pin
capacitance added by the material is typically less than one picofarad. The
mechanical flexibility and the electrical characteristics of the material allow
for a wide variety of packaging concepts, including arrays in which a common
ground is used with multiple signal lines.
SurgTape can be placed, both inside the IC package and outside the IC package,
as well as, on or in the printed circuit boards. SurgTape can also be used in
discrete devices such as connector arrays and surface mount components.
EXHIBIT B
Polymer Requirement specification for phase 1
1) Polymer must be able to be molded inside of a plastic and ceramic IC
package. Demonstrating manufacturability, high yield (greater than 95%) and
low cost ( less than 1 cent/unit adder).
2) Implemented polymer must pass ALL reliability tests as defined in National's
document SOP-5-049.
3) Implemented polymer must withstand the assembly flow for plastic and
ceramic packages.
4) Implemented polymer must withstand the board mounting process for Ics.
5) two versions of the polymer are required:
a) For high voltage devices with biasing at +/- 30 volts maximum ( Phase
1)
b) For standard voltage devices with biasing at 7 volts maximum. ( Later
phase)
6) Additional leakage of less than 1OnA.
7) Additional capacitance of less than 1pF
8) Maximum temperature of greater than 240 deg C.
9) Thermal expansion coefficient compatible with the IC package material.
10) ESD performance as follows:
a) Human body model and 801-2 performance greater than 15KV per EOS/ESD
association standard S1.5
b) Machine model performance greater than 1.5K~ per standard S5.2
c) Charged Device Model performance greater than 1 KV per standard S5.3
d) Charged Cable Model performance greater than 200uW
EXHIBIT C
PACKAGES
1) 16 Lead DIP (dual In Line)
2) 16 Lead SOIC (slim outline)
EXHIBIT 10.22
CONFIDENTIAL TREATMENT REQUESTED
Confidential treatment has been requested for the contents of Exhibit B to this
Agreement. The omitted portions of Exhibit B have been filed separately with the
Commission.
SURGX PRODUCT INTRODUCTION AGREEMENT
This Agreement is made and entered into this day of September, 1996 by
and between SURGX CORPORATION, a Delaware Corporation, with offices at 1100
Auburn Street, Fremont, California 94538 ("SURGX") and LSI LOGIC CORPORATION, a
Delaware Corporation, with offices at 1551 McCarthy Boulevard, Milpitas,
California 95035 ("LSI LOGIC"). SURGX and LSI LOGIC may be individually or
collectively referred to in this Agreement as a "Party" or the "Parties".
RECITALS
SURGX is a supplier to the electronics industry of polymeric products
which provide electrostatic discharge ("ESD") control and protection as further
described on Exhibit A hereto ("SURGX ESD Products") which may be used for
electrical devices and packages.
LSI LOGIC is a manufacturer of integrated circuit semiconductor devices
and packages in which there is a need for ESD control and protection.
The new SURGX ESD Product may require some reconfiguration, redesign,
reformulation, or a change in the method of manufacturing or application to an
electrical device, to enable their incorporation into integrated circuit
semiconductor devices or packages.
SURGX desires to have SURGX ESD Products incorporated into commercial
LSI Logic integrated circuit semiconductor devices and packages as early as
practical.
SURGX and LSI LOGIC desire to establish a framework under which the
parties can cooperate through a multi-phase program for the study and rapid
incorporation of SURGX ESD Products ad the improved ESD performances provided by
SURGX ESD Products into LSI LOGIC integrated circuit devices and packages (the
"Program"). The Program is presently contemplated by the Parties includes (a)
feasibility study phase for setting the ESD performance specification
requirements for a particular device or package and determining the design of
the device or package incorporate the SURGX ESD Product, (b) a prototype phase
for preparing prototypes of the design and testing the prototypes for
reliability and performance, (c) a test production phase for the testing of the
design for product qualification and shipment, and (d) a commercial production
phase. Several of these project phases may be in progress simultaneously or
sequentially for different designs.
LSI LOGIC is willing to pay SURGX certain specified amounts for each
phase of the program in order to accelerate the early commercial use of the
SURGX ESD Products in LSI LOGIC semiconductor devices and packages.
It is understood that the phase as so contemplated are tentative, and
that the decision of the Parties to proceed with any phases following the first
phases which is the subject of this Agreement depends upon successful completion
of the previous phases and the execution of a formal agreement relating thereto.
NOW THEREFORE THE PARTIES HERETO AGREE AS FOLLOWS:
1. CONDUCT OF PRODUCT INTRODUCTION PROGRAM
1.1 Exhibit B sets for specific semiconductor device or package in
which LSI Logic currently desires to incorporate SURGX ESD Products for
prototype testing and eventual commercial production. Because the SURGX ESD
Products are available in various forms such as tapes, compositions, laminates,
components, etc., the design of and method of preparing a prototype device or
package will vary depending on the type of SURGX ESD Product employed for a
particular design or to meet particular specifications for a particular
semiconductor device or package.
The Parties contemplate that such work would involve putting surge
protection inside the IC package or on the wafer and that such work would occur
in four (4) phases, (each, a "Phase") as follows:
(a) Feasibility (Phase I): Defining the ESD performance
specifications for SURGTAPE for a particular device or package and determining
the SURGX ESD Product's design for the device or package. Reformulating SURGX
ESD Products and demonstrating that SURGX ESD Products provides ESD protection
on several number of individual lead(s) for the selected device or package. The
Parties expect this Feasibility Phase to take approximately four (4) months;
(b) Prototype (Phase II)(in two subphases): Based on satisfactory
completion of Phase I. Anticipated commencement approximately four months form
the effective date of this Agreement:
(i) Phase II-a: Would involve preparation of SURGTAPE
prototype for Phase I formulations and designs. Prototypes to be build and
tested for reliability and performance.
(ii) Phase II-b: Would involve preparation of prototypes with
SURGX material in liquid form directly on the semiconductor wafer and/or die
using formulation from Phase I.
(c) Test Production (Phase III): Would involve low volume
production of SURGTAPE prototype from Phase II for product qualifications and
shipment; and
(d) Commercial Production (Phase IV): Would involve high
volume production of SURGTAPE based on successful completion of Phase III.
The expected total funding for the project is estimated at $750,000 for
all four SURGTAPE Phases (the "Service Fee"). The Parties contemplate that
insofar as they are in agreement to proceed with Phase IV at the time, LSI LOGIC
will provide 5 quarters of a commercial supply requirements forecasting by March
15, 1997, and SURGX will provide a business proposal for a commercial production
by April 15, 1997. Supply agreement and discount pricing strategy consistent
with Section 2.3 hereof to be negotiated by the Parties with a targeted signing
date of September 12, 1997.
The obligations of each Party to conduct work with respect to a Phase
of the Program is contingent upon the prior agreement of the Parties to a
development timetable and appropriate compensation and, in the case of Phase IV,
a commercial supply agreement between the Parties which shall include a
trademark license permitting LSI LOGIC to use the SURGTAPE and SURGX trademarks
in connection with SURGX ESD Products.
1.2 The Parties hereto agree to devote sufficient personnel and
resources including materials, devices, fabrication equipment, testing equipment
and the like, as the parties agree is appropriate for each particular Phase of
each project.
1.3 The Parties agree to designate for each Phase at lease one
management person whose duty will be to confer or meet on a bi-weekly basis to
further the progress of each Phase and to prepare a summary report for
distribution to those who are involved in the particular project and need to
know this progress of each Phase. Upon the successful or unsuccessful conclusion
of each Phase the managers shall jointly issue a final summary report on that
particular phase.
1.4 Prior to the initiations of each Phase II, III and IV, the Parties
will negotiate in good faith the completion timetable and funding levels for
each such Phase. Nothing in this Agreement shall be construed as an obligation
on the part of either Party hereunder to enter into an agreement with respect to
or otherwise proceed with Phases II, III or IV.
