-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, LFAQ0IcuTMCzSEcpGCG6G4a9zRCfes39CGJtTDZXlTxR6Qwjk45pYcXKXpoPtRj3 5YTZvUv8op2k9rjU2NktSQ== 0000950123-99-008645.txt : 19990920 0000950123-99-008645.hdr.sgml : 19990920 ACCESSION NUMBER: 0000950123-99-008645 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 17 CONFORMED PERIOD OF REPORT: 19990630 FILED AS OF DATE: 19990917 FILER: COMPANY DATA: COMPANY CONFORMED NAME: SPACEHAB INC \WA\ CENTRAL INDEX KEY: 0001001907 STANDARD INDUSTRIAL CLASSIFICATION: GUIDED MISSILES & SPACE VEHICLES & PARTS [3760] IRS NUMBER: 911273737 STATE OF INCORPORATION: WA FISCAL YEAR END: 0630 FILING VALUES: FORM TYPE: 10-K SEC ACT: SEC FILE NUMBER: 000-27206 FILM NUMBER: 99713644 BUSINESS ADDRESS: STREET 1: 300 D STREET S W STREET 2: STE 814 CITY: WASHINGTON STATE: DC ZIP: 20024 BUSINESS PHONE: 7038213000 MAIL ADDRESS: STREET 1: 1595 SPRING HILL ROAD STREET 2: SUITE 360 CITY: VIENNA STATE: VA ZIP: 22182 10-K 1 SPACEHAB INCORPORATED 1 SECURITIES AND EXCHANGE COMMISSION WASHINGTON, DC 20549 FORM 10-K (Mark One) [X] Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 [No Fee Required] For the Fiscal Year Ended June 30, 1999. [ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 [No Fee Required] For the transition period from _____________ to ____________ Commission File No. 0-27206 SPACEHAB, INCORPORATED 300 D STREET, SW SUITE 814 WASHINGTON, D.C. 20024 (202) 488-3500 Incorporated in the State of Washington IRS Employer Identification Number 91-1273737
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT: NONE SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT: Title of Each Class Name of Each Exchange Common Stock on which Registered (no par value) NASDAQ National Market
Number of shares of Common Stock (no par value) outstanding as of July 23, 1999: 11,229,646. Aggregate market value of Common Stock (no par value) held by non-affiliates of the registrant on July 23, 1999, based upon the closing price of the Common Stock on the Nasdaq National Market of $6.00 was approximately $67,377,876. Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. YES_X_ NO ___. Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [ ]. DOCUMENTS INCORPORATED BY REFERENCE: Proxy Statement for the Annual Meeting of Parts I, II and III of Form 10-K Stockholders to be held October 14, 1999.
2 PART I This document may contain "forward-looking statements" within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934, including (without limitation) under "Products and Services," "Company Strategy," "Dependence on a Single Customer," "Research and Development," "Competition" and "Backlog" of Item 1 and "Management's Discussion and Analysis of Financial Condition and Results of Operations -- General" and "--Liquidity and Capital Resources" of Item 7. Such statements are subject to risks and uncertainties that could cause actual results to differ materially from those projected in the statements. In addition to those risks and uncertainties discussed herein, such risks and uncertainties include, but are not limited to, whether the Company will fully realize the economic benefits under its U.S. National Aeronautics and Space Administration ("NASA") and other customer contracts, the successful development and commercialization of the Research Double Module and related new commercial space assets, deployment of the International Space Station ("ISS"), technological difficulties, product demand and market acceptance risks, the effect of economic conditions, uncertainty in government funding and the impact of competition. ITEM 1. BUSINESS COMPANY BACKGROUND AND HISTORY SPACEHAB, Incorporated ("SPACEHAB" or the "Company") was incorporated in 1984 and is the first company to commercially develop, own and operate both pressurized habitable modules that provide space-based laboratory research facilities and cargo services aboard the U.S. Space Shuttle system (the "Space Shuttle" or "STS") and an unpressurized cargo carrier system. A SPACEHAB Single Module, when installed in the payload bay of a Space Shuttle, more than doubles the working and living space available to astronauts for research, experimentation, habitation and storage. The Company presently offers its SPACEHAB Modules in a single modular version (the "Single Module") and a double modular version (the "Double Module"). The Company also offers an unpressurized cargo carrier system, the "ICC" or "Integrated Cargo Carrier", and is currently completing the construction of a research double module (the "Research Double Module" or "RDM"). During the second half of fiscal year ("FY") 1998, the Company initiated development activities for a new asset, a docking double module (the "Docking Double Module" or "DDM"), that could be used by NASA to provide more flexible re-supply services to the ISS and also maintain the ISS in its proper orbit. The Docking Double Module is intended to carry logistics and perform research on Space Shuttle missions to the ISS and to enable the Space Shuttle to re-boost and reposition the ISS. All versions of the SPACEHAB Modules can accommodate a combination of lockers, racks and soft stowage arrangements, which are provided as a service primarily to NASA. SPACEHAB Modules, which have been outfitted with systems to facilitate laboratory research experiments in the near-weightless ("microgravity") environment of space, are also capable of transporting food, clothing, equipment and other vital supplies (collectively, "logistics") to the ISS. SPACEHAB also provides a full range of pre- and post-flight experiment and payload processing services, and in-flight operations support to assist astronauts and researchers, in space and on the ground, in connection with the performance of experiments aboard SPACEHAB Modules. From June 1993 through June 1999, SPACEHAB Modules have flown thirteen successful missions on the Space Shuttle. To broaden the opportunities for companies to conduct space research, SPACEHAB has established a "Microgravity Staircase" that provides a comprehensive portfolio of ground-based, sub-orbital and space-based research facilities. During FY 1998, SPACEHAB completed a series of marketing agreements, asset acquisitions and joint ventures that now enable SPACEHAB to offer researchers progressive exposure to the microgravity environment. The Company is committed to expanding its business with NASA while also diversifying its revenue and customer base by targeting new and related space services markets. On February 12, 1997, the operating assets and business of Astrotech Space Operations, L.P. ("Astrotech") were acquired from Northrop Grumman Corporation. Astrotech is the premier commercial provider of satellite payload processing facilities in the United States providing launch site preparation of flight-ready satellites to major 1 3 U.S. space launch companies and satellite manufacturers, including Lockheed Martin Corporation ("Lockheed Martin"), Motorola Corporation ("Motorola"), The Boeing Company ("Boeing") and Orbital Sciences Corporation ("Orbital Sciences"). The Astrotech acquisition diversified SPACEHAB's customer base to include commercial customers of space satellite payload processing services and broadened the Company's services to include services in support of manned as well as unmanned space activities. SPACEHAB expanded its core business by acquiring Johnson Engineering Corporation, ("JE") on July 1, 1998. With over 650 employees, JE performs several critical services for NASA including flight crew support services, operations, training and fabrication of mockups at NASA's Neutral Buoyancy Laboratory ("NBL") and at NASA's Space Vehicle Mockup Facility ("SVMF"), where astronauts train for both Space Shuttle and ISS missions. JE also designs and fabricates flight hardware, such as flight crew equipment and crew quarters habitability outfitting as well as providing stowage integration services. JE is also responsible for configuration management of the ISS. SPACEHAB's fundamental business strategy is based on carefully anticipating customer requirements, investing capital to develop space-flight assets, contracting with established aerospace companies for engineering and asset production while retaining ownership of these assets and providing innovative, cost-effective solutions that meet customer requirements using fixed-price service contracts. This strategy has been successful for the Company in obtaining three significant contracts with NASA: a $184.2 million Commercial Middeck Augmentation Module contract (the "CMAM Contract") for five missions, a $91.5 million contract for four missions and three option missions (all of which were exercised) to the Mir Space Station (the "Mir Contract") and a $68.2 million Research and Logistics Mission Support Contract (the "REALMS Contract") for four missions and six option missions. The REALMS Contract provides an opportunity for the Company to provide similar services to commercial customers. Contracts with commercial customers on STS-95 and STS-107 are approximately $26.1 million. The CMAM Contract, signed in November 1990, required SPACEHAB to furnish NASA with SPACEHAB module accommodations for experiments developed by the Centers for the Commercial Development of Space ("CCDS") on five Space Shuttle missions. The fifth and final CMAM mission was completed successfully during September 1996. The basic Mir Contract signed in July 1995 required the Company to provide Single and Double Module accommodations for the provision of logistics resupply to the Mir Space Station on four Space Shuttle missions. The fourth mission, STS-84, was completed successfully in May 1997. In addition, in September 1996, the Company entered into agreements with the Japanese Space Agency ("NASDA") and the European Space Agency ("ESA") (collectively, the "NASDA/ESA Contract"). Pursuant to the NASDA/ESA Contract, SPACEHAB provided hardware and integration and operations for scientific microgravity experiments to NASDA and ESA aboard the Logistics Double Module on STS-84. In June 1997, NASA exercised all three options for additional missions for $39.0 million under the Mir Contract. The Mir Contract options called for two Logistics Double Module missions and one Single Module mission that were successfully completed in September 1997, January 1998 and June 1998, respectively. The REALMS Contract, signed in December 1997, requires that the Company provide a single and a double research module to support microgravity research payloads on two missions and two double logistics module flights to the ISS to support outfitting of the ISS. STS-95, a research mission, flew in October 1998, STS-96, a logistics mission, flew in May 1999. STS-101, a logistics mission, is scheduled to fly in December 1999 and STS-107, a research mission, is scheduled to fly in December 2000. The REALMS Contract provides an opportunity for the Company to provide similar services to commercial customers on STS-95 and STS-107. During FY 1998, the Company entered into agreements with NASDA, ESA, the Canadian Space Agency ("CSA") and the Japanese Broadcasting Agency ("NHK") (collectively, the "STS-95 Commercial Customers"). Pursuant to the agreements, SPACEHAB provided hardware and integration and operations for scientific microgravity experiments to the STS-95 Commercial Customers aboard the Single Research Module on STS-95. The Company completed integration and 2 4 operations efforts for the STS-95 and STS-96 missions and began integration and operations efforts for STS-101 and STS-107 during FY 1999 reporting $39.1 million in revenue for these missions under the percentage-of-completion revenue recognition policy. JE operates under the Flight Crew Systems Development Contract (the "FCSD Contract") with NASA, a $326.3 million multitask contract which commenced in May 1993. JE performs several critical services for NASA including flight crew support services, operations, training and fabrication of mockups at NASA's Neutral Buoyancy Laboratory and at NASA's Space Vehicle Mockup Facility, where astronauts train for both Space Shuttle and ISS missions. JE also designs and fabricates flight hardware, such as flight crew equipment and crew quarters habitability outfitting as well as providing stowage integration services. JE is also responsible for configuration management of the ISS. INDUSTRY OVERVIEW The U.S. space program encompasses four broad objectives: to advance scientific research, to establish a permanent human presence in space, to develop new technologies that contribute to U.S. economic growth and security and to foster improved international relations through peaceful cooperation in space with Europe, Japan, Russia and other nations. SPACEHAB is focused on two markets: (i) microgravity and life sciences space research and (ii) space support services such as space station logistics and resupply, ground operations and payload processing and training. Microgravity and Life Sciences Space Research In orbit, the forces of inertia and gravity counterbalance each other, thereby creating a condition of near weightlessness known as "microgravity." In a microgravity environment, materials and living matter behave in fundamentally different ways than they do on Earth. This phenomenon has stimulated worldwide interest from scientists and commercial researchers who are seeking improved ways to manipulate and process materials and to study biological processes that cannot otherwise be achieved in ground-based laboratories. The demand for access to a microgravity environment can be divided into two broad categories: scientific research and commercial applications. NASA and other U.S. and international government research organizations provide support for both basic scientific research and its commercial applications to determine the fundamental effects that gravity has on physical processes. Space Support Services and Training Space support services include providing logistics and payload processing support to NASA, other governments and commercial customers of the Space Shuttle and the ISS. Permanently orbiting facilities such as the ISS require reliable sources of logistics: food, clothing, equipment and supplies that sustain the astronauts and enable them to conduct research. NASA's current plans call for the Space Shuttle to be launched at least seven times per year for the foreseeable future. As currently planned, the ISS will require approximately five Space Shuttle logistics missions per year. In order to support the Space Shuttle and ISS operations, NASA requires ground operations and payload support services before and after each mission. Payload processing operations entail payload scheduling, mission planning, safety/certification analysis, physical integration of the payload into its carrier (such as SPACEHAB modules), the integration of the carriers into the Space Shuttle's cargo bay, flight operations, technical data gathering and synthesis, and launch and landing site activities. Space support services also involve the provision of specialized services and support near launch sites for commercial satellite manufacturers and launch services. These activities include mechanical assembly or re-assembly, electrical check, calibration, liquid propellant loading and related activities. A significant component of Space Support Services includes managing all training operations and facility engineering at the NBL. NASA also requires design and fabrication of full-scale mockups of the 3 5 ISS elements used in NBL and SVMF training and the development of hardware for the ISS crew living quarters that is scheduled for launch in 2003. PRODUCTS AND SERVICES SPACEHAB Single Modules are aluminum cylinders, measuring 10 feet in length by 13.5 feet in diameter, that incorporate a patented design including a truncated top and flat-end caps. These fully instrumented modules provide experiment resources such as power, data management, thermal control and vacuum venting. SPACEHAB Single Modules are employed primarily for research missions such as the STS-95 flight that carried senator John Glenn back into space in October 1998. In FY 1996, the Company completed a development program and introduced the Logistics Double Module. This module was optimized to carry logistics and was used by NASA to carry vital supplies to the astronauts and cosmonauts who resided on the Russian space station Mir. SPACEHAB invested $12.5 million in the design, development, and production of the Logistics Double Module. During FY 1997, in an effort to anticipate the need of customers, the Company began the full-scale development and construction of its Research Module with double module hardware, which when combined with a Single Module becomes the RDM. The RDM is fully dedicated to microgravity research and is under contract for the STS-107 mission which is scheduled to fly in December 2000. Expenditures for the RDM through FY 1999 were $34.3 million. The Company anticipates total expenditures of approximately $5.7 million to complete this asset and place it into service. The Company expects that, in order to completely realize its investment expenditures for the RDM, this module must be used in seven missions of the RDM. The Company expects that the RDM will meet or exceed all of NASA's projected requirements for dedicated microgravity and life sciences research that had been performed by Spacelab, the U.S. government-owned habitable module, which was retired after its final mission in April 1998. As a result of the retirement of NASA's Spacelab, the Company believes that its flight-proven modules position SPACEHAB to become the sole provider of crew-tended microgravity research capabilities for the Space Shuttles. The Company also initiated preliminary development activities for the DDM, which could be used by NASA to maintain the ISS in the proper orbit while providing more flexible re-supply services to the ISS utilizing the Space shuttle Columbia. SPACEHAB has addressed the need to carry unpressurized cargo to the ISS by designing and developing the ICC. The ICC can be used singularly or in combination with SPACEHAB Single or Double Modules to provide the optimum mix of pressurized and unpressurized cargo on a single mission to the ISS. The ICC was first flown on the first supply mission to the ISS, STS-96, in May 1999. In order to more fully meet NASA's requirements for attached cargo, the Company has initiated preliminary design efforts of a vertical carrier and other derivatives with characteristics similar to the ICC. In 1998, the Company built on a foundation of existing microgravity research capabilities by establishing a "Microgravity Staircase" that offers researchers a broader array of services to tailor experiments to specific microgravity environments and budgets. The Company entered into a joint venture with Guigne' Technologies Ltd., to build the SpaceDRUMS (TM) facility, a facility that uses acoustic energy to position samples inside an experiment device for "containerless processing", which is scheduled to be the first commercial research facility on the ISS. SPACEHAB's Astrotech payload processing business exclusively serves the commercial satellite manufacturing and launch services industries in Florida and at the Vandenberg Air Force Base in California. Although payload processing is generally associated with the final preparation of a satellite or other space payload for launch, it is also the first step in the launch process and requires specialized facilities and support usually located at the launch site. Astrotech's payload processing activities provide the necessary resources for mechanical assembly or reassembly, electrical check, calibration, liquid propellant loading and numerous other related activities. Additionally, Astrotech's specialized facilities include, but are not limited to, clean rooms, airlock systems, overhead crane systems, hazard-proof work areas and environmentally controlled rooms. 4 6 Astrotech completed the expansion of its Florida facility in 1998 to add a new encapsulation high bay that enables parallel processing activities in support of the new Atlas II and Delta III launch vehicle payloads. The expansion also will support the small and medium classes of the Air Force's new Evolved Expendable Launch Vehicle ("EELV"), which is scheduled to begin commercial payload launch activities in 2001. Astrotech also completed an expansion of its Vandenberg facility during 1998. Expenditures for these expansions were approximately $4.0 million. In FY 1999, Astrotech acquired an additional 23.5 acres of land adjoining its existing Florida site to support the planned construction of additional payload processing facilities to support the increased projected launch rate and larger sized payloads associated with the new EELV's being developed by Boeing and Lockheed Martin under Air Force contracts. Astrotech initially plans to support commercial payload launches on the Boeing Delta IV, which is scheduled to begin operations in 2001. Expenditures for this expansion in FY 1999 were approximately $1.1 million. Astrotech operates its payload processing services under exclusive multiyear agreements with Lockheed Martin to support the processing of all commercial Atlas payloads and with Boeing to support the processing of all Delta payloads launched from Cape Canaveral Air Station, Florida and Vandenberg Air Force Base, California. Astrotech also has a similar arrangement with Boeing to support the processing of all Sea Launch payloads at Boeing's facility in Long Beach, California. Astrotech continues its pursuit of a second major business area, providing sounding rocket flight hardware and launch services. In December 1998, Astrotech entered into a relationship with Alliant Tech Services, Inc., located in Rocket Center, WV, to develop a new sounding rocket system, named the "Oriole." Astrotech plans to market the Oriole to NASA in support of its suborbital microgravity and scientific research programs, and to the Department of Defense ("DoD") in support of its Theater High Altitude Air Defense ("THAAD") target missile programs. The test launch of the Oriole is expected to occur in December 1999. Astrotech also plans to pursue additional opportunities, including: (i) providing payload processing facilities and services to new U.S. Government customers in the defense and intelligence communities; (ii) supporting new space launch facilities and related payload processing functions internationally and (iii) expanding its sounding rocket services to include the provision of microgravity research by developing research facilities and flight hardware. On July 1, 1998, SPACEHAB broadened its core business by acquiring Johnson Engineering. JE performs several critical services for NASA including flight crew support services, operations, training and fabrication of mockups at NASA's Neutral Buoyancy Laboratory and at NASA's Space Vehicle Mockup Facility, where astronauts train for both Space Shuttle and ISS missions. JE also designs and fabricates flight hardware, such as flight crew equipment and crew quarters habitability outfitting as well as providing stowage integration services. JE is also responsible for configuration management of the ISS. JE's ability to perform detailed design, fabrication, and operations complements the Company's traditional strengths in conceptual design and program management. The acquisition of JE provides many of the critical skills and capabilities used to perform SPACEHAB services that currently are acquired through subcontracting relationships. JE primarily operates under the FCSD Contract which is currently a $326.3 million multitask cost-plus-award and incentive-fee contract. The contract commenced in May 1993 and will conclude in April 2001 although NASA has the option to exercise a one-year extension. The Company continues to pursue new business opportunities by identifying customer requirements and creating and implementing innovative technical solutions. The Company believes that the demand for microgravity and life sciences research conducted on SPACEHAB Modules and demand for the use of its modules for logistics support and other infrastructure services including communications, power supply and refueling and reboosting services will increase both during the assembly phase and after the ISS becomes fully operational. The ISS is the largest engineering and scientific project ever undertaken. More 5 7 than a dozen nations, led by the United States, Russia, Japan and the European Community, have spent over $25 billion to date and will spend over $90 billion to develop, build, launch and operate the ISS. The ISS assembly began in late 1998. In addition, the Company also believes that the increasing demand for satellites and the improvements in satellite technology will continue to provide opportunities in the satellite launch services field. COMPANY STRATEGY SPACEHAB's goal is to be recognized as a global market leader providing products and services supporting the human space flight, logistics and satellite launch industries. The Company seeks to achieve this goal through implementation of the following strategy: 1. Focusing on Quality of Service. SPACEHAB has had thirteen Shuttle Missions to date, all of which have been completed successfully. The Company intends to maintain and enhance its reputation for product reliability, process innovation and performance excellence. 2. Expanding Scope of Business. SPACEHAB continuously evaluates opportunities to offer new products and services to its customer base and to develop assets and acquire complementary, attractively valued businesses. For example, the Company is in the process of constructing the Research Double Module and developing the Docking Double Module and has developed and flown the Integrated Cargo Carrier. Based on SPACEHAB's continuing involvement in microgravity research and logistics Space Shuttle missions, and its close interaction with NASA and other users of its SPACEHAB Module services, the Company is well positioned to anticipate emerging requirements for new services in the human space flight industry. In 1998, the Company built on its foundation of microgravity research services by establishing a "Microgravity Staircase." The Microgravity Staircase offers researchers a broader array of services to tailor experiments to specific microgravity environments and budgets. With the acquisition of Astrotech on February 12, 1997, the Company diversified its revenue and customer base targeting new and related space services markets. Astrotech is the premier commercial provider of satellite payload processing facilities in the United States providing launch site preparation of flight-ready satellites to major U.S. space launch companies and satellite manufacturers. The acquisition of JE on July 1, 1998 complements SPACEHAB's traditional strengths in conceptual design and program management while adding skills in engineering, design and training critical to NASA as well as the successful completion of the ISS. 3. Maintaining Position as Low-Price Provider. The Company continues to offer its payload processing and logistics support services to NASA and other customers using SPACEHAB owned assets, on a fixed-price basis that the Company believes is significantly lower than the cost-plus basis used by traditional aerospace contractors. Through the focus and rigorous application of commercial best practices in the development and operation of its hardware and facilities, SPACEHAB substantially reduces the cost, time and complexity that burden conventional government contractors providing services under cost-plus contracts. JE performs services under a cost-plus award and incentive fee contract for government services that is requested by and directed by NASA. This contract form provides for the lowest cost to the government by requiring a separate negotiation of the price for each task order, thereby allowing JE to implement commercial best practices to reduce cost. JE's capabilities also provide a base with which to pursue commercial opportunities. 4. Continuing Entrepreneurial Initiative. The Company continues to develop and offer innovative business arrangements to meet NASA and other customer requirements. The Company has repeatedly taken the initiative to improve its modules and payload processing services and to deploy new assets in anticipation of customer needs. By focusing on the quality, cost and responsiveness of its services, and by attracting and recruiting highly talented and experienced personnel into its distinctly entrepreneurial organization, SPACEHAB seeks to distinguish itself as an innovative and effective provider of commercial 6 8 space services while achieving higher contract profit margins for module contracts than are customary in traditional government aerospace contracts. 5. Leveraging International Strategic Alliances. The Company seeks to create and maintain strategic alliances with key international players in the space industry. Such relationships include Mitsubishi Corporation in Japan; DaimlerChrysler Aerospace AG ("DASA"), Alenia Spazio S.p.A. ("Alenia") and Intospace GmbH in Europe; and RSC Energia in Russia. On August 2, 1999, DASA strengthened its strategic relationship with the Company by agreeing to purchase a $12.0 million equity stake in SPACEHAB. The Company believes these alliances have produced and will continue to produce business opportunities with these partners, the governments of their respective countries and other industries within those countries. Through the Company's contracts, it continues to implement its business strategy by identifying customer requirements, creating innovative technical solutions, raising private capital to develop assets and providing services pursuant to those contracts. DEPENDENCE ON A SINGLE CUSTOMER Approximately $85.8 million (or 79.7 percent) of the Company's FY 1999 revenue was generated from two NASA contracts - the REALMS Contract and the FCSD Contract. While Astrotech, and the STS-95 and STS-107 commercial customer contracts represented additional revenue sources, the Company anticipates that revenue from NASA will continue to account for a significant amount of the Company's revenue over the next several years. There are no assurances, however, that NASA will require the Company's module services in the future. Therefore, the Company's failure to execute new contracts with NASA would have a material adverse effect on the Company's financial condition and results of operations. Additionally, a significant portion of the revenue for JE is derived under contracts with NASA. Accordingly, the Company continues to focus its efforts on diversifying its customer base to include commercial companies, as evidenced with the Astrotech acquisition. RESEARCH AND DEVELOPMENT The Company believes that the timely development of new products and enhancements to existing hardware are essential to maintaining its competitive position. In the past three fiscal years, the Company has spent an aggregate of approximately $9.7 million on research and development. Approximately $1.0 million of the Company's research and development expenditures for FY 1999 were spent on the development of a new product line for Astrotech, sounding rockets. In addition, $0.7 million was spent on various studies conducted by third parties. In 1998 and 1997, approximately $1.9 million and $0.7 million, respectively, was spent on the design, development and qualification of the new SPACEHAB Universal Communications System ("SHUCS"). Beginning in FY 1996 and continuing throughout FY 1998, the Company had been working on the development of this new proprietary module communications system that will be independent of the Space Shuttle's existing data downlink. SPACEHAB began capital asset construction of SHUCS in the fourth quarter of FY 1998. In addition, in 1998, the Company spent approximately $0.6 million for research and development of the ICC. SPACEHAB began capital asset construction of the ICC in FY 1999. Completion of this asset expands the Company's product and service lines to meet market requirements for low-cost unpressurized carriers for research experiments and cargo. SPACEHAB developed the ICC to carry unpressurized cargo to the ISS, based on a patented pallet technology (the "Unpressurized Cargo Pallet" or "UCP"), which can be used independently or in tandem with the SPACEHAB Single or Double Modules. The ICC's design is such that it is located in what is ordinarily unused volume in the front of the Space Shuttle's cargo bay. By expanding the capabilities of the Space Shuttle and by offering flexibility in the mix of pressurized and unpressurized cargo carried on each mission, the Company believes that the ICC could become the preferred method for providing logistics and utilization resupply to the ISS. The Company also incurred $1.3 million, $1.7 million and $0.4 million in other research and development expenditures during fiscal years 1999, 1998 and 1997 respectively. 7 9 COMPETITION Currently, there are no other companies that compete directly with SPACEHAB in providing pressurized module services that are carried aboard the Space Shuttles. NASA had a government-owned and operated system, Spacelab, which provided services similar to those provided by SPACEHAB modules. However, NASA has terminated the Spacelab program with its final mission in April 1998. The Company has commenced the design and construction of the Research Double Module under a contract with Boeing (formerly McDonnell Douglas Aerospace). The Research Double Module represents a commercial replacement for NASA's Spacelab. The Company believes that this module will significantly outperform Spacelab in terms of technology, capacity, functionality and cost-effectiveness. The Company's long-term strategy for growth is to provide research, logistics, infrastructure and payload processing services to NASA and others during the International Space Station era. This strategy could require the Company to compete with commercial companies such as Lockheed-Martin, Boeing and others who have existing NASA support contracts, greater financial resources and manufacturing capabilities, and larger marketing, sales and technical organizations than the Company. In FY 1997, SPACEHAB entered into an agreement with United Space Alliance ("USA"), a Boeing and Lockheed Martin joint venture, to expand the commercial use of the Space Shuttle fleet. Although this agreement has expired, SPACEHAB and USA are continuing to pursue joint business opportunities. SPACEHAB's existing strategic relationships with DASA, Mitsubishi Corporation, Boeing and Alenia, may provide additional opportunities for teaming and partnerships that management believes will enable the Company to compete for market share. The Italian Space Agency has contracted to build three multi-purpose logistics modules ("MPLM") intended for use in connection with the ISS. Although the MPLM provides similar services as SPACEHAB's Modules for ISS logistics missions, SPACEHAB believes that its Modules are complementary to the MPLM. Each module is expected to be used for special situations, e.g.- the MPLM is expected to be used when a requirement exists for heavy construction materials; when the requirement exists for crew rotation, food, supplies and equipment, the Spacehab modules would be used due in part to the flexibility and late access capabilities of the SPACEHAB modules. Of the five planned or possible logistics missions per year to the ISS, the Company expects that two or three will be SPACEHAB missions with the remainder being MPLM missions. Astrotech's payload processing facilities are located in Florida and California. At present, management believes that Astrotech's U.S. competition is limited to the California Vandenberg Air Force Base launch site where a competitor, California Commercial Spaceport, Inc. ("CCSI") is located. CCSI was established by obtaining surplus U.S. Air Force facilities at the VAFB launch complex before Astrotech established its facilities there and when no commercial alternative was available. To the Company's knowledge, CCSI has won several contracts to process NASA spacecraft for launch from VAFB. CCSI does not have payload processing facilities in Florida, where the majority of U.S. commercial satellite launches occur. JE's competitors include Boeing, Lockheed-Martin, United Space Alliance, Raytheon Barrios Technologies, Hernandez Engineering, Cimarron and Oceaneering Space & Thermal Systems. BACKLOG A significant portion of the Company's revenue is currently generated from its contracts with NASA that, similar to contracts with other agencies of the U.S. government, contain provisions pursuant to which NASA may terminate the contract "for convenience." The Company's contracts with NASA are conditioned by its terms upon NASA receiving an adequate annual appropriation of funds from the U.S. Congress. Failure to receive funds from Congress or a withdrawal by Congress of prior appropriations would permit NASA to terminate its contracts with SPACEHAB "for convenience." For the government's fiscal year 1999, both the U.S. Senate and House of Representatives have authorized and approved an annual appropriation of $13.7 billion for NASA, including $2.3 billion for the ISS, indicating a 8 10 commitment by the government to the space industry. However, there can be no assurance that the level of approved funding will be adequate for NASA to complete all of the initiatives including those relating to the contracts with the Company. SPACEHAB anticipates that a portion of future revenue will be derived from contracts with entities other than agencies of the U.S. government that will not be subject to federal contract regulations such as termination "for convenience of the government" or federal government funding restrictions. However, to the extent that such contracts require the use of the Space Shuttle for transportation, these systems must be available and will have to be obtained at a reasonable cost to SPACEHAB. As of June 30, 1999, the Company's contract backlog is estimated to be approximately $167.3 million, of which $149.5 million represents U.S. government backlog and $17.8 million represents non-U.S government contracts. CERTAIN REGULATORY MATTERS The Company is subject to federal, state and local laws and regulations designed to protect the environment and to regulate the discharge of materials into the environment. The Company believes that its policies, practices and procedures are properly designed to prevent unreasonable risk of environmental damage and consequential financial liability to the Company. Compliance with environmental laws and regulations and technology export requirements has not had in the past, and, the Company believes, will not have in the future, material effects on the capital expenditures, earnings or competitive position of the Company. EMPLOYEES As of June 30, 1999, the Company employed 745 regular employees, 28 of whom are employed by the Astrotech subsidiary and 659 are employed by JE. Of these 745 employees, 111 (approximately 15 percent) hold advanced degrees, including 11 who hold doctorate degrees. Additionally, a significant number of the Company's employees have experience in both the space industry and/or governmental space agencies, with a special expertise in commercial space and human space flight. None of the Company's employees are covered by collective bargaining agreements. Underlying all of SPACEHAB's efforts has been the dedication and skill of its personnel. The Company believes that the dedication of its employees is critical to its success and that its relations with its employees are excellent. ITEM 2. PROPERTIES The Company and its wholly-owned subsidiaries, Astrotech and JE, currently occupy six locations, with the corporate headquarters located at 300 D Street SW, Suite 814, Washington, DC 20024. The corporate headquarters occupy approximately 15,499 square-feet of office space and house SPACEHAB's 19-person executive management, accounting and marketing team. The term of the present lease expires on December 16, 2007. SPACEHAB has 35 employees encompassing sales and marketing, flight system development, operations and health and sciences located at 1331 Gemini Avenue, Suites 300 & 310, Houston, Texas 77058. The Houston offices consist of approximately 22,930 square feet of non-contiguous office space located near the Johnson Space Center. In January 1998, the Company negotiated an agreement for one lease for the two office suites. The new lease is a five-year term commencing March 1, 1998, and expiring February 28, 2003. In addition, JE occupies a portion of Suites 300 & 310 and 4,473 square feet of the first and second floors housing 76 employees supporting marketing, finance and corporate services. The first and second floor space is on a month-to-month basis. The Company's payload processing facility, housing a 3-person operations team, is located near the Kennedy Space Center in Cape Canaveral, Florida. The facility is contained in an approximately 50,000 square-foot plant. The Company owns the building that houses the payload processing facility but 9 11 leases the land upon which it is constructed. The payload processing facility has a clean room work area of approximately 24,000 square-feet. This work area is designed to accommodate the SPACEHAB Single and Double Modules, as well as the ICC. This area includes 11 secure experiment/payload integration and work areas ranging in size from 300 square-feet to 1,000 square-feet each. In addition, the facility provides office space, stock rooms, storage areas, a machine shop, an electrical shop, conference rooms, and other miscellaneous accommodations. In July 1997, the Company negotiated a new agreement with the Canaveral Port Authority for the lease of the land. The term of the new lease is for a forty-three year period commencing August 28, 1997. Upon expiration of the land lease, all improvements on the property revert at no cost to the lessor. Astrotech occupies three locations. Its headquarters are located at 6305 Ivy Lane, Suite 520, Greenbelt, MD 20770. The headquarters occupy approximately 6,250 square-feet of leased office space at this site and house a 9-person management and administrative team. The term of the present lease is a five-year period expiring on May 31, 2003. Astrotech's 12-person engineering and support team is located in an eight-building, owned facility at 1515 Chaffee Drive, Titusville, Florida 32780. This 88,000 square-foot facility supports non-hazardous and hazardous material processing, payload storage and customer offices. These buildings presently occupy one-third of the 37.5-acre property owned by Astrotech, with the remaining two-thirds available for expansion. Astrotech has a 3-person technical staff located at the Vandenberg Air Force Base in Vandenberg, California. Astrotech presently rents a 60-acre site on the Air Force Base and owns four buildings comprising 16,500 square-feet, which are dedicated to the same functions provided at the Florida facility. The term of the present land lease expires on July 13, 2013. Upon expiration of the land lease, all improvements on the property revert at no cost to the lessor. JE occupies five locations. Its headquarters are located at 555 Forge River Road, Suite 150, Webster, Texas 77058. The headquarters houses JE's 463-person engineering team within a 69,100 square-foot facility. This office lease will expire on June 30, 2003. JE has an 11-person fabrication shop located at 920 Gemini Avenue, Houston, Texas, 77058. This 17,920 square-foot facility is being leased for a three-year term that will expire on January 31, 2001. JE also occupies two facilities used for storage at 926 and 928 Gemini Ave, Houston, Texas 77058. These facilities are 4,431 square feet and 8,992 square feet respectively. The lease will expire on April 30, 2002. JE also occupies 3,852 square feet of space at 18100 Upper Bay Road, Houston, Texas 77058 that houses a 19-person engineering and laboratory team. The lease will expire on July 31, 2000. Additionally, JE has more than 75 additional employees who are housed at various government facilities within the Houston area. The Company believes that its current facilities and equipment are generally well maintained and in good condition and are adequate for its present and foreseeable needs. ITEM 3. LITIGATION The Company is not currently involved in any material legal proceedings. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS No matters were submitted to a vote of stockholders during the fourth quarter of FY 1999. 10 12 PART II ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS The Company's common stock (the "Common Stock") trades on the NASDAQ National Market System under the symbol "SPAB." The Common Stock has been publicly traded since December 22, 1995, the date of the closing of the Company's initial public offering. The quarterly high and low stock prices for fiscal years 1999, 1998 and 1997 are as follows:
Fiscal 1999: High Low - ------------ ---- --- First Quarter $11 3/4 $ 8 1/4 Second Quarter $10 3/4 $ 7 Third Quarter $10 13/16 $ 6 Fourth Quarter $ 6 1/8 $ 5
Fiscal 1998: High Low - ------------ ---- --- First Quarter $12 3/16 $ 8 3/4 Second Quarter $11 3/8 $ 9 11/16 Third Quarter $11 3/8 $ 9 7/8 Fourth Quarter $12 $11
Fiscal 1997: High Low - ------------ ---- --- First Quarter $11 1/4 $ 8 Second Quarter $ 8 1/2 $ 5 1/2 Third Quarter $ 7 1/8 $ 5 Fourth Quarter $ 9 1/4 $ 5 3/4
The Company has never paid cash dividends. It is the present policy of the Company to retain earnings to finance the growth and development of its business and, therefore, the Company does not anticipate paying cash dividends on its Common Stock in the foreseeable future. The Company has authorized 30,000,000 shares of Common Stock. At July 24, 1999, 11,229,646 shares of Common Stock were outstanding. The Company had approximately 2,151 shareholders of record and beneficial holders of its Common Stock on June 30, 1999. The Company has authorized and issued 975,000 shares of preferred stock. On August 2, 1999, DASA, a shareholder, agreed to purchase an additional $12.0 million equity stake in SPACEHAB representing 1,333,334 shares of Series B Senior Convertible Preferred Stock. Under the agreement DASA purchased all of SPACEHAB's 975,000 authorized and unissued shares of preferred stock. The other 358,334 shares of Series B Senior Convertible Preferred Stock will be issued upon shareholder approval of a proposal to increase the number of authorized shares of preferred stock that will be presented at the next stockholders meeting scheduled for October 14, 1999. The preferred stock purchase will increase DASA'S investment interest in SPACEHAB to approximately 11.5 percent. The Series B Senior Convertible Preferred Stock is convertible at the holders' option on the basis of one share of Preferred Stock for one share of Common Stock, provides the holder to a right to vote on an "as converted" basis the equivalent number of shares of Common Stock and has preference in liquidation, dissolution or winding up of $9.00 per preferred share. No dividends are payable on the convertible preferred shares. SALES OF UNREGISTERED SECURITIES During FY 1999, the Company issued no unregistered securities. 11 13 ITEM 6. SELECTED FINANCIAL DATA The selected financial data presented below are derived from the audited consolidated financial statements of SPACEHAB. This selected financial information should be read in conjunction with the Consolidated Financial Statements of the Company and the notes thereto included elsewhere in this report.