2. PHASE I DELIVERABLES AND SERVICE FEE; COMMERCIAL DISCOUNT
2.1 The delivery obligations and timetable for such performance of the
Parties are set forth in Exhibit C attached hereto and incorporated herein by
reference. In addition to the deliverables set forth in Exhibit C, SURGX shall
deliver to LSI LOGIC prior to the completion of the Feasibility Phase such
quantities of SURGX polymer material dissolved in solution as LSI LOGIC may
require for coating directly on wafers.
2.2 In consideration for the deliverables and services to be provided
hereunder, LSI LOGIC shall pay to SURGX the amount of $200,000, payable in
accordance with the Milestone set forth in the following table:
<TABLE>
Payment
Milestone Target Date Obligation
<S> <C> <C>
Execution of Final Agreement October 1, 1996 $60,000
Completion of SurgTape design for the device of package November 5, 1996 $60,000
Assembly of a device or package designed for protection of December 10,1996 $60,000
several leads.
Delivery of the Summary Report documenting feasibility on the Four (4) months from $20,000
lead(s), and the SURGTAPE design for the test IC package. signature date
</TABLE>
2.3 In partial consideration of the Service Fee, SurgX agrees that for
any device or package incorporating a SURGX ESD Product manufactured by LSI
LOGIC under Phase IV (should the Parties elect to proceed with Phase IV), SURGX
will provide that SURGX ESD Product to LSI LOGIC at a discounted price compared
to the price paid by other manufacturers of similar devices and/or packages
where the other manufacturer has not engaged in a product introduction program
similar to the program conducted under this Agreement. SURGX agrees to maintain
an appropriate discount for LSI LOGIC on such SURGX ESD Product for an
appropriate period of time to provide LSI LOGIC and economic benefit and a
reasonable return on its investment of the Service Fees paid to SURGX.
2.4 The parties agree that upon completion of Phase I, they shall meet
and discuss in good faith the possibility of LSI LOGIC making an equity
investment in SURGX.
3. CONFIDENTIALITY
3.1 All technical, business and other information exchanged by SURGX
and LSI LOGIC under this Agreement which it is designated confidential shall be
deemed to be confidential and shall include the terms and conditions of this
Agreement. The Party receiving confidential information under this Agreement
shall for the period from the date of this Agreement until five (5) years after
its termination make use of such information only for the purpose of fulfilling
its obligations under this Agreement or under other agreements respecting
further Phases of the Program and shall protect such information by using the
same degree of care but no less than reasonable degree of care to prevent
unauthorized use, dissemination or publication of such information as the
receiving Party uses to protect its own confidential information of a like
nature.
3.2 The foregoing obligation shall not apply to the Party receiving
confidential information under the Agreement with respect to information that:
(a) is shown by contemporaneously produced written evidence to
have been in the receiving Party's possession before receipt thereof from the
disclosing Party;
(b) is or becomes a matter of public knowledge through no
fault of the receiving Party; (c) is rightfully received by
the receiving Party from a third Party without duty of
confidentiality;
(d) is disclosed by the disclosing Party to a third Party
without a duty of disclosure on the party of the third Party;
(e) is shown by contemporaneously produced written evidence to
have been independently developed by the receiving Party by personnel having no
knowledge of the information received from the disclosing Party; and
(f) is disclosed by the receiving Party after receipt of prior
written approvals from the disclosing Party.
3.3 Disclosure of any information marked confidential by Party shall
not be precluded by this agreement if such disclosure is required in response to
a valid court order or order of a government body provided that the receiving
Party promptly notifies the other Party of such order and makes a good faith
effort, but at the expense of the Party originating the confidential information
to obtain a protective order requiring the confidential information to be kept
in confidence and used only for the purpose of the court or governmental order.
3.4 Expect as required by law neither Party to this Agreement shall,
without prior written consent of the other Party, make or cause to be made any
press release or non confidential disclosure that directly or indirectly
discloses the transactions contemplated by this Agreement or discloses the
identity of the Parties hereto. Notwithstanding the foregoing, approval of an
announcement of the agreement will not be unreasonably withheld.
4. INTELLECTUAL PROPERTY
4.1 Any change in, improvement of or modification of any SURGX ESD
Product (including changes, improvements or modifications in the manufacture
thereof or, subject to Section 4.3 use) made pursuant to this Agreement or other
agreements respecting the Program by either Party or jointly by the Parties and
any invention made based on or developed from the Confidential Information of
SURGX, shall be the intellectual property of SURGX. LSI LOGIC shall take all
actions necessary to vest such intellectual property rights in SURGX. In
addition, any method or process developed independently or jointly by the
parties covering the application of SURGTAPE to a device or substrate shall be
the intellectual property of SURGX.
4.2 Any change in, improvement of or modification of any LSI LOGIC
semiconductor device or package (including changes, improvements or
modifications in the manufacture thereof or, subject to Section 4.3 use) made
pursuant to this Agreement or other agreements respecting the Program by either
Party or jointly by the Parties and any invention made based on or developed
from the Confidential Information of LSI LOGIC shall be the intellectual
property of LSI LOGIC and SURGX shall have the right to a nonexclusive license,
including the right to sublicense as necessary under and subject to Section 4.3,
from LSI LOGIC to use each method or process which forms a part thereof,
provided that such method or process is necessary to enable the commercial use
of the SURGX ESD Product.
4.3 In addition to the work to be performed under this Agreement, which
is intended to demonstrate the feasibility of using SURGTAPE in packaging
integrated circuit devices to protect them from ESD damage, most of which
activities will be the responsibility of SURGX, the parties agree that LSI LOGIC
may further investigate the potential use of the SURGX polymer composition for
application directly on/or as part of the integrated circuit wafer/die or
wafer/die structure. LSI LOGIC will bear the primary responsibility for the
activities to develop the die application. SURGX will provide the SURGX polymer
in appropriate liquid form for the on wafer/die application and provide
consulting services to LSI LOGIC in the application and use of the SURGX
material. Follow on activities and cooperative efforts will be decided at the
conclusion of the feasibility stage. Assuming that the results of the
feasibility stage show that the SURGX material has value in the on wafer/die
application in protecting integrated circuit devices from ESD events, and that
the parties wish to continue forward with an agreement, the parties agree to:
SURGX will own all intellectual property rights to SURGTAPE technology
and LSI LOGIC will be granted a paid up royalty free license under intellectual
property of SURGX to use the SURGTAPE purchased from SURGX and its affiliates or
parents in integrated circuit packages built by and for LSI LOGIC for sale by
LSI LOGIC.
LSI LOGIC will own the intellectual property rights to the use of SURGX
material in processes and to the resulting structure where the SURGX material is
applied directly to and as a part of the integral structure of an integrated
circuit wafer/die which on wafer/die applications processes are developed by LSI
LOGIC. LSI LOGIC shall have a paid up royalty free license under intellectual
property of SURGX to use itself SURGX material purchased from SURGX and its
affiliates or parents in such processes and structure.
SURGX will own exclusive marketing rights to sell the SURGX material in
the liquid form for use in said on wafer/die applications and processes for
application of the SURGX material directly to an integrated circuit wafer/die,
and LSI LOGIC agrees to license the intellectual property of LSI LOGIC to SURGX
on reasonable terms to enable SURGX to market such SURGX material for such uses,
provided, however, that LSI LOGIC shall have the option at its sole election to
retain exclusive use for itself in large scale ASIC devices.
4.4 The above Paragraphs 4.1, 4.2 and 4.3 notwithstanding all metrology
developed by the Parties in connection with the performance of this Agreement
shall be the intellectual property of SURGX. SURGX shall grant and hereby does
grant, to LSI LOGIC (and to LSI LOGIC'S packaging contractors solely for their
use in producing ESD Measuring Equipment for LSI LOGIC) a non-exclusive,
worldwide, perpetual irrevocable, fully paid-up right and license to use, make,
have made, modify, have modified, and develop ESD Measurement Equipment
products, including derivative products from SURGX's intellectual property under
this Article, for LSI LOGIC's own internal use and for use by LSI LOGIC
packaging contractors in carrying out their work solely for LSI LOGIC, provided
that nothing in this Paragraph 4.4 shall be construed as a license to LSI LOGIC
to sell, lease, or otherwise dispose of ESD Measurement Equipment products,
including derivative products, to its customers.