Nine(1) Year Ended Months September Ended Year Ended Year Ended Year Ended 30, June 30, June 30, June 30, June 30, ---------- --------- --------- --------- --------- 1995 1996 1997 1998 1999 ---------- --------- --------- --------- --------- (in thousands, except per share data) Statement of Operations Data: Revenue(2) $ 46,059 $ 56,397 $ 56,601(3) $ 64,087 $ 107,720(8) Costs of revenue 23,349 20,985 34,120 35,058 89,283 --------- --------- --------- --------- --------- Gross profit 22,710 35,412 22,481 29,029 18,437 Marketing, general and administrative expenses 3,816 4,056 8,567 13,712 14,599 Research and development expenses 1,600 100 1,252 2,620 3,636 --------- --------- --------- --------- --------- Operating income 17,294 31,256 12,662 12,697 202 Interest expense, net of capitalized amounts 1,365 699 955 4,480 4,905 Net income (loss) 15,809 28,829 13,832(4) 12,131 (2,589) Net income (loss) per common share - Diluted(5) $ 2.36 $ 3.19 $ 1.24 $ 0.84 $ (0.23) Shares used in computing net income (loss) Per common share - diluted(5) 6,746 9,343 11,160 14,571 11,185 Other Data: Cash provided by (used for) operations $ 26,838 $ 13,151 $ (5,995) $ 31,604 $ (6,331) Total investing activities 4,943 6,266 29,308(6) 23,113 58,619(7) Balance Sheet Data (at period end); Working capital $ 7,192 $ 45,942 $ 3,159 $ 62,660 $ 12,374 Total assets 86,701 129,709 114,450 220,604 204,346 Long-term debt, excluding current portion 24,886 17,318 12,725 85,322 78,810 Stockholders' equity (deficit) (1,715) 71,596 86,622 96,408 94,165
- ------------------------------ (1) Effective October 1, 1995, the Company changed its fiscal year-end to June 30. (2) The Company recognized revenue upon the completion of each flight under the Mir and CMAM Contracts. For new contract awards for which the capability to successfully complete the contract can be demonstrated at contract inception, revenue recognition under the percentage-of-completion method is being reported based on costs incurred over the period of the contract. (3) Includes revenues of $2,860 generated by Astrotech subsequent to its acquisition on February 12, 1997. (4) Includes an extraordinary gain of $3,274, net of taxes and legal fees, relating to the amendment and restatement of a credit agreement. (5) In December 1997, the Company adopted the provisions of Statement of Financial Accounting No. 128, Earnings Per Share, which establishes new guidelines for the calculations of earnings per 12 14 share. Earnings per share for FY 1994 through FY 1997 have been restated to reflect the provisions of this new standard. (6) Includes $20,134 of consideration for the purchase of Astrotech. (7) Includes $24,745 of consideration for the purchase of JE and a $1,400 investment in a joint venture. (8) Includes revenues of $58.4 million generated by Johnson Engineering subsequent to its acquisition on July 1, 1998. ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS. GENERAL SPACEHAB was incorporated in 1984 to commercially develop space habitat modules to operate in the cargo bay of the Space Shuttles. SPACEHAB, along with the Astrotech and JE subsidiaries define the Company. During FY 1998 the Company operated under two contracts with NASA. First, the Mir Contract, with a total contract value of $91.5 million, including $39.0 million for three Mir option missions that were flown in FY 1998. Second, the REALMS Contract, with a total contract value of $44.9 million consisting of three missions, two of which were flown in October of 1998 and in May of 1999. The remaining mission to be flown under the REALMS Contract is scheduled for December of 2000. This contract also provides SPACEHAB an opportunity to have direct commercial relationships with other space agencies by providing them research space in the modules. In fact, on the October 1998 flight, most of the revenue recognized came from customers other than NASA. The Company's revenues for FY 1998 were generated primarily from the Mir Contract, the REALMS Contract, and through the Company's commercial customer contracts. The Company's revenues for FY 1999 were generated primarily from the REALMS Contract, with an additional mission scheduled for December 1999, and the FCSD Contract. SPACEHAB generates revenue by providing a turnkey service that includes access to the modules and provides integration and operations support services to scientists and researchers responsible for the experiments and/or logistics supplies for module missions aboard the Space Shuttle System and under the FCSD Contract. Under the CMAM and Mir Contracts, the Company recognized revenue only at the completion of each Space Shuttle mission using Company assets. Accordingly, the Company's quarterly revenue and profits fluctuated dramatically based on NASA's launch schedule and will continue to do so for any contract for which revenue is recognized only upon completion of a mission. For the REALMS Contract and for new contract awards for which the capability to successfully complete the contract can be demonstrated at contract inception, revenue recognition under the percentage-of-completion method is being reported based on costs incurred over the period of the contract. The percentage-of-completion method results in the recognition of revenue over the period of contract performance, thereby decreasing the quarter-by-quarter fluctuations of reported revenue. The expenses associated with the operations of SPACEHAB are recorded differently based on the type of expense. Costs of revenue include integration and operations expenses associated with the performance of two types of efforts: (i) sustaining engineering in support of all missions under a contract and (ii) mission specific support. Expenses associated with sustaining engineering are expensed as incurred. Mission specific expenses relating to the CMAM Contract and the Mir Contract were deferred as assets and not expensed until the specific Space Shuttle mission was flown and the related revenue was recognized. Costs associated with the performance of the contracts using the percentage-of-completion method of revenue recognition are expensed as incurred. Costs associated with the cost-plus-award and incentive fee contracts are expensed as incurred. Other costs of revenue include depreciation expense and costs associated with the Astrotech payload processing facilities. Flight related insurance covering transportation of the SPACEHAB Modules from SPACEHAB's payload processing facility to the Space Shuttle, in-flight insurance and third-party liability insurance are also included in costs of revenue and are recorded as incurred. Marketing, general and administrative and interest and other expenses are recognized when incurred. 13 15 Astrotech revenue is derived from various multi-year fixed-price contracts with satellite and launch vehicle manufacturers. The services and facilities Astrotech provides to its customers support the final assembly, checkout and countdown functions associated with preparing a satellite for launch. This preparation includes: the final assembly and checkout of the satellite, installation of the solid rocket motors, loading of the liquid propellant, encapsulation of the satellite in the launch vehicle, transportation to the launch pad and command and control of the satellite during pre-launch countdown. Revenue provided by the Astrotech payload processing facilities is recognized ratably over the occupancy period of the satellites in the Astrotech facilities. Johnson Engineering's revenue is derived primarily from the FCSD Contract which is a $326.3 million multitask contract which will conclude in April 2001, although NASA has the option to exercise a one year extension. JE performs services under a cost-plus award and incentive fee contract for government services that is requested by and directed by NASA. RESULTS OF OPERATIONS FY 1997 results include the operations of Astrotech subsequent to its acquisition on February 12, 1997. In addition, FY 1999 results include JE that was acquired July 1, 1998. Fiscal Year Ended June 30, 1999 as Compared to the Fiscal Year Ended June 30, 1998 Revenue. The Company's revenue increased approximately 68% to approximately $107.7 million for the year ended June 30, 1999, as compared to $64.1 million for the year ended June 30, 1998. For the year ended June 30, 1999, $39.1 million was recognized from the REALMS contract and related commercial customers, $9.8 million from Astrotech, $58.4 million from JE and $0.4 of miscellaneous revenue. Conversely, for the year ended June 30, 1998 revenue of $39.0 million was recognized from the Mir Contract, $14.3 million from the REALMS Contract and related commercial customers and $10.8 million from Astrotech. The decrease in module revenue from the year ended June 30, 1998 is attributable to the delay in the ISS assembly. Astrotech's revenue declined from the year ended June 30, 1998 due to launch vehicle failures which have been subsequently corrected. Costs of Revenue. Costs of revenue for the year ended June 30, 1999, increased 146% to $89.3 million, as compared to $36.3 million for the year ended June 30, 1998. For the year ended June 30, 1999, $25.9 million of costs was for integration and operation costs under the REALMS Contract and related commercial customers, $4.6 million was for integration and operations at Astrotech, $53.8 million for cost of revenue at JE, and depreciation of $5.0 million. In contrast, the primary costs of revenue for the year ended June 30, 1998, are $19.2 million for integration and operation costs under the Mir Contract, $7.8 million under the REALMS Contract and related commercial customers, $4.4 million for integration and operations at Astrotech, and depreciation of $4.9 million. Operating Expenses. Operating expenses increased by 21.0% to approximately $18.2 million for the year ended June 30, 1999, as compared to approximately $15.1 million for the year ended June 30, 1998. This increase is due primarily to the inclusion of JE's operating expenses of approximately $2.5 million, staff additions and related expenses during the first half of the year and increased consulting expenses partially offset by the decrease in R&D costs of $0.7 million. Research and development costs for the year ended June 30, 1999 were $3.6 million, as compared to $4.3 million for the year ended June 30, 1998. This decrease is due primarily to the completion of the ICC and SHUCS R&D efforts partially offset by research and development expenses associated with Astrotech's sounding rocket program. Interest Expense. Interest expense was approximately $7.4 million for the year ended June 30, 1999, as compared with approximately $6.4 million for the year ended June 30, 1998. The increased interest expense is due primarily to a full year of interest expense on the $63.3 million of convertible notes as compared to a partial year in 1998. $2.5 million of interest expense was capitalized in 1999 as 14 16 compared to $2.0 million in 1998. Interest is capitalized based primarily on the construction of the Company's modules and payload processing facilities. Interest Income. Interest and other income was approximately $1.6 million and $3.9 million for the years ended June 30, 1999 and 1998, respectively. This decrease is due primarily to the Company's use of cash for the purchase of JE and expenditures for property, plant and equipment and debt payments. Interest income is earned by the Company through the short-term investment of funds. Net Income (Loss) Net Loss. Net loss for the year ended June 30, 1999, was approximately ($2.6) million, or ($0.23) per share (basic and fully diluted EPS), on 11,184,742 shares as compared to $9.6 million, or $0.86 per share (basic EPS), for the year ended June 30, 1998, on 11,154,271 shares and $0.84 per share, fully diluted, on 14,571,278 shares. Income tax expense (benefit) for these periods was ($0.5) million and $2.5 million for the years ended June 30, 1999 and 1998, respectively. As of June 30, 1999, the Company had approximately $19.7 million of available net operating loss carry-forwards expiring between 2006 and 2019 to offset future regular taxable income The effects of inflation and changing prices have not significantly impacted the Company's revenue or income from continuing operations during FY 1999 and 1998. Fiscal Year Ended June 30, 1998 as Compared to the Fiscal Year Ended June 30, 1997 Revenue. The Company's revenue increased approximately 13% to approximately $64.1 million for the year ended June 30, 1998 as compared to $56.6 million for the year ended June 30, 1997. For the year ended June 30, 1998, $39.0 million was recognized from the Mir Contract, $14.3 million from the REALMS Contract and related commercial customers, and $10.8 million from Astrotech. Conversely, for the year ended June 30, 1997, $47.1 million was recognized from the Mir Contract, $8.0 million from the CMAM contract, $4.0 million from the NASDA/ESA contract, and $2.9 million from Astrotech. Costs of Revenue. Costs of revenue for the year ended June 30, 1998, increased 4% to $36.3 million, as compared to $35.0 million for the year ended June 30, 1997. The primary components of costs of revenue for the year ended June 30, 1998 are $19.2 million for integration and operation costs under the Mir Contract, $7.8 million for costs under the REALMS Contract and related commercial customers, $4.4 million for integrations and operations costs at Astrotech, and depreciation of $4.9 million. In contrast, the primary costs of revenue for the year ended June 30, 1997 are, $19.3 million of integration and operation costs under the Mir Contract, $1.0 million under the CMAM Contract, $3.6 million under the NASDA/ESA Contract, $1.3 million for integrations and operations costs at Astrotech, and $9.8 million of depreciation. The decrease in depreciation expense is attributable to the impact of extending the estimated useful lives of the Company's modules to 2012. This change in accounting estimate is treated prospectively and is based on current available information from NASA, which extends the estimated useful life of the Space Shuttle program to at least 2012. Operating Expenses. Operating expenses increased by 69% to approximately $15.1 million for the year ended June 30, 1998, as compared to approximately $8.9 million for the year ended June 30, 1997. This increase is due primarily to staff additions, adding strength in engineering, design and research and development capabilities and the inclusion of a full year of Astrotech's operating expenses as opposed to approximately four months of expenses in 1997 subsequent to the acquisition. Research and development costs for the year ended June 30, 1998 were $4.3 million, as compared to $1.7 million for the year ended June 30, 1997. The increase is due primarily to the Company's efforts to develop space related assets including the ICC and the SHUCS, which is being developed to provide reliable and Shuttle-independent data communication channels that are responsive to payload user requirements. Interest Expense. Interest expense was approximately $6.4 million for the year ended June 30, 1998, as compared with approximately $1.3 million for the year ended June 30, 1997. The increase in interest expense was due to the Company's issuance of its Subordinated Convertible Notes due 2007 and interest costs from the use of a term note. There was also approximately $2.0 million and $0.3 million of 15 17 interest capitalized during the year ended June 30, 1998, and year ended June 30, 1997, respectively. Interest is capitalized based primarily on the construction of the Company's research double module and double module hardware. Interest Income. Interest and other income was approximately $3.9 million and $1.8 million for the years ended June 30, 1998 and 1997, respectively. This increase is due to interest earned by the Company through the short-term investment of funds raised by the Company's financing activities. Net Income. Net income for the year ended June 30, 1998 was approximately $9.6 million, or $0.86 per share (basic EPS), on 11,154,271 shares as compared to $13.8 million, or $1.24 per share (basic EPS), for the year ended June 30, 1997, on 11,118,825 shares. Income tax expense for these periods was $2.5 million and $3.0 million for the years ended June 30, 1998 and 1997, respectively. As of June 30, 1998, the Company had approximately $7.9 million of available net operating loss carry-forwards expiring between 2006 and 2009 to offset future regular taxable income. Utilization of these net operating loss carry-forwards may be subject to limitations in the event of significant changes in the stock ownership of the Company. While there are no restrictions on transfers or sales of shares of Common Stock that would prevent such a change from occurring, there is no plan to initiate any such changes on ownership resulting in the loss of these carry-forwards. The effects of inflation and changing prices have not significantly impacted the Company's revenue or income from continuing operations during FY 1998 and 1997. LIQUIDITY AND CAPITAL RESOURCES The Company has historically financed its capital expenditures, research and development and working capital requirements with progress payments under its various contracts, as well as with proceeds received from private debt and equity offerings and borrowings under credit facilities. During December 1995, SPACEHAB completed an initial public offering of Common Stock (the "Offering"), which provided the Company with net proceeds of approximately $43.5 million. In June 1997, the Company signed an agreement with a financial institution securing a $10.0 million revolving line of credit (the "Revolving Line of Credit") that the Company may use for working capital purposes. As of June 30, 1999, no amounts were drawn on this line of credit that expires in October 1999. In July 1997, Astrotech obtained a five-year term loan (the "Term Loan Agreement"), which is guaranteed by SPACEHAB, and provides for draws of up to $15.0 million for general corporate purposes. As of June 30, 1999, the Company had drawn $15.0 million on this loan, $1.0 million of which was drawn in April of 1999, which had an outstanding balance on that date of $10.1 million. On October 21, 1997, the Company completed a private placement offering of convertible subordinated notes (the "Notes Offering"), which provided the Company with net proceeds of approximately $59.9 million which has been used, in part, for capital expenditures associated with the development and construction of space related assets, the purchase of JE, and for general corporate purposes. In December 1998, the Company amended its agreement with Alenia relative to subordinated notes payable with an outstanding balance of $11.9 million. In exchange for payment of $4.0 million of principal, Alenia agreed to reduce the annual interest rate from 12 percent to 10 percent on the outstanding balance as of January 1, 1999, and the interest payment due for the quarter ended December 31, 1998, was waived resulting in an effective interest rate of 8.75 percent. An amended agreement with the senior debt holders under the Insurers' note requires that an interest rate of 8.25 percent be applied to the senior debt with an outstanding balance of $1.0 million as of June 30, 1999. Subsequent to June 30, 1999, DASA agreed to purchase a $12.0 million equity stake in SPACEHAB. DASA has agreed to purchase 1.33 million shares of preferred stock, convertible into common shares on a one for one basis, which will increase DASA's investment interest in SPACEHAB to approximately 11.5 percent. Under the agreement DASA purchased all of SPACEHAB's 975,000 authorized and unissued preferred shares. The other 358,334 shares will be issued upon shareholder approval of a proposal to increase the number of authorized preferred shares that will be presented at the next shareholders meeting on October 14, 1999. No dividends are payable on the preferred shares which are convertible into common shares on a one-for-one basis. 16 18 For the period ended June 30, 1999, the Company was in breach of certain loan covenants of the term loan and line of credit facility. The covenants had been negotiated prior to the acquisition of JE. While the Company had not drawn against the line of credit, covenant waivers were requested and received, for the year ended June 30, 1999, from both lending institutions. The Company believes it will be in compliance with the covenants on a going forward basis. Cash Flows From Operating Activities. Cash provided by (used for) operations for the years ended June 30, 1999, 1998 and 1997 was ($6.3) million, $31.6 million and ($6.0) million, respectively. The significant changes between 1999 and 1998 were; the ($2.6) million loss due primarily to the delay in the ISS assembly and a ($7.8) million change in deferred flight revenue due to the decrease in progress payments for the missions under the REALMS Contract and related commercial customers. Progress payments of $11.8 million were recorded at the end of 1998 for missions STS-95 and STS-96. Those missions flew in 1999. The reduction of those progress payments was partially offset by progress payments for STS-107. The significant change between 1998 and 1997 was caused by the timing of progress payments received by the Company under its contracts. Under the Mir Contract, the REALMS Contract and the NASDA/ESA Contracts progress payments are structured such that expenses incurred under these contracts are billed as costs are incurred. Cash Flows Used in Investing Activities. For the years ended June 30, 1999, 1998 and 1997, cash flows used in investing activities were $58.6 million, $23.1 million and $29.3 million, respectively. Expenditures during the year ended June 30, 1999 were $24.7 million for the purchase of JE, $27.3 million of expenditures for the various flight assets including the RDM and ICC system, $4.2 million for the expansion of both SPACEHAB's payload processing facilities and Astrotech's payload processing facilities and a $1.4 million investment in the SpaceDRUMS joint venture. For the years ended June 30, 1998 and 1997, the major items of investing were for the construction of the RDM, which began in 1997, and the purchase of Astrotech. The Company anticipates that it will spend approximately $5.7 million in FY 2000, $40.0 million in the aggregate, to complete the RDM during FY 2000. The Company expects to continue funding any additional capital expenditures and working capital requirements from internally generated cash flow, draw-downs on existing credit facilities and through future debt and/or equity offerings. Cash Flows From Financing Activities. For the years ended June 30, 1999, 1998 and 1997, cash flows provided by (used for) financing activities were ($6.0) million, $70.9 million and ($2.6) million, respectively. During the year ended June 1999, the Company made a principal payment of $4.0 million to Alenia, paid $2.8 million and borrowed an additional $1.0 million under the Term Loan Agreement. During the year ended June 30, 1998, the Company received net proceeds of approximately $14.1 million and made payments of $2.1 million under the Term Loan Agreement. In October 1997, the Company received net proceeds after commissions and other expenses of approximately $59.9 million by completing an offering of $55.0 million of its 8 percent Convertible Subordinated Notes due 2007 as well as the underwriters' exercise of the over-allotment for an additional $8.3 million for a total of $63.3 million. The Company believes that cash flows from the preferred share purchase by DASA, the Convertible Notes Offering, the Term Loan Agreement, and the Revolving Line of Credit will be sufficient to meet any cash flow requirements from operations and other funding requirements for capital asset construction and development for at least the next twelve months. RECENT ACCOUNTING PRONOUNCEMENTS In 1998, the Financial Accounting Standards Board issued SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities" ("SFAS 133"). SFAS 133 becomes effective June 15, 2000 and will require the Company to disclose additional information on its hedging activities. The Company is reviewing this standard; however, it is not expected that implementing this Standard will significantly impact the Company. 17 19 YEAR 2000 READINESS DISCLOSURE STATEMENT The Year 2000 ("Y2K") issue is the result of computer programs that were written using two digits rather than four to define the applicable year. Any computer program that has date-sensitive software may recognize the date using "00" as the year 1900 rather than the year 2000. This error could result in systems failures and computational errors causing disruptions of operations, including, among other things, the temporary inability to process transactions, send invoices or engage in similar normal business activities. SPACEHAB has established a Y2K program to address both information-technology ("IT") and non-IT problems that may exist within the SPACEHAB system, including its vendors and customers, e.g.- NASA and the Space Shuttle. SPACEHAB's Y2K program is divided into five major phases- Awareness and Risk Assessment, Inventory and Risk Assessment, Repair, Replacement and Renovation, Verification and Validation, and Implementation and Monitoring. Phases AWARENESS AND RISK ASSESSMENT- This phase is intended to ensure the establishment of the Y2K program and the awareness of potential risks and issues. This phase involves communicating the status and progress of the Y2K program within SPACEHAB and to third parties. SPACEHAB expects that this will be an on-going activity. INVENTORY AND RISK ASSESSMENT- This phase involves taking inventory of SPACEHAB hardware, software and infrastructure to identify those systems that are and are not Y2K compatible. The emphasis is on those items, which are believed by SPACEHAB to have a significant impact on the business from a financial, legal or service perspective. While this process is ongoing, SPACEHAB estimates that this phase is substantially complete for Company owned hardware and software. SPACEHAB is continuing to survey third party vendors to determine their state of readiness. NASA has informed SPACEHAB that the Space Shuttle, all onboard systems, shuttle facilities and operations are Y2K compliant. REPAIR, REPLACEMENT AND RENOVATION- This phase, also known as "conversion," is intended to ensure that the appropriate items identified in the preceding phase are upgraded to meet the Y2K compliance criteria. Material repairs, replacements and renovations are substantially complete for systems that are under direct control of SPACEHAB. No assessment of completion dates are available for those items for which third parties are responsible until the completion of that portion of the Inventory and Risk Assessment phase. VERIFICATION AND VALIDATION- This phase ensures that critical processes, systems and infrastructure are verified and tested to ensure Y2K issues will not cause major disruptions in the on-going operations and business of the Company. Verification and testing of systems under SPACEHAB's direct control has been substantially completed by SPACEHAB personnel and personnel of SPACEHAB's major subcontractor, Boeing. IMPLEMENTATION AND MONITORING- Y2K upgrades are and will be installed into SPACEHAB's operating systems as necessary. Monitoring will be employed to ensure that unforeseen Y2K critical items are appropriately prioritized for correction. SPACEHAB's implementation and monitoring activities are ongoing. State of Readiness While there is uncertainty inherent in the Y2K problem resulting in large part from the uncertainty of the readiness of third party vendors, SPACEHAB's progress towards completing risk assessment within the SPACEHAB systems is expected to be completed before the end of 1999. 18 20 A) Based on an ongoing assessment, the Company has determined that the vast majority of the hardware and software used in its administrative functions are Y2K compliant. The computers that are not compliant are being replaced and the replacement will be completed during 1999. B) Some computer hardware used in the operations function of SPACEHAB will require upgrading. The computers at SPACEHAB's Payload Process Facility in Florida used for ground support electrical testing ("GSE") are antiquated, inefficient and are not Y2K compatible. A proposal has been submitted to upgrade those systems during 1999 and work is progressing on the upgrade. C) Surveys and/or questionnaires are being sent to those third parties that might have an impact on SPACEHAB's business to determine their state of readiness. Those third parties include; NASA, Boeing, Lockheed-Martin and the various utility service companies serving our locations. Costs The costs associated with required modifications to become Y2K compliant are not expected to be material to SPACEHAB's financial position or results of operations. The current estimate to become Y2K compliant is minimal, approximately $0.2 million, for the replacement of all hardware and software. This estimate excludes system enhancements, modifications and upgrades to replace the inefficient and antiquated GSE equipment, which costs are estimated to be $0.8 million. The costs of the Year 2000 program are being expensed as incurred. Replacement of the GSE equipment will be capitalized. There was no specific budget in FY 1999 or for FY 2000 for Y2K costs. RISKS In a likely worse case scenario, the failure to correct a material Y2K problem could result in an interruption in, or a failure of, certain normal business activities or operations, including operations that are essential to the provision of SPACEHAB's services. Due to the general uncertainty inherent in the Y2K problem, resulting in major part from the state of readiness of third parties, SPACEHAB is unable to determine at this time whether the consequences of Y2K failures will have a material impact on SPACEHAB's results of operations, liquidity or financial condition. Potential Y2K impacts from third parties include the failure of utility companies and power grids and from the customer owned IT systems that are located at Astrotech's payload processing facilities. Contingency Plans After gathering information from SPACEHAB's Y2K readiness program and to prepare for the possibility that certain information systems or third parties will not be Y2K compliant, SPACEHAB intends to develop appropriate contingency plans. Based on third party responses to date, it appears that no significant systems will be affected by the Y2K issue. The GSE at SPACEHAB's payload processing facility in Florida, while not Y2K compliant, is still usable. The only functionality of the GSE that is expected to be impaired is the printing of the correct date on computer generated reports. READERS ARE CAUTIONED THAT THE DISCUSSION OF SPACEHAB'S EFFORTS AND EXPECTATIONS RELATED TO YEAR 2000 ARE FORWARD LOOKING STATEMENTS AND SHOULD BE READ IN CONJUNCTION WITH SPACEHAB'S DISCLOSURE UNDER "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS- FORWARD LOOKING STATEMENTS." 19 21 ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA. INDEPENDENT AUDITORS' REPORT The Board of Directors SPACEHAB, Incorporated and Subsidiaries: We have audited the accompanying consolidated balance sheets of SPACEHAB, Incorporated and subsidiaries (the Company) as of June 30, 1999 and 1998, and the related consolidated statements of operations, stockholders' equity, and cash flows for each of the years in the three-year period ended June 30, 1999. These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of SPACEHAB, Incorporated and subsidiaries as of June 30, 1999 and 1998, and the results of their operations and their cash flows for each of the years in the three-year period ended June 30, 1999, in conformity with generally accepted accounting principles. /s/ KPMG LLP ------------ KPMG LLP McLean, Virginia August 13, 1999, except as to note 8 which is as of September 8, 1999 20 22 SPACEHAB, INCORPORATED AND SUBSIDIARIES Consolidated Balance Sheets (In thousands, except share data)
- ----------------------------------------------------------------------------------------------------------------------------------- June30, ------------------------------ ASSETS 1999 1998 - ------------------------------------------------------------------------------------------ --------- --------- Current assets: Cash and cash equivalents $ 21,346 $ 92,327 Accounts receivable, net (note 4) 17,471 5,979 Prepaid expenses and other current assets 1,146 550 - ------------------------------------------------------------------------------------------ --------- --------- Total current assets 39,963 98,856 - ------------------------------------------------------------------------------------------ --------- --------- Property and equipment: Flight assets 98,594 95,046 Module improvements in progress 49,553 33,829 Payload processing facilities 23,348 21,755 Furniture, fixtures equipment and leasehold improvements 9,936 5,296 - ------------------------------------------------------------------------------------------ --------- --------- 181,431 155,926 Less accumulated depreciation and amortization (49,247) (43,338) - ------------------------------------------------------------------------------------------ --------- --------- Property and equipment, net 132,184 112,588 Goodwill, net of accumulated amortization of $1,339 and $230, respectively 25,498 3,224 Investment in joint venture (note 16) 1,400 -- Other assets, net 5,301 5,936 - ------------------------------------------------------------------------------------------ --------- --------- Total assets $ 204,346 $ 220,604 - ------------------------------------------------------------------------------------------ --------- --------- LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Loans payable under credit agreement, current portion (note 6) $ 333 $ 500 Loans payable, current portion (note 8) 3,126 2,824 Accounts payable 3,772 1,075 Accrued expenses 9,409 5,129 Accrued subcontracting services 6,787 13,177 Deferred revenue 4,162 13,491 - ------------------------------------------------------------------------------------------ --------- --------- Total current liabilities 27,589 36,196 - ------------------------------------------------------------------------------------------ --------- --------- Loans payable under credit agreement, net of current portion (note 6) 667 1,000 Loans payable, net of current portion (note 8) 7,033 9,177 Convertible notes payable to shareholder (note 7) 7,860 11,895 Convertible subordinated notes payable (note 8) 63,250 63,250 Accrued contract costs 940 -- Deferred income taxes (note 13) 2,842 2,678 - ------------------------------------------------------------------------------------------ --------- --------- Total liabilities 110,181 124,196 - ------------------------------------------------------------------------------------------ --------- --------- Commitments and contingencies (notes 1, 11, 15 and 16) Stockholders' equity (notes 8, 11 and 12): Common stock, no par value, authorized 30,000,000 shares, issued and outstanding 11,229,646 and 11,168,161 shares, respectively 81,585 81,239 Additional paid-in capital 16 16 Retained earnings 12,564 15,153 - ------------------------------------------------------------------------------------------ --------- --------- Total stockholders' equity 94,165 96,408 - ------------------------------------------------------------------------------------------ --------- --------- Total liabilities and stockholders' equity $ 204,346 $ 220,604 - ------------------------------------------------------------------------------------------ --------- ---------
See accompanying notes to consolidated financial statements. 21 23 SPACEHAB, INCORPORATED AND SUBSIDIARIES Consolidated Statements of Operations (In thousands, except share data)
- ----------------------------------------------------------------------------------------------------------------------------------- Year ended Year ended Year ended June 30,1999 June 30,1998 June 30,1997 - ------------------------------------------------------------------------ ------------ ------------ ------------ Revenue $ 107,720 64,087 $ 56,601 - ------------------------------------------------------------------------ ------------ ------------ ------------ Costs of revenue: Integration, operations and transportation 69,113 25,762 23,726 Depreciation 5,030 4,923 9,825 Other direct costs 5,334 4,373 569 Indirect costs 9,806 1,263 926 - ------------------------------------------------------------------------ ------------ ------------ ------------ Total costs of revenue 89,283 36,321 35,046 - ------------------------------------------------------------------------ ------------ ------------ ------------ Gross profit 18,437 27,766 21,555 - ------------------------------------------------------------------------ ------------ ------------ ------------ Operating expenses: Marketing, general and administrative 14,599 10,731 7,193 Research and development 3,636 4,338 1,700 - ------------------------------------------------------------------------ ------------ ------------ ------------ Total operating expenses 18,235 15,069 8,893 - ------------------------------------------------------------------------ ------------ ------------ ------------ Income from operations 202 12,697 12,662 Interest expense, net of capitalized interest (note 3) (4,905) (4,480) (955) Interest and other income, net 1,615 3,914 1,822 - ------------------------------------------------------------------------ ------------ ------------ ------------ Net income (loss) before income taxes and extraordinary item (3,088) 12,131 13,529 Income tax expense (benefit) (note 13) (499) 2,527 2,971 - ------------------------------------------------------------------------ ------------ ------------ ------------ Net income (loss) before extraordinary item (2,589) 9,604 10,558 Extraordinary item - gain on early retirement of debt, net of taxes and legal fees (note 6) -- -- 3,274 - ------------------------------------------------------------------------ ------------ ------------ ------------ Net income (loss) $ (2,589) $ 9,604 $ 13,832 - ------------------------------------------------------------------------ ------------ ------------ ------------ Basic earnings (loss) per share: Net income (loss) before extraordinary item $ (0.23) $ 0.86 $ 0.95 Extraordinary item -- -- 0.29 - ------------------------------------------------------------------------ ------------ ------------ ------------ Net income (loss) per share - basic $ (0.23) $ 0.86 $ 1.24 - ------------------------------------------------------------------------ ------------ ------------ ------------ Shares used in computing net income (loss) per share - basic 11,184,742 11,154,271 11,118,825 - ------------------------------------------------------------------------ ------------ ------------ ------------ Diluted earnings (loss) per share: Net income (loss) before extraordinary item $ (0.23) $ 0.84 $ 0.95 Extraordinary item -- -- 0.29 - ------------------------------------------------------------------------ ------------ ------------ ------------ Net income (loss) per share - diluted $ (0.23) $ 0.84 $ 1.24 - ------------------------------------------------------------------------ ------------ ------------ ------------ Shares used in computing net income (loss) per share - diluted 11,184,742 14,571,278 11,160,322 - ------------------------------------------------------------------------ ------------ ------------ ------------
See accompanying notes to consolidated financial statements. 22 24 SPACEHAB, INCORPORATED AND SUBSIDIARIES Consolidated Statements of Stockholders' Equity (In thousands, except share data)
- ----------------------------------------------------------------------------------------------------------------------------------- Common stock Additional Retained Total --------------------------- paid-in earnings stockholders' Shares Amount capital (deficit) equity ---------- ---------- ---------- ---------- ---------- Balance at June 30, 1996 11,069,237 $ 79,863 $ 16 $ (8,283) $ 71,596 Common stock issued upon stock option exercises 2,000 24 -- -- 24 Common stock issued upon conversion of debt (note 8) 75,000 1,170 -- -- 1,170 Net income -- -- -- 13,832 13,832 - ---------------------------------------------------- ---------- ---------- ---------- ---------- ---------- Balance at June 30, 1997 11,146,237 81,057 16 5,549 86,622 Common stock issued upon stock option exercises 8,725 60 -- -- 60 Common stock issued under employee stock purchase 13,199 122 -- -- 122 plan Net income -- -- -- 9,604 9,604 - ---------------------------------------------------- ---------- ---------- ---------- ---------- ---------- Balance at June 30, 1998 11,168,161 81,239 16 15,153 96,408 Common stock issued upon stock option exercises 1,070 8 -- -- 8 Common stock issued under employee stock purchase 60,415 338 -- -- 338 plan Net income (loss) -- -- -- (2,589) (2,589) - ---------------------------------------------------- ---------- ---------- ---------- ---------- ---------- Balance at June 30, 1999 11,229,646 $ 81,585 $ 16 $ 12,564 $ 94,165 - ---------------------------------------------------- ---------- ---------- ---------- ---------- ----------
See accompanying notes to consolidated financial statements. 23 25 SPACEHAB, INCORPORATED AND SUBSIDIARIES Consolidated Statements of Cash Flows (In thousands)
- ------------------------------------------------------------------------------------------------------------------------------------ Year ended Year ended Year ended June 30, 1999 June 30, 1998 June 30, 1997 - ---------------------------------------------------------------------------- ------------- ------------- ------------- Cash flows from operating activities: Net income (loss) $ (2,589) $ 9,604 $ 13,832 Adjustments to reconcile net income (loss) to net cash provided by (used for) operating activities: Depreciation and amortization 7,017 5,587 10,185 Amortization of debt placement costs 538 226 -- Gain on early retirement of debt -- -- (4,093) Interest converted to notes payable -- 670 1,300 Changes in assets and liabilities: Decrease (increase) in accounts receivable (3,126) (803) 1,843 Increase in prepaid expenses and other current assets (290) (351) (15) Decrease in deferred mission costs -- 1,439 1,267 Decrease (increase) in other assets (14) (1,980) (258) Increase (decrease) in deferred flight revenue (7,762) 9,628 (28,051) Increase (decrease) in accounts payable and -- accrued expenses 345 3,633 (968) Increase (decrease) in advance billings (1,567) 720 (239) Increase (decrease) in accrued subcontracting services 97 553 (798) Increase in deferred taxes 1,020 2,678 -- - ---------------------------------------------------------------------------- -------- -------- -------- Net cash provided by (used for) operating activities (6,331) 31,604 (5,995) - ---------------------------------------------------------------------------- -------- -------- -------- Cash flows from investing activities: Payments for flight assets under construction (27,381) (17,245) (8,443) Payments for building under construction (871) (3,988) -- Purchases of property, equipment and leasehold improvements (4,222) (1,880) (731) Purchase of Astrotech, net of cash acquired -- -- (20,134) Purchase of Johnson Engineering, net of cash acquired (24,745) -- -- Investment in joint venture (1,400) -- -- - ---------------------------------------------------------------------------- -------- -------- -------- Net cash used for investing activities (58,619) (23,113) (29,308) - ---------------------------------------------------------------------------- -------- -------- -------- Cash flows from financing activities: Payments of note payable to insurers (500) (500) (2,520) Payment of debt placement costs -- (3,984) -- Proceeds from issuance of convertible subordinated notes payable -- 63,250 -- Proceeds from note payable 1,000 14,119 -- Payments of note payable (2,842) (2,118) -- Payments of note payable to shareholder (4,035) -- -- Payments of legal fees on early retirement of debt -- -- (110) Proceeds from exercise of stock options 8 60 24 Proceeds from issuance of common stock, net of expenses 338 122 -- - ---------------------------------------------------------------------------- -------- -------- -------- Net cash provided by (used for) financing activities (6,031) 70,949 (2,606) - ---------------------------------------------------------------------------- -------- -------- -------- Net increase (decrease) in cash and cash equivalents (70,981) 79,440 (37,909) Cash and cash equivalents at beginning of year 92,327 12,887 50,796 - ---------------------------------------------------------------------------- -------- -------- -------- Cash and cash equivalents at end of year $ 21,346 $ 92,327 $ 12,887 - ---------------------------------------------------------------------------- -------- -------- --------
See accompanying notes to consolidated financial statements. 24 26 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (1) DESCRIPTION OF THE COMPANY SPACEHAB, Incorporated (the Company) is the first company to commercially develop, own and operate habitable modules that provide space-based laboratory research facilities and cargo services aboard the U.S. Space Shuttle system. The Company currently owns and operates three pressurized laboratory and logistics supply modules, which significantly enhance the capabilities of the Space Shuttle fleet. The Company is currently constructing a new research module with associated double module hardware. The Company's modules are unique to the Space Shuttle fleet. To date, the Company has successfully completed thirteen missions aboard the Space Shuttle and substantially all of the Company's revenue has been generated under contracts with NASA. The Company's contracts are subject to periodic funding allocations by NASA. NASA's funding is dependent on receiving annual appropriations from the United States government. During the years ended June 30, 1999, 1998 and 1997, approximately 80%, 68% and 88% of the Company's revenues were generated under U.S. Government contracts. On February 12, 1997, the Company acquired the assets and certain of the liabilities of Astrotech Space Operations, L.P. ("Astrotech"), a subsidiary of Northrop Grumman, a provider of commercial satellite launch processing services and payload processing facilities in the United States. These services are provided at the Astrotech facilities in Cape Canaveral, Florida and Vandenberg Air Force Base in California, and are provided to launch service providers on a fixed-price basis. Additionally, Astrotech provides management and consulting services to the Boeing Company for its Sea Launch program at the Boeing facility in Long Beach, California. On July 1, 1998, the Company acquired all of the outstanding shares of capital stock of Johnson Engineering Corporation ("JE"). JE performs several critical services for NASA including flight crew support services, operations, training and fabrication of mockups at NASA's Neutral Buoyancy Laboratory and at NASA's Space Vehicle Mockup Facility, where astronauts train for both Space Shuttle and ISS missions. JE also designs and fabricates flight hardware, such as flight crew equipment and crew quarters' habitability outfitting as well as providing stowage integration services. JE is also responsible for configuration management of the ISS. (2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES PRINCIPLES OF CONSOLIDATION AND BASIS OF PRESENTATION The consolidated financial statements include the accounts of SPACEHAB, Incorporated and its wholly owned subsidiaries Astrotech and JE. All significant intercompany transactions have been eliminated in consolidation. CASH AND CASH EQUIVALENTS For purposes of its consolidated statements of cash flows, the Company considers short-term investments with original maturities of three months or less to be cash equivalents. Cash equivalents are primarily made up of commercial paper investments recorded at cost, which approximates market value. PROPERTY AND EQUIPMENT Property and equipment are stated at cost. All furniture, fixtures and equipment are depreciated using the straight-line method over the estimated useful lives of the respective assets, 25 27 which is generally five years. The Company's payload processing facilities are depreciated using the straight-line method over their estimated useful lives ranging from sixteen to forty-three years. Through June 30, 1997, the Company's flight modules were depreciated over a ten-year period using the straight-line method. Effective July 1, 1997, the Company extended the estimated useful lives of its space modules through 2012. This change in accounting estimate is treated prospectively and was based on then currently available information from NASA, which estimated the duration of the Space Shuttle program through at least 2012. As a result of this change in estimate, the Company's net income increased by $6.2 million for FY 1998. The Company has adopted Statement of Financial Accounting Standards No. 121, Accounting for the Impairment of Long-lived Assets and for Long-lived Assets to be Disposed Of (Statement 121). Statement 121 requires that long-lived assets to be held and used, including goodwill, be reviewed by the Company for impairment whenever events or circumstances indicate that the carrying amount of an asset may not be recoverable. An impairment loss is recognized when the undiscounted net cash flows associated with the asset are less than the asset's carrying amount. Impairment losses, if any, are measured as the excess of the carrying amount of the asset over its estimated fair value. GOODWILL The excess of the cost over the fair value of net tangible and identifiable intangible assets acquired in purchase business combinations has been assigned to goodwill. Goodwill is being amortized on a straight-line basis over twenty to twenty-five years. INVESTMENT IN JOINT VENTURES The Company generally uses the equity method of accounting for its investments in, and earnings of, investees. In accordance with the equity method of accounting, the carrying amount of such an investment is initially recorded at cost and is increased to reflect the Company's share of the investee's income and is reduced to reflect the Company's share of the investee's losses. For those investments for which the Company has provided substantially all of the investee's funding, the Company uses the modified equity method of accounting whereby 100% of the investee's current period earnings or losses are recognized. STOCK-BASED COMPENSATION The Company has adopted Statement of Financial Accounting Standards No. 123, Accounting for Stock-based Compensation (Statement 123), which encourages, but does not require, the recognition of stock-based employee compensation at fair value. The Company has elected to continue to account for stock-based employee compensation using the intrinsic value method as prescribed in Accounting Principles Board Opinion No. 25, Accounting for Stock Issued to Employees, and related interpretations. Accordingly, compensation cost for options to purchase common stock granted to employees is measured as the excess, if any, of the fair value of common stock at the date of the grant over the exercise price an employee must pay to acquire the common stock. Warrants to purchase common stock granted to other than employees as consideration for goods or services rendered are recognized at fair value. REVENUE RECOGNITION Prior to the REALMS contract (note 10), the Company recognized revenue upon completion of each module flight. Total contract price was allocated to each flight based on the amount of services the Company provided on the flight relative to the total services provided for 26 28 all flights under contract. Obligations associated with a specific mission, e.g., integration services, were also recognized upon completion of the mission. Costs directly related to specific missions were deferred until the respective missions were completed. For all other contract awards for which the capability to successfully complete the contract can be reasonably assured and costs at completion can be reliably estimated at contract inception, revenue recognition under the percentage-of-completion method is being used based on costs incurred over the period of the contract. Revenue provided by Astrotech's payload processing services is recognized ratably over the occupancy period of the satellite while in the Astrotech facilities. Revenue provided by JE is primarily based on cost-plus award fee contracts, whereby revenue is recognized to the extent of costs incurred plus estimates of award fee revenues using the percentage-of-completion method. Award fees, which provide earnings based on the Company's contract performance as determined by NASA evaluations, are recorded when the amounts can be reasonably estimated, or are awarded. Changes in estimated costs to complete, provisions for contract losses and estimated amounts recognized as award fees are recognized in the period they become known. RESEARCH AND DEVELOPMENT Research and development costs are expensed as incurred. INCOME TAXES The Company recognizes income taxes under the asset and liability method. Under the asset and liability method, deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. NET INCOME (LOSS) PER SHARE In December 1997, the Company adopted the provisions of Statement of Financial Accounting Standards No. 128, Earnings per Share, (Statement 128). Statement 128 supersedes Accounting Principles Board Opinion No. 15, Earnings per Share (APB 15) and its related interpretations, and promulgates new accounting standards for the computation and manner of presentation of the Company's earnings (loss) per share. The Company has restated previously reported annual earnings per share data in accordance with the provisions of Statement 128 (note 14). The Company does not believe that the adoption of Statement 128 had a material impact on the computation or manner of presentation of its earnings (loss) per share data as currently or previously presented under APB 15. Basic earnings (loss) per share are calculated by dividing net income (loss) by the weighted average number of common shares outstanding during the period. The computation of diluted earnings (loss) per share includes all common stock options and warrants and other common stock, to the extent dilutive, that potentially may be issued as a result of conversion privileges, including the convertible subordinated notes payable (note 8). COMPREHENSIVE INCOME During fiscal year 1999, the Company adopted the provisions of Statement of Financial Accounting Standards No. 130, Reporting Comprehensive Income ("SFAS No. 130"). SFAS No. 27 29 130 requires the display of comprehensive income, which includes unrealized gains or losses on investments and accumulated foreign currency translation adjustments, if any. There were no such components of other comprehensive income for the years ended June 30, 1999, 1998 or 1997. ACCOUNTING ESTIMATES The preparation of consolidated financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenue and expenses during the reported periods. Actual results could differ from these estimates. RECLASSIFICATIONS Certain FY 1997 and 1998 amounts have been reclassified to conform to the fiscal 1999 consolidated financial statement presentation. (3) STATEMENTS OF CASH FLOWS - SUPPLEMENTAL INFORMATION Cash paid for interest costs was approximately $5.4 million, $3.4 million and $1.3 million for the years ended June 30, 1999, 1998 and 1997, respectively. The Company capitalized interest of approximately $2.5 million, $2.0 million and $0.3 million during the years ended June 30, 1999, 1998 and 1997, respectively, related to the module improvements and building in progress. The Company paid income taxes of approximately $0.4 million, $19 thousand and $2.4 million for the years ended June 30, 1999, 1998 and 1997, respectively. During FY 1997, the Company's convertible note payable, with a carrying value of approximately $1.2 million, was converted into 75,000 shares of common stock (note 8). 28 30 (4) ACCOUNTS RECEIVABLE At June 30, 1999 and 1998, accounts receivable consisted of (in thousands):
1999 1998 - ------------------------------------------------------------------------------------------ ------- ------- U.S. government contracts: Billed $ 0,523 $ 452 Unbilled 2,661 3,202 Total U.S. government contracts 13,184 3,654 - ------------------------------------------------------------------------------------------ ------- ------- Commercial contracts: Billed 3,481 2,277 Unbilled 806 48 - ------------------------------------------------------------------------------------------ ------- ------- Total commercial contracts 4,287 2,325 - ------------------------------------------------------------------------------------------ ------- ------- Total accounts receivable $17,471 $ 5,979 - ------------------------------------------------------------------------------------------ ------- -------
The Company anticipates collecting substantially all receivables within one year. (5) ACQUISITIONS JOHNSON ENGINEERING On July 1, 1998, the Company paid approximately $24.7 million, including transaction costs, to acquire all of the capital stock of JE. The business combination has been accounted for using the purchase method under Accounting Principles Board Opinion No. 16, Business Combinations, (APB Opinion 16). The purchase price has been allocated to the assets and liabilities acquired based on estimates of fair value as of the date of acquisition. Based on the allocation of the net assets acquired, goodwill of approximately $23.4 million was recorded. Such goodwill is being amortized on a straight-line basis over 25 years. The purchase price has been allocated as follows (in thousands):
Cash $ 0 Prepaid and other current assets 306 Accounts receivable, net 8,366 Inventory 5 Property, plant and equipment, net 446 Other assets 622 Goodwill 23,362 Current liabilities (7,434) Accrued contract costs (928) -------- Total purchase price $ 24,745 ========
29 31 The following represents pro forma combined results of operations for the prior year as if the acquisition of JE had occurred as of July 1, 1997, (in thousands, except per share data):
Year ended June 30, 1998 -------------------------------------------------------------------------- ------------- Revenue $ 116,266 Gross profit 34,280 Net income 9,251 -------------------------------------------------------------------------- --------- Net income per common share - basic $ 0.83 Net income per common share - diluted $ 0.82 -------------------------------------------------------------------------- ---------
ASTROTECH The Company paid $20.1 million, including transaction costs, to acquire substantially all of the assets and certain of the liabilities of Astrotech. The purchase was effective on February 12, 1997. The business combination was accounted for using the purchase method. The purchase price was allocated to the assets and liabilities acquired based on estimates of fair value as of the date of acquisition. Based on the allocation of the net assets acquired, goodwill of approximately $3.5 million was recorded and is being amortized on a straight line basis over twenty years. (6) LOANS PAYABLE UNDER CREDIT AGREEMENT Prior to an August 1996 amendment, the Company's credit agreement consisted of a $6.5 million term loan bearing interest at 1 percent per month and a $5.5 million non-interest-bearing term loan with several insurance companies. In addition, a revolving credit commitment with a subcontractor and former shareholder provided a maximum outstanding balance of $6.0 million and bore interest at a rate of 1 percent per month. In August 1996, the Company's credit agreement was amended. Under the amendment, the revolving credit commitment with a subcontractor and former shareholder was canceled. In exchange for the full satisfaction of the Company's term loans with the various insurance companies, the Company paid the insurance companies $2.5 million and agreed to pay an additional $2.0 million under a new non-interest-bearing term loan. As of June 30, 1999, the remaining balance due under the term loan is due in installments of $0.33 million on each of August 1, 1999, 2000 and 2001. As a result of this amended and restated agreement, the Company recognized an extraordinary gain of $3.3 million, net of income taxes and other related expenses of $0.8 million and $0.1 million, respectively, during the year ended June 30, 1997. In conjunction with a payment of certain principal of notes payable due to Alenia Spazio S.p.A. in December 1998, see note 7, the annual interest rate on the outstanding balances was amended to be at 8.25 percent per year. Aggregate interest cost incurred on the debts due under the various credit agreements was approximately $40 thousand , $0 and $0.1 million for the years ended June 30, 1999, 1998 and 1997 respectively. (7) NOTES PAYABLE TO SHAREHOLDER The Company issued subordinated notes for a portion of the amount due to Alenia Spazio S.p.A. (Alenia), a shareholder, under a previously completed construction contract for the Company's flight modules. In December 1998, the Company amended its agreement with Alenia Spazio S.p.A. relative to the subordinated notes payable with an outstanding principal balance of $11.9 million due in August 2001. In exchange for payment of $4.0 million of principal, Alenia agreed to waive the interest payment due for the quarter ended December 31, 1998 and to reduce 30 32 the annual interest rate on the subordinated notes from 12 to 10 percent on the outstanding balance as of January 1, 1999. In addition, Alenia may elect to convert, in whole or part, the remaining principal amount into SPACEHAB equity, on terms and conditions to be agreed with SPACEHAB. The subordinated notes had aggregate outstanding balances of $7.9 million and $11.9 million at June 30, 1999 and 1998, respectively. The notes currently bear interest at an annual rate of 10 percent. No amount of principal or accrued interest on the notes is due until all amounts under the amended and restated credit agreement due to the various insurance companies (note 6) are repaid. As such, all principal payments are due under these notes on August 1, 2001. However, during fiscal 1998, the Company began paying interest quarterly. The Company paid $0.4 million of interest during the year ended June 30, 1999 and intends to continue to pay interest quarterly. Interest cost converted to additional principal on the notes to Alenia was approximately $0 and $0.7 million for the years ended June 30, 1999 and 1998, respectively. (8) OTHER LONG-TERM DEBT CONVERTIBLE NOTE PAYABLE On August 12, 1992, the Company issued a subordinated promissory note to an investment bank in the amount of $0.9 million, carrying interest at LIBOR plus 3 percent, and maturing six months after the payment of all other indebtedness due under the amended and restated credit agreement and the subordinated notes to Alenia. The note was convertible at the option of the holder into 75,000 shares of the Company's common stock at any time prior to maturity. On October 25, 1996, the investment bank exercised its option to convert the note into the Company's common stock. CREDIT FACILITIES On June 16, 1997, the Company entered into a $10.0 million line of credit agreement with a financial institution. Outstanding balances on the line of credit accrue interest at either the lender's prime rate or a LIBOR-based rate. Certain assets of the Company collateralize this loan. The term of the agreement is through October 1999. Through June 30, 1999, the Company has not drawn against the line of credit. On July 14, 1997, the Company's subsidiary, Astrotech, entered into another credit facility for loans of up to $15.0 million with a financial institution. The term of the agreement is through July 13, 2002. This loan is collateralized by the assets of Astrotech and certain other assets of the Company, and is guaranteed by the Company. Interest accrues at LIBOR plus three percent. Principal and interest are payable on a quarterly basis. In April 1999, the Company borrowed an additional $1.0 million under this credit facility with the same terms, conditions and expiration date of the original loan. Principal payments of $3.1 million are due in FY 2000, 2001, and 2002 and principal payments of $0.8 million are due in FY 2003. At June 30, 1999, the Company had an outstanding balance of $10.2 million under this credit facility and accrued interest of $0.2 million. COVENANT CHANGES For the period ended June 30, 1999, the Company was in breach of certain loan covenants of the term loan and line of credit facility. The covenants had been negotiated prior to the acquisition of JE. While the Company had not drawn against the line of credit, covenant waivers were requested and received, for the year ended June 30, 1999, from both lending institutions. The Company believes it will be in compliance with the covenants on a going forward basis. 31 33 CONVERTIBLE SUBORDINATED NOTES In October 1997, the Company completed a private placement offering for $63.3 million of aggregate principal of unsecured 8 percent Convertible Subordinated Notes due 2007. Interest is payable semi-annually. The notes are convertible into the common stock of the Company at a rate of $13.625 per share. This offering provided the Company with net proceeds of approximately $59.9 million to be used for capital expenditures associated with the development and construction of space related assets and for other general corporate purposes. (9) FAIR VALUE OF FINANCIAL INSTRUMENTS The following table presents the carrying amounts and estimated fair values of the Company's financial instruments as of June 30, 1999 and 1998 in accordance with Statement of Financial Accounting Standards No. 107, Disclosures about Fair Value of Financial Instruments (in thousands):
June 30, 1999 June 30, 1998 -------------------------- -------------------------- Carrying Fair Carrying Fair amount value amount value -------------------------------------------- ------------ ----------- ----------- ------------ Financial liabilities: Loans payable under credit agreement $ 1,000 920 $ 1,500 1,279 Notes payable to shareholder 7,860 7,860 11,895 11,895 Loans payable under credit facility 10,159 10,159 12,001 12,001 Convertible notes payable 63,250 50,600 63,250 68,784 -------------------------------------------- ------------ ------------ ----------- ------------
The fair value of the Company's long-term debt is based on quoted market price or is estimated based on the current rates offered to the Company for debt of similar remaining maturities and other terms. The carrying amounts of cash and cash equivalents, receivables, and accounts payable and accrued expenses approximate their fair market value because of the relatively short duration of these instruments. (10) NASA CONTRACTS MIR SPACE STATION CONTRACT On July 14, 1995, NASA and the Company completed final negotiations to provide the Company's flight modules and related integration services over four missions to the Russian Space Station Mir. The contract was subsequently amended which resulted in a total contract value of $91.5 million and the addition of three missions. During the years ended June 30, 1998 and 1997, the Company recognized $39.0 million and $41.7 million, respectively, of revenue under the Mir contract. Work under the Mir contract, as amended, was completed with its final mission in June 1998. RESEARCH AND LOGISTICS MODULE SERVICES CONTRACT On December 21, 1997, the Company entered into the Research and Logistics Module Services (REALMS) Contract to provide to NASA its flight modules and related integration services over three missions at an aggregate fixed price of $44.9 million. This contract provides for NASA to use the flight modules for both science and logistics missions. During 1999, NASA 32 34 exercised an additional option mission and change orders thereby increasing the contract value to $68.2 million. During the years ended June 30, 1999 and 1998, the Company recognized $28.2 million and $14.3 million of revenue, respectively, under this contract. FLIGHT CREW SYSTEMS DEVELOPMENT CONTRACT ("FCSD") JE primarily operates under NASA's FCSD Contract which is currently a $326.3 million multi task cost plus-award and incentive fee contract. The contract commenced in May 1993 and will conclude in April 2001. NASA has the option to exercise a one year extension. JE performs several critical services for NASA including flight crew support services, operations, training and fabrication of mockups at NASA's Neutral Buoyancy Laboratory and at NASA's Space Vehicle Mockup Facility, where astronauts train for both Space Shuttle and ISS missions. JE also designs and fabricates flight hardware, such as flight crew equipment and crew quarters habitability outfitting as well as providing stowage integration services. JE is also responsible for configuration management of the ISS. (11) STOCKHOLDER RIGHTS PLAN On March 26, 1999, the Board of Directors adopted a Stockholder Rights Plan designed to deter coercive takeover tactics and to prevent a potential acquirer from gaining control of the Company without offering a fair price to all of the Company's stockholders. A dividend of one preferred share purchase right (a "Right") was declared on every share of Common Stock outstanding on April 9, 1999. Each Right under the Plan entitles the holder to buy one one-thousandth of a share of a new series of junior participating preferred stock for $35. If any person or group becomes the beneficial owner of 15 percent or more of common stock (with certain limited exceptions), then each Right (not owned by the 15 percent stockholder) will then entitle its holder to purchase, at the Right's then current exercise price, common shares having a market value of twice the exercise price. In addition, if after any person has become a 15 percent stockholder, and is involved in a merger or other business combination transaction with another person, each Right will entitle its holder (other than the 15 percent stockholder) to purchase, at the Right's then current exercise price, common shares of the acquiring company having a value of twice the Right's then current exercise price. The rights were granted to each shareholder of record on April 9, 1999. At any time before a person or group acquires a 15% position, SPACEHAB generally will be entitled to redeem the Rights at a redemption price of $0.01 per Right. The Rights will expire on April 9, 2009. (12) COMMON STOCK OPTION AND STOCK PURCHASE PLANS NON-QUALIFIED OPTIONS Non-qualified options are granted at the sole discretion of the Board of directors. Prior to the adoption of the 1994 Stock Incentive Plan (the 1994 Plan), stock options granted to the Company's officers and employees were part of their employment contract or offer. The number and price of the options granted was defined in the employment agreements and such options vest incrementally over a period of four years and generally expire within ten years of the date of grant. 300,000 options were granted in fiscal year 1999 in connection with the acquisition of JE. THE 1994 PLAN Under the terms of the 1994 Plan, the number and price of the options granted to employees is determined by the Board of Directors and such options vest, in most cases, incrementally over a period of four years and expire no more than ten years after the date of grant. 33 35 THE DIRECTORS' STOCK OPTION PLAN Prior to an amendment on October 21, 1997, each nonemployee member of the Board of Directors was annually granted options to purchase 5,000 shares of common stock at exercise prices equal to the fair market value on the date of grant. Subsequent to the amendment, each nonemployee member of the Board of Directors received a one-time grant of an option to purchase 10,000 shares of common stock. Further, each new nonemployee director after the amendment date shall receive a one-time grant of an option to purchase 10,000 shares. In addition, effective as of the date of each annual meeting of the Company's stockholders on or after the effective date, each nonemployee director who is elected or continues as a member of the Board of Directors of the Company shall be awarded an option to purchase 5,000 shares of common stock. Options under the Director's Plan vest after one year and expire seven years from the date of grant. 1997 EMPLOYEE STOCK PURCHASE PLAN During the year ended June 30, 1998, the Company adopted an employee stock purchase plan that permits eligible employees to purchase shares of common stock of the Company at prices no less than 85 percent of the current market price. Eligible employees may elect to participate in the plan by authorizing payroll deductions from one percent to ten percent of gross compensation for each payroll period. On the last day of each quarter, each participant's contribution account is used to purchase the maximum number of whole and fractional shares of common stock determined by dividing the contribution account's balance by the lesser of 85 percent of the price of a share of common stock on the first day of the quarter or the last day of a quarter. The maximum number of shares of common stock that may be purchased under the plan is 1,500,000. Through June 30, 1999, 73,614 shares have been issued under the plan. 34 36 STOCK OPTION ACTIVITY SUMMARY The following table summarizes the Company's stock option plans:
Non-qualified options 1994 Plan Directors' plan -------------------------- ------------------------- ------------------------- Weighted Weighted Weighted average average average Shares exercise Shares exercise Shares exercise outstanding price outstanding price outstanding price - ------------------------------------------------------------------------------------------------------------------ Outstanding at 6/30/96 620,462 12.28 1,000,738 13.35 - - Granted 14,166 8.88 1,024,751 6.90 50,000 7.00 Exercised - - 2,000 12.00 - - Forfeited 194,642 12.00 790,266 13.14 - - - ------------------------------------------------------------------------------------------------------------------ Outstanding at 6/30/97 439,986 12.01 1,233,223 8.20 50,000 7.00 Granted 10,000 10.13 257,338 11.00 145,000 10.92 Exercised - - 3,725 10.02 5,000 10.13 Forfeited 149,941 12.16 8,583 11.96 - - - ------------------------------------------------------------------------------------------------------------------ Outstanding at 6/30/98 300,045 12.33 1,478,253 8.62 190,000 9.99 Granted 300,000 14.00 572,713 11.69 50,000 7.00 Exercised - - 1,070 9.69 - - Forfeited 106,241 12.00 140,670 9.16 - - - ------------------------------------------------------------------------------------------------------------------ Outstanding at 6/30/99 493,804 $13.42 1,909,226 $ 9.50 240,000 $ 9.37 - ------------------------------------------------------------------------------------------------------------------ Options exercisable at: June 30, 1997 429,720 12.16 819,742 8.49 - - June 30, 1998 295,978 12.17 983,620 8.55 45,000 7.00 June 30, 1999 191,770 12.39 1,072,121 8.56 190,000 9.99 Weighted-average fair value at date of grant during the fiscal period ended June 30, 1997 14,166 2.80 1,024,751 2.56 50,000 2.19 June 30, 1998 10,000 4.25 257,338 3.83 145,000 3.43 June 30, 1999 300,000 3.12 572,713 4.50 50,000 2.21 - ------------------------------------------------------------------------------------------------------------------
35 37 (12) CONTINUED The following table summarizes information about the Company's stock options outstanding at June 30, 1999:
Options outstanding Options exercisable --------------------------------------- -------------------------- Weighted- average remaining Weighted- Weighted- contractual average average Number life exercise Number exercise Range of exercise prices outstanding (years) price exercisable price ------------------------------- ----------- ----------- --------- ----------- --------- $24.00 6,100 3.25 $ 24.00 4,066 $ 24.00 $10.13 - $14.88 1,607,551 5.45 12.30 638,243 12.29 $ 5.75 - $9.88 1,029,379 3.80 6.89 811,582 6.80 ------------------------------- ----------- ----------- --------- --------- --------- $ 5.75 - $24.00 2,643,030 4.80 $ 10.22 1,453,891 $ 9.26 ------------------------------- ----------- ----------- --------- --------- ---------
The Company applies APB Opinion 25 and related interpretations in accounting for its plans. Accordingly, as all options have been granted at exercise prices equal to the fair market value as of the date of grant, no compensation cost has been recognized under these plans in the accompanying consolidated financial statements. Had compensation cost been determined consistent with Statement 123, the Company's net income and earnings per common share would have been reduced to the pro forma amounts indicated below (in thousands, except per share data):
Years ended June 30, ----------------------------------------------------- 1999 1998 1997 ------------------------------------------------------------------------------------------------- Net income (loss): As reported $ (2,589) $ 9,604 10,558 Pro forma (4,424) 8,772 8,964 ------------------------------------------------------------------------------------------------- Net income (loss) per share - basic: As reported $ (0.23) $ 0.86 0.95 Pro forma (0.40) 0.79 0.81 -------------------------------------------------------------------------------------------------
The fair value of each option granted is estimated on the date of grant using the Black-Scholes option-pricing model with the following weighted average assumptions used for grants in fiscal years 1999, 1998 and 1997, respectively: 0.0 percent dividend growth; expected volatility ranging from 35 percent to 40 percent; risk-free interest rates ranging from 5.68 percent to 6.71 percent; and expected lives ranging from three to seven years. The effects of compensation cost as determined under Statement 123 on net income in fiscal years 1999, 1998 and 1997 may not be representative of the effects on pro forma net income in future periods. 36 38 WARRANTS The Company also has 53,000 currently exercisable warrants outstanding to purchase the Company's common stock at $9.00 per share, with an expiration date of June 2002. The fair market value of these warrants was recognized at issuance. All such warrants were issued at exercise prices equivalent to, or in excess of, the determined fair market value of the Company's common stock at the date of issuance. (13) INCOME TAXES The components of income tax expense (benefit) from continuing operations are as follows (in thousands):
Year ended Year ended Year ended June 30, 1999 June 30, 1998 June 30, 1997 - ---------------------------------------------- ------------- --------------- --------------- Current: Federal $(1,447) -- 2,706 State and local 15 -- 265 - ---------------------------------------------- ------- ------- ------- (1,432) -- 2,971 - ---------------------------------------------- ------- ------- ------- Deferred: Federal 847 2,148 -- State and local 86 379 -- - ---------------------------------------------- ------- ------- ------- 933 2,527 -- - ---------------------------------------------- ------- ------- ------- Income tax expense (benefit) $ (499) 2,527 2,971 - ---------------------------------------------- ------- ------- -------
During the year ended June 30, 1997, income tax expense of $819,000 was allocated to the extraordinary gain on early retirement of debt. A reconciliation of the expected amount of income tax expense (benefit), calculated by applying the statutory federal income tax rate of 34 percent in FY 1999, 1998 and 1997 to income (loss) from continuing operations before taxes, to the actual amount of income tax expense (benefit) recognized follows (in thousands):
Years ended ------------------------------------------------------- June 30, 1999 June 30, 1998 June 30, 1997 -------------------------------------------------------------------------------------------------- Expected expense (benefit) $ (1,050) 4,241 4,600 Change in valuation allowance 169 (2,058) (2,640) State income tax (15) 299 1,011 Other non deductibles, primarily goodwill amortization 397 45 - -------------------------------------------------------------------------------------------------- Income tax expense $ (499) 2,527 2,971 --------------------------------------------------------------------------------------------------
37 39 The tax effects of temporary differences that give rise to significant portions of the deferred tax assets and deferred tax liabilities as of June 30, 1999 and 1998 are presented below (in thousands):
1999 1998 -------------------------------------------------------------------------------------------------- Deferred tax assets: Net operating loss carryforwards $ 7,863 $ 3,140 General business credit carryforwards 2,189 2,189 Alternative minimum tax credit carryforwards 3,292 4,905 Capitalized research and development costs 270 452 Other 900 225 -------------------------------------------------------------------------------------------------- Total gross deferred tax assets 14,514 10,911 Less - valuation allowance (169) - -------------------------------------------------------------------------------------------------- Net deferred tax assets 14,345 10,911 -------------------------------------------------------------------------------------------------- Deferred tax liabilities: Property and equipment, principally due to differences in depreciation 16,700 13,364 Other 487 74 -------------------------------------------------------------------------------------------------- Total gross deferred tax liabilities 17,187 13,438 -------------------------------------------------------------------------------------------------- Net deferred tax liabilities $ (2,842) $ (2,527) --------------------------------------------------------------------------------------------------
As of June 30, 1998, current deferred tax assets of $151,000 are included in prepaid expenses and other current assets in the accompanying balance sheet. The net changes in the total valuation allowance for the years ended June 30, 1999, 1998 and 1997 were an increase of $0.2 million and decreases of $4.7 million and $2.1 million, respectively. At June 30, 1999, the Company had accumulated net operating losses of $19.7 million available to offset future regular taxable income. These operating loss carryforwards expire between the years 2007 and 2019. Utilization of these net operating losses may be subject to limitations in the event of significant changes in stock ownership of the Company. Additionally, the Company has approximately $2.2 million and $3.3 million of research and experimentation and alternative minimum tax credit carryforwards, respectively, available to offset future regular tax liabilities. The research and experimentation credits expire between the years 2000 and 2008; the alternative minimum tax credits carryforward indefinitely. In assessing the realizability of deferred tax assets, management considers whether it is more likely than not that some portion or all of the deferred tax assets are realizable. Management considers the scheduled reversal of deferred tax liabilities, projected future taxable income, and tax planning strategies in making this assessment. Based upon the level of projected future regular taxable income over the periods, which the deferred tax assets are deductible, management believes that the Company will realize the benefits of these deductions. As of June 30, 1999, the Company provided a valuation allowance of $169 thousand against deferred tax assets. The amount of the deferred tax assets considered realizable, however, could be reduced if estimates of future regular taxable income during the carryforward period are reduced. 38 40 (14) NET INCOME (LOSS) PER SHARE In December 1997, the Company adopted the provisions of Statement of Financial Accounting Standards (SFAS) No. 128, Earnings Per Share, which established new guidelines for the calculations of earnings (loss) per share. Earnings (loss) per share for all prior periods have been restated to reflect the provisions of this Statement. The following are reconciliations of the numerators and denominators of the basic and diluted earnings (loss) per share computations for "income (loss) before extraordinary item" and "extraordinary item" for the years ended June 30, 1999, 1998 and 1997 (in thousands, except share data):
Per common share Assuming Dilution - ----------------------------------------------------------------------------------------------------------------------------------- 1999 Net loss $ (2,589) $ (2,589) Net loss, as adjusted $ (2,589) $ (2,589) - ----------------------------------------------------------------------------------------------------------------------------------- Outstanding common shares 11,184,742 11,184,742 Adjusted shares 11,184,742 11,184,742 - ----------------------------------------------------------------------------------------------------------------------------------- 1998 Net income $ 9,604 $ 9,604 Assuming conversion of convertible subordinated notes $ - $ 2,625 - ----------------------------------------------------------------------------------------------------------------------------------- Net income, as adjusted $ 9,604 $ 12,229 - ----------------------------------------------------------------------------------------------------------------------------------- Outstanding common shares 11,154,271 11,154,271 Outstanding stock options -- 269,898 Assuming conversion of convertible subordinated notes -- 3,147,109 - ----------------------------------------------------------------------------------------------------------------------------------- Adjusted shares 11,154,271 14,571,278 - ----------------------------------------------------------------------------------------------------------------------------------- 1997 Net income before extraordinary item $ 10,558 $ 10,558 Net income $ 13,832 $ 13,832 - ----------------------------------------------------------------------------------------------------------------------------------- Outstanding common shares 11,118,825 11,118,825 Outstanding stock options -- 14,168 Assuming conversion of convertible notes -- 27,329 - ----------------------------------------------------------------------------------------------------------------------------------- Adjusted shares 11,118,825 11,160,322 - -----------------------------------------------------------------------------------------------------------------------------------
Options and warrants to purchase 899,131 and 792,361 shares of common stock, at prices ranging from $7.50 to $24.00 per share were outstanding for the years ended June 30, 1998 and 1997, respectively. These were not included in the computations of diluted earnings per share because the options' and warrants' exercise prices were greater than the average market price of the common shares during the years ended June 30, 1998 and 1997. All options and warrants to purchase shares of common stock were excluded from the computations of diluted earnings (loss) per share for the year ended June 30, 1999, because the impact of such options and warrants is anti-dilutive. (15) EMPLOYEE BENEFIT PLAN The Company has a defined contribution retirement plan, which covers all employees and officers. For the years ended June 30, 1999, 1998 and 1997, the Company contributed $0.8 million, $0.1 million and $0.1 million, respectively, to the plan. The Company has the right, but not the obligation, to make contributions to the plan in future years at the discretion of the Company's Board of Directors. 39 41 (16) COMMITMENTS INTEGRATION AND OPERATIONS CONTRACTS On August 13, 1997, the Company initiated a letter agreement with The Boeing Company, a major subcontractor, for standard integration and operation services to the Company for future missions that were not already provided for under its contract for missions to the Mir Space Station. In August 1998, this letter agreement became a cost plus incentive fee contract whereby Boeing will provide integration and operations services required to successfully complete four research missions (one single module mission and three double module missions) and five logistics double module missions. Additionally, there are several tasks that are separately priced to yield a contract value of up to $42.3 million. As of June 30, 1999, $16.2 million has been incurred under this commitment. MODULE CONSTRUCTION CONTRACTS During fiscal year 1997, the Company entered into a $36.8 million cost-plus-fee contract with Boeing to construct a new research module with associated double module hardware. The Company has taken initial delivery of the module and is in the process of completing its construction which is expected to be completed in the middle of fiscal year 2000. The Company has incurred approximately $32.9 million in construction costs through June 30, 1999. During FY 1999, the Company entered into a $4.6 million letter agreement with Boeing to initiate activities to support the fabrication of a double docking module. The letter contract period of performance is through August 1999. The Company plans to extend the letter agreement. The Company has incurred $1.0 million in costs through June 30, 1999. JOINT VENTURE During June 1998, the Company entered into a joint venture agreement with Guigne Technologies Limited for the purpose of developing, fabricating, marketing and sales of SpaceDRUMS(TM) services. In accordance with the joint venture agreement, the Company has agreed to contribute, in exchange for a 50 percent interest in SpaceDRUMS(TM), an aggregate of $2.0 million of working capital to the joint venture at varying dates and amounts through October 1999. The Company's contributions will be in the form of an unsecured non-interest bearing note. Through June 30, 1999, the Company has made contributions of $1.4 million to the joint venture. During 1999, the joint venture entered into a $5.0 million contract with the Colorado School of Mines for the lease of the SpaceDRUMS(TM) facility. The Company does not have the ability to exclusively control the operational and financial policies of SpaceDRUMS, although the Company does exert significant influence and as such is recognizing its investment in SpaceDRUMS using the modified equity method of accounting. During the year ended June 30, 1999, SpaceDRUMS had no revenues and generated a net loss of approximately $0.001 million of which the Company recognized its proportionate share. SpaceDRUMS has total assets, total liabilities and total equity as of June 30, 1999: $3.7 million, $2.3 million and $1.4 million respectively. The carrying value of the investment in SpaceDRUMS is $1.4 million as of June 30, 1999. LEASES The Company is obligated under capital leases for equipment and noncancelable operating leases for equipment, office space, storage space, and the land for a payload processing facility. Future minimum payments under these capital leases and noncancelable operating leases are as follows (in thousands): 40 42
Capital Operating Year ending June 30, leases leases --------------------------------------------------------------------------------------------------- 2000 $ 87 $ 2,353 2001 57 2,241 2002 28 2,093 2003 18 1,656 2004 and thereafter 17 7,224 --------------------------------------------------------------------------------------------------- 207 $ 15,567 ========= Less: amount representing interest between 9% and 12% (50) -------------------------------------------------------------------------------------- Present value of net minimum capital lease payments $ 157 ======================================================================================
Rent expense for the years ended June 30, 1999, 1998 and 1997, was approximately $2.2 million, $0.5 million and $0.5 million respectively. (17) SEGMENT INFORMATION The Company adopted SFAS No. 131, "Disclosure about Segments of an Enterprise and Related Information", as of June 30, 1999. SFAS No. 131 establishes annual and interim reporting standards for an enterprise's operating segments. Based on its organization, the Company operates in three business segments; Astrotech, JE and SPACEHAB. Astrotech, acquired in February 1997, provides payload processing facilities to serve the satellite manufacturing and launch services industry. Astrotech currently provides launch site preparation of flight ready satellites to major U.S. space launch companies and satellite manufacturers. JE, acquired in July 1998, is primarily engaged in providing engineering services and products to the Federal Government and NASA, primarily under the Flight Crew Systems Development Contract (FCSD). SPACEHAB was founded to commercially develop space habitat modules to operate in the cargo bay of the Space Shuttles. SPACEHAB provides access to the modules and integration and integration and operations support services for both NASA and commercial customers. The Company's chief operating decision maker utilizes both revenue and income before taxes, including allocated interest based on the investment in the segment, in assessing performance and making overall operating decisions and resource allocations. As such, other income/expense items including taxes and corporate overhead have not been allocated to the various segments. The accounting policies of the segments are the same as those described in the summary of significant accounting policies, see note 2. Information about the Company's segments is as follows: 41 43
(in thousands) Fiscal year 1999: Net Depreciation Pre-Tax Fixed And Revenue Income (loss) Assets Amortization -------------------------------------------------------------------- SPACEHAB $ 39,477 $ (2,925) $ 109,912 $ 5,227 Astrotech 9,845 (505) 20,625 1,164 Johnson Engineering 58,398 342 1,647 1,164 -------------------------------------------------------------------- $107,720 $ (3,088) $ 132,184 $ 7,555
Fiscal year 1998: Net Depreciation Pre-Tax Fixed And Revenue Income Assets Amortization -------------------------------------------------------------------- SPACEHAB $ 53,262 $ 10,308 $ 92,815 $ 4,639 Astrotech 10,825 1,823 19,773 1,174 Johnson Engineering - - - - -------------------------------------------------------------------- $ 64,087 $ 12,131 $ 112,588 $ 5,813
Fiscal year 1997: Net Depreciation Pre-Tax Fixed And Revenue Income Assets Amortization -------------------------------------------------------------------- SPACEHAB $ 53,741 $ 13,070 $ 74,620 $ 9,806 Astrotech 2,860 459 16,341 379 Johnson Engineering - - - - -------------------------------------------------------------------- $ 56,601 $ 13,529 $ 90,961 $ 10,185
(18) SUBSEQUENT EVENT On August 2, 1999, DaimlerChrysler Aerospace AG (Dasa), a shareholder, purchased an additional $12.0 million equity stake in SPACEHAB representing 1,333,334 shares of Series B Senior Convertible Preferred Stock. Under the agreement, Dasa purchased all of SPACEHAB's 975,000 authorized and unissued shares of preferred stock. The other 358,334 shares of Series B Senior Convertible Preferred Stock will be issued upon shareholder approval of a proposal to increase the number of authorized shares of preferred stock that will be presented at the next stockholders meeting scheduled for October 14, 1999. The preferred stock purchase will increase Dasa's investment interest in SPACEHAB to approximately 11.5 percent. The Series B Senior Convertible Preferred Stock is: convertible at the holders' option on the basis of one share of Preferred Stock for one share of common stock, entitled to vote on an "as converted" basis the equivalent number of shares of common stock and has preference in liquidation, dissolution or winding up of $9.00 per preferred share. No dividends are payable on the convertible preferred shares. 42 44 (19) SUMMARY OF SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED) The following is a summary of selected quarterly financial data for the previous three fiscal periods (in thousands, except per share data):
Three months ended -------------------------------------------------------------- September 30 December 31 March 31 June 30 ----------------------------------------------------------------------------------------------------- Year ended June 30, 1999 Revenue $ 28,273 23,634 26,693 29,120 Income (loss) from operations 2,151 (2,007) 338 (280) Net income (loss) 413 (1,851) (541) (610) Net income (loss) per share - 0.04 (0.17) (0.05) (0.05) basic Net income (loss) per share - 0.04 (0.17) (0.05) (0.05) diluted ----------------------------------------------------------------------------------------------------- Year ended June 30, 1998 Revenue $ 2,537 17,756 18,997 24.797 Income (loss) from operations (5,685) 5,833 5,214 7,335 Net income (loss) (5,654) 5,727 4,891 4,640 Net income (loss) per share - (0.51) 0.51 0.44 0.42 basic Net income (loss) per share - (0.51) 0.43 0.37 0.35 diluted ---------------------------------------------------------------------------------------------------- Year ended June 30, 1997 Revenue $ 113 22,992 15,031 18,465 Income (loss) from operations (6,171) 12,148 3,914 2,771 Net income (loss) before (7,074) 11,060 3,207 3,365 extraordinary item Net income (loss) (3,800) 11,060 3,207 3,365 Net income (loss) per share - (0.34) 1.00 0.29 0.30 basic Net income (loss) per share - (0.34) 0.99 0.29 0.28 diluted ----------------------------------------------------------------------------------------------------
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE. None. PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT. The information required by this item will be contained in the Company's definitive Proxy Statement for its 1999 annual meeting of stockholders and is hereby incorporated by reference thereto. 43 45 ITEM 11. EXECUTIVE COMPENSATION. The information required by this item will be contained in the Company's definitive Proxy Statement for its 1999 annual meeting of stockholders and is hereby incorporated by reference thereto. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT. The information required by this item will be contained in the Company's definitive Proxy Statement for its 1999 annual meeting of stockholders and is hereby incorporated by reference thereto. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS. The information required by this item will be contained in the Company's definitive Proxy Statement for its 1999 annual meeting of stockholders and is hereby incorporated by reference thereto. PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K. (a) The following documents are filed as part of the report: 1. Financial Statements. The following consolidated financial statements of SPACEHAB, Incorporated and subsidiary and related notes, together with the report thereon of KPMG LLP, the Company's independent auditors, are set forth herein as indicated below.
PAGE Report of KPMG LLP, Independent Public Accountants............................... 23 Consolidated Balance Sheets ..................................................... 24 Consolidated Statements of Operations ........................................... 25 Consolidated Statements of Stockholders' Equity ................................. 26 Consolidated Statements of Cash Flows............................................ 27 Notes to Consolidated Financial Statements....................................... 28
2. Financial Statement Schedules. All financial statement schedules required to be filed in Part IV, Item 14(a) have been omitted because they are not applicable, not required, or because the required information is included in the financial statements or notes thereto. 3. Exhibits.
EXHIBIT NO. DESCRIPTION OF EXHIBIT 3.1* Amended and Restated Articles of Incorporation of the Company. 3.2* Amended and Restated By-Laws of the Company. 4.1++ Designation of Rights, Terms and Preferences of Series B Senior Convertible Preferred Stock of the Registrant. 4.2++ Preferred Stock Purchase Agreement between the Registrant and DaimlerChrysler Aerospace AG dated as of August 2, 1999. 4.3++ Registration Rights Agreement between the Registrant and DaimlerChrysler Aerospace AG dated as of August 5, 1999.
44 46 4.4+ Rights Agreement, dated as of March 26, 1999, between the Registrant and American Stock Transfer & Trust Company. The Rights Agreement includes the Designation of Rights Terms and Preferences of Series A Junior Preferred Stock as Exhibit A, the form of Rights Certificate as Exhibit B and the Summary of Rights as Exhibit C. 10.3* Cost Plus Incentive Fee Contract (Number SHB 1009), dated November 23, 1994, between the Registrant and McDonnell Douglas (including the amendments thereto) (the "Mir Contract"). 10.6* Amended and Restated Representation Agreement, dated August 15, 1995, by and between the Registrant and Mitsubishi Corporation. 10.7* Letter Agreement dated August 15, 1995, by and between the Registrant and Mitsubishi Corporation. 10.12*** Amended and Restated Credit Agreement, dated August 20, 1996 among the Registrant, the Insurers listed therein and the Chase Manhattan Bank (National Association), as agent. 10.13* SPACEHAB, Incorporated 1995 Directors' Stock Option Plan. 10.16* Agreement of Sublease, dated April 9, 1991, by and between Eastern American Teak Corporation and the Registrant (land lease for Cape Canaveral, Florida facility). 10.23** Employment and Non-Interference Agreement, dated December 27, 1995, between the Company and Nelda J. Wilbanks. 10.24** Employment and Non-Interference Agreement, dated December 27, 1995, between the Company and M. Dale Steffey. 10.27** Indemnification Agreement, dated December 27, 1995, between the Company and Dr. Shelley A. Harrison. 10.28** Indemnification Agreement, dated December 27, 1995, between the Company and Dr. Edward E. David, Jr. 10.30** Indemnification Agreement, dated December 27, 1995, between the Company and Robert A. Citron. 10.31** Indemnification Agreement, dated December 27, 1995, between the Company and Alvin L. Reeser. 10.32** Indemnification Agreement, dated December 27, 1995, between the Company and James R. Thompson. 10.34** Indemnification Agreement, dated December 27, 1995, between the Company and Dr. Brad S. Meslin. 10.35** Indemnification Agreement, dated December 27, 1995, between the Company and Chester M. Lee. 10.36** Indemnification Agreement, dated December 27, 1995, between the Company and David A. Rossi. 10.37** Indemnification Agreement, dated December 27, 1995, between the Company and Dr. Shi H. Huang.
45 47 10.38** Indemnification Agreement, dated December 27, 1995, between the Company and Nelda J. Wilbanks. 10.39** Indemnification Agreement, dated December 27, 1995, between the Company and M. Dale Steffey. 10.41** Indemnification Agreement, dated December 27, 1995, between the Company and Dr. Udo Pollvogt. 10.43** Indemnification Agreement, dated December 27, 1995, between the Company and Hironori Aihara. 10.49*// Cost Plus Fee Contract (Number SHB 1013), dated July 31, 1997, between the Registrant and McDonnell Douglas Corporation, McDonnell Douglas Aerospace Huntsville Division (the "Research Double Module Contract"). 10.52*// Office Building Lease Agreement, dated October 6, 1993, between Astrotech and the Secretary of the Air Force (Lease number SPCVAN - 2-94-001). 10.54*// Loan and Security Agreement, dated June 16, 1997, between the Registrant, Astrotech and First Union National Bank (formerly known as Signet Bank) (the "Revolving Credit Agreement"). 10.55*// Loan and Security Agreement, dated July 14, 1997, between Astrotech and the CIT Group/Equipment Financing, Inc. (the "Term Loan Agreement"). 10.57*// Employment and Non-Interference Agreement, dated April 10, 1997, between the Company and John M. Lounge. 10.58*// Indemnification Agreement, dated October 22, 1996, between the Company and John M. Lounge. 10.69*/// ESA Contract, Dated October 10, 1997, between the Registrant and Intospace GmbH (the "ESA Contract"). 10.70*//// NAS 9-97199, dated December 21, 1997, between the Registrant and NASA (the "REALMS Contract"). 10.72*//// Employment Agreement and Non-Interference Agreement dated January 15, 1998, between the Company and Chester M. Lee. 10.73*//// Employment Agreement and Non-Interference Agreement dated January 15, 1998, between the Company and David A. Rossi. 10.74*//// Amendment number 1 to Loan and Security Agreement dated December 31, 1997, between the Company and First Union National Bank. 10.75*///// STS-95 Agreement A, dated December 20, 1997, between the Registrant and Mitsubishi Corporation. 10.76*///// STS-95 Agreement B, dated March 18, 1998, between the Registrant and Mitsubishi Corporation. 10.77*///// NHK Contract, dated May 8, 1998, between the Registrant and Mitsubishi Corporation.
46 48 10.78*///// SHB98001, dated January 31, 1998, between the Registrant and RSC Energia 10.79*///// SHB98002, dated February 11, 1998, between the Registrant and Daimler-Benz Aerospace, Space Infrastructure Division 10.80*///// CSA Contract, dated May 21, 1998, between the Registrant and the Canadian Space Agency. 10.81*///// Gemini Office Building Lease Agreement, dated January 14, 1998, between the Registrant and Puget of Texas 10.82*///// SHB98006, dated July 8, 1998, between the Registrant and Daimler-Benz Aerospace AG, Raumfahrt-Infrastuktur 10.84*///// Capital Office Park Lease as amended, dated April 23, 1998, between Astrotech and Eleventh Springhill Lake Associates L.L.P. 10.85+++ Letter Agreement between the Company and Alenia Aerospazio. 10.86+++ Employment and Non-Interference Agreement dated July 1, 1998 between the Company and William A. Jackson 10.87+++ Employment and Non-Interference Agreement dated July 1, 1998 between the Company and Eugene A. Cernan 10.88+++ Employment and Non-Interference Agreement dated July 1, 1998 between the Company and W.T. Short 10.89+++ Modification S/A 14 to NAS9-97199 dated November 25, 1998, between the Company and NASA. 10.90 SPACEHAB, Incorporated 1994 Stock Incentive Plan (as amended and restated effective October 21, 1997). 10.91 Employment and Non-Interference Agreement, dated March 1, 1999, between the Company and Mark Kissman. 10.92 Employment and Non-Interference Agreement, dated March 1, 1999, between the Company and Michael Kearney. 10.93 Contract No. NAS 9-18800 between NASA and Johnson Engineering dated April 28, 1993. 10.94 Cost Plus Incentive Fee Contract No. SHB 1014 dated August 14, 1997 between the Boeing Company and the Registrant. 10.95 Amended and Restated Employment and Non-Interference Agreement, dated April 1, 1997, between the Company and Dr. Shelly A. Harrison, amended and restated as of January 15, 1999. 10.96 European Marketing Agreement between Intospace GmbH and the Registrant dated June 12, 1998. 10.97 Lease for property at 555 Forge River Dr. Suite #150, Webster, TX between Johnson Engineering and CD UP LP a wholly-owned subsidiary of Carey Diversified LLC,
47 49 successor in interest to J.A. Billip Development Corporation dated April 30, 1993, as amended. 10.98 Lease for property at 18100 Upper Bay Road, Suite #208, Houston, TX between Johnson Engineering Corporation and Nassau Development Company, dated February 19, 1998. 10.99 Lease for property at 920, 926 and 928 Gemini Ave., Houston, TX under Standard Commercial Lease between Johnson Engineering Corporation and Lakeland Development dated February 1, 1998. 10.100 Lease for property at 300 D Street, SW, Suite #814, Washington, DC, between the Registrant and The Washington Design Center, LLC dated December 16, 1998. 10.101 Lease for property at 16850 Titan, Houston, TX between Johnson Engineering Corporation and Computer Extension Systems, Inc. dated August 1, 1999. 10.102 Agreement of Sale and Purchase of Leasehold Interest between Eastern American Technologies Corporation and Spacehab, Incorporated dated August 1997. 11. Statement regarding Computation of Per Share Earnings. 21.*// Subsidiary of the Registrant. 23. Con sent of KPMG LLP. 27. Financial Data Schedule. * Incorporated by reference to the Registrant's Registration Statement on Form S-1 (File No. 33-97812) and all amendments thereto, originally filed with the Securities and Exchange Commission on October 5, 1995. ** Incorporated by reference to the Registrant's Report on Form 10-Q for the quarter ended December 31, 1995, filed February 14, 1996. *** Incorporated by reference to the Registrant's Report on Form 10-K for the fiscal year ended June 30, 1996, filed with the Securities and Exchange Commission on September 17, 1996. **** Incorporated by reference to the Registrant's Annual Report on Form 10-K/A for the year ended June 30, 1996, filed with the Securities and Exchange Commission on December 20, 1996. ***** Incorporated by reference to the Registrant's Report on Form 10-Q/A for the quarter ended September 30, 1996, filed with the Securities and Exchange Commission on December 20, 1996. */ Incorporated by reference to the Registrant's Report on Form 8-K filed with the Securities and Exchange Commission on February 27, 1997. *// Incorporated by reference to the Registrant's Report on Form 10-K for the fiscal year ended June 30, 1997, filed with the Securities and Exchange Commission on September 12, 1997.