5. TERM AND TERMINATION
5.1 This Agreement shall remain in force until the later of (i) two
years from the date hereof or (ii) the completion of Phase I, unless earlier
terminated pursuant to this Section 5.
5.2 This Agreement may be terminated without cause by either Party upon
30 days written notice. If terminated by SURGX without cause under this
paragraph, SURGX shall not be entitled to any further payment under this
Agreement of the Program. If terminated by LSI LOGIC under this paragraph LSI
LOGIC shall pay to SURGX 50% of all unpaid payments scheduled under this
Agreement.
5.3 This Agreement may be terminated by either Party for cause upon
breach of this Agreement by the other Party after 60 days written notice of such
breach and failure of the Party in breach to remedy the breach within said 60
days.
5.4 Upon completion or termination of this Agreement with or without
cause, no amounts paid by LSI LOGIC to SURGX shall be refunded by SURGX.
6. GENERAL TERMS
6.1 This Agreement shall be governed in all aspects by the laws of the
state of California except for any law in California which requires the
application of the law of another state.
6.2 SURGX represents and warrants that the SURGX ESD Products supplied
by SURGX will meet the specifications agreed to for such products. However,
SURGX makes no representation or warranty or guarantee that any SURGX ESD
Product will perform in any particular LSI LOGIC device or package as desired by
LSI LOGIC. It is the responsibility of LSI LOGIC to test such devices and
packages to insure that same perform in accordance with LSI LOGIC specifications
or the product specifications of the customer purchasing such device or package
from LSI LOGIC. In the event of a product liability claim on any semiconductor
device or package sold by LSI LOGIC, LSI LOGIC shall hold SURGX harmless with
respect to such claim. SURGX shall indemnify and hold harmless LSI LOGIC and its
majority owned subsidiaries from any claim, demand, assertion, or liability, and
the defense thereof , based on the infringement or alleged infringement by SURGX
ESD Products of the intellectual property rights of any third party. Except for
the foregoing, neither party shall be liable to the other for any special,
indirect, incidental, or consequential damages, losses, loss of profits, loss of
data or use thereof, or interruption of business, whether based on alleged of
warranty, of contract, tort or other legal theory.
6.3 This contact shall be considered personal between the Parties and
shall not be assignable or transferable to any other Party except any company or
entity controlling, controlled by, or under the common control with a Party
hereto (an "Affiliate"), without the prior written consent of the other Party.
The prohibition against assignment provided by this paragraph shall not apply if
this Agreement is being transferred to another entity as part of a sale, merger
or transfer of the entire business of the Party to which this Agreement relates.
6.4 Neither SURGX nor LSI LOGIC are agents of the other. This Agreement
does not establish any joint venture, partnership, or agency relationship.
Neither Party has the right or authority to create any obligation,
representation or responsibility express or implied on behalf of the other
Party. The Parties hereto are independent contractors.
6.5 This Agreement is non exclusive in nature and it is expressly
understood that either Party may enter into the same or similar agreement with
other entities for the same or similar reasons for same or similar goals,
provided that the confidentiality of this Agreement is maintained.
6.6 If any provision of this Agreement is held invalid, illegal, or
unenforceable, the validity, legality, or enforceability of the remaining
provisions of this Agreement shall not be affected or impaired.
6.7 Except for the prior confidentiality agreement dated July 22, 1996,
this Agreement and the Exhibits hereto constitute the entire agreement between
the Parties with respect to the subject matter hereto and shall not be amended
or modified without written agreements signed by both Parties.
6.8 In witness whereof the Parties have had this Agreement executed by
their respective authorized officers on the date written below with the
Agreement being effective the date appearing on the first page of this
Agreement, with the intent that the Parties by legally and equitably bound by
its terms.
LSI LOGIC CORPORATION SURGX CORPORATION
By: /s/ James Hively By: /s/ Karen Shrier
Title: Vice President Title: V.P. Operation
Date: September 30, 1996 Date: September 30, 1996
---------------------- -------------------
EXHIBIT A
SURGX ESD PRODUCTS
A.1 The term "SURGTAPE" shall mean a tape product that carries a SURGX
material in a cured or solid form so that the tape product can be used
to provide ESD or electrical overstress (EOS) protection for integrated
circuits. SURGTAPE incorporates a SURGX material that can be positioned
between signal lines and the ground line(s). The SURGX material has a
high impedance and low leakage during normal circuit operation. During
an EOS or an ESD event, the material transitions to a low impedance
state that shunts the offending charge to ground. The pin-to-pin
capacitance added by the material is typically less than one picofarad.
The mechanical flexibility and the electrical characteristics of the
material allow for a wide variety of packaging concepts, including
arrays in which a common ground is used with multiple signal lines.
SURGTAPE can be placed, both inside the IC package and outsides the IC
package, as well as, on or in the printed circuit boards. SURGTAPE can
also be used in discrete devices such as connector arrays and surface
mount components.
A.2 The term "SURGX material" shall mean a liquid product having a
component or composition proprietary to SURGX that can be applied
directly to a wafer or die to form a cured or solid line layer thereon
to provide ESD or EOS protection for integrated circuits. The SURGX
material can be applied directly to a wafer or die in liquid form, then
formed into a cured or solid line, layer or other configuration between
signal lines and ground line(s) to provide properties and function
similar to those set forth in A.1 above.
<PAGE>
EXHIBIT B
[PACKAGES AND DEVICES FOR INCORPORATION OF ESD PRODUCT]
Confidential treatment has been requested for the entire contents of this
Exhibit B which contents have been filed separately with the Commission.
<PAGE>
EXHIBIT C
DELIVERY OBLIGATIONS/TIMETABLE
Exhibit C - LSI LOGIC PHASE I FEASIBILITY
<TABLE>
<S> <C> <C> <C> <C>
ID Task Name Duration Start Finish
1 PHASE I FEASIBILITY 18w 10/1/96 2/3/97
2 Define Team 2d 10/1/96 10/2/96
3 Define Product Performance Specificaton 4.6w 10/1/96 10/31/96
4 Select pkgs & die 1.7w 10/1/96 10/11/96
5 Complete SurgTape Designs for the selected device or 5.2w 10/1/96 11/5/96
package
6 Reformulate SurgX to meet V (trigger) & Vclam 17.8w 10/1/96 1/31/97
7 Formulation I modification/optimation 12.2w 10/1/96 12/24/96
8 Formulation II Development 11w 10/14/96 12/27/96
9 Select optimum formulations 1w 12/30/96 1/3/97
10 Continue to Optimize Formulations 4w 1/6/97 1/31/97
11 Implement SurgX on/in IC Package 16.2w 10/14/96 2/3/97
12 Assemble a package with SurgTape designed to protect 9.2w 10/14/96 12/16/97
single ic
13 Deliver SurgX for Wafer Coating 14.2w 10/28/96 2/3/97
14 Look Ahead Reliability Testing for Environmental 16w 10/14/96 1/31/97
15 Ongoing Characterization, QC Testing and QC Equipment 16w 10/1/96 1/20/97
Design
16 Feasibility Summary Report 1.2w 1/27/97 2/3/97
17 Phase I Complete 0w 2/ 3/97 2/3/97
</TABLE>
EXHIBIT 10.23
COPELCO Master Lease No 0670800
CAPITAL
- - -
MASTER LEASE: AGREEMENT
LESSOR: COPELCO CAPITAL, INC.
LESSEE: POWER SENSORS Corporation
TERMS AND CONDITIONS OF LEASE
LEASE OF EQUIPMENT. See Amendment Attached Hereto And Forming A Part Hereof.