48 50 */// Incorporated by reference to the Registrant's Report on Form 10-Q for the quarter ended September 30, 1997, filed November 6, 1997. *//// Incorporated by reference to the Registrant's Report on Form 10-Q for the quarter ended December 31, 1997, filed February 5, 1998. *///// Incorporated by reference to the Registrant's Report on Form 10-K for the fiscal year ended June 30, 1998, filed with the Securities and Exchange Commission on September 17, 1998. + Incorporated by reference to the Registrant's Report on Form 8-K filed with the Securities and Exchange Commission on April 1, 1999. ++ Incorporated by reference to the Registrant's Report on Form 8-K filed with the Securities and Exchange Commission on August 19, 1999. +++ Incorporated by reference to the Registrant's Report on Form 10-Q for the quarter ended December 31, 1998. (b) The following Reports on Form 8-K were filed by the Registrant during the period covered by this report. 1. Report on Form 8-K filed on April 1, 1999 disclosing the Registrant's adoption of its Stockholder Rights Plan. 2. Report on Form 8-K on July 13, 1998 disclosing the Registrant's acquisition of all the outstanding shares of capital stock of Johnson Engineering Corporation, a Colorado corporation.
49 51 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities and Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, hereunto duly authorized. SPACEHAB, Incorporated By: /s/ Dr. Shelley A. Harrison --------------------------- Dr. Shelley A. Harrison Chairman of the Board and Chief Executive Officer Date: September 16, 1999 By: /s/ Mark A. Kissman --------------------------- Mark A. Kissman Vice President of Finance and Chief Financial Officer Date: September 16, 1999 Pursuant to the requirements of the Securities and Exchange Act of 1934, this report has been signed below by the following persons on behalf of this registrant in the capacities and on the dates indicated. /s/ Hironori Aihara Director September 16, 1999 - ------------------------------------ Hironori Aihara /s/ Robert A. Citron Director September 16, 1999 - ------------------------------------ Robert A. Citron Dr. Edward E. David, Jr. Director September 16, 1999 - ------------------------------------ Dr. Edward E. David, Jr. /s/ Dr. Shi H. Huang Director September 16, 1999 - ------------------------------------ Dr. Shi H. Huang /s/ Chester M. Lee Director September 16, 1999 - ------------------------------------ Chester M. Lee /s/ Dr. Brad M. Meslin Director September 16, 1999 - ------------------------------------ Dr. Brad M. Meslin /s/ Gordon S. Macklin Director September 16, 1999 - ------------------------------------ Gordon S. Macklin Josef Kind Director September 16, 1999 - ------------------------------------ Josef Kind /s/ Alvin L. Reeser Director September 16, 1999 - ------------------------------------ Alvin L. Reeser
50 52 /s/ James R. Thompson Director September 16, 1998 - ------------------------------------ James R. Thompson Guiseppe Viriglio Director September 16, 1998 - ------------------------------------ Guiseppe Viriglio
51 EX-10.90 2 STOCK INCENTIVE PLAN AS AMENDED 1 EXHIBIT 10.90 SPACEHAB, INCORPORATED 1994 STOCK INCENTIVE PLAN (as amended and restated effective October 14, 1999) 1 2 SPACEHAB INCORPORATED 1994 STOCK INCENTIVE PLAN (as amended and restated effective October 14, 1999) SECTION 1. PURPOSE The purpose of the SPACEHAB, Incorporated 1994 Stock Incentive Plan (the "Plan") is to enable SPACEHAB, Incorporated (the "Company") and its subsidiaries (as defined below) to provide a select group of employees the opportunity to acquire a proprietary interest in the company and to benefit from the appreciation in the value of its common shares and thereby to enhance the ability of the company to attract and retain employees of exceptional ability who, by their participation in the Plan, will have a greater incentive to contribute to the company's long-term success and growth. For purposes of the Plan, a "subsidiary" means any subsidiary corporation as defined in Section 424(f) of the Internal Revenue Code of 1986, as amended, (the "Code"). SECTION 2. TYPES OF AWARDS 2.1. Awards under the Plan may be in the form of (i) incentive stock options or non-qualified stock options ("Stock Options"); (ii) Stock Appreciation Rights; (iii) Restricted Stock; (iv) Performance Shares; (v) Loans; and/or (vi) Tax Offset Payments. 2.2. An eligible employee may be granted one or more types of awards, which may be independent or granted in tandem. If two awards are granted in tandem the employee may exercise (or otherwise receive the benefit of) one award only to the extent he or she relinquishes the tandem award. SECTION 3. ADMINISTRATION 3.1. The Plan shall be administered by the Compensation Committee of the Company's Board of Directors (the "Board") or such other committee of directors as the Board shall designate (the "Committee"), which shall consist of two or more directors who are "non-employee directors" within the meaning of Rule 16B-3 ("Rule 16b-3") promulgated under the Securities Exchange Act of 1934, as amended (the "Act"), and who are "outside directors" within the meaning of Section 162(m) of the Code. 3.2. The Committee shall have the authority to grant awards to eligible employees under the Plan; to adopt, alter and repeal such administrative rules, guidelines and practices governing the Plan as it shall deem advisable; to interpret the terms and provisions of the Plan and any award granted under the Plan; and to otherwise supervise the administration of the Plan. In particular, and without limiting its authority and powers, the Committee shall have the authority: 1 3 (a) to determine whether and to what extent any award or combination of awards will be granted hereunder, including whether any awards will be granted in tandem with each other; (b) to select the employees to whom awards will be granted; (c) to determine the number of shares of the common stock of the Company (the "Stock") to be covered by each award granted hereunder; (d) to determine the terms and conditions of any award granted hereunder, including, but not limited to, any vesting or other restrictions based on performance and such other factors as the Committee may determine, and to determine whether the terms and conditions of the award are satisfied; (e) to determine the treatment of awards upon an employee's retirement, disability, death, termination for cause or other termination of employment; (f) to determine pursuant to a formula or otherwise the fair market value of the stock on a given date; provided, however, that if the Committee fails to make such a determination, fair market value shall, in the event the Stock is traded on a national exchange, mean the closing sale price of the Stock on a given date; (g) to determine whether the amount of any dividends declared with respect to the number of shares covered by an award (i) will be paid to the employee currently or (ii) will be deferred and deemed to be reinvested or (iii) will otherwise be credited to the employee, or that the employee has no rights with respect to such dividends; (h) to determine whether to what extent, and under what circumstances Stock and other amounts payable with respect to an award will be deferred either automatically or at the election of an employee, including providing for and determining the amount (if any) of deemed earnings on any deferred amount during any deferral period; (i) to provide that the shares of Stock received as a result of an award shall be subject to a right of first refusal, pursuant to which the employee shall be required to offer to the Company any shares that the employee wishes to sell, subject to such terms and conditions as the Committee may specify; (j) to amend the terms of any award, prospectively or retroactively; provided, however, that no amendment shall impair the rights of the award holder without his or her consent; (k) to substitute new Stock Options for previously granted Stock Options, or for options granted under other plans, in each case including previously granted options having higher option prices; and 2 4 (l) to allow an option holder to exercise his or her option prior to its expiration and pay for the acquired shares with currently owned shares, while at the same time receiving replacement options, at the then current market price, for the same remaining term as the option exercised. 3.3. All determinations made by the Committee pursuant to the provisions of the Plan shall be final and binding on all persons, including the Company and Plan participants. 3.4. The Committee may from time to time delegate to one or more officers of the Company any or all of its authority granted hereunder except with respect to awards granted to persons subject to Section 16 of the Act. The committee shall specify the maximum number of shares that the officer or officers to whom such authority is delegated may award. SECTION 4. STOCK SUBJECT TO PLAN 4.1. The total number of shares of Stock reserved and available for distribution under the Plan shall be 3,950,000 (subject to further adjustment as provided below). Such shares may consist of authorized but unissued shares or treasury shares. The exercise of a Stock Appreciation Right for cash, the payment of any other award in cash shall not count against this share limit. 4.2. To the extent an option terminates without having been exercised, or an award terminates without the employee having received payment of the award, or shares awarded are forfeited, the shares subject to such award shall again be available for distribution in connection with future awards under the Plan. At no time will the number of shares issued under the Plan plus the number of shares covered by outstanding awards under the Plan exceed the number of shares authorized under the Plan. 4.3. In the event of any merger, reorganization, consolidation, sale of substantially all assets, recapitalization, Stock dividend, Stock split, spin-off, split-up, split-off, distribution of assets or other change in corporate structure affecting the Stock, a substitution or adjustment, as may be determined to be appropriate by the Committee in its sole discretion shall be made in the aggregate number of shares reserved for issuance under the Plan, the number of shares subject to outstanding awards and the amounts to be paid by employees or the Company, as the case may be, with respect to outstanding awards. 4.4. The number of shares of Stock underlying Stock Options or free-standing Stock Appreciation Rights that may be granted under the Plan to any one participant during any one calendar year shall not exceed 200,000 shares, subject to adjustment in the same manner as provided in subsection 4.3 above. To the extent required for exemption under Section 162(m) of the Code, any Stock Options or Stock 3 5 Appreciation Rights that are canceled or repriced shall not again be available for grant under this maximum share limit. SECTION 5. ELIGIBILITY Officers and other key employees and consultants of the Company or a subsidiary are eligible to be granted awards under the Plan. A director of the Company or a subsidiary who is not also an employee of the Company or a subsidiary will not be eligible to be granted awards under the Plan. The participants under the Plan shall be selected from time to time by the Committee, in its sole discretion, from among those eligible employees. SECTION 6. STOCK OPTIONS 6.1. The Stock Options awarded under the Plan may be of two types: (i) Incentive Stock Options within the meaning of Section 422 of the Code or any successor provision thereto; and (ii) Non-Qualified Stock Options. To the extent that any Stock Option does not qualify as an Incentive Stock Option, it shall constitute a Non-Qualified Stock Option. 6.2. Subject to the following provisions, Stock Options awarded under the Plan shall be in such form and shall have such terms and conditions as the Committee may determine: (a) Option Price. The option price per share of Stock purchasable under a Stock Option shall be determined by the Committee. (b) Option Term. The term of each Stock Option shall be fixed by the Committee. (c) Exercisability. Stock Options shall be exercisable at such time or times and subject to such terms and conditions as shall be determined by the Committee. If the Committee provides that any Stock Option is exercisable only in installments, the Committee may waive such installment exercise provisions at any time in whole or in part. (d) Method of Exercise. Stock Options may be exercised in whole or in part at any time during the option period by giving written notice of exercise to the Company specifying the number of shares to be purchased, accompanied by payment of the purchase price. Payment of the purchase price shall be made in such manner as the Committee may provide in the award, which may include cash (including cash equivalents), delivery of shares of Stock already owned by the optionee or subject to awards hereunder through the delivery of irrevocable instructions to a broker to deliver promptly to the Company an amount equal to the purchase price, or by any other manner permitted by law and determined by the Committee, or any combination of the foregoing. The Committee may provide that all or part of the shares received upon the exercise of a 4 6 Stock Option which are paid for using Restricted Stock or Performance Shares shall be restricted or deferred in accordance with the original terms of the award in question. The Committee shall determine acceptable methods for providing notice of exercise for tendering shares of Stock and for delivery of irrevocable instructions to a broker and may impose such limitations and prohibitions on the use of Stock or irrevocable instructions to a broker to exercise as it deems appropriate. (e) No Shareholder Rights. An optionee shall have neither rights to dividends or other rights of a shareholder with respect to shares subject to a Stock Option until the Optionee has given written notice of exercise and has paid for such shares. (f) Surrender Rights. The Committee may provide that options may be surrendered for cash upon any terms and conditions set by the Committee. (g) Non-transferability. No Stock Option shall be transferable by the optionee other than by will or by the laws of descent and distribution. During the optionee's lifetime, all Stock Options shall be exercisable only by the optionee. (h) Termination of Employment. If an optionee's employment with the Company or a subsidiary terminates by reason of death, disability, retirement, voluntary or involuntary termination or otherwise, the Stock Option shall be exercisable to the extent determined by the Committee. The Committee may provide that, notwithstanding the option term fixed pursuant to Section 6.2(b), a Stock Option which is outstanding on the date of an optionee's death shall remain outstanding for an additional period after the date of such death. 6.3. Notwithstanding the provision of Section 6.2, no Incentive Stock Option shall (i) have an option price which is less than 100% of the fair market value of the Stock on the date of the award of the Stock Option, (ii) be exercisable more than ten years after the date such Incentive Stock Option is awarded or (iii) be awarded more than ten years after the effective date of the Plan. No Incentive Stock Option shall be granted to an employee who, at the time the option is granted, owns stock possessing more than 10% of the total combined voting power of all classes of stock of the Company or of its subsidiary, unless the option price, at the time of the award, is at least 110% of the fair market value of the stock subject to the option and such option is not exercisable after the expiration of five years from the date of the award. SECTION 7. STOCK APPRECIATION RIGHTS 7.1. A Stock Appreciation Right shall entitle the holder thereof to receive payment of an amount, in cash, shares of Stock or a combination thereof, as determined by the Committee, equal in value to the excess of the fair market value of the shares as to which the award is granted on the date of exercise over an amount specified by the Committee. Any such award shall be in such form and shall have such terms and conditions as the Committee may determine. 5 7 7.2. The Committee may provide that a Stock Appreciation Right may be exercised only within a 60-day period following occurrence of a Change of Control (as defined in Section 15.2). The Committee may also provide that in the event of a Change of Control the amount to be paid upon the exercise of a Stock Appreciation Right shall be based on the Change of Control Price (as defined in Section 15.3). SECTION 8. RESTRICTED STOCK Subject to the following provisions, all awards of Restricted Stock shall be in such form and shall have such terms and conditions as the Committee may determine: (a) The Restricted Stock award shall specify the number of shares of Restricted Stock to be awarded, the price, if any, to be paid by the recipient of the Restricted Stock and the date or dates on which, or the conditions upon the satisfaction of which, the Restricted Stock will vest. The vesting of Restricted Stock may be conditioned upon the completion of a specified period of service with the Company or a subsidiary, upon the attainment of specified performance goals or upon such other criteria as the Committee may determine. (b) Stock certificates representing the Restricted Stock awarded to an employee shall be registered in the employee's name, but the Committee may direct that such certificates shall be held by the Company on behalf of the employee. Except as may be permitted by the Committee, no share of Restricted Stock may be sold, transferred, assigned, pledged or otherwise encumbered by the employee until such share has vested in accordance with the terms of the Restricted Stock award. At the time Restricted Stock vests, a certificate for such vested shares shall be delivered to the employee (or his or her designated beneficiary in the event of death), free of all restrictions. (c) The Committee may provide that the employee shall have the right to vote or receive dividends on Restricted Stock. The Committee may provide that Stock received as a dividend on, on in connection with a stock split of Restricted Stock, shall be subject to the same restrictions as the Restricted Stock. (d) Except as may be provided by the Committee, in the event of an employee's termination of employment before all of his or her Restricted Stock has vested, or in the event any conditions to the vesting of Restricted Stock have not been satisfied prior to any deadline for the satisfaction of such conditions set forth in the award, the shares of Restricted Stock which have not vested shall be forfeited, and the Committee may provide that (i) any purchase price paid by the employee shall be returned to the employee or (ii) a cash payment equal to the Restricted Stock's fair market value on the date of forefeiture, if lower, shall be paid to the employee. (e) The Committee may waive, in whole or in part, any or all of the conditions to receipt of, or restrictions with respect to, any or all of the employee's Restricted Stock. 6 8 SECTION 9. PERFORMANCE SHARES AWARDS Subject to the following provisions, all awards of Performance Shares shall be in such form and shall have such terms and conditions as the Committee may determine: (a) The Performance Shares shall specify the number of Performance Shares to be awarded to any employee and the duration of the period (the "Performance Period") after which, and the terms pursuant to which, the Performance Shares will be issued to the employee. The Committee may condition the award of Performance Shares, or receipt of Stock or cash at the end of the Performance Period, upon the attainment of specified performance goals or such other criteria as the Committee may determine. (b) Except as may be permitted by the Committee, Performance Share awards may not be sold, assigned, transferred, pledged or otherwise encumbered during the Performance Period. (c) At the expiration of the Performance Period, the employee (or his or her designated beneficiary in the event of death) shall receive (i) certificates for the number of shares of Stock equal to the number of shares covered by the Performance Share award, (ii) cash equal to the fair market value of such Stock or (iii) a combination of shares and cash, as the Committee may determine. (d) Except as may be provided by the Committee, in the event of an employee's termination of employment before the end of the Performance Period, his or her Performance Share award shall be forfeited. (e) The Committee may waive, in whole or in part, any or all of the conditions to receipt of, or restrictions with respect to, Stock or cash under a Performance Share award. SECTION 10. LOANS The Committee may provide that the Company shall make, or arrange for, a loan or loans to an employee with respect to the exercise of any Stock Option awarded under the Plan, with respect to the payment of the purchase price, if any, of any Restricted Stock awarded hereunder, or with respect to any taxes arising from an award hereunder; provided, however, that the Company shall not loan to an employee more than the excess of the purchase or exercise price of an award (together with the amount of any taxes arising from such award) over the par value of any shares of Stock awarded. The Committee shall have full authority to decide whether a loan will be made hereunder and to determine the amount, term and provisions of any such loan, including the interest rate to be charged, whether the loan will be with or without recourse against the borrower, 7 9 any security for the loan, the terms on which the loan is to be repaid and the conditions, if any, under the loan may be forgiven. SECTION 11. TAX OFFSET PAYMENTS The Committee may provide for a Tax Offset Payment by the Company to the employee in an amount specified by the Committee, which shall not exceed the amount necessary to pay the federal, state, local and other taxes payable with respect to any award and receipt of the Tax Offset Payment, assuming the employee is taxed at the maximum tax rate applicable to such income. The Tax Offset Payment may be paid in cash, Stock or a combination thereof, as determined by the Committee. SECTION 12. ELECTION TO DEFER AWARDS The Committee may permit an employee to elect to defer receipt of an award for a specified period or until a specified event, upon such terms as are determined by the Committee. SECTION 13. TAX WITHHOLDING 13.1. Each employee shall, no later than the date as of which the value of an award first becomes includible in the employee's gross income for applicable tax purposes, pay to the Company, or make arrangements satisfactory to the Committee regarding payment of any federal, state, local or other taxes of any kind required by law to be withheld with respect to the award. The obligations of the Company under the Plan shall be conditional on such payment or arrangements, and the Company (and, where applicable, any subsidiary), shall, to the extent permitted by law, have the right to deduct any such taxes from any payment of any kind otherwise due to the employee. 13.2. To the extent permitted by the Committee, and subject to such terms and conditions as the Committee may provide, an employee may irrevocably elect to have the withholding tax obligation, or any additional tax obligation with respect to any awards hereunder, satisfied by (i) having the Company withhold shares of Stock otherwise deliverable to the employee with respect to the award or (ii) delivering to the Company, shares of unrestricted Stock. SECTION 14. AMENDMENTS AND TERMINATION The Board may discontinue the Plan at any time and may amend it from time to time. Solely to the extent deemed necessary or advisable by the Board, for purposes of complying with Section 422 of the Code, Section 162(m) of the Code or the rules of any securities exchange or for any other reason, the Board may seek the approval of any such amendment by the Company's shareholders. Notwithstanding the foregoing, no termination or amendment of the Plan shall in any manner affect any award theretofore granted without the holder's consent. 8 10 SECTION 15. CHANGE OF CONTROL 15.1. In the event of a Change of control, unless otherwise determined by the Committee at the time of grant or by amendment (with the holder's consent) of such grant: (a) all outstanding Stock Options and all outstanding Stock Appreciation Rights awarded under the Plan shall become fully exercisable and vested; (b) the restrictions and deferral limitations applicable to any outstanding Restricted Stock and Deferred Stock awards under the Plan shall lapse and such shares and awards shall be deemed fully vested; and (c) to the extent the cash payment of any award is based on the fair market value of Stock, such fair market value shall be the Change of Control Price. 15.2. A "Change of Control" shall be deemed to occur on: (a) The date that any person or group deemed a person under Sections 3(a)(9) and 13(d)(3) of the Act, other than the Company and its subsidiaries as determined immediately prior to that date, in a transaction or series of transactions has become the beneficial owner, directly or indirectly (with beneficial ownership determined as provided in Rule 13d-3, or any successor rule, under such Act) of 20% or more of the outstanding securities of the Company having the right under ordinary circumstances to vote at an election of the Board; (b) the date on which one-third or more of the members of the Board shall consist of persons other than Current Directors (for these purposes, a "Current Director" shall mean any member of the Board as of the effective date of the Plan and any successor of a Current Director whose nomination or election has been approved by a majority of the Current Directors then on the Board); or (c) the date of approval by the shareholders of the Company of an agreement providing for (A) the merger or consolidation of the Company with another corporation where the shareholders of the Company, immediately prior to the merger or consolidation, would not beneficially own, immediately after the merger or consolidation, shares entitling such shareholders to 50% or more of all votes (without consideration of the rights of any class of stock to elect directors by a separate class vote) to which all shareholders of the corporation issuing cash or securities in the merger or consolidation would be entitled in the election of directors or where the members of the Board, immediately prior to the merger or consolidation, would not, immediately after the merger or consolidation or (B) the sale or other disposition of all or substantially all the assets of the Company. 15.3. "Change of Control Price" means the highest price per share paid for the Company's Stock in any transaction reported on any national stock exchange or in 9 11 the over-the-counter market, or paid or offered in any transaction related to a Change of Control at any time during the 90-day period ending with the Change of Control. Notwithstanding the foregoing sentence, in the case of Stock Appreciation Rights granted in tandem with Incentive Stock Options, the Change of Control Price shall be the highest price paid on the date on which the Stock Appreciation Right is exercised. SECTION 16. GENERAL PROVISIONS 16.1. Each award under the Plan shall be subject to the requirement that, if at any time the Committee shall determine that (i) the listing, registration or qualification of the Stock subject to the award or related thereto upon any securities exchange or under any state or federal law, or (ii) the consent or approval of any government regulatory body or (iii) an agreement by the recipient of an award with respect to the disposition of Stock, is necessary or desirable (in connection with any requirement or interpretation of any federal or state securities law, rule or regulation) as a condition of, or in connection with, the granting of such award or the issuance, purchase or delivery of Stock thereunder, such award shall not be granted or exercised, in whole or in part, unless such listing, registration, qualification, consent, approval or agreement shall have been effected or obtained free of any conditions not acceptable to the Committee. 16.2. Nothing set forth in this Plan shall prevent the Board from adopting other or additional compensation arrangements. Neither the adoption of the Plan nor any award hereunder shall confer upon any employee of the Company, or of a subsidiary, any right to continued employment. 16.3. Determinations by the Committee under the Plan relating to the form, amount and terms and conditions of awards need not be uniform, and may be made selectively among persons who receive or are eligible to receive awards under the Plan, whether or not such persons are similarly situated. 16.4. No member of the Board or the Committee, nor any officer or employee of the Company acting on behalf of the Board or the Committee, shall be personally liable for any action, determination or interpretation taken or made with respect to the Plan, and all members of the Board or the Committee and all officers or employees of the Company acting on their behalf shall, to the extent permitted by law, be fully indemnified and protected by the Company in respect of any such action, determination or interpretation. SECTION 17. EFFECTIVE DATE OF PLAN The Plan shall become effective upon approval by the Company's shareholders. 10 EX-10.91 3 EMPLOYMENT AND NON-INTERFERENCE AGREEMENT 1 EXHIBIT 10.91 EMPLOYMENT AND NON-INTERFERENCE AGREEMENT This Employment and Non-Interference Agreement (this "Agreement"), is dated as of March 1, 1999, by and between Mark A. Kissman (the "Executive") and SPACEHAB, Incorporated, a Washington corporation (the "Company"). WHEREAS, the Company wishes to retain the future services of Executive for the Company; WHEREAS, Executive is willing, upon the terms and conditions set forth in this Agreement, to provide services hereunder; and WHEREAS, the Company wishes to secure Executive's non-interference, upon the terms and conditions set forth in this Agreement. NOW, THEREFORE, in consideration of the mutual promises and covenants contained herein, and intending to be legally bound hereby, the parties hereto agree as follows: 1. Nature of Employment Subject to Section 3, the Company hereby employs Executive, and Executive agrees to accept such employment, during the Term of Employment (as defined in Section 3(a)), as Vice President, Finance and Chief Financial Officer and to undertake such duties and responsibilities as may be reasonably assigned to Executive from time to time by the Chief Executive Officer, Board of Directors of the Company, or such other appropriately authorized or designated executive officer of the Company. 2. Extent of Employment (a) During the Term of Employment, Executive shall perform his obligations hereunder faithfully and to the best of his ability under the direction of the Chief Executive Officer, Chief Operating Officer, Board of Directors of the Company, or such other appropriately authorized or designated executive officer of the Company, and shall abide by the rules, customs and usages from time to time established by the Company. (b) During the Term of Employment, Executive shall devote all of his business time, energy and skill as may be reasonably necessary for the performance of his duties, responsibilities and obligations under this Agreement (except for vacation periods and reasonable periods of illness or other incapacity), consistent with past practices and norms with respect to similar positions. (c) Nothing contained herein shall require Executive to follow any directive or to perform any act which would violate any laws, ordinances, regulations or rules of any governmental, regulatory or administrative body, agent or authority, any court or judicial authority, or any public, private or industry regulatory authority. Executive shall act in accordance with the laws, ordinances, regulations or rules of any governmental, regulatory or 2 administrative body, agent or authority, any court or judicial authority, or any public, private or industry regulatory authority. 3. Term of Employment; Termination (a) The "Term of Employment" shall commence on March 1, 1999 and shall continue through July 31, 1999 (the "Initial Term"), subject to automatic annual renewal for one-year terms thereafter (the "Additional Term"), unless either the Company or Executive notifies the other party of its intent not to renew at least ninety (90) days prior to the end of the Initial Term or Additional Term as the case may be. Should Executive's employment by the Company be earlier terminated pursuant to Section 3(b), the Term of Employment shall end on the date of such earlier termination. (b) Subject to the payments contemplated by Section 3(d), the Term of Employment may be terminated at any time by the Company: (i) upon the death of Executive; (ii) in the event that because of physical or mental disability, Executive is unable to perform and does not perform his duties hereunder, for a continuous period of 90 days, and an experienced, recognized physician specializing in such disabilities certifies as to the foregoing in writing; (iii) for Cause or Material Breach (each as defined in Section 3(d)); (iv) upon the continuous poor or unacceptable performance of Executive's duties to the Company, in the sole judgment of the Board of Directors of the Company, which has remained uncured for a period of 90 days after the delivery of notice by the Company to the Executive of such dissatisfaction with Executive's performance; or (v) for any other reason not referred to in clauses (i) through (iv), or for no reason, such that this Agreement shall be construed as terminable at will by the Company. Executive acknowledges that no representations or promises have been made concerning the grounds for termination or the future operation of the Company's business, and that nothing contained herein or otherwise stated by or on behalf of the Company modifies or amends the right of the Company to terminate Executive at any time, with or without Material Breach or Cause. Termination shall become effective upon the delivery by the Company to Executive of notice specifying such termination and the reasons therefor, subject to the requirements for advance notice and an opportunity to cure provided in this Agreement, if and to the extent applicable. (c) Subject to the payments contemplated by Section 3(d), the Term of Employment may be terminated at any time by Executive: 2 3 (i) upon the death of Executive; (ii) in the event that because of physical or mental disability, Executive is unable to perform and does not perform his duties hereunder, for a continuous period of 90 days, and an experienced, recognized physician specializing in such disabilities certifies as to the foregoing in writing; (iii) as a result of the Company's material reduction in Executive's authority, perquisites, position, title or responsibilities (other than such a reduction by the Company because of a temporary illness or disability or such a reduction which affects all of the Company's senior executives on a substantially equal or proportionate basis as a result of financial results, conditions, prospects, reorganization, workout or distressed condition of the Company), or the Company's willful, material violation of its obligations under this Agreement, in each case, after 30 days' prior written notice by Executive to the Company and its Board of Directors and the Company's failure thereafter to cure such reduction or violation within such 30 days; or (iv) voluntarily or for any reason not referred to in clauses (i) through (iii), or for no reason, in each case, after 90 days' prior written notice to the Company and its Board of Directors. (d) For the purposes of this Section 3: "Cause" shall mean any of the following: (i) Executive's conviction of any crime or criminal offense involving the unlawful theft or conversion of substantial monies or other property or any other felony (other than a criminal offense arising solely under a statutory provision imposing criminal liability on the Executive on a per se basis due to the offices held by the Executive); or (ii) Executive's conviction of fraud or embezzlement. "Material Breach" shall mean any of the following: (i) Executive's breach of any of his fiduciary duties to the Company or its stockholders or making of a willful misrepresentation or omission which breach, misrepresentation or omission would reasonably be expected to materially adversely affect the business, properties, assets, condition (financial or other) or prospects of the Company; (ii) Executive's willful, continual and material neglect or failure to discharge his duties, responsibilities or obligations prescribed by Sections 1 and 2 (other than arising solely due to physical or mental disability); (iii) Executive's habitual drunkenness or substance abuse which materially interferes with Executive's ability to discharge his duties, responsibilities or obligations prescribed by Sections 1 and 2; (iv) Executive's willful, continual and material breach of any noncompetition or confidentiality agreement with the Company, including without limitation, those set forth in Sections 7 and 8 of this Agreement; and (v) Executive's gross neglect of his duties and responsibilities, as determined by the Company's Board of Directors; in each case, for purposes of clauses (i) 3 4 through (v), after the Company or the Board of Directors has provided Executive with 30 days' written notice of such circumstances and the possibility of a Material Breach, and Executive fails to cure such circumstances and Material Breach within those 30 days. (i) In the event Executive's employment is terminated pursuant to Section 3(b)(i) [death], 3(b)(ii) [disability] or 3(b)(v) [any other reason or no reason] or 3(c)(i) [death], 3(c)(ii) [disability] or 3(c)(iii) [material reduction], the Company will: (A) pay to Executive (or his estate or representative) the full amounts to which the Executive would be entitled to under Section 4(a) for the period from effectiveness of termination through the sixth month anniversary of termination; and (B) pay to Executive (or his estate or representative) the benefits described in Section 6 through the sixth month anniversary of termination. Payment of the amounts and provision of the benefits described above will be made in accordance with the timetable and schedule for such payments contemplated therefor as if such termination did not occur, and will be subject to the other provisions of this Agreement, including Section 3(g), and Sections 7 and 8. If the Company makes the payments required by this Section 3(d)(i), such payments will constitute severance and liquidated damages, and the Company will not be obligated to pay any further amounts to Executive under this Agreement or otherwise be liable to Executive in connection with any termination. (ii) In the event Executive's employment is terminated pursuant to Section 3(b)(iii) [Cause or Material Breach], 3(b)(iv) [poor performance], or 3(c)(iv) [voluntary], the Company will not be obligated to pay any further amounts to Executive under this Agreement. (e) In the event the Term of Employment is terminated and the Company is obligated to make payments to Executive pursuant to Section 3(d)(i), Executive shall have a duty to seek to obtain alternative employment; and if Executive thereafter obtains alternative employment, the Company's payment obligations under Section 3(d)(i), including its obligation to provide insurance coverage, if any, will be mitigated and reduced by and to the extent of Executive's compensation under such alternative employment during the period for which payments are owed by the Company pursuant to Section 3(d)(i). Moreover, in the event that Executive is employed by or engaged in a Competitive Business as contemplated by Section 8(a)(i), then the Company will thereupon no longer be obligated to make payments under Section 3(d)(i). (f) In the event the Term of Employment is terminated and the Company is obligated to make payments pursuant to Section 3(d)(i), Executive hereby waives any and all claims against the Company and its respective officers, directors, employees, agents, or representatives, stockholders and affiliates relating to his employment during the term hereof and this Agreement. 4 5 (g) Termination of the Term of Employment will not terminate Sections 3(d), 3(f), and 7 through 21. 4. Compensation During the Term of Employment, the Company shall pay to Executive: (a) As base compensation for his services hereunder, in semi-monthly installments, a base salary at a rate of not less than $170,000 per annum. Such amounts may be increased (but not decreased) annually at the discretion of the Compensation Committee of the Board of Directors based upon an annual review by the Compensation Committee of the Board of Directors of Executive's performance. (b) An annual incentive bonus, if any, based on Executive's and/or Company's performance as determined and approved by the Compensation Committee of the Board of Directors. (c) An annual stock option grant, if any, based on Executive's, Company's and/or Company Stock performance as determined and approved by the Compensation Committee of the Board of Directors. 5. Reimbursement of Expenses During the Term of Employment, the Company shall pay all expenses, including without limitation, transportation, lodging and food for Executive to attend conventions, conferences and meetings that the Company determines are necessary or in the best interest of the Company, and for any ordinary and reasonable expenses incurred by Executive in the conduct of the Business of the Company. Travel outside the United States shall be subject to the prior approval of an executive officer of the Company. 6. Benefits During the Term of Employment, Executive shall be entitled to benefits (including health, disability, pension and life insurance benefits consistent with Company policy, or as increased from time to time), in each case, in accordance with guidelines or established from time to time, by the Board of Directors for senior executives of the Company. 7. Confidential Information (a) Executive acknowledges that his employment hereunder gives him access to Confidential Information relating to the Company's Business and its customers which must remain confidential. Executive acknowledges that this information is valuable, special, and a unique asset of the Company's Business, and that it has been and will be developed by the Company at considerable effort and expense, and if it were to be known and used by others engaged in a Competitive Business, it would be harmful and detrimental to the interests of the 5 6 Company. In consideration of the foregoing, Executive hereby agrees and covenants that, during and after the Term of Employment, Executive will not, directly or indirectly in one or a series of transactions, disclose to any person, or use or otherwise exploit for Executive's own benefit or for the benefit of anyone other than the Companies, Confidential Information (as defined in Section 10), whether prepared by Executive or not; provided, however, that any Confidential Information may be disclosed to officers, representatives, employees and agents of the Companies who need to know such Confidential Information in order to perform the services or conduct the operations required or expected of them in the Business (as defined in Section 10). Executive shall use his best efforts to prevent the removal of any Confidential Information from the premises of the Companies, except as required in his normal course of employment by the Company. Executive shall use his best efforts to cause all persons or entities to whom any Confidential Information shall be disclosed by him hereunder to observe the terms and conditions set forth herein as though each such person or entity was bound hereby. Executive shall have no obligation hereunder to keep confidential any Confidential Information if and to the extent disclosure of any thereof is specifically required by law; provided, however, that in the event disclosure is required by applicable law, Executive shall provide the Company with prompt notice of such requirement, prior to making any disclosure, so that the Company may seek an appropriate protective order. At the request of the Company, Executive agrees to deliver to the Company, at any time during the Term of Employment, or thereafter, all Confidential Information which he may possess or control. Executive agrees that all Confidential Information of the Companies (whether now or hereafter existing) conceived, discovered or made by him during the Term of Employment exclusively belongs to the Companies (and not to Executive). Executive will promptly disclose such Confidential Information to the Company and perform all actions reasonably requested by the Company to establish and confirm such exclusive ownership. (b) In the event that Executive breaches his obligations in any material respect under this Section 7, the Company, in addition to pursuing all available remedies under this Agreement, at law or otherwise, and without limiting its right to pursue the same shall cease all payments to Executive under this Agreement. (c) The terms of this Section 7 shall survive the termination of this Agreement regardless of who terminates this Agreement, or the reasons therefor. 8. Non-Interference (a) Executive acknowledges that the services to be provided give him the opportunity to have special knowledge of the Company and its Confidential Information and the capabilities of individuals employed by or affiliated with the Company, and that interference in these relationships would cause irreparable injury to the Company. In consideration of this Agreement, Executive covenants and agrees that: (i) During the Restricted Period (which shall not include any period of violation of this Agreement by the Executive), Executive will not, without the express written approval of the Board of Directors of the Company, anywhere in the Market, directly or indirectly, in one or a series of transactions, own, 6 7 manage, operate, control, invest or acquire an interest in, or otherwise engage or participate in, whether as a proprietor, partner, stockholder, lender, director, officer, employee, joint venturer, investor, lessor, supplier, customer, agent, representative or other participant, in any Competitive Business without regard to (A) whether the Competitive Business has its office, manufacturing or other business facilities within or without the Market, (B) whether any of the activities of Executive referred to above occur or are performed within or without the Market or (C) whether Executive resides, or reports to an office, within or without the Market; provided, however, that (x) Executive may, anywhere in the Market, directly or indirectly, in one or a series of transactions, own, invest or acquire an interest in up to five percent (5%) of the capital stock of a corporation whose capital stock is traded publicly, or that (y) Executive may accept employment with a successor company to the Company. (ii) During the Restricted Period (which shall not include any period of violation of this Agreement by Executive), Executive will not without the express prior written approval of the Board of Directors of the Company (A) directly or indirectly, in one or a series of transactions, recruit, solicit or otherwise induce or influence any proprietor, partner, stockholder, lender, director, officer, employee, sales agent, joint venturer, investor, lessor, supplier, customer, agent, representative or any other person which has a business relationship with the Company or had a business relationship with the Company within the twenty-four (24) month period preceding the date of the incident in question, to discontinue, reduce or modify such employment, agency or business relationship with the Company, or (B) employ or seek to employ or cause any Competitive Business to employ or seek to employ any person or agent who is then (or was at any time within six months prior to the date Executive or the Competitive Business employs or seeks to employ such person) employed or retained by the Company. Notwithstanding the foregoing, nothing herein shall prevent Executive from providing a letter of recommendation to an employee with respect to a future employment opportunity. (iii) The scope and term of this Section 8 would not preclude him from earning a living with an entity that is not a Competitive Business. (b) The terms of this Section 8 shall survive termination of this Agreement regardless of who terminates this Agreement, or the reasons therefor. 9. Inventions (a) Each invention, improvement or discovery made or conceived by Executive, either individually or with others, during the term of his employment with the Company, which invention, improvement or discovery is related to any of the lines of business or work of the Companies, any projected or potential activities which the Companies have investigated or hereinafter investigates, or which result from or are suggested by any service performed by Executive for the Company, whether patentable or not, shall be promptly and fully disclosed 7 8 by Executive to the Company. Executive assigns each such invention, improvement or discovery, and the patents thereof, or related thereto, to the Company. Executive shall, during the term of his employment with the Company and thereafter without charge to the Company, but at the request and expense of the Company, assist the Company in obtaining or vesting in itself patents upon such improvements and inventions. All such inventions, improvements or discoveries shall at all times become and remain the exclusive property of the Company. Executive represents that he does not claim ownership of any inventions, improvements, formulae or discoveries which are excluded from this Agreement. (b) In the event that Executive breaches his obligations in any material respect under Sections 7, 8 or this Section 9, the Company, in addition to pursuing all available remedies under this Agreement, at law or otherwise, and without limiting its right to pursue the same shall cease all payments to Executive under this Agreement. 10. Definitions "Business" means (a) the design, manufacture, lease and operation of pressurized and unpressurized space modules, flight hardware and subsystems, and those other businesses and activities that are described in the Company's Form 10-K for the fiscal year ended June 30, 1998, and Form 10-Q for the quarter ending September 30, 1998, or (b) any similar, incidental or related business conducted or pursued by, or engaged in, or proposed to be conducted or pursued by or engaged in, by the Companies prior to the date hereof or at any time during the Term of Employment. "Cause" is defined in Section 3(d). "Companies" means the Company and any of its direct or indirect subsidiaries, now existing or hereafter existing. "Company" is defined in the introduction. "Competitive Business" means any business which competes, directly or indirectly, with the Business in the Market. "Confidential Information" means any trade secret, confidential study, data, calculations, software storage media or other compilation of information, patent, patent application, copyright, trademark, trade name, service mark, service name, "know-how", trade secrets, customer lists, details of client or consultant contracts, pricing policies, sales techniques, confidential information relating to suppliers, information relating to the special and particular needs of the Companies' customers operational methods, marketing plans or strategies, products and formulae, product development techniques or plans, business acquisition plans or any portion or phase of any scientific or technical information, ideas, discoveries, designs, computer programs (including source of object codes), processes, procedures, research or technical data, improvements or other proprietary or intellectual property of the Companies, whether or not in written or tangible form, and whether or not registered, and including all files, records, manuals, books, catalogues, memoranda, notes, 8 9 summaries, plans, reports, records, documents and other evidence thereof. The term "Confidential Information" does not include, and there shall be no obligation hereunder with respect to, information that is or becomes generally available to the public other than as a result of a disclosure by Executive not permissible hereunder. "Executive" means the individual identified in the first paragraph of this Agreement, or his or her estate, if deceased. "Market" means any county in the United States of America and each similar jurisdiction in any other country in which the Business was conducted or pursued by, engaged in by the Companies prior to the date hereof or is conducted or engaged in or pursued, or is proposed to be conducted or engaged in or pursued, by the Companies at any time during the Term of Employment. "Material Breach" is defined in Section 3(d). "Prior Employment Agreement" is defined in Section 12(a). "Restricted Period" means the period commencing on the date of this Agreement and continuing through the sixth month anniversary of the termination of the Term of Employment. "Subsidiary" means any corporation, limited liability company, joint venture, limited and general partnership, joint stock company, association or any other type of business entity of which the Company owns, directly or indirectly through one or more intermediaries, more than fifty percent (50%) of the voting securities at the time of determination. "Term of Employment" is defined in Section 3(a). 11. Notice Any notice, request, demand or other communication required or permitted to be given under this Agreement shall be given in writing and if delivered personally, or sent by certified or registered mail, return receipt requested, as follows (or to such other addressee or address as shall be set forth in a notice given in the same manner): If to Executive: Mark A. Kissman 1134 Springvale Road Great Falls, VA 22066 If to Company: SPACEHAB, Incorporated 300 D Street, S.W. Washington, D.C. 20024 Any such notices shall be deemed to be given on the date personally delivered or such return receipt is issued. 9 10 12. Previous Agreements; Executive's Representation (a) Attached hereto as Annex A are all previous employment or severance agreements, if any, by and between Executive and the Company (collectively, the "Prior Employment Agreements"). Executive and the Company hereby cancel, void and render without force and effect all Prior Employment Agreements, and the Executive releases and discharges the Company from any further obligations or liabilities thereunder. Notwithstanding the foregoing, the terms and provisions in any Prior Employment Agreement relating to any grants of stock options or other derivative securities for the purchase of the Company's common stock, no par value per share, shall remain in full force and effect and shall not be amended in any manner as a result of the execution of this Agreement. (b) Executive hereby warrants and represents to the Company that Executive has carefully reviewed this Agreement and has consulted with such advisors as Executive considers appropriate in connection with this Agreement, is not subject to any covenants, agreements or restrictions, including without limitation any covenants, agreements or restrictions arising out of Executive's prior employment, which would be breached or violated by Executive's execution of this Agreement or by Executive's performance of his duties hereunder. 13. Other Matters Executive agrees and acknowledges that the obligations owed to Executive under this Agreement are solely the obligations of the Company, and that none of the Companies' stockholders, directors, officers, affiliates, representatives, agents or lenders will have any obligations or liabilities in respect of this Agreement and the subject matter hereof. 14. Validity If, for any reason, any provision hereof shall be determined to be invalid or unenforceable, the validity and effect of the other provisions hereof shall not be affected thereby. 15. Severability Whenever possible, each provision of this Agreement will be interpreted in such manner as to be effective and valid under applicable law, but if any provision of this Agreement is held to be invalid, illegal or unenforceable in any respect under any applicable law or rule in any jurisdiction, such invalidity, illegality or unenforceability will not affect any other provision or any other jurisdiction, but this Agreement will be reformed, construed and enforced in such jurisdiction as if such invalid, illegal or unenforceable provision had never been contained herein. If any court determines that any provision of Section 8 or any other provision hereof is unenforceable because of the power to reduce the scope or duration of such provision, as the case may be and, in its reduced form, such provision shall then be enforceable. 10 11 16. Waiver of Breach; Specific Performance The waiver by the Company or Executive of a breach of any provision of this Agreement by the other party shall not operate or be construed as a waiver of any other breach of such other party. Each of the parties (and third party beneficiaries) to this Agreement will be entitled to enforce its rights under this breach of any provision of this Agreement and to exercise all other rights existing in its favor. The parties hereto agree and acknowledge that money damages may not be an adequate remedy for any breach of the provisions of Sections 7, 8 and 9 of this Agreement and that any party (and third party beneficiaries) may in its sole discretion apply to any court of law or equity of competent jurisdiction for specific performance and/or injunctive relief, including temporary restraining orders, preliminary injunctions and permanent injunctions in order to enforce or prevent any violations of the provisions of this Agreement. In the event either party takes legal action to enforce any of the terms or provisions of this Agreement against the other party, the party against whom judgement is rendered in such action shall pay the prevailing party's costs and expenses, including but not limited to, attorneys' fees, incurred in such action. 17. Assignment; Third Parties Neither Executive nor the Company may assign, transfer, pledge, hypothecate, encumber or otherwise dispose of this Agreement or any of his or its respective rights or obligations hereunder, without the prior written consent of the other. The parties agree and acknowledge that each of the Companies and the stockholders and investors therein are intended to be third party beneficiaries of, and have rights and interests in respect of, Executive's agreements set forth in Sections 7, 8 and 9. 18. Amendment; Entire Agreement This Agreement may not be changed orally but only by an agreement in writing agreed to by the party against whom enforcement of any waiver, change, modification, extension or discharge is sought. This Agreement embodies the entire agreement and understanding of the parties hereto in respect of the subject matter of this Agreement, and supersedes and replaces all prior Agreements, understandings and commitments with respect to such subject matter. 19. Litigation THIS AGREEMENT SHALL BE GOVERNED BY, CONSTRUED, APPLIED AND ENFORCED IN ACCORDANCE WITH THE LAWS OF THE DISTRICT OF COLUMBIA, EXCEPT THAT NO DOCTRINE OF CHOICE OF LAW SHALL BE USED TO APPLY ANY LAW OTHER THAN THAT OF DISTRICT OF COLUMBIA, AND NO DEFENSE, COUNTERCLAIM OR RIGHT OF SET-OFF GIVEN OR ALLOWED BY THE LAWS OF ANY OTHER STATE OR JURISDICTION, OR ARISING OUT OF THE ENACTMENT, MODIFICATION OR REPEAL OF ANY LAW, REGULATION, 11 12 ORDINANCE OR DECREE OF ANY FOREIGN JURISDICTION, BE INTERPOSED IN ANY ACTION HEREON. SUBJECT TO SECTION 20, EXECUTIVE AND THE COMPANY AGREE THAT ANY ACTION OR PROCEEDING TO ENFORCE OR ARISING OUT OF THIS AGREEMENT MAY BE COMMENCED IN THE COURTS OF THE WASHINGTON, D.C. OR THE UNITED STATES DISTRICT COURTS IN DISTRICT OF COLUMBIA. EXECUTIVE AND THE COMPANY CONSENT TO SUCH JURISDICTION, AGREE THAT VENUE WILL BE PROPER IN SUCH COURTS AND WAIVE ANY OBJECTIONS BASED UPON FORUM NON CONVENIENS. THE CHOICE OF FORUM SET FORTH IN THIS SECTION 19 SHALL NOT BE DEEMED TO PRECLUDE THE ENFORCEMENT OF ANY JUDGMENT OBTAINED IN SUCH FORUM OR THE TAKING OF ANY ACTION UNDER THIS AGREEMENT TO ENFORCE SAME IN ANY OTHER JURISDICTION. 20. Arbitration EXECUTIVE AND THE COMPANY AGREE THAT ANY DISPUTE BETWEEN OR AMONG THE PARTIES TO THIS AGREEMENT RELATING TO OR IN RESPECT OF THIS AGREEMENT, ITS NEGOTIATION, EXECUTION, PERFORMANCE, SUBJECT MATTER, OR ANY COURSE OF CONDUCT OR DEALING OR ACTIONS UNDER OR IN RESPECT OF THIS AGREEMENT, SHALL BE SUBMITTED TO, AND RESOLVED EXCLUSIVELY PURSUANT TO ARBITRATION IN ACCORDANCE WITH THE COMMERCIAL ARBITRATION RULES OF THE AMERICAN ARBITRATION ASSOCIATION. SUCH ARBITRATION SHALL TAKE PLACE IN WASHINGTON, D.C., AND SHALL BE SUBJECT TO THE SUBSTANTIVE LAW OF THE DISTRICT OF COLUMBIA. DECISIONS PURSUANT TO SUCH ARBITRATION SHALL BE FINAL, CONCLUSIVE AND BINDING ON THE PARTIES. UPON THE CONCLUSION OF ARBITRATION, EXECUTIVE OR THE COMPANY MAY APPLY TO ANY COURT OF THE TYPE DESCRIBED IN SECTION 19 TO ENFORCE THE DECISION PURSUANT TO SUCH ARBITRATION. IN CONNECTION WITH THE FOREGOING, THE PARTIES HEREBY WAIVE ANY RIGHTS TO A JURY TRIAL TO RESOLVE ANY DISPUTES OR CLAIMS RELATING TO THIS AGREEMENT OR ITS SUBJECT MATTER. 21. Further Action Executive and the Company agree to perform any further acts and to execute and deliver any documents which may be reasonable to carry out the provisions hereof. 22. Counterparts This Agreement may be executed in counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument. 12 13 IN WITNESS WHEREOF, the parties hereto have set their hands as of the day and year first written above. EXECUTIVE: /s/Mark A. Kissman Mark A. Kissman SPACEHAB, INCORPORATED /s/David A. Rossi David A. Rossi, President EX-10.92 4 EMPLOYMENT AND NON-INTERFERENCE AGREEMENT 1 EXHIBIT 10.92 EMPLOYMENT AND NON-INTERFERENCE AGREEMENT This Employment and Non-Interference Agreement (this "Agreement"), is dated as of March 1, 1999, by and between Michael E. Kearney (the "Executive") and SPACEHAB, Incorporated, a Washington state corporation (the "Company"). WHEREAS, the Company wishes to retain the future services of Executive for the Company; WHEREAS, Executive is willing, upon the terms and conditions set forth in this Agreement, to provide services hereunder; and WHEREAS, the Company wishes to secure Executive's non-interference, upon the terms and conditions set forth in this Agreement. NOW, THEREFORE, in consideration of the mutual promises and covenants contained herein, and intending to be legally bound hereby, the parties hereto agree as follows: 1. Nature of Employment. Subject to Section 3, the Company hereby employs Executive, and Executive agrees to accept such employment, during the Term of Employment (as defined in Section 3(a)), as Vice President, Marketing and Sales, and to undertake such duties and responsibilities as may be reasonably assigned to Executive from time to time by the Chief Executive Officer, Chief Operating Officer, Board of Directors of the Company, or such other appropriately authorized or designated executive officer of the Company. 2. Extent of Employment. (a) During the Term of Employment, Executive shall perform his obligations hereunder faithfully and to the best of his ability under the direction of the Chief Executive Officer, Chief Operating Officer, Board of Directors of the Company, or such other appropriately authorized or designated executive officer of the Company and shall abide by the rules, customs and usages from time to time established by the Company. (b) During the Term of Employment, Executive shall devote all of his business time, energy and skill as may be reasonably necessary for the performance of his duties, responsibilities and obligations under this Agreement (except for vacation periods and reasonable periods of illness or other incapacity), consistent with past practices and norms with respect to similar positions. (c) Nothing contained herein shall require Executive to follow any directive or to perform any act which would violate any laws, ordinances, regulations or rules of any governmental, regulatory or administrative body, agent or authority, any court or judicial 2 authority, or any public, private or industry regulatory authority. Executive shall act in accordance with the laws, ordinances, regulations or rules of any governmental, regulatory or administrative body, agent or authority, any court or judicial authority, or any public, private or industry regulatory authority. 3. Term of Employment; Termination. (a) The "Term of Employment" shall commence on March 1, 1999 and shall continue through July 31, 1999 (the "Initial Term"), subject to automatic annual renewal for one-year terms thereafter (the "Additional Term"), unless either the Company or Executive notifies the other party of its intent not to renew within ninety (90) days prior to the end of the Initial Term or Additional Term as the case may be. Should Executive's employment by the Company be earlier terminated pursuant to Section 3(b), the Term of Employment shall end on the date of such earlier termination. (b) Subject to the payments contemplated by Section 3(d), the Term of Employment may be terminated at any time by the Company: (i) upon the death of Executive; (ii) in the event that because of physical or mental disability, Executive is unable to perform and does not perform his duties hereunder, for a continuous period of 90 days, and an experienced, recognized physician specializing in such disabilities certifies as to the foregoing in writing; (iii) for Cause or Material Breach (each as defined in Section 3(d)); (iv) upon the continuous poor or unacceptable performance of Executive's duties to the Company, in the sole judgment of the Board of Directors of the Company, which has remained uncured for a period of 90 days after the delivery of notice by the Company to the Executive of such dissatisfaction with Executive's performance; or (v) for any other reason not referred to in clauses (i) through (iv), or for no reason, such that this Agreement shall be construed as terminable at will by the Company. Executive acknowledges that no representations or promises have been made concerning the grounds for termination or the future operation of the Company's business, and that nothing contained herein or otherwise stated by or on behalf of the Company modifies or amends the right of the Company to terminate Executive at any time, with or without Material Breach or Cause. Termination shall become effective upon the delivery by the Company to Executive of notice specifying such termination and the reasons therefor, subject to the requirements for advance notice and an opportunity to cure provided in this Agreement, if and to the extent applicable. 2 3 (c) Subject to the payments contemplated by Section 3(d), the Term of Employment may be terminated at any time by Executive: (i) upon the death of Executive; (ii) in the event that because of physical or mental disability, Executive is unable to perform and does not perform his duties hereunder, for a continuous period of 90 days, and an experienced, recognized physician specializing in such disabilities certifies as to the foregoing in writing; (iii) as a result of the Company's material reduction in Executive's authority, perquisites, position, title or responsibilities (other than such a reduction by the Company because of a temporary illness or disability or such a reduction which affects all of the Company's senior executives on a substantially equal or proportionate basis as a result of financial results, conditions, prospects, reorganization, workout or distressed condition of the Company), or the Company's willful, material violation of its obligations under this Agreement, in each case, after 30 days' prior written notice by Executive to the Company and its Board of Directors and the Company's failure thereafter to cure such reduction or violation within such 30 days; or (iv) voluntarily or for any reason not referred to in clauses (i) through (iii), or for no reason, in each case, after 90 days' prior written notice to the Company and its Board of Directors. (d) For the purposes of this Section 3: "Cause" shall mean any of the following: (i) Executive's conviction of any crime or criminal offense involving the unlawful theft or conversion of substantial monies or other property or any other felony (other than a criminal offense arising solely under a statutory provision imposing criminal liability on the Executive on a per se basis due to the offices held by the Executive); or (ii) Executive's conviction of fraud or embezzlement. "Material Breach" shall mean any of the following: (i) Executive's breach of any of his fiduciary duties to the Company or its stockholders or making of a willful misrepresentation or omission which breach, misrepresentation or omission would reasonably be expected to materially adversely affect the business, properties, assets, condition (financial or other) or prospects of the Company; (ii) Executive's willful, continual and material neglect or failure to discharge his duties, responsibilities or obligations prescribed by Sections 1 and 2 (other than arising solely due to physical or mental disability); (iii) Executive's habitual drunkenness or substance abuse which materially interferes with Executive's ability to discharge his duties, responsibilities or obligations prescribed by Sections 1 and 2; (iv) 3 4 Executive's willful, continual and material breach of any noncompetition or confidentiality agreement with the Company, including, without limitation, those set forth in Sections 7 and 8 of this Agreement; and (v) Executive's gross neglect of his duties and responsibilities, as determined by the Company's Board of Directors; in each case, for purposes of clauses (i) through (v), after the Company or the Board of Directors has provided Executive with 30 days' written notice of such circumstances and the possibility of a Material Breach, and Executive fails to cure such circumstances and Material Breach within those 30 days. (i) In the event Executive's employment is terminated pursuant to Section 3(b)(i) [death], 3(b)(ii) [disability] or 3(b)(v) [any other reason or no reason] or 3(c)(i) [death], 3(c)(ii) [disability] or 3(c)(iii) [material reduction], the Company will: (A) pay to Executive (or his estate or representative) the full amounts to which the Executive would be entitled to under Section 4(a) for the period from effectiveness of termination through the sixth month anniversary of termination; and (B) pay to Executive (or his estate or representative) the benefits described in Section 6 through the sixth month anniversary of termination. Payment of the amounts and provision of the benefits described above will be made in accordance with the timetable and schedule for such payments contemplated therefor as if such termination did not occur, and will be subject to the other provisions of this Agreement, including Section 3(g) and Sections 7 and 8. If the Company makes the payments required by this Section 3(d)(i), such payments will constitute severance and liquidated damages, and the Company will not be obligated to pay any further amounts to Executive under this Agreement or otherwise be liable to Executive in connection with any termination. (ii) In the event Executive's employment is terminated pursuant to Section 3(b)(iii) [Cause or Material Breach], 3(b)(iv) [poor performance], or 3(c)(iv) [voluntary], the Company will not be obligated to pay any further amounts to Executive under this Agreement. (e) In the event the Term of Employment is terminated and the Company is obligated to make payments to Executive pursuant to Section 3(d)(i), Executive shall have a duty to seek to obtain alternative employment; and if Executive thereafter obtains alternative employment, the Company's payment obligations under Section 3(d)(i), including its obligation to provide insurance coverage, if any, will be mitigated and reduced by and to the extent of Executive's compensation under such alternative employment during the period for which payments are owed by the Company pursuant to Section 3(d)(i). Moreover, in the event that Executive is employed by or engaged in a Competitive Business as contemplated by Section 8(a)(i), then the Company will thereupon no longer be obligated to make payments under Section 3(d)(i). (f) In the event the Term of Employment is terminated and the Company is obligated to make payments pursuant to Section 3(d)(i), Executive hereby waives any and 4 5 all claims against the Company and its respective officers, directors, employees, agents, or representatives, stockholders and affiliates relating to his employment during the term hereof and this Agreement. (g) Termination of the Term of Employment will not terminate Sections 3(d), 3(f), and 7 through 21. 4. Compensation During the Term of Employment, the Company shall pay to Executive: (a) As base compensation for his services hereunder, in semi-monthly installments, a base salary at a rate of not less than $188,000 per annum. Such amounts may be increased (but not decreased) annually at the discretion of the Compensation Committee of the Board of Directors based upon an annual review by the Compensation Committee of the Board of Directors of Executive's performance. (b) An annual bonus, if any, based on Executive's and/or Company's performance as determined and approved by the Compensation Committee of the Board of Directors. (c) An annual stock option grant, if any, based on Executive's, Company's and/or Company Stock performance as determined and approved by the Compensation Committee of the Board of Directors. 5. Reimbursement of Expenses During the Term of Employment, the Company shall pay all expenses, including, without limitation, transportation, lodging and food for Executive to attend conventions, conferences and meetings that the Company determines are necessary or in the best interest of the Company, and for any ordinary and reasonable expenses incurred by Executive in the conduct of the Business of the Company. Travel outside the United States shall be subject to the prior approval of an executive officer of the Company. 6. Benefits During the Term of Employment, Executive shall be entitled to benefits (including health, disability, pension and life insurance benefits consistent with Company policy, or as increased from time to time), in each case, in accordance with guidelines or established from time to time by the Board of Directors for senior executives of the Company. 5 6 7. Confidential Information (a) Executive acknowledges that his employment hereunder gives him access to Confidential Information relating to the Company's Business and its customers which must remain confidential. Executive acknowledges that this information is valuable, special, and a unique asset of the Company's Business, and that it has been and will be developed by the Company at considerable effort and expense, and if it were to be known and used by others engaged in a Competitive Business, it would be harmful and detrimental to the interests of the Company. In consideration of the foregoing, Executive hereby agrees and covenants that, during and after the Term of Employment, Executive will not, directly or indirectly in one or a series of transactions, disclose to any person, or use or otherwise exploit for Executive's own benefit or for the benefit of anyone other than the Companies, Confidential Information (as defined in Section 10), whether prepared by Executive or not; provided, however, that any Confidential Information may be disclosed to officers, representatives, employees and agents of the Companies who need to know such Confidential Information in order to perform the services or conduct the operations required or expected of them in the Business (as defined in Section 10). Executive shall use his best efforts to prevent the removal of any Confidential Information from the premises of the Companies, except as required in his normal course of employment by the Company. Executive shall use his best efforts to cause all persons or entities to whom any Confidential Information shall be disclosed by him hereunder to observe the terms and conditions set forth herein as though each such person or entity was bound hereby. Executive shall have no obligation hereunder to keep confidential any Confidential Information if and to the extent disclosure of any thereof is specifically required by law; provided, however, that in the event disclosure is required by applicable law, Executive shall provide the Company with prompt notice of such requirement, prior to making any disclosure, so that the Company may seek an appropriate protective order. At the request of the Company, Executive agrees to deliver to the Company, at any time during the Term of Employment, or thereafter, all Confidential Information which he may possess or control. Executive agrees that all Confidential Information of the Companies (whether now or hereafter existing) conceived, discovered or made by him during the Term of Employment exclusively belongs to the Companies (and not to Executive). Executive will promptly disclose such Confidential Information to the Company and perform all actions reasonably requested by the Company to establish and confirm such exclusive ownership. (b) In the event that Executive breaches his obligations in any material respect under this Section 7, the Company, in addition to pursuing all available remedies under this Agreement, at law or otherwise, and without limiting its right to pursue the same shall cease all payments to Executive under this Agreement. (c) The terms of this Section 7 shall survive the termination of this Agreement regardless of who terminates this Agreement, or the reasons therefor. 6 7 8. Non-Interference (a) Executive acknowledges that the services to be provided give him the opportunity to have special knowledge of the Company and its Confidential Information and the capabilities of individuals employed by or affiliated with the Company, and that interference in these relationships would cause irreparable injury to the Company. In consideration of this Agreement, Executive covenants and agrees that: (i) During the Restricted Period (which shall not include any period of violation of this Agreement by the Executive), Executive will not, without the express written approval of the Board of Directors of the Company, anywhere in the Market, directly or indirectly, in one or a series of transactions, own, manage, operate, control, invest or acquire an interest in, or otherwise engage or participate in, whether as a proprietor, partner, stockholder, lender, director, officer, employee, joint venturer, investor, lessor, supplier, customer, agent, representative or other participant, in any Competitive Business without regard to (A) whether the Competitive Business has its office, manufacturing or other business facilities within or without the Market, (B) whether any of the activities of Executive referred to above occur or are performed within or without the Market or (C) whether Executive resides, or reports to an office, within or without the Market; provided, however, that (x) Executive may, anywhere in the Market, directly or indirectly, in one or a series of transactions, own, invest or acquire an interest in up to five percent (5%) of the capital stock of a corporation whose capital stock is traded publicly, or that (y) Executive may accept employment with a successor company to the Company. (ii) During the Restricted Period (which shall not include any period of violation of this Agreement by Executive), Executive will not without the express prior written approval of the Board of Directors of the Company (A) directly or indirectly, in one or a series of transactions, recruit, solicit or otherwise induce or influence any proprietor, partner, stockholder, lender, director, officer, employee, sales agent, joint venturer, investor, lessor, supplier, customer, agent, representative or any other person which has a business relationship with the Company or had a business relationship with the Company within the twenty-four (24) month period preceding the date of the incident in question, to discontinue, reduce or modify such employment, agency or business relationship with the Company, or (B) employ or seek to employ or cause any Competitive Business to employ or seek to employ any person or agent who is then (or was at any time within six months prior to the date Executive or the Competitive Business employs or seeks to employ such person) employed or retained by the Company. Notwithstanding the foregoing, nothing herein shall prevent Executive from providing a letter of recommendation to an employee with respect to a future employment opportunity. 