Lessor hereby leases to Lessee, and Lessee hereby leases from Lessor the
equipment described in one or more equipment schedules (the "Equipment
Schedule") substantially in the form of Exhibit A attached hereto, that may
hereafter be executed by Lessor and Less" (the equipment, together with all
replacement parts, repairs, additions, substitutions and accessories shall be
referred to as the "Equipment" on the tams and conditions contained in this
Lease ("Lease") and in any Equipment Schedule. This Lease and each of the terms,
covenants, conditions, provisions and agreements herein contained will be
incorporated into each Equipment Schedule in full to the same extent as if each
of the terms, covenants, conditions, provisions and agreements had been repeated
and set forth in full therein, and this Master Lease Agreement shall control and
be effective as to all such Schedules except to the extent that the Master Lease
Agreement may be inconsistent with the tams and provisions of such Equipment
Schedule, which ever the terms and provisions of such Equipment Schedule shall
prevail. Each equipment Schedule shall constitute a separate lease and a
distinct and independent obligation of the Lessee. The parties intend this Lease
to be a "Finance Lease" under Article 2A of the Uniform Commercial Code.
II ORDER AND DELIVERY OF EQUIPMENT; LESSOR'S RIGHT TO TERMINATE.
Lessee hereby requests Lessor to order the Equipment from the Vendor named on
the Equipment Schedule and to arrange for delivery of the Equipment to Lessee at
Lessee's expense, and to lease the Equipment to Lessee. If the Equipment is not
delivered to and accepted by Lessee in form satisfactory to Lessor, within
ninety (90) days from the date Lessor orders the Equipment, Lessor may laminate
the applicable Equipment Schedule and its obligations thereunder. Lessee waives
any requirement of Lessor to furnish Lessee a copy of Lessor's purchase order
for the Equipment.
III. ACCEPTANCE.
Lessee shall, as Lessor's agent, immediately inspect the Equipment after it is
delivered and installed. Lessee agrees that on the date the Equipment is
available for first use (the "Acceptance Date"), it shall execute and deliver to
Lessor a Delivery and Acceptance Certificate substantially in the force of
Exhibit B attached. Notwithstanding the foregoing, unless Lessee shall notify
Lessor in writing otherwise within five (5) days after the Acceptance Date,
Lessee shall be deemed to have irrevocably accepted the Equipment. This Lease
and all Equipment Schedules are noncancelable and Lessee agrees to pay the total
rent for the term, which shall be the total amount of all rental payments stated
in any Equipment Schedule (the "Rent". or "Rental Payment"), plus any other sums
provided for herein.
IV. TERM AND RENT.
(A) The initial term ("Initial Term") of any Equipment Schedule to which this
Lease relates shall commence on the Acceptance Date and shall be of such
duration as is prescribed in such Equipment Schedule plus the Interim Term (as
hereinafter defined). Advance Rent and any Security Deposit as provided in any
Equipment Schedule shall be payable upon the execution of the applicable
Equipment Schedule and shall not be refundable if the Initial Term for any
reason does not commence or if this Lease or the applicable Equipment Schedule
is duly terminated by Lessor. Rental Payments shall commence (the "Commencement
Date") on the first day of the month following the Acceptance Date unless the
Acceptance Date is the first day of the applicable paid, in which case the
Commencement Date shall be the first day of the applicable period. Interim Rent
shall be payable upon demand for the period between the Acceptance Date and the
first day of the month following the Acceptance Date ("Interim Term") at a daily
rate equal to the periodic rental provided in any Equipment Schedule divided by
the number of days in the period. Subsequent rental payments shall be due
periodically in advance on the first day of each successive period thereafter
until all Rent and other sums chargeable to Lessee hereunder are paid in full
Lessee's obligation to pay Rent and Lessee's other monetary obligations
hereunder are absolute and unconditional and are not subject to any abatement,
set-off, defense or counterclaim for any reason whatsoever. Any Security Deposit
shall secure all obligations of Lessee hereunder and may be applied at Lessors
discretion to any past due obligation of Lessee and to the extent not applied
shall be returned to Lessor, without interest, at the expiration of the
applicable Equipment Schedule. All payments of Rent Schedule be made to Lessor
at the address Lessor - shall designate in writing. ~ - ~
(B)Whenever any payment is not made by Lessee within five (5) days of when due
hereunder, Lessee agrees to pay to Lessor, as additional rent, interest on all
monies due Lessor from and after the date same is due at the rate of one and one
quarter (1-1/4%) percent per month until paid but as to each of the foregoing in
no event more than the maximum rate permitted by law.
(C) As used herein, "Actual Cost" means the cost to Lessor of purchasing and
delivering the Equipment to Lessee, including taxes, transportation and other
charges. The amount of each Actual Payment and the Security Deposit set forth in
the Equipment Schedule are based on the total cost set forth in Lessor's
purchase order for the Equipment (-Estimated Cost ), which is an estimate, and
shall be adjusted proportionately if the actual cost of the Equipment is greater
than said estimate. Lessee hereby authorizes Lessor to adjust the amounts set
forth in the Equipment Payment Schedule which Actual Cost is known and to add to
the amount of each Rental Payment any sales, use or leasing tax that may be
imposed on or measured by the ~ Rental Payments. Lessor will inform Lessee of
the adjustments necessary to reflect Actual Cost. If the Actual Cost of the
Equipment on July shipment Schedule exceeds the Estimated Cost by more than ten
(10%) percent thereof (exclusive of taxes), Lessor shall, if it desires to add
to the Estimated Cost an amount in excess of 10% of Estimated Cost, so notify
Lessee in writing. In such instance, within fifteen (15) days thereafter, Lessee
at its option may terminate the relevant Equipment Schedule by giving notice to
Lessor of its intention to do so, effective the day of such notice, subject
however to the provisions of Section IV(A) hereof
V. NO WARRANTIES BY LESSOR, DISCLAIMER OF IMPLIED WARRANTIES AND WAIVER OF
DEFENSES.
LESSOR IS NOT THE MANUFACTURER OR SUPPLIER OF OR A DEALER IN THE EQUIPMENT, AND
MAKES NO WARRANTY Y. EXPRESSED OR IMPLIED, TO ANYONE, ELSE TO THE SUITABILITY,
DURABILITY, DESIGN, CONDITION, CAPACITY. PERFORMANCE OR ANY OTHER ASPECT OF THE
EQUIPMENT OR ITS MATERIAL OR WORKMANSHIP INCLUDING THE WARRANTY OF
MERCHANTABILITY AND FITNESS FOR USE OR PURPOSE. AS TO LESSOR AND ITS ASSIGNS,
LESSEE LEASES THE EQUIPMENT "AS IS " LESSEE REPRESENTS THAT IT HAS SELECTED THE
EQUIPMENT AND THE SUPPLIER AND ACKNOWLEDGES THAT LESSOR HAS NOT RECOMMENDED THE
SUPPLIER LESSOR LEAVE NO OBLIGATION TO INSTALL, MAINTAIN, ERECT, TEST, ADJUST,
OR SERVICE THE EQUIPMENT, ALL OF WHICH LESSEE SHALL PERFORM, OR CA-USE THE SAME
TO BE PERFORMED BY QUALIFIED THIRD PARTIES LESSOR AND) LESSOR'S ASSIGNEE S~ NOT
BE LIABLE TO LESSEE OR OTHERS FOR ANY LOSS,-DAMAGE OR EXPENSE OF ANY KIND OR
FAILURE CAUSED DIRECTLY OR INDIRECTLY BY ANY EQUIPMENT HOWEVER ARISING, OR THE
USE OR MAINTENANCE THEREOF OR THE FAILURE OF OPERATION THEREOF, OR THE REPAIRS,
SERVICE OR ADJUSTMENT THERETO. NO REPRESENTATION OR WARRANTY AS TO 10: EQUIPMENT
OR ANY OTHER MATTER BY THE SUPPLIER OR OTHERS SHALL BE BINDING ON LESSOR NOR
SHALL THE BREACH OF SUCH RELIEVE LESSEE OF, OR IN ANY WAY AFFECT, ANY OF
LESSEE'S OBLIGATIONS TO LESSOR HEREIN. IF THE EQUIPMENT 1S UNSATISFACTORY FOR
ANY REASON, LESSEE SHALL MAKE CLAIM ON ACCOUNT THEREOF SOLELY AGAINST SUPPLIER,
AND ANY OF SUPPLIER'S VENDORS, AND SHALL NEVERTHELESS PAY LESSOR ALL RENT AND/OR
SUMS PAYABLE UNDER THIS LEASE. LESSOR HEREBY ASSIGNS TO LESSEE, SOLELY FOR THE
PURPOSE OF PROSECUTING SUCH A CLAIM ALL (IF ANY) OF THE RIGHTS WHICH LESSOR MAY
RAVE AGAINST SUPPLIER AND SUPPLIER'S VENDORS FOR BREACH OF WARRANTY OR OTHER
REPRESENTATIONS RESPECTING THE EQUIPMENT. REGARDLESS OF CAUSE, LESSEE WILL NOT
ASSERT ANY CLAIM 'WHATSOEVER AGAINST LESSOR FOR LOSS OF ANTICIPATORY PROFITS OR
ANY OTHER INDIRECT, SPECIAL OR NONSEQUENTIAL DAMAGES, NOR SHALL LESSOR BE
RESPONSIBLE FOR ANY DAMAGES OR COSTS WHICH MAY BE
ASSESSED AGAINST LESSEE IN ANY ACTION FOR INFRINGEMENT OF ANY UNITEAD STATES
LETTERS PATENT. LESSOR MAKES NO WARRANTY AS TO 1~115 TREATMENT OF THIS LEASE FOR
TAX OR ACCOUNTING PURPOSES.