7 8 (iii) The scope and term of this Section 8 would not preclude him from earning a living with an entity that is not a Competitive Business. (b) The terms of this Section 8 shall survive termination of this Agreement regardless of who terminates this Agreement, or the reasons therefor. 9. Inventions (a) Each invention, improvement or discovery made or conceived by Executive, either individually or with others, during the term of his employment with the Company, which invention, improvement or discovery is related to any of the lines of business or work of the Companies, any projected or potential activities which the Companies have investigated or hereinafter investigates, or which result from or are suggested by any service performed by Executive for the Company, whether patentable or not, shall be promptly and fully disclosed by Executive to the Company. Executive assigns each such invention, improvement or discovery, and the patents thereof, or related thereto, to the Company. Executive shall, during the term of his employment with the Company and thereafter without charge to the Company, but at the request and expense of the Company, assist the Company in obtaining or vesting in itself patents upon such improvements and inventions. All such inventions, improvements or discoveries shall at all times become and remain the exclusive property of the Company. Executive represents that he does not claim ownership of any inventions, improvements, formulae or discoveries which are excluded from this Agreement. (b) In the event that Executive breaches his obligations in any material respect under Sections 7, 8 or this Section 9, the Company, in addition to pursuing all available remedies under this Agreement, at law or otherwise, and without limiting its right to pursue the same shall cease all payments to Executive under this Agreement. 10. Definitions "Business" means (a) the design, manufacture, lease and operation of pressurized and unpressurized space modules, flight hardware and subsystems, and those other businesses and activities that are described in the Company's Form 10-K for the fiscal year ended June 30, 1998, and Form 10 Q for the quarter ending September 30, 1998, or (b) any similar, incidental or related business conducted or pursued by or engaged in, by the Companies prior to the date hereof or at any time during the Term of Employment. "Cause" is defined in Section 3(d). "Companies" means the Company and any of its direct or indirect subsidiaries, now existing or hereafter existing. "Company" is defined in the introduction. 8 9 "Competitive Business" means any business which competes, directly or indirectly, with the Business in the Market. "Confidential Information" means any trade secret, confidential study, data, calculations, software storage media or other compilation of information, patent, patent application, copyright, trademark, trade name, service mark, service name, "know-how", trade secrets, customer lists, details of client or consultant contracts, pricing policies, sales techniques, confidential information relating to suppliers, information relating to the special and particular needs of the Companies' customers operational methods, marketing plans or strategies, products and formulae, product development techniques or plans, business acquisition plans or any portion or phase of any scientific or technical information, ideas, discoveries, designs, computer programs (including source of object codes), processes, procedures, research or technical data, improvements or other proprietary or intellectual property of the Companies, whether or not in written or tangible form, and whether or not registered, and including all files, records, manuals, books, catalogues, memoranda, notes, summaries, plans, reports, records, documents and other evidence thereof. The term "Confidential Information" does not include, and there shall be no obligation hereunder with respect to, information that is or becomes generally available to the public other than as a result of a disclosure by Executive not permissible hereunder. "Executive" means the individual identified in the first paragraph of this Agreement, or his or her estate, if deceased. "Market" means any county in the United States of America and each similar jurisdiction in any other country in which the Business was conducted or pursued by, engaged in by the Companies prior to the date hereof or is conducted or engaged in or pursued, or is proposed to be conducted or engaged in or pursued, by the Companies at any time during the Term of Employment. "Material Breach" is defined in Section 3(d). "Prior Employment Agreement" is defined in Section 12(a). "Restricted Period" means the period commencing on the date of this Agreement and continuing through the sixth month anniversary of the termination of the Term of Employment. "Subsidiary" means any corporation, limited liability company, joint venture, limited and general partnership, joint stock company, association or any other type of business entity of which the Company owns, directly or indirectly through one or more intermediaries, more than fifty percent (50%) of the voting securities at the time of determination. "Term of Employment" is defined in Section 3(a). 9 10 11. Notice. Any notice, request, demand or other communication required or permitted to be given under this Agreement shall be given in writing and if delivered personally, or sent by certified or registered mail, return receipt requested, as follows (or to such other addressee or address as shall be set forth in a notice given in the same manner): If to Executive: Michael E. Kearney 6103 Newcastle Drive Bellaire, TX 77401 If to Company: SPACEHAB, Incorporated 300 D Street, S.W. Washington, D.C. 20024 Attention: General Counsel Any such notices shall be deemed to be given on the date personally delivered or such return receipt is issued. 12. Previous Agreements; Executive's Representation. (a) Attached hereto as Annex A are all previous employment or severance agreements, if any, by and between Executive and the Company (collectively, the "Prior Employment Agreements"). Executive and the Company hereby cancel, void and render without force and effect all Prior Employment Agreements, and the Executive releases and discharges the Company from any further obligations or liabilities thereunder. Notwithstanding the foregoing, the terms and provisions in any Prior Employment Agreement relating to any grants of stock options or other derivative securities for the purchase of the Company's common stock, no par value per share, shall remain in full force and effect and shall not be amended in any manner as a result of the execution of this Agreement. (b) Executive hereby warrants and represents to the Company that Executive has carefully reviewed this Agreement and has consulted with such advisors as Executive considers appropriate in connection with this Agreement, is not subject to any covenants, agreements or restrictions, including without limitation any covenants, agreements or restrictions arising out of Executive's prior employment, which would be breached or violated by Executive's execution of this Agreement or by Executive's performance of his duties hereunder. 13. Other Matters. Executive agrees and acknowledges that the obligations owed to Executive under this Agreement are solely the obligations of the Company, and that none of the Companies' stockholders, directors, officers, affiliates, representatives, agents or lenders will have any obligations or liabilities in respect of this Agreement and the subject matter hereof. 10 11 14. Validity. If, for any reason, any provision hereof shall be determined to be invalid or unenforceable, the validity and effect of the other provisions hereof shall not be affected thereby. 15. Severability. Whenever possible, each provision of this Agreement will be interpreted in such manner as to be effective and valid under applicable law, but if any provision of this Agreement is held to be invalid, illegal or unenforceable in any respect under any applicable law or rule in any jurisdiction, such invalidity, illegality or unenforceability will not affect any other provision or any other jurisdiction, but this Agreement will be reformed, construed and enforced in such jurisdiction as if such invalid, illegal or unenforceable provision had never been contained herein. If any court determines that any provision of Section 8 or any other provision hereof is unenforceable because of the power to reduce the scope or duration of such provision, as the case may be and, in its reduced form, such provision shall then be enforceable. 16. Waiver of Breach; Specific Performance The waiver by the Company or Executive of a breach of any provision of this Agreement by the other party shall not operate or be construed as a waiver of any other breach of such other party. Each of the parties (and third party beneficiaries) to this Agreement will be entitled to enforce its rights under this breach of any provision of this Agreement and to exercise all other rights existing in its favor. The parties hereto agree and acknowledge that money damages may not be an adequate remedy for any breach of the provisions of Sections 7, 8 and 9 of this Agreement and that any party (and third party beneficiaries) may in its sole discretion apply to any court of law or equity of competent jurisdiction for specific performance and/or injunctive relief, including temporary restraining orders, preliminary injunctions and permanent injunctions in order to enforce or prevent any violations of the provisions of this Agreement. In the event either party takes legal action to enforce any of the terms or provisions of this Agreement against the other party, the party against whom judgement is rendered in such action shall pay the prevailing party's costs and expenses, including but not limited to, attorneys' fees, incurred in such action. 17. Assignment; Third Parties. Neither Executive nor the Company may assign, transfer, pledge, hypothecate, encumber, or otherwise dispose of this Agreement or any of his or its respective rights or obligations hereunder, without the prior written consent of the other. The parties agree and acknowledge that each of the Companies and the stockholders and investors therein are 11 12 intended to be third party beneficiaries of, and have rights and interests in respect of, Executive's agreements set forth in Sections 7, 8 and 9. 18. Amendment; Entire Agreement. This Agreement may not be changed orally but only by an agreement in writing agreed to by the party against whom enforcement of any waiver, change, modification, extension or discharge is sought. This Agreement embodies the entire agreement and understanding of the parties hereto in respect of the subject matter of this Agreement, and supersedes and replaces all prior Agreements, understandings and commitments with respect to such subject matter. 19. Litigation. THIS AGREEMENT SHALL BE GOVERNED BY, CONSTRUED, APPLIED AND ENFORCED IN ACCORDANCE WITH THE LAWS OF THE DISTRICT OF COLUMBIA, EXCEPT THAT NO DOCTRINE OF CHOICE OF LAW SHALL BE USED TO APPLY ANY LAW OTHER THAN THAT OF DISTRICT OF COLUMBIA, AND NO DEFENSE, COUNTERCLAIM OR RIGHT OF SET-OFF GIVEN OR ALLOWED BY THE LAWS OF ANY OTHER STATE OR JURISDICTION, OR ARISING OUT OF THE ENACTMENT, MODIFICATION OR REPEAL OF ANY LAW, REGULATION, ORDINANCE OR DECREE OF ANY FOREIGN JURISDICTION, BE INTERPOSED IN ANY ACTION HEREON. SUBJECT TO SECTION 20, EXECUTIVE AND THE COMPANY AGREE THAT ANY ACTION OR PROCEEDING TO ENFORCE OR ARISING OUT OF THIS AGREEMENT MAY BE COMMENCED IN THE COURTS OF THE DISTRICT OF COLUMBIA OR THE UNITED STATES DISTRICT COURTS IN WASHINGTON, D.C. EXECUTIVE AND THE COMPANY CONSENT TO SUCH JURISDICTION, AGREE THAT VENUE WILL BE PROPER IN SUCH COURTS AND WAIVE ANY OBJECTIONS BASED UPON FORUM NON CONVENIENS. THE CHOICE OF FORUM SET FORTH IN THIS SECTION 19 SHALL NOT BE DEEMED TO PRECLUDE THE ENFORCEMENT OF ANY JUDGMENT OBTAINED IN SUCH FORUM OR THE TAKING OF ANY ACTION UNDER THIS AGREEMENT TO ENFORCE SAME IN ANY OTHER JURISDICTION. 20. Arbitration. EXECUTIVE AND THE COMPANY AGREE THAT ANY DISPUTE BETWEEN OR AMONG THE PARTIES TO THIS AGREEMENT RELATING TO OR IN RESPECT OF THIS AGREEMENT, ITS NEGOTIATION, EXECUTION, PERFORMANCE, SUBJECT MATTER, OR ANY COURSE OF CONDUCT OR DEALING OR ACTIONS UNDER OR IN RESPECT OF THIS AGREEMENT, SHALL BE SUBMITTED TO, AND RESOLVED EXCLUSIVELY PURSUANT TO ARBITRATION IN ACCORDANCE WITH THE COMMERCIAL ARBITRATION RULES OF THE AMERICAN ARBITRATION ASSOCIATION. SUCH ARBITRATION SHALL TAKE PLACE IN ARLINGTON, VIRGINIA, AND SHALL BE SUBJECT TO THE SUBSTANTIVE LAW OF THE DISTRICT OF 12 13 COLUMBIA. DECISIONS PURSUANT TO SUCH ARBITRATION SHALL BE FINAL, CONCLUSIVE AND BINDING ON THE PARTIES. UPON THE CONCLUSION OF ARBITRATION, EXECUTIVE OR THE COMPANY MAY APPLY TO ANY COURT OF THE TYPE DESCRIBED IN SECTION 19 TO ENFORCE THE DECISION PURSUANT TO SUCH ARBITRATION. IN CONNECTION WITH THE FOREGOING, THE PARTIES HEREBY WAIVE ANY RIGHTS TO A JURY TRIAL TO RESOLVE ANY DISPUTES OR CLAIMS RELATING TO THIS AGREEMENT OR ITS SUBJECT MATTER. 21. Further Action. Executive and the Company agree to perform any further acts and to execute and deliver any documents which may be reasonable to carry out the provisions hereof. 22. Counterparts. This Agreement may be executed in counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument. IN WITNESS WHEREOF, the parties hereto have set their hands as of the day and year first written above. EXECUTIVE: /s/ Michael E. Kearney ------------------------------ Michael E. Kearney SPACEHAB, INCORPORATED By: /s/ David A. Rossi ------------------------- David A. Rossi, President 13 EX-10.93 5 CONTRACT NO NAS 9-18800 1 EXHIBIT 10.93 U.S. Gov't STATEMENT OF WORK FLIGHT CREW SYSTEMS DEVELOPMENT CONTRACT 1.0 INTRODUCTION Section 1.0 of this statement of work defines the overall scope of work and provides a summary of the technical support effort. Section 2.0 provides detailed descriptions of the technical support requirements for each major function to be performed. Section 3.0 defines functions which are general in nature and are considered common to all major functional areas. 1.1 SCOPE The Flight Crew Systems Development Contract (FCSDC) Contract statement of work provides for support services to all elements of the Flight Crew Support Division, and peripherally to other Space and Life Sciences Directorate elements for related functions. This involves providing non-personal services support including management, technical and administrative manpower, and, as required, facilities, equipment and material necessary for accomplishing this support function. These requirements apply to all current and future programs involving the Flight Crew Support Division of the Johnson Space Center. The activities to be supported are located at and near the NASA Johnson Space Center (JSC) in Houston, Texas, and at the Marshall Space Flight Center in Huntsville, Alabama. Technical support activities are currently performed in the following JSC buildings: J9A/J9B, Mockup and Integration Laboratory; J29, Weightless Environment Training Facility, Anthropometric and Biomechanics Laboratory; J32E/J32T, Mockup and Trainer Support Shop; J220, Mockup Assembly and Support Area; J15, Optics and 70mm Camera Laboratory, Engineering Design Support Laboratory, Electronic Still Camera Laboratory, Laser Anthropometric Mapping System Facility, Computer Facility, Graphics Analysis Facility, Remote Operation Interaction Laboratory; J17, Hygiene and Housekeeping Systems Development Laboratory, Tools and Diagnostics Laboratory, Small Format Camera Laboratory, Human Computer Interaction Laboratory, Food Systems Engineering Facility. Some engineering and management support personnel are currently housed onsite. Offsite facilities may be required for support activities consisting of technical interchange, planning and management activities, research planning, performance and analysis, project management, design/drafting, Crew Compartment Configuration Drawing production and archival, Decal Laboratory and Lighting Laboratory operations, warehousing for temporary storage of mockups and training articles, and secured (bonded) storage for flight hardware components and materials and mission logistics hardware complements. Federal Information Processing (FIP) resources and users requiring support are located in all of these buildings and facilities. Technical support activities performed at the Marshall Space Flight Center will be housed onsite at that installation. C-1 2 U.S. Gov't 1.2 SUMMARY DESCRIPTION The engineering, scientific, analytical, test and evaluation, integration and operations support capabilities of the Flight Crew Support Division provide a broad multi-disciplinary technical resource which supports technical requirements from organizations both within and outside the Johnson Space Center. These include elements internal to the Space and Life Sciences Directorate, the Engineering Directorate, the Mission Operations Directorate, the Flight Crew Operations Directorate, the Program Offices, the New Initiatives Office, the Public Affairs Office, other NASA centers, international partners/organizations, other agencies, the scientific community, professional societies and commercial industries. Technical and schedule requirements are provided by sponsoring organizations, and are sensitive to such factors as program modifications, test and evaluation anomalies, technology changes and flight schedules. Work is initiated and authorized through a system of Action Memoranda (AM's) and Project Work Sheets (PWS's) specifically approved by contract technical management personnel. In support of the requirements defined by this statement of work the contractor shall be required to provide functions ranging from hands-on maintenance and operations tasks to end-to-end research and engineering associated with requirements definition and application to major systems projects. Typically these requirements include activities in the following areas: engineering; design; development; fabrication; test and evaluation; scientific research and analysis; engineering analysis; data acquisition; documentation and publication; project management and coordination; systems/mission integration; mission logistics support; real-time mission support; facility development and operation; software systems development and implementation; programming; maintenance of laboratories and facilities and associated equipment; technical interchange of scientific and engineering information; and the definition, acquisition, installation, test, and verification of components, flight hardware and certification hardware, instrumentation, equipment, mockups and trainers, test articles, and FIP hardware/software systems and services. Much of the work is experimental in nature and some hazardous operations are involved. More detailed descriptions of requirements and contractor support functions are provided in the following sections of this statement of work. 2.0 SUPPORT TASKS 2.1 FLIGHT HARDWARE DEVELOPMENT AND PROVISIONING This support requirement encompasses the various functions involved in developing and provisioning flight hardware in support of current and future NASA programs. This hardware includes flight crew equipment, experiments and payload related systems or subsystems. The functions include the various phases of design, from the preliminary and conceptual stage, through the detailed engineering drawing production for fabrication. Also included are the tasks of fabrication and testing. Coupled with testing is hardware qualification, including generation of specifications and associated documentation. Integration of the developed system or subsystem into its use C-2 3 U.S. Gov't location, and post-use analysis of performance are included in these functions. The following are descriptions of the support activities to be performed by the contractor to meet this requirement. Flight Program/Project requirements are defined by JSC 17038E, NSTS 21096, and JSC 31040. 2.1.1 ENGINEERING AND TECHNICAL SUPPORT FOR FLIGHT HARDWARE DESIGN, DEVELOPMENT, TEST AND EVALUATION (DDT&E) The contractor shall provide engineering manpower and materials necessary to support flight hardware DDT&E. All disciplines of engineering will be required for proper project implementation. This includes the tasks of concept development, performing engineering studies and technical analyses, design of components and subsystems, production of prototypes and test articles, manufacture and procurement of components and subsystems, testing and certification of flight hardware, interface definition and implementation, production and maintenance of documentation, configuration management, mission logistics support, sustaining engineering and subsystem management support, real time mission support, evaluation of flight hardware and test hardware performance, and anomaly resolutions. Generation of detailed engineering and fabrication drawings is required. The contractor shall furnish the required expertise in materials and processes, test procedures, certification and documentation, and accepted practices for integration of flight hardware into a flight vehicle or planetary surface element. 2.1.1.1 Design and Engineering Drawings Experienced design engineering support in the disciplines of mechanical, electrical/electronic, structural, thermodynamics, vibration/acoustical, materials, industrial and computer/microchip design is required to perform this task. Design draftsmen which are well versed in both manual drafting as well as the use of Computer Aided Design (CAD) equipment shall be provided. The quality control of engineering drawings requires that drawing checking capabilities be provided, using experienced personnel who can ensure all requirements are met. All drawings shall be prepared in accordance with JSCM 8500 and DOD-STD-100C, and all flight hardware engineering drawings shall be released through the JSC Engineering Drawing Control Center. 2.1.1.2 Engineering Studies, Analyses and Tradeoffs The contractor shall provide qualified manpower and materials for the performance of in-depth engineering studies, analysis, and trade studies. These studies may require hardware testing, documentation research, and the use of recognized experts to prepare recommendations for specific courses of action. Analyses of test data, statistical data, and documentation surveys shall also be provided. Engineering tradeoffs performed by competent personnel shall be performed to establish design concepts and configurations. C-3 4 U.S. Gov't 2.1.1.3 Fabrication and Evaluation of Prototypes The contractor shall provide the technical support and material necessary to produce and evaluate prototypes of flight equipment. These evaluations will examine weight, power, volume, reliability, ease of manufacture, crew interface, stowage, ground and on-orbit maintenance and repair, and cost. The support for this requirement requires shop facilities with wood, plastic, metal, electrical/electronics, and fabric capabilities, and qualified technicians who can work in close communications with design engineers to construct or modify prototype items. 2.1.1.4 Production/Maintenance of Hardware Documentation The contractor shall provide qualified manpower and materials to support hardware documentation requirements for current and future space programs. Tasks include the preparation, coordination, and presentation of Safety Analysis Reports (SAR) and Hazard Reports (HR). A documentation tracking system is required that provides current configuration information as well as historical background on the evolution of approved changes. 2.1.1.5 Manufacture/Production of Flight and Test Hardware The contractor shall provide qualified manpower and materials to produce and procure components and subsystems qualifiable for use as space flight or test hardware. All procured materials and components shall be purchased with necessary proof of quality according to NASA flight hardware procurement requirements. Materials and component storage shall be provided in accordance with NASA flight hardware storage and control requirements. The provisioning of flight hardware shall be in compliance with NASA SR&QA requirements, as defined in the appropriate paragraphs of section 3.6 of this SOW. 2.1.1.6 Test and Flight Certification The contractor shall provide qualified manpower and materials to prepare test plans, staff necessary test facilities, provide required test fixtures, prepare test schedules, gain NASA approval of proposed test plans and procedures and conduct/monitor tests to obtain performance and certification data from hardware components and subsystems. Test results shall be documented and formal presentations made to gain final flight certification of hardware designs. 2.1.1.7 Mission Logistics Support The contractor shall provide qualified manpower and materials to support mission logistics operations for flight hardware. This function includes providing bonded storage for staging and/or storing, and mission hardware preparation and delivery to a prepacking facility and/or launch site or vehicle installation. Examples include camera film loading, battery testing, camera lens adjustment, pre-launch flight crew food monitoring, and preparation of ancillary flight crew equipment. Additionally, the mission logistics support requires downloading flight equipment upon completion of mission C-4 5 U.S. Gov't usage, including landing site standard film retrieval. The contractor shall provide for replenishment of consumable, expendables, and spare parts, and shall support the repair, modification, and refurbishment of flight hardware. 2.1.1.8 Subsystem Management Technical Support The contractor shall provide qualified manpower and materials to support man-systems subsystem managers in the performance of engineering and integration functions, and to ensure all relevant requirements are met by developers and suppliers of flight hardware. Contractor personnel shall technically represent the man-systems subsystems managers in support of such programmatic activities as preliminary design reviews, critical design reviews, planning sessions, panel and board meetings, hardware testing, flight equipment installation and removal, post mission debriefings and hardware performance analyses. 2.1.1.9 Real Time Mission Support The contractor shall provide qualified manpower and materials to support flight operations during missions. Support personnel are required to have in-depth knowledge of Flight Crew Support Division hardware manifested for a given mission. The purpose of this activity is to maintain a presence in mission evaluation facilities to monitor crew activities and man-systems hardware performance, to make informed recommendations for changes to flight activities in the event of inflight problems or contingencies, and to technically support inflight anomaly resolutions. 2.1.1.10 Man-Systems Hardware Performance Evaluation/Anomaly Resolution The contractor shall provide qualified manpower and materials to participate in tests, analysis, and mission and crew debriefings, in order to identify the causes for abnormal man-systems hardware performance, recommend corrective actions when required, and assist in properly documenting all events and communicating them to Flight Crew Support Division managers, subsystem managers, and other elements within NASA/JSC. 2.1.2 TECHNICAL SUPPORT FOR RESEARCH AND DEVELOPMENT (R&D) AND LABORATORY OPERATIONS The Flight Crew Support Division performs significant R&D in support of flight hardware development and provisioning. These activities are primarily associated with subsystems involving flight crew equipment and accommodations, such as food, clothing, personal hygiene, housekeeping and trash management, tools and diagnostic equipment, restraints and mobility aids, off duty activities equipment, photographic and electronic imaging equipment, and decals and nomenclature placards. Several laboratories and facilities are operated to accommodate these R&D activities and to support other flight equipment DDT&E functions, including components and subsystems test and checkout, assembly and make-ready, and performance evaluation and anomaly resolutions. The contractor shall provide qualified manpower and material to operate and C-5 6 U.S. Gov't technically support these facilities and perform these multifunctional activities for spaceflight and planetary surface program requirements. 2.1.2.1 Food Systems Engineering Facility The contractor shall be responsible for operating and supporting the NASA Food Systems Engineering Facility. This facility supports flight food definition and evaluation and space food packaging design and development. This facility develops and maintains all specifications and standards used in the production of flight food. Inflight menus, and preflight menus for crew health stabilization and maintenance are produced by this facility. Space food packaging includes the design and development of complete new systems as well as modifications to existing food systems. Design and development of the associated packaging production equipment is also the responsibility of this facility. Food research and development activities include extension of shelf life by formulation and packaging technologies, new preservation and processing techniques, and improvement in organoleptic qualities. 2.1.2.2 Hygiene and Housekeeping Systems Development Laboratory The contractor shall be responsible for operating and supporting the NASA Hygiene and Housekeeping Systems Development Laboratory. This laboratory supports research and development, and training of personal hygiene and housekeeping systems and techniques for maintaining crewmember cleanliness and a satisfactory living environment while assuring materials and, subsystems compatibility with the environmental control systems. Some typical components and subsystems include cleansing agents (soaps, detergents), personal grooming devices, trash management equipment (vacuum cleaners, trash compactors), and miscellaneous soft goods (biocides and wipes). 2.1.2.3 Tools and Diagnostics Laboratory The contractor be responsible for operating and supporting the NASA Tools and Diagnostics Laboratory. This laboratory supports research and development of tools and inflight maintenance items intended for on-orbit or planetary surface usage by the flight crews for maintenance and repair functions. 2.1.2.4 Optics and Film Camera Laboratories The contractor shall be responsible for operating and supporting the NASA photographic systems laboratories, comprised of the Optics and 70mm Camera Laboratory and the Small Format Camera Laboratory. These laboratories support research and development of film camera components and subsystems for spaceflight applications. In addition, DDT&E functions for all manifested missions, including test and checkout, assembly and make-ready, performance evaluation and anomaly resolutions involving film camera flight hardware shall be supported. C-6 7 U.S. Gov't 2.1.2.5 Electronic Still Camera Laboratory The contractor shall be responsible for operating and supporting the NASA Electronic Still Camera Laboratory. This laboratory supports research and development of high resolution digital imaging technologies, including components, subsystems and techniques for image acquisition, storage, transmission (compression and restoration), and reproduction. These emerging technologies will be required for near real-time imagery availability from space exploration and long duration orbital or surface activities. 2.1.2.6 Engineering Design Support Laboratory The contractor shall be responsible for operating and supporting the NASA Engineering Design Support Laboratory. This laboratory provides design and drafting support to the Flight Crew-Support Division flight hardware development and provisioning activities. 2.1.2.7 Decal Laboratory The contractor shall be responsible for operating and supporting the NASA Decal Laboratory. This laboratory develops and provides flight qualified decals and placards for all NASA manned spacecraft, and prototype decals and placards for mockups, trainers and engineering evaluations. 2.1.2.8 Prototyping Capability The contractor shall provide a rapid response prototyping capability. This capability shall include the development and modification of prototype equipment in support of the R&D and DDT&E activities identified in this SOW. 2.2 CREW STATION INTEGRATION AND HUMAN FACTORS SUPPORT The contractor shall provide the Crew Station Integration and Human Factors support detailed in the following paragraphs. 2.2.1 DEVELOPMENT AND INTEGRATION OF MANNED SPACECRAFT CREW STATIONS AND HABITATS The contractor shall provide qualified technical personnel and materials to support the development and integration of manned spacecraft crew stations. The specific support required in this area is as follows: a. Provide technical expertise to aid in the development and integration of manned spacecraft crew stations and habitable volumes. b. Assist in the formulation of crew station design requirements and concept design solutions. C-7 8 U.S. Gov't c. Provide engineering sketches, layouts, and illustrations required to support NASA's technical management of the crew station development and integration. d. Provide technical support to the NASA crew station subsystem manager to help review programmatic documentation from a man-systems/crew station integration standpoint; and to aid in the preparation, conducting, and follow-up of Crew Station Reviews (CSR's). CSR support shall include helping prepare the agenda, taking review minutes and action Items, and following up to ensure that action items are closed. e. Provide project management support to the Flight Crew Support Division Manager for Space Station, the Flight Crew Support Resident Office Manager at Marshall Space Flight Center, and as required for any future man-systems management office. 2.2.2 INTEGRATION OF PAYLOADS AND EXPERIMENTS INTO CREW COMPARTMENTS AND HABITATS The contractor shall provide qualified technical personnel and materials to support the integration of payloads and experiments into crew compartments and habitats. Specifically, the Contractor shall perform the following: 2.2.2.1 Integration Engineering a. Support Cargo Integration Reviews, Flight Stowage and Planning Reviews, and other programmatic reviews with integration/compatibility analyses, configuration definition, and stowage/installation status. Formal presentations of these items shall be made to both NASA program and customer management. b. Provide support to develop and integrate student experiments selected as part of programs such as the Shuttle Student Involvement Project. This effort requires interpersonal skills, innovation, and multidiscipline design ability to successfully support a wide variety of experiments, students, and sponsors. 2.2.2.2 Payload/Crew Station Annex Production/Maintenance Provide qualified full time project engineering support for the integration of payloads into crew compartments and habitats, including the preparation, release, and updating of both Annex 6 to the STS Payload Integration Plans and interface control documentation for STS middeck payloads, and applicable documentation for other programs. 2.2.3 STOWAGE ENGINEERING, INTEGRATION, AND DOCUMENTATION The contractor shall provide qualified personnel and materials to establish a suitable stowage configuration and document the stowage and installation of crew compartment or crew-related equipment for manned spacecraft flights. The specific crew compartment configuration support required is as follows: C-8 9 a. Perform the necessary stowage engineering and generate Crew Compartment Configuration Drawings (CCCD's) for each Shuttle flight to prescribe the arrangements, stowage, and installation of all mission variable equipment within the crew compartment. b. Perform the necessary stowage engineering and generate Space Station Stowage and Configuration Control Drawings for each Space Station flight, depicting the internal and external configuration of the Space Station, including the arrangements, stowage, and installation of all mission variable equipment. These drawings will establish and document planned prelaunch, on-orbit and post flight stowage configuration for each flight. c. Perform the necessary stowage engineering and generate a Spacelab Configuration Drawing (SLCD) depicting the interior Spacelab configuration and the stowage of loose equipment for JSC managed Spacelab missions. d. Provide stowage and interior configuration drawings, as required, to support program development, missions, and reconfiguration. e. All formal crew compartment configuration drawings shall be per DoD-STD-100C and JSCM 8500 and shall be released through the JSC Engineering Drawing Control Center. f. Technically support the establishment and maintenance of a crew equipment manifest for each Shuttle mission based upon the approved requirements. Support the distribution of the manifest through the Shuttle Level II Baseline Accounting and Retrieval System (BARS). g. Support loose equipment stowage reviews and provide real time mission support as required. 2.2.4 HUMAN ENGINEERING The contractor shall provide qualified technical personnel and materials to support the conduct of space human factors evaluations, research, and standards development. The specific support required is as follows: 2.2.4.1 Space Human Factors Research a. Define, develop, perform and document applied research to advance the state-of-the-art of space human factors in such areas as spacecraft interiors, surface habitats, crew equipment, workstation interfaces, maintenance and repair, crew workload definition, crew task design, crew timeline analysis, and general habitability enhancement. b. Develop, maintain, and update the space human factors Operational Experience Data Base by reviewing the results of past manned missions and participating in real time data collection during ongoing missions and collecting and C-9 10 analyzing applicable postflight data through crew debriefings, transcript reviews; and film/photo/TV analyses. 2.2.4.2 Space Human Factors Standards Maintain and update the current Man-Systems Integration Standards, NASA-STD-3000, and develop new volumes as required. 2.2.4.3 Applied Crew Interface Analysis Identify, evaluate, and recommend solutions for manned spaceflight crew interface issues. 2.2.5 TECHNICAL SUPPORT FOR RESEARCH, ANALYSIS, AND OPERATIONS OF FACILITY & LABORATORY The contractor shall provide qualified technical personnel and materials to conduct research, analysis, and operations as described in the following paragraphs. 2.2.5.1 Graphics Analysis Facility a. Perform and document research and development in computer science, graphics, and human modeling. b. Construct high fidelity computer models of spacecraft using engineering drawings and information from knowledgeable sources to serve as a basis for analyzing such issues as clearance, fields of view, lighting, fit, function, and reach, while using human motion models in three dimensional space. 