NOTWITHSTANDING ANY FILES WHICH MAY BE PAID BY LESSOR TO SUPPLIER OR ANY AGENT
OF SUPPLIER[ER, LESSEE UNDERSTANDS AND AGREES THAT NEITHER SUPPLIER NOR ANY
AGENT OF SUPPLIER 1S AN AGENT OF LESSOR OR IS AUTHORIZED TO WAIVE OR ALTER ANY
TERM OR CONDITION OF THIS LEASE.
VI. TITLE; PERSONAL PROPERTY.
The Equipment is, and shall at all times be owned by Lessor and Lessee shall
have no interest in the Equipment except that of a lessee. I he Lessee shall
have no right to purchase or otherwise acquire title to or ownership of any of
the Equipment. If Lessor supplies Lessee with labels that the Equipment is
owned by Lessor, Le ssee shall affix such labels to and keep them in a
prominent place on the Equipment Lessee hereby authorizes Lessor to insert in
any Equipment Schedule the serial numbers and other identification date of
Equipment when determined by Lessor. To protect Lessor's rights in the
Equipment in the event this Lease is determined to be a security agreement,
Lessee hereby grants to Lessor a security interest in the Equipment, and all
proceeds. products, rents or profits from the sale, casualty loss or other
disposition thereof. Lessee hereby authorizes Lessor, at Lessee's expense, to
cause this Lease, or any statement or other instruments respect of this Lease
showing the interest of Lessor in the Equipment, including Uniform Commercial
Code financing statements, to be filed or recorded and re-filed and
re-recorded. and grants Lessor the right to execute Lessee's name thereto.
Lessee agrees to execute, deliver and file any statement or instrument
requested by Lessor for such purpose, and if certificates of title are issued
or outstanding with respect to any of the Equipment, Lessee will cause the
interest of Lessor to be properly noted thereon, and agrees to pay or reimburse
Lessor for any reasonable searches, filings, recordings, stamp fees or taxes
related to the filing or recording of any such instrument or statement, plus
Lessor's handling charges. Lessee shall, at its expense, protect and defend
Lessor s against all persons claiming against or through Lessee and shall at
all times keep the Equipment free from any legal process or encumbrance
whatsoever including without limitation liens, attachments, levies and
executions, and shall give Lessor immediate written notice thereof and shall
indemnify Lessor from any loss caused thereby. Lessee shall, upon Lessor's
request, execute or obtain from third parties and deliver to Lessor such
estoppel certificates, landlord's waivers and such further instruments and
assurances as Lessor deems necessary or advisable for the confirmation of
perfection of Lessor's rights hereunder. The Equipment is, and shall at all
times be and remain, personal property notwithstanding that the Equipment or
any part thereof may now be or hereunder become, m any manner, affixed or
attached to real property or any improvements hereon
2
VII. MAINTENANCE, USE AND LOCATION.
Lessee shall, at its own cost and expense, maintain the Equipment in good
operating condition and repair and protect the Equipment from deterioration
other than normal wear and tear, shall use the Equipment in the regular course
of its business, within its normal; operating capacity. without abuse, shall
comply with all laws, ordinances, regulations, requirements and rules with
respect to the use, maintenance and operation of the Equipment; shall not match
any modification, alteration or addition to the Equipment without the prior
written consent of Lessor. which shall not be unreasonably withheld, except for
engineering changes recommended by and made by the manufacturer, shall install
on the Equipment all engineering changes offered by the manufacturer without
charge which chance the safety of the Equipment, shall not so affix the
Equipment to realty as to change its nature to real property or a fixture; and
shall keep the Equipment at the location shown herein, and shall not remove the
Equipment without prior written consent of Lessor. Lessee will grant access to
the Equipment to Lessor and Lessor's designee during normal working hours for
inspection, repair, preventative maintenance, installation of engineering
changes and for any other reasonable purpose Lessee shall, during the term of
this Lease, at its own expense, enter into and maintain in force a contract with
the manufacturer or other acceptable maintenance company covering the
maintenance of the Equipment and furnish a copy thereof to Lessor upon request.
If Lessor incurs any cost or expenses to bring the Equipment up to good working
order and appearance, Lessee shall immediately reimburse Lessor for all such
costs or expenses
VIII. RETURN OF EQUIPMENT; END OF LEASE OPTION.
After the end of the [initial Term and after each renewal term thereafter, this
Lease shall be automatically renewed and shall continue until such time as the
Lessee shall give the Lessor written notice of termination, not less than one
hundred twenty (120) days and not more than one hundred eighty (180) days prior
to the end of the then current term. Unless Lessee purchases the Equipment or
the term of an Equipment Schedule is renewed, within ten (10) days of the
expiration or earlier termination of the then current teen, the Lessee shall, at
its expense, install, inspect, test and pack the Equipment and return the
Equipment (including all cable, wiring, connectors, accessories and attachments
thereto), freight and insurance prepaid, to such location as designated by
Lessor in writing, in good repair, condition and working order, ordinary wear
and tear resulting from proper use thereof only excepted. Further, the Equipment
shall conform to any additional specifications set forth in the applicable
Equipment Schedule. Lessee shall have the Equipment certified by the
manufacturer as acceptable for the manufacture's standard maintenance contract
and such certification shall be presented to Lessor at least fourteen (14) days
prior to redelivery to Lessor. If Lessee fails to return the Equipment as
provided herein, Lessee shall pay Lessor a sum equal to six (6) months act as
liquidated damages to compensate Lessor for the economic loss suffered by Lessor
as a result of its inability to realize the residual value of the Equipment when
anticipated. In addition, for the use of the Equipment, Lessee agrees to pay
Lessor periodic Rent equal to 110% of the average annual Rental Payment
(adjusted, if necessary, to the period indicated on the applicable Equipment
Schedule) provided herein Nothing contained herein is intended to relieve Lessee
of its obligations to return the Equipment to Lessor as provided herein or
restrict Lessor's right to recover the Equipment in the event of the failure of
Lessee to so return the Equipment at the expiration or termination of the
applicable Equipment Schedule.
IX. RISK OF LOSS.
Lessee shall bear all risks of loss or damage to the Equipment ("Loss.) from any
cause whatsoever, from the date of the shipment of the Equipment to Lessee until
its return to Less". Lessee shall promptly notify Lessor of any Lass and no Loss
shall relieve Lessee of the obligation to pay Rent or of any other obligation
under this Leas and any Equipment Schedule. In the event of a Loss, Lessee, at
the option of Lessor, shall either (a) repair the Equipment so as to place it in
as good condition as prior to the Loss, (b) replace the Equipment with
substantially identical Equipment in good condition and working order with
documentation creating clear title thereto in Lessor, or (c) pay to Lessor upon
demand the sum of the following amounts: (i) the aggregate Rent and other sums
then due and owing under the Equipment Schedule to which the Equipment is
subject plus (ii) the applicable stipulated loss value attached to the Equipment
Schedule and made part thereof (the "Stipulated Loss Values") opposite the Rent
payment number preceding the date of the Loss, or, if no Stipulated Loss Values
are attached to the Equipment Schedule, then the present value of all unpaid
Rent and other' sums due during the unexpired term of the Equipment Schedule
discounted at four (4%) percent per annum simple interest or the lowest rate
premitted by law plus Lessor anticipated value of the Equipment at the end of
the Initial Term or applicable renewal term. Upon Lessor's receipt of
replacement Equipment or payment as provided in (b) or (c) hereof, Lessee and/or
Lessor's insurer shall be entitled to Lessor's interest in said item for salvage
purposes, in its then condition and location, without warranty, express or
implied.
X. INSURANCE
Lessee shall keep the Equipment insured against all risks of loss or damage from
every cause whatsoever for not less than the full replacement value thereof or
the amount stated in Section IX(c) herein, whichever is greater, and shall carry
public liability and property damage insurance covering the Equipment and its
use in amounts customary for such Equipment. All such insurance shall be in form
and amount and with companies acceptable to Lessor and name Lessor and its
assignee as loss payee, as their interests may appear, with respect to property
damage coverage and as additional insured, with respect to public liability
coverage. Lessee shall pay the premiums therefor and deliver said policies, or
duplicates thereof or certificates of coverage therefor to Lessor, with long
form Lender's Loss Payable endorsement upon the policy or policies or by
independent instrument. that provides Lessor a right to thirty (30) days'
written notice before the policy can be altered or canceled are the right
without obligation to payment of premium. Should Lessee fail to provide such
insurance coverage, Lessor may obtain such coverage for its benefit or for the
benefit of Lessee and charge Lessee therefor. Lessee hereby appoints Lessor as
Lessee's attorney-in-fact to make claim for, receive payment of, and execute and
endorse all documents, checks, or drafts for loss or damage under any said
insurance policies and to apply the proceeds in furtherance of the exercise of
Lessors options as provided herein.
3
XI. TAXES AND CHARGES.
This Lease is intended to be and lease, and all payments hereunder are
intended to be and to Lessor to the extent permitted by applicable law. see
s)full pay directly (or, at Lessor's option, reimburse Lessor for) all
license fees, assessments and other government charges, and all sales, use,
exercise, franchise, personal property and any other similar tax or taxes
(herein collectively called "Charges") now or hereafter imposed, levied or
assessed by any state, federal or local government or agency upon any of
the Equipment or upon the leasing, purchase, ownership, use, possession,
financing or operation thereof or upon the receipt of rental payments
therefor, even if Lessee's status provides for its exemption from the
Charges (excluding income taxes on Rental Payments, except any such tax on
Rental Payments which is a substitution for, or relieves Lessee from the
payment of taxes which Lessee would otherwise be obligated to pay or
reimburse Lessor as herein provided) before the same shall become in
default or subject to the payment of any penalty or interest. Lessee shall
supply Lessor with receipts or other evidence of payment of all Charges as
may reasonably be requested by Lessor. Lessee shall further comply with all
state and local laws requiring the filing of ad valorem or other tax
returns relating to any Charges. Lessee shall notify the Lessor of the
imposition of, or, to Lessee's knowledge, the proposed imposition of, any
Charges by supplying to Lessor (within five (5) days after receipt thereof
by Lessee) a copy of the invoice or other documents respective such
Charges. Unless otherwise directed by Lessor in writing, Lessor shall pay
all personal property taxes with respect to the Equipment and fee shall
reimburse Lessor therefor upon demand
XII. LEASE Irrevocability AND OTHER COVENANT S AND REPRESENTATIONS OF LESSEE.
Lessee agrees that this Lease and each Equipment Schedule are irrevocable
for the full term thereof and thereof and Lessee's obligations under this
Lease and each Equipment Schedule are absolute and shall continue through
abatement and regardless of any disability of Lessee to use the Equipment
or any part thereof because of any reason including, but not limited to
war, act of God, governmental regulations, stress, loss, damage,
destruction, obsolescence, failure of or delay in delivery, failure of the
Equipment to operate properly, termination by operation of law, or any
other cause. Lessee represents that: it is duly organized, validly existing
and in good standing under the laws of the jurisdiction in which the
activities of Lessee require such qualification; this Lease has been and
each Equipment Schedule will be duly authorized by all necessary action on
its part, is a valid, binding and legally enforceable obligation of Lessee
in accordance with its terms and is not in any respect inconsistent with or
in violation of Lessee's Certificate or Articles of Incorporation or
by-laws or any law, regulation, order or agreement binding upon Lessee; the
Equipment shall be used by Lessee solely for business purposes; and that
all financials and other information submitted to Lessor was and will be
true and correct.
XIII FINANCIAL STATEMENTS.
Lessee agrees to deliver to Lessor annual financial statements and such
quarterly financial statements, as Lessor requests.
XIV. DEFAULT AND REMEDIES
(A) The occurrence of any one or more of the following shall be deemed to be an
"Event of Default.: (a) Lessee fails to pay any Rent or any other amount
hereunder when due, or (b) Lessee is in default under any other agreement
between Lessee and Lessor or upon an event of default under any other agreement
catered into by guarantors, the vendor of the Equipment. principals of Lessee or
others, which agreement(s) was or were executed to induce Lessor to enter into
this Lease or the applicable Equipment Schedule; or (c) Lessee fails to perform
or observe any of the terms, covenants or conditions contained in this Lease,
any Equipment Schedule or other lease or other agreement between Lessor and
Lessee, other than as provided above, and Lessee fails to cure any such breach
within ten ( 10) days after notice thereof or (d) any representation of Lessee
contained in this L~ or any other agreement between Lessor and Lessee, or in any
credit or other information submitted to Lessor in connection with this
transaction is untrue or incorrect; or (c) Lessee fails substantially all of its
assets out of the ordinary course of business, merges or consolidates with any
other person or sustains a change in the ownership of more than 20% of its
equity, or (f) Lessee becomes insolvent or makes an assignment for the benefit
of creditors; or (g) a receiver, trustee, conservator or liquidator of Lessee or
of all or a substantial part of its assets is appointed with or without the
application or consent of Lessee; or (h) a petition is filed by or against
Lessee under the Bankruptcy Code or any amendment thereto, or under any other
insolvency law or laws, providing for the relief to debtors
(B) Upon an Event of Default, the Lessor may, to the extent permitted by
applicable law, exercise any one or more of the following remedies:
(i) Terminate this Lease with respect to all or any part of the Equipment;
(ii) Recover from Lessee all Rent and other amounts then due and as they shall
thereafter become due hereunder and under the Equipment Schedules;
(iii) Take possession of any or all items of Equipment, wherever the same may be
located, without demand or notice, without any court order or other process of
law and without liability to Lessee for any damages occasioned by such taking of
possession, and any such taking of possession shall not constitute a termination
of this Lease;
(iv) Declare the entire unpaid balance of Rent and other amounts for the
unexpired term of each Equipment Schedule immediately due and payable and
recover from Lessee, with respect to any and all items of Equipment (with or
without cause same), the Stipulated Loss Value attached to each Equipment
Schedule opposite the Rent Payment number preceding the data of such Event of
Default or, if no Stipulates Values are attached to the applicable Equipment
Schedule, then the present value of all unpaid Rent and other sums due during
the unexpired term of that Equipment Schedule discounted at four (4%) percent
per annum simple interest (or the lowest discount
4
rate permitted by law), plus Lease anticipated value of the Equipment at the end
of the Term or any applicable renewal term of the Equipment Schedule;
(v) Upon repossession or surrender of any Equipment, Lessor shall sell, lease or
otherwise dispose of such Equipment in a commercially reasonable manner. with or
v without notice and on public or private bid, and apply the net proceeds
thereof (after deducting all expenses, including attorney's fees incurred in
connection therewith), to the sum of (iv) above;
(vi) Declare any other Equipment Schedules and Leases between Lessor and Lessee
in default and exercise any of the remedies provided for herein; and
(vii) Pursue any other remedy available at law or in equity, including but not
limited to seeking damages or specific performance and/or obtaining an
injunction.
(C) Lessee shall be liable and shall pay to Lessor all expenses incurred by
Lessor in connection with the enforcement of any of Lessor's remedies including
all expenses of repossessing, storing, shipping, reparing, and selling the
Equipment, and Lessor's reasonable attorneys fees Lessor and Lessee acknowledge
the difficulty in establishing a value for the unexpired Lease term and owing to
such difficulty agree that the provisions of this Section IV represent an agreed
measure of damages and are not to be deemed a forfeiture or penalty.
(D) All remedies of Lessor hereunder are cumulative, are in addition to any
other remedies provided for by law, and may, to the extent permitted by :
law, be exercised concurrently or separately. The exercise of any one remedy
shall not be deemed to be an election of such remedy or to preclude the exercise
of any other remedy. No failure on the part of Lessor to exercise and no delay
in exercising any right or remedy shall operate as a waiver thereof or modify
the terms of this Lease or any Equipment Schedule. A waiver of default Shall not
be a waiver of any other Or subsequent default. If this Lease is determined to
be subject to any laws limiting the amount chargeable or collectible by Lessor
then Lessor's recovery shall in no event exceed the maximum amounts permitted by
law.
XV. INDEMNITY.
Lessee shall indemnify and hold Lessor, its agents, employees, successors and
assigns, harmless from and against any and BU claims, actions, suits,
proceedings, costs, expenses. damages and liabilities, including attorneys fees,
arising out of, connected with, or resulting from the Equipment, any Equipment
Schedule or this Lease, including without limitation the manufacture, selection,
delivery, possession, use, lease, operation, removal or return of the Equipment.
XVI. REPRODUCTION OF DOCUMENTS
This Lease, any Equipment Schedule and all related documents, including (a)
amendments, addendums, consents, waivers and modifications which may be executed
contemporaneously or subsequently herewith, (b) documents received by the Lessor
from the Lessee, and (c) financial statements, certificates and other
information previously or subsequently furnished to the Lessor, may be
reproduced by the Lessor by any photographic, photostatic, microfilm, micro
card, miniature photographic, compact disk reproduction or other similar process
and the Lessor may destroy any original document so reproduced. The Lessee
agrees and stipulates that any such reproduction shall, to the extent premitted
by applicable law, be admissible in evidence as the original itself in any
judicial or administative proceeding (whether or not the original is in
existence and whether or not the reproduction was made by the Lessor in the
regular course of business) and that any enlargement, facsimile or further
reproduction of the reproduction shall likewise be admissable in evidence.
XVII. ASSIGNMENT; WAIVER OF DEFENSE; QUIET ENJOYMENT:
LESSEE SHALL NOT ASSIGN, TRANSFER, PLEDGE, HYPOTHECATE. OR OTHERWISE DISPOSE OF,
ENCUMBER OR PERMIT A LIEN UPON OR AGAINST ANY INTERESTS IN THIS LEASE, ANY
EQUIPMENT SCHEDULE OR THE EQUIPMENT OR PERMIT THE EQUIPMENT TO BE USED-BY-
ANYONE OTHER THAN LESSEE OR LESSEE'S EMPLOYEES WITHOUT LESSOR'S PRIOR WRITTEN
CONSENT. .Lessor may, ~ or notice to Lessee, assign or transfer this Lease or
any Equipment Schedule or grant a security interest in any Equipment, any Rental
Permit, or any other payable or to become due hereunder, and in such event
Lessor's assignee, transferee or guarantee shall have all the rights, power,
privileges, and remedies of Lessor hereunder. Lessee aggress that, following its
receipt of notice of any assignment by Lessor of this Lease, any Rent Schedule
or thc Rental Payments payable hereunder, it will pay thc Rent Payments due
hereunder directly to the assignee (or to whomever the assignee shall
designate). Lessee agrees that no assignee of Lessor 011 be bound to perform any
duty, covenant, condition or warranty attributable to Lessor, and Lessee further
agrees not to raix any claim or defense arising out of this Lease or otherwise
which it may have against Lessor as a defense, counterclaim, or offset to any
action by an assignee or secured party hereunder. Upon Lessor's request, Lessee
will execute a certificate and acknowledgement of Lessor's assignment to its
assignee. Nothing contained herein is intended to relieve Lessor of any of its
obligations. Provided Lessee is not in default hereunder, Lessee shall quietly
use and enjoy the Equipment, subject to the terms hereof
XVIII. PERFORMANCE BY LESSOR OF LESSEE'S OBLIGATIONS.
In the event Lessee fails to comply with any provisions of this Lease, Lessor
shall have the right, but shall not be obligated, to effect such compliance on
behalf of Lessee upon ten ( 10) days prior written notice to Lessee in such
event, all monies expended by, and all expenses of Lessor in effecting such
compliance shall be deemed to be additional rent, and shall be paid by Lessee to
Lessor at the time of the next rent payment, together with interests at the rate
of one and one quarter (1 1/4%) percent per month but in no event more than the
maximum permitted by law.
XIX. GOVERNING LAW; JURISDICTION AND VENUE; WAIVER OF TRIAL BY JURY AND RIGHTS
AND REMEDIES UNDER THE UNIFORM! COMMERCIAL CODE.
This Lease shall be governed by the laws of the State of New Jersey, provided,
however, in the event this Lease or arty provision hereof is not enforceable
under the laws of the State of New Jersey, then the laws of the state where the
Equipment is located shall govern LESSEE CONSENTS TO THE PERSONAL JURISDICTION
OF THE FEDERAL AND STATE COURTS OF THE STATE OF NEW JERSEY WITH RESPECT TO ANY
ACTION ARISING OUT OF THIS LEASE, JLNY EQUIPMENT SCHEDULE OR THE EQUIPMENT,
PROVIDED, HOWEVER, LESSOR MAY, 1N ITS SOLE DISCRETION, ENFORCE THIS LEASE AND ~Y
EQUIPMENT SCHEDULE IN ANY COURT HAVING LAWFUL JURISDICTION THEREOF. THIS MEANS
ANY LEGAL ACTION ARISING OUT OF THIS LEASE MAY BE FILED 1N NEW JERSEY, AND
LESSEE MAY BE REQUIRED TO DEFEND AND LITIGATE ANY SUCH ACTION [N NEW JERSEY.
LESSEE AGREES THAT SERVICE' OF PROCESS IN ANY SUIT MAY BE MADE BY CERTIFIED
MAIL, RETURN RECEIPT REQUESTED, ADDRESSES TO LESSEE AT THE ADDRESS SET FORTH
[HEREIN. TO THE EXTENT PERMITTED BY LAW, LESSEE WAIVES TRIAL BY JURY IN ANY
ACTION BY OR AGAINST LESSOR HEREUNDER AND WAIVES ANY AND ALL RIGHTS AND REMEDIES
GRANTED TO LESSEE BY ARTICLE 2A OF THE UNIFORM COMMERCIAL CODE AND ANY RIGHTS
NOW OR HEREAFTER GRANTED BY STATUTE OR OTHERWISE THAT MAY LIMIT OR MODIFY
LESSOR'S RIGHTS AS DESCRIBED IN THIS LEASE OR THE EQUIPMENT SCHEDULES
XX. GENERAL
This Lease shall inure to benefit of and is binding upon the heirs, legatees,
personal representatives, successors and permitted assigns of the parties
hereto. Time is of the essence of this Lease. This Lease and any Equipment
Schedule shall be effective when accepted by Lessor. This Lease and the
Equipment Schedules contain the entire agreement between Lessor and Lessee with
respect to the subject matter hereof, and all negotiations and understandings
have been merged herein. No modification of this Lease shall be effective unless
in writing and executed by both ' lessor and Lessee All covenants and
obligations of Lessee to be performed pursuant to this Lease, including all
payments to be made by Lessee hereunder, shall survive the expiration or earlier
termination of this Lease. If more than one Lessee is named in this Lease, the
liability of each shall be joint and several. In the event any provision of this
Lease shall be unenforceable, than such provision shall be cleaned deleted,
however, all other provisions hereof shall remain in full force and effect.
Service of all notices under this Lease shall be sufficient if given personally,
mailed to the party intended at its address set forth herein, or at such other
addresses said party may provide in writing from time to time by certified mail,
or overnight mail service, or sent via facsimile transmission Any such notice
mailed to said address shall be deemed effective three (3) days after it is
deposited in the United States mail, duly addressed and with postage prepaid;
all notices sent by other means shall be deemed effective when received.
IN WITNESS WHEREOF, the parties have executed this Lease as of , 19
LESSEE POWER SENSORS CORPORATION
By: /s/ Bharat S. Shah
Bharat S. Shah
(PRINT OR TYPE NAME & TITLE OF ABOVE SIGNATURE)
ATTEST: /s/ Ronald C. Valku
LESSOR: COPELCO CAPITAL, INC.
By: /s/ H. Krolifeifer, Jr.
H. Krolifeifer, Jr., Sr. V.P.
(PRINT OR TYPE NAME & TITLE OF ABOVE SIGNATURE)
LEASE AMENDMENT
THIS AMENDMENT dated this day of , 1995 to Master Lease Agreement No.
0670800 , Equipment Schedule No. 0670801 thereto (the "Lease") by and between
COPELCO CAPITAL. INC. as lessor ("Lessor') and POWER SENSORS CORPORATION, a
corporation as lessee ("Lessee").
WHEREAS, the Lessee wishes to enter into the Lease with the Lessor,
WHEREAS, as a condition to enter into the Lease, the Lessor requires
that the Lessee provides a security deposit and grant a security interest
therein to secure the Lessee's obligations under the Lease;
NOW, THEREFORE, as an inducement to the Lessor to enter into the Lease, and
intending to be legally bound, the parties hereto agree as follows:
l. The Lease shall be amended to add the following new Section to the Lease:
XXI. Release of the Security Deposit.
2. Except as herein modified, all other terms and conditions of the
Lease shall remain unchanged and are hereby ratified by the parties.
1N WITNESS WHEREOF, the parties hereto have duly executed this
Amendment as of the day and year first above written.
POWER SENSORS CORPORATION COPELCO CAPITAL, INC.
BY: /s/ Bharat S. Shah BY: /s/ H. Krollfeifer, Jr.
Bharat S. Shah H. Krollfeifer, Jr., Sr. V.P.
(PRINT OR TYPE NAME & TITLE (PRINT OR TYPE NAME OR TITLE
OF ABOVE SIGNATURE) OF ABOVE SIGNATURE)
Date: 12/7/95
POWER SENSORS CORPORATION
113 Tower Road
Schaumburg, IL 60173
Re: Lease No. 0670801 between Power Sensors Corporation as lessee ("Lessee")
and Copelco Capital, Inc., as lessor ("Lessor")
Dear Sir/Madam:
For good and valuable consideration, the receipt of which is hereby
acknowledged and intending to be legally bound, the parties hereto agree as
follows:
I. Provided no Event of Default exists uncured and notwithstanding
anything contained in the lease to the contrary, Lessor hereby grants to Lessee
the option to purchase the equipment subject to the Lease (the "Equipment") at
the end of the initial term of the Lease for $1.00 (the "Purchase Option").
Lessee shall exercise the Purchase Option by giving Lessor not less than 30 days
written notice prior to the last day of the initial term of the Lease. IF THE
PURCHASE OPTION IS EXERCISED, THE EQUIPMENT WILL BE SOLD BY LESSOR TO LESSEE "AS
IS, WHERE IS", WITHOUT ANY WARRANTY, EXPRESS OR IMPLIED, INCLUDING WITHOUT
LIMITATION ANY WARRANTY OF MERCHANTABLITY OR FITNESS FOR A PARTICULAR PURPOSE OR
TITLE;
2. In the event that Lessee does not elect to purchase the Equipment
under the Purchase Option or the Purchase Option is deemed null and
void under the circumstances described in Paragraph I herein, Lessee
shall return the Equipment in accordance with the terms and conditions
of the Lease.
3. Capitalized terms used but not defined herein shall have the meanings
ascribed to such terms in the Lease.
4. Except to the extent expressly modified by this letter agreement, the
terms and conditions of the Lease shall remain unchanged and in full
force and effect
Each of the parties hereto has caused this letter agreement to be
executed by its duly authorized officers, all as of the date first above
written.
POWER SENSORS CORPORATION COPELCO CAPITAL, INC.
BY: /s/ Bharat S. Shah BY:
TITLE: President TITLE:
Power Sensors
CORPORATION
1113 Tower Rd..Schaumburg, IL 60173 USA
Tel (708) 884-5898 ~ Fax (708) 884-5899
December 21, 1995
Copelco Capital, Inc.
700 East Gate Drive
- -
Mt. Laurel NJ, 08054
Re: Master Lease #0670800, Equipment Schedule 0670801
To Whom It May Concern:
We have remitted deposits in the amount of $53,463.00 to the Suppliers of
equipment on the referenced equipment schedule. After you issue your purchase
order, the Suppliers will direct you to net the deposit from their invoice to
you, and refund it directly to us.
This letter will authorize you to apply $38,776.40 to the Security Deposit on
the lease, and $11,021.84 to the Advance Rental Payment on the lease and refund
$3,664.76 to us.
Sincerely,
/s/ Paul J. Dickerson
Paul Dickerson
Exhibit 23
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Registration
Statements on Form S-8 (No. 333-85556, No. 333-07409 and No. 333-13887) and in
the Prospectus constituting part of the Registration Statements on Form S-3 (No.
333-11391 and No. 333-23317) of Oryx Technology Corp. of our report dated May
16, 1997, except for Note 14, which is as of May 29, 1997, appearing on page F-2
of this Annual Report on Form 10-KSB/A1 for the year ended February 28, 1997.
PRICE WATERHOUSE LLP
San Jose, California
May 29, 1997
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This Schedule contains summary financial information extracted from the
financial statements of Orxy Technology Corp. for the 12 months ended February
28, 1997 and is qualified in its entirety by reference to such financial
statements.
</LEGEND>
<CIK> 0000915355
<NAME> Oryx Technology Corp.
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> FEB-28-1997
<PERIOD-START> MAR-01-1996
<PERIOD-END> FEB-28-1997
<EXCHANGE-RATE> 1.00
<CASH> 3,080
<SECURITIES> 0
<RECEIVABLES> 3,554
<ALLOWANCES> 97
<INVENTORY> 4,795
<CURRENT-ASSETS> 1,306
<PP&E> 4,084
<DEPRECIATION> 1,410
<TOTAL-ASSETS> 15,312
<CURRENT-LIABILITIES> 5,878
<BONDS> 0
637
107
<COMMON> 13
<OTHER-SE> 8,677
<TOTAL-LIABILITY-AND-EQUITY> 15,312
<SALES> 26,860
<TOTAL-REVENUES> 26,860
<CGS> 18,475
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 10,310
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (1,925)
<INCOME-TAX> 40
<INCOME-CONTINUING> (1,965)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (2,012)
<EPS-PRIMARY> (.19)
<EPS-DILUTED> 0
</TABLE>