2.2.5.2 Human-Computer Interaction Laboratory a. Develop, maintain, and update requirements and guidelines for manned spacecraft human computer interfaces. b. Initiate, conduct, and prepare for publication relevant research in human computer interfaces, cognitive models as applied to human computer interfaces, and knowledge acquisition and interface tools for intelligent systems. c. Design, program, test and document interfaces for computer programs as applied to crew interfaces with manned spacecraft. 2.2.5.3 Anthropometry and Biomechanics; Laboratory a. Collect, analyse and document anthropometric, biomechanical, and selected physiological data on human subjects. b. Conduct and document anthropometric and biomechanical experiments and tests in the laboratory, aboard the KC-135 reduced gravity aircraft, in C-10 11 U.S. Gov't the Weightless Environment Training Facility, on the Precision Air Bearing Floor, and within such other facilities which simulate spaceflight or planetary surface conditions. c. Develop and test new equipment for use in the measurement of anthropometric and biomechanic parameters. d. Operate the Laser-Based Anthropometric Mapping System as a supplementary adjunct to the laboratory. e. Develop, support, and document inflight investigations into spaceflight anthropometry and biomechanical performance. 2.2.5.4 Remote Operator Interaction Laboratory Conduct and document R&D in human requirements for remotely operated systems, teleoperation and telescience, and robotic interfaces including lighting requirements, hand controller configurations, sensory feedback requirements, displays and controls, and advanced techniques in visual enhancement of video displays. 2.2.5.5 Lighting Laboratory a. Perform and document tests on the visual environment in space and on planetary surface through the use of models, light sources, and photometric instrumentation. b. Measure luminance, illuminance, reflectivity, transmissivity of Windows, and the color characteristics of light, and provide the results for incorporation into systems design specifications and to enhance the performance of spaceflight tasks. 2.2.5.6 Task Analysis Laboratory a. Conduct and document research and analysis of crew tasks performance during manned spaceflight and planetary surface stays, specifically examining workload and timelining of tasks. b. Develop nonintrusive data collection techniques and tools to identify environmental stressors and their effect on task performance. 2.3 MOCKUP AND TRAINER SUPPORT The contractor shall provide qualified manpower and materials to support the JSC mockup, trainer and neutral buoyancy complex as detailed in the following paragraphs. C-11 12 U.S. Gov't 2.3.1 DESIGN AND DEVELOPMENT OF MOCKUPS AND TRAINERS 2.3.1.1 Project Engineering The contractor shall provide the necessary technical personnel and materials to provide project engineering for the design development, and modification of mockups, trainers, facilities, and support equipment. The specific types of services required are described below. a. Project engineering is required for each of the major mockups, trainers, and facilities. Project engineering includes maintaining in depth knowledge of the NASA flight programs and spacecraft configurations, the ability to synthesize program information into suitable mockup and trainer designs, and the ability to engineer and manage all aspects of mockup and trainer operations. b. Mockup, trainer, and neutral buoyancy complex scheduling and support for configuration control are required. c. Maintain files of drawings and appropriate programmatic information that support the mockup, trainer, and neutral buoyancy complex. d. The contractor shall be responsible for providing inflatables which shall simulate payloads for use in the Manipulator Development Facility, the Mobile Remote Manipulator Development Facility, and other applicable facilities. This task may require providing the engineering capability to define requirements to subcontractors and vendors. e. Shop engineering liaison is required to support project engineering, design/drafting, the mockup shop, subcontractors, and/or the JSC Technical Services Division. Direct engineering support to the mockup shop shall be required to facilitate the fabrication of articles for which there are no existing design or engineering drawings. 2.3.1.2 Design/Drafting Support The contractor shall provide the necessary technical personnel to produce the engineering documentation required by the mockup, trainer, and neutral buoyancy complex. Technical support shall be provided in the areas of structural, mechanical, electrical, electronic, computer (hardware and software), fluid, and communications systems. The specific types of services required are described below. a. Engineering analyses and calculations are required to establish the design integrity and safety of the mockups, trainers, and facilities. b. Engineering drawings shall be produced to define the original C, designs or modifications to the mockups and trainers with assembly, subassembly and detail drawings as necessary to facilitate shop fabrication and installation. Drawings shall be prepared in accordance with DoD-STD-100C, and JSCM C-12 13 U.S. Gov't 8500 when required for release through the JSC Engineering Drawings Control Center. All drawings shall be checked and approved by the contractor prior to submittal to NASA. c. Layouts of vehicles, ground support equipment, and buildings are required for crew station development and mockup, trainer, and neutral buoyancy complex planning purposes. 2.3.2 FABRICATION AND MODIFICATION OF MOCKUPS AND TRAINERS The contractor shall provide qualified manpower and materials to fabricate, install, and maintain mockup hardware for engineering evaluation, flight crew training, and testing in the mockup, trainer, and neutral buoyancy complex. The specific services required are described below. a. The contractor shall provide personnel with the necessary skills for working with materials such as wood, sheet metal, bar stock, foamcore, fiberglass, plastic, fabric, and paint; and with the skills for operating woodworking, sewing, metal working/sheetmetal machines and tools, and shall fabricate, maintain, or modify mockup and trainer hardware. This task also includes the responsibility to support repair and modification of inflatables. b. The contractor shall maintain the inventory of supplies and mockup components required by each shop, mockup, trainer, and neutral buoyancy area. 2.3.3 OPERATION AND MAINTENANCE OF FLIGHT CREW SUPPORT MOCKUP AND TRAINER FACILITIES The contractor shall provide qualified technical support and materials for the Installation, operation, maintenance, and safety of flight crew support mockup and trainer facilities and supporting subsystems, both current and future. Required services are described in the following paragraphs. 2.3.3.1 Mockup and Integration Laboratory (MAIL) 2.3.3.1.1 Operations Support The Mockup and Integration Laboratory (MAIL) consists of all mockup and trainer facilities located in building 9A and 9B. These facilities currently include the Crew Compartment Trainer (CCT), the Crew Compartment Trainer II (CCT-II), the Full Fuselage Trainer (FIFT), the Air Bearing Floor (ABF), the Precision Air Bearing Floor (PABF), the Space Station Mockup and Trainer Facility (SSMTF), Preflight Adaptation Trainer (PAT), Partial Gravity Simulator (PGS), payload mockups, part-task trainers, and planetary surface habitat mockups. The specific MAIL operations support services required are described below. C-13 14 U.S. Gov't a. The contractor shall provide all necessary operational support to assure facilities and equipment operation during engineering studies, hardware evaluations, procedures evaluations, and crew training. This support includes the necessary checkout, testing, and cleaning of equipment; notification of equipment availability; and supporting preparations for MAIL operations. b. The contractor shall maintain cognizance of stowage lists and procedures and shall utilize them to configure and/or stow mockups and trainers for various training and/or engineering sessions. Personnel must be capable of reading and interpreting installation and stowage engineering drawings, stowage lists, or other data such as initial configuration documents, and must be familiar with the operation of the spacecraft stowage containers, provisions, and the stowed loose equipment. c. The contractor shall maintain and operate a loose equipment storage area and shall provide the necessary support for the accounting and distribution of mockup and trainer loose equipment. d. The contractor shall develop for NASA approval a set of Standard Operating Procedures for each element making up the MAIL and shall ensure compliance with these procedures during all MAIL operations. e. The contractor shall maintain training records of all persons who operate these facilities. 2.3.3.1.2 Real Time Support a. The contractor shall provide real time support during all operations of the MAIL, including those involving experiment and customer furnished training hardware. Contractor support shall include monitoring communication systems, data processing systems, air bearing floor pneumatic systems, and suit pressurization consoles to provide immediate corrective action in the event of equipment failure or other operational changes. b. The contractor shall monitor each trainer or mockup exercise and shall be able to assist the crew, engineers, or instructors with any facility related task. All pressure suited exercises will require support with personnel trained in cardiopulmonary recussitation (CPR). c. The contractor shall maintain a log for each element of the MAIL, and any significant equipment or configuration problem or, deficiency shall be documented for corrective action. A responsive and efficient problem/improvement reporting and implementation system shall be maintained. C-14 15 U.S. Gov't 2.3.3.1.3 Communication and Human-Computer Interaction Systems Support C The contractor shall be responsible for the engineering, design, fabrication, modification, maintenance, and operation of the communication and human computer interaction systems in the mockups and trainers. These systems include both mockup-peculiar and trainer-peculiar hardware and flight type units which are used collectively to simulate spacecraft displays and controls or workstations. a. The contractor shall provide exterior communication and human computer interaction systems plug-in units throughout the trainer areas, as required to support operations; and shall provide connections with other systems as required such as mission simulators, control centers, and the JSC TV system. b. The contractor shall maintain systems documentation and spares for the communication and human computer interaction systems. 2.3.3.1.4 Other Related MAIL Support a. The contractor shall be the responsible for the installation and check out of externally supplied modification kits, using supplied engineering drawings. b. The contractor shall provide control documentation to support equipment modifications. This includes recording all modification requests, activities, status, and directives. c. The contractor shall be required to operate lifting hardware and ancillary support equipment. d. The contractor shall provide support for mockup and trainer electrical power systems. This includes engineering, design, installation, operation, modification, maintenance, repair, and documentation of electrical systems. e. The contractor shall be responsible f or the engineering, maintenance, operation, and updating of the ABF and PABF, air pads, air sleds, and associated systems. f. The contractor shall be responsible for providing and maintaining MAIL facility baseline documentation in compliance with JSCMD 8830.1C. g. The contractor shall maintain the facility in a clean, neat and orderly condition. C-15 16 U.S. Gov't 2.3.3.2 Neutral Buoyancy Simulation The contractor shall provide qualified operations, maintenance, and engineering support for the safe operations of the WETF and/or the Neutral Buoyance Laboratory (NBL) when it is completed (currently planned for 1996). The specific support requirements are described below. 2.3.3.2.1 Operations Support The contractor shall provide the necessary test personnel to assure that crew training, procedure, development, and engineering evaluations are accomplished in an efficient, effective, and safe manner. Pre-test support shall include the checkout and verification of all facility hardware and required mockups. Any missing and/or defective equipment shall be reported in a timely manner. The contractor shall be proficient in setting up all configurations of neutral buoyancy trainers and mockups for each exercise in the WETF (NBL). Rigging procedures for each test or training mockup shall be developed by the contractor and approved by NASA. The contractor shall maintain all of the required scuba equipment. All contractor personnel shall be trained in accordance with the WETF (NBL) Training Plan, JSC 16961. All contractor operations shall comply with the WETF (NBL) General Operating Plan (GOP), JSC 16908, WETF (NBL) Standard Operating Procedures (SOP), JSC 16941, and NASA Safety Standard for Underwater Facilities, NSS/WS1740.10. 2.3.3.2.2 Activities Support The contractor shall support all suited and scuba exercises in the WETF (NBL) pool, bailout training and water egress exercises, and topside one-g extravehicular activities (EVA) exercises. During suited operations, the contractor shall staff all of the duty stations as specified in the WETF (NBL) Training Plan. The contractor shall assist all WETF (NBL) operations as required. The contractor shall attend the pre-dive briefings and the post-dive debriefing for every suited run in the WETF (NBL). The contractor shall provide suited subjects, test directors, scuba instructors, and swim instructors when required. All equipment that malfunctions or fails during a test shall be reported to the test director. A log book shall be kept on each exercise. Any significant equipment or configuration problem shall be documented for corrective action. 2.3.3.2.3 Environmental Control System (ECS) Support The contractor shall be responsible for the engineering, fabrication, assembly, maintenance, operating, and updating of the WETF (NBL) ECS. The contractor shall provide adequate qualified ECS operators to assure operational readiness and support under contingency situations. The contractor shall provide all ECS maintenance and pressure checks. Spare parts and inventory control for the ECS shall also be provided. C-16 17 U.S. Gov't 2.3.3.2.4 Communication System Support The contractor shall be responsible for the engineering, fabrication, assembly, maintenance, operation, and updating of the WETF (NBL) communication system. The contractor shall provide adequate qualified electronic technicians capable of operating and maintaining the communication system to assure operational readiness and support under contingency situations. Spare parts and inventory control for the communication system shall be provided. 2.3.3.2.5 WETF (NBL) Remote Manipulator System (RMS) Support The contractor shall be responsible for the engineering, fabrication, assembly, maintenance, operation, and updating of the WETF (NBL) RMS. The contractor shall provide hydraulic and pneumatic technical expertise capable of operating and maintaining the WETF (NBL) RMS. Spare parts and inventory control for the WETF (NBL) RMS shall be provided. 2.3.3.2.6 Mockups and EVA Tools Support The contractor shall be responsible for the upkeep of all WETF (NBL) mockups and WETF (NBL) EVA tools. Limited modifications and maintenance shall be accomplished by the contractor at the WETF (NBL). The contractor shall maintain the hand tools and light shop equipment at the WETF (NBL). 2.3.3.2.7 Diver Tracking System (DTS) Support The contractor shall be responsible for the engineering installation, checkout, operation, maintenance, and updating of the WETF (NBL) DTS. The DTS includes individual underwater transmitting and receiving units, the underwater receiving and transmitting units for the Dive Supervisor Station, and the computer controlled display at the Dive Supervisor Station. Spare parts and inventory control for the DTS shall be provided. 2.3.3.2.8 Other WETF (NBL) Support a. The contractor shall keep the WETF (NBL) facility (pool, building interior, locker rooms, and associated areas) clean, neat, and orderly. The contractor shall comply with standard personal hygiene practices in order to minimize ear infections and other related medical diving problems. b. The contractor shall be responsible for providing and maintaining WETF (NBL) facility baseline documentation in compliance with JSCMD 8830.1C. C-17 18 U.S. Gov't 2.4 OTHER RELATED SUPPORT The contractor shall provide the qualified manpower and materials to perform the support detailed in the following paragraphs. 2.4.1 FIP RESOURCES SUPPORT The contractor shall provide the necessary technical manpower and materials to support the FIP requirements of selected tasks of the Space and Life Sciences Directorate (SLSD) and the Flight Crew Support Division. The Flight Crew Support Computer Facility currently includes Digital Equipment Corporation VAX and PDP computational systems and peripherals utilizing VAX/VMS, Unix, DOS, RSX-11M, and Macintosh as operating systems. The primary functions of the Computer Facility include data processing and analysis, customized FIP hardware interface design and development, customized software design and development, office automation support, and the projection of future FIP requirements. The activities the facility supports are engineering development and analyses tasks, mission and subsystem performance analysis, man-machine interface evaluation, proposed mission evaluation studies, experiments data processing, database system design and support, advanced studies, data reduction, and management application design and development. Functions to be performed by the contractor in support of FIP resources are described below. 2.4.1.1 Computer Facility Support a. The contractor shall provide systems and operations support for the computer systems and peripheral hardware. This includes maintaining tape and hardware/software documentation libraries, developing documentation for computer systems and laboratory operating procedures, screening and installing operating system and application software, providing laboratory management, systems management and operator support, performing laboratory engineering evaluation studies, performing computer systems and software performance evaluation studies, providing computer systems networking support receiving and shipping user data products, and maintaining an equipment tracking system. b. The contractor shall develop, procure, install, maintain and document software applications as required for remote sensor data processing and evaluation, crew station development, astronaut anthropometric measurements evaluations, displays and controls optimizations, simulation data reduction and analysis, office automation support applications, and computer graphics. This includes development and maintenance of a database management system to support all data processing and dissemination requirements. Appropriate computer security measures shall be implemented. c. The contractor shall provide hardware support for troubleshooting, inspection, and repair of selected computer systems, peripheral hardware, and user workstations. These include terminals, CAD workstations, graphics terminals and workstations, and personal computers; cable fabrication and routing for C-18 19 U.S. Gov't remote terminals and other peripherals; network design, development, maintenance and management support; and design, development, installation, and maintenance of special purpose computer interfaces. A variety of network protocols are utilized including DECNET, ETHERNET, TCP/IP, NOVELL and Appletalk. 2.4.1.2 FIP Systems Support a. The contractor shall design, implement, and ensure the continued operation of SLSD nodes, and their interfaces with other networks. The contractor shall expand and modify these systems as required. The contractor shall design and develop programs to automate and improve research and management information systems and provide user assistance during checkout and utilization. b. The contractor shall support the unique computing applications of the SLSD with assistance in configuration planning, capability reporting, schedule development, user help, training, hardware and software procurement, network design, documentation, data base development, laboratory modifications, and computer language capabilities. c. The contractor shall ensure security in the acquisition and operation of FIP systems. These security requirements shall cover the total system, including all aspects of hardware, software, facilities, personnel, data, and operations. The contractor shall develop a security plan for approval, by NASA which shall provide adequate safeguards for the total system. In providing FIP systems security support, the contractor shall comply with security provisions set forth in the JSC Automated Information Systems Security Plan, JSC 23668. d. The contractor shall conduct an analysis of existing Flight Crew Support Division FIP resources and prepare a migration plan to open systems technology. The contractor will be responsible for making recommendations concerning upgrading and modifying M-SD facilities and laboratories to meet current or anticipated future requirements. The plan will be directed towards acquiring competitive products and reducing the dependence on a single vendor, brand of hardware, or proprietary or restrictive environments. The contractor shall conduct research prior to acquisition in which the dependence on specialized or proprietary FIP hardware or software will be minimized. The contractor will continually evaluate the market to identify new products and technologies that will meet the functional requirements of this contract as well as proceed in the direction of open systems technology and full and open competition. 2.4.2 TECHNICAL INTERCHANGE SUPPORT The contractor shall provide a capability to plan and conduct meetings, workshops, and symposia; arrange for visiting scientists and engineers as participants and lecturers; and perform other tasks which promote technical interchange. These interchanges shall include other NASA Centers, foreign and domestic government agencies, universities, professional societies, and industry on topics of specialized research, development and applications related to the major functions defined in this C-19 20 U.S. Gov't statement of work. This support shall include the planning and organization of meetings and presentations, logistical support (including travel and subsistence for participants), conducting of meetings, and reporting of results. 2.4.3 GRAPHICS, ILLUSTRATIONS, AND TECHNICAL PUBLICATIONS SUPPORT The contractor shall provide graphics, illustrations, and technical publications support for producing original artwork and reproductions in black and white and/or color, and for supporting the documentation and technical interchange requirements of this SOW. Renderings shall typically be required of components, subsystems, test articles, test setups, internal and external views of mockups, trainers, facilities and their support equipment, and of concepts and integrated configurations of crew stations and habitats. Tabular and graphical presentations of scientific and engineering data shall be required for documentation and reporting of research, test and evaluation activities. Technical editing, arrangement and reproduction of reports, technical papers, presentations and other technical material shall also be required. 3.0 GENERAL SUPPORT REQUIREMENTS This section of the SOW describes general functions which are considered common to the overall technical support effort contained in section 2.0. The contractor shall implement the use of the metric system of measurement in activities performed in support this SOW in compliance with NMI 8010.2A, as specified in JSC-25290, JSC Metrication Plan and Man-Systems Division Metrication Implementation Plan, JSC 25862. 3.1 MAINTENANCE AND OPERATIONS SUPPORT The contractor shall be responsible for maintenance and operation support to all laboratories, facilities and related hardware/software systems and equipment. This includes all presently available systems and any new instruments, equipment, and systems that may be added during the course of this contract. The contractor shall ensure the operational availability of all equipment through continued development and execution of maintenance plans and procedures, by providing properly trained personnel and by ensuring that adequate maintenance tools are available. Contractor maintenance personnel shall be proficient in the equipment and systems under their individual areas of responsibility and shall be sufficiently familiar with interfacing systems so as to trouble-shoot interface anomalies. Where it is not beneficial to the government for the contractor to maintain local expertise on specific equipment the contractor shall provide for preventive maintenance agreements and/or call-in of specialists in a manner consistent with equipment availability requirements. The contractor shall provide preventive maintenance which includes periodic testing, adjusting, cleaning, lubricating, and replacing of parts for all equipments to insure proper and continued operation. Remedial maintenance shall be performed to restore failed equipment to its proper operating condition. Remedial maintenance, as used herein, includes the requirement to perform, upon request from the government, capital type rehabilitation on, or to replace, C-20 21 U.S. Gov't equipment or systems which cannot be physically repaired or for which continued routine maintenance is not economically feasible. 3.2 LOGISTICS SUPPORT The contractor shall provide a logistics support function for the contract, to include all acquisition, implementation, inventory control, receipt and inspection, storage, redistribution, and disposal functions necessary to meet the requirements of implementing this SOW. More specifically, the contractor shall be responsible for providing all equipment and materials necessary for performing the required support functions. This includes such items as components, piece parts, subassemblies, and assemblies of hardware (flight and non-flight), mockups, trainers, test articles, test equipment, instrumentation, supplies, and materials. Included in this function is the requirement to provide storage for relatively large articles and quantities of materials. 3.3 SYSTEMS ENGINEERING AND INTEGRATION SUPPORT The contractor shall provide a capability to perform multidiscipline projects transcending the requirements of a single discipline or the responsibility of any single functional area as described in this SOW. This shall include providing project management and multidiscipline technical support for projects requiring definition, design, research, development, fabrication, and testing of complex facilities, systems, flight, and flight-like hardware. 3.4 TRAINING The contractor shall establish and maintain a training plan designed to provide and maintain a highly versatile work force. In addition to training in their own fields of specialization, it is highly desirable to provide personnel with cross-training in related fields to broaden the scope of their qualifications, including capabilities to perform work in other areas, as required to provide flexibility to meet peak workloads and provide contingency backup capability. Training records shall be established and maintained for all personnel including training manuals and documentation of certification and periodic recertification of personnel. Typical types of training to be included are (a) selected outside training arranged by the contractor, (b) contractor provided classroom and/or on-the-job training, and (c) specialized training as necessary. Emphasis shall be placed on implementing a Total Quality Program within the contract and shall include the team building aspects of developing a cohesive contractor/NASA team. 3.5 CONFIGURATION CONTROL The contractor shall maintain detailed, accurate, and complete documentation describing the current configuration and changes to the configuration of equipment, hardware and software systems covered under this contract. Drawings, schematics, reference manuals, and other appropriate documentation shall be prepared and maintained for such items as electrical and mechanical test and data systems, laboratory control systems, and instrumentation layouts for each major laboratory test C-21 22 U.S. Gov't activity. Building fixed equipment (such as utilities) will normally be excluded from this requirement. 3.6 SAFETY, RELIABILITY AND QUALITY ASSURANCE (SR&QA) SR&QA requirements to be implemented by the contractor for the work defined in this SOW are as follows: 3.6.1 Surveys A formal Safety, Reliability, and Quality Assurance (SR&QA) survey may be conducted by JSC at any time during the contract. A written notice of the intended survey shall be made 30 days prior to the survey. The contractor shall support these surveys with necessary documentation and personnel not to exceed one week per survey and not to exceed one survey per calendar year for the contract duration. NASA may conduct an incremental survey at any time to support the resolution of a specific problem. One week (five working days) prior to the incremental survey, verification of this survey shall be given to the contractor either by telecon or letter from the Contracting Officer. An incremental survey is intended to cover only a specific area such as a process control problem or any other unsatisfactory detail that would be of such magnitude that the resulting hardware would be unacceptable to NASA. For surveys that result in recommended actions, the contractor is required to respond within 30 days after receipt of the survey report and to submit a status report every 30 days thereafter until all actions are closed. 3.6.2 SAFETY AND HEALTH The contractor shall perform tasks to ensure the protection of personnel, property, equipment, and the environment in contractor products and activities generated in support of institutional and space flight program objectives. To ensure compliance with pertinent NASA policies and requirements and Federal, State, and local regulations for safety, health, environmental protection, and fire protection, the contractor shall develop and implement a safety and health program in accordance with a safety and health plan as approved by NASA. The contractor shall implement system safety engineering tasks for flight and institutional program activities and products in accordance with the schedule and applicable flight and institutional requirements as documented in the contractor's system safety program plans (SSPP) which have been approved by NASA. The contractor shall develop and implement risk management techniques (including risk assessment) to be applied to hazards derived from analyses of activities and products for the purpose of eliminating or controlling hazards as specified in NASA policies and requirements for hazard reduction. 3.6.3 RELIABILITY The contractor shall maintain a reliability activity consistent with the requirements for JSC-sponsored flight hardware or JSC-modified flight hardware as C-22 23 U.S. Gov't described in the various functional areas of the SOW. Reliability functions shall be an integral part of the design and development process and shall include the evaluation of hardware reliability through analysis, review, and assessment. Reliability requirements for Flight Crew Support Division Flight Hardware have been derived from NHB 5300.4 (ID-2) and JSC 31000. These requirements are documented in JSC 25472A, JSC Reliability and Maintainability Plan for Flight Crew Support Division for Government-Furnished Equipment (GFE) for Space Hardware Projects. For training hardware, these requirements are limited to that hardware which interfaces with flight hardware and to failures on flight-like hardware that could exist in the flight hardware. The contractor shall be responsible for preparing a reliability plan and assuring its proper execution. 3.6.4 QUALITY ASSURANCE The contractor shall establish, implement, and maintain a quality assurance program in accordance with NHB 5300.4 (1B) "Quality Program Provisions for Aeronautical and Space System Contractors." This publication establishes common, general requirements for contractor quality programs to ensure the required high quality of NASA aeronautical and space systems. The contractor shall maintain an effective and timely quality program planned and developed in conjunction with all other contract functions necessary to satisfy all requirements. Overlapping or interfacing requirements, such as, reliability, safety, and test, or applicable quality policies/procedures as referenced below shall not result in duplication of contractors efforts. The contractor shall submit a quality plan in accordance with DRD QA-004. Quality Assurance documents for the Space Shuttle Program [NHB 5300.4 (1D-2)] and the Space Station Program (JSC 31000, Vol 4) are commensurate to NHB 5300.4 (1B). In addition, work performed within JSC facilities shall be in accordance with the JSC Quality Assurance Manual, 53120, and the applicable JSC project quality requirements, as tailored by NSTS 21096, JSC 16427, JSC 17038E, JSC 31040 and JSC 20658B. The contractor shall provide a system for the reporting of all problems (failures and unsatisfactory condition reports) and the establishment of corrective action for all problems concerning flight and certification hardware, GSE for which the contractor is cognizant, and spare hardware. The contractor shall be responsible for ensuring that his supplier implemented problem reporting and corrective action systems will meet the requirements of this section. Formal failure reporting shall commence at the start of the acceptance testing of the production hardware (including certification hardware). The contractor shall maintain a status on all open problems. The methods employed by the contractor in maintaining the status of problems shall be compatible with those of NASA in responding to requests for information. Reporting of problems shall be as directed in DRD QA-002. The contractor shall comply with the JSC metrology requirements. Onsite equipment calibration, repair services, and a computerized instrument recall program will C-23 24 U.S. Gov't be provided by the JSC Measurements Standards and Calibration Laboratory (MSCL). Detailed procedures are in JSCM 8070B, JSC Metrology Requirements Manual, NMI 5330.9 Metrology Calibration and JSCI 8070.1E Metrology and Calibration Services. 3.7 DATA REQUIREMENTS The contractor shall prepare, maintain, and/or submit data throughout the life of this contract in accordance with the Data Requirements List (DRL) and the Data Requirements Descriptions (DRD's) in Appendix C-I. Data submitted shall be in legible form and in the quantity of copies specified in the DRL. The DRD's define the content, format, and maintenance requirements for the data items. Each DRD defines the minimum requirements that will be accepted for the documentation. Where applicable, the contractor's own internal documents shall be utilized to meet and/or supplement the requirement specified herein. C-24 EX-10.94 6 COST PLUS INCENTIVE FEE CONTRACT 1 EXHIBIT 10.94 Supplemental Agreement (SA) 01 2 September 1998 COST PLUS INCENTIVE FEE CONTRACT NUMBER SHB 1014 AUGUST 14, 1997 FOR MULTIPLE MISSION INTEGRATION AND OPERATION (I&O) SUPPORT BETWEEN MCDONNELL DOUGLAS CORPORATION, A WHOLLY-OWNED SUBSIDIARY OF THE BOEING COMPANY 499 BOEING BOULEVARD HUNTSVILLE, ALABAMA 35824 AND SPACEHAB, INCORPORATED 1595 SPRING HILL ROAD SUITE 360 VIENNA, VIRGINIA 22182 2 Supplemental Agreement (SA) 01 2 September 1998 TABLE OF CONTENTS Article 1 - Entire Agreement..........................................1 Article 2 - Definitions...............................................1 Article 3 - Scope of Work.............................................1 Article 4 - Studies/Analyses..........................................1 Article 5 - Period of Performance.....................................2 Article 6 - Contract Amount...........................................2 Article 7 - Payment...................................................3 Article 8 - Limitation of Funds.......................................3 Article 9 - Supplies/Services and Delivery Schedule...................4 Article 10 - Title and Delivery........................................4 Article 11 - Packaging and Marking.....................................4 Article 12 - Inspection and Acceptance.................................5 Article 13 - Place of Performance......................................5 Article 14 - Items, Equipment, Property, Services to be Furnished by SPACEHAB, Inc. And/or the Government on a "No Charge" Basis.........................................5 Article 15 - Exchange of Technical Information.........................6 Article 16 - Excusable Delays..........................................6 Article 17 - Changes...................................................7 Article 18 - Amendments................................................8 Article 19 - Stop Work Orders..........................................8 Article 20 - Notices...................................................8 Article 21 - Key Personnel.............................................9 Article 22 - Termination...............................................9 Article 23 - Governing Law.............................................9 Article 24 - Arbitration/Disputes......................................9 Article 25 - Audit....................................................10 Article 26 - Indemnity Against Patent Infringement....................10 Article 27 - Limitation of Liability..................................11 Article 28 - Insurance and Indemnification............................10 Article 29 - MDC Employee Injury......................................11 Article 30 - Warranty.................................................11 Article 31 - Relationship of Parties..................................11 i 3 Article 32 - Manned Space Flight Item.................................12 Article 33 - Order of Precedence......................................12 Article 34 - Technical Data...........................................12 Article 35 - Patent Rights............................................12 Article 36 - Use of Company Logo......................................12 ii 4 Supplemental Agreement (SA) 01 2 September 1998 THIS CONTRACT, by and between SPACEHAB, Inc. with an address at 1595 Spring Hill Road, Suite 360, Vienna, Virginia 22182 (hereinafter referred to as "SPACEHAB, Inc." or "SHI") and McDonnell Douglas Corporation, A Wholly-Owned Subsidiary of The Boeing Company, with an address at 499 Boeing Boulevard, Huntsville, Alabama 35824, (hereinafter referred to as "MDC"). (McDonnell Douglas Corporation represents and warrants that it is acting on behalf of The Boeing Company and that it has the corporate power and authority to legally add The Boeing Company to the terms and conditions of this Contract.) The parties hereby agree as follows: Article 1 - Entire Agreement This Contract, all exhibits and other documents incorporated herein by reference, whether or not attached hereto, constitute the complete and exclusive statement of the Contract between the parties hereto. This Contract supersedes any previous understanding or agreement between SHI and MDC (oral or written) with respect to the subject matter hereof. Further, this Contract constitutes a definitization of Letter Contract SHB 1014 dated 14 August 1997 including modifications thereto through Modification No. 24 dated 20 August 1998 between SHI and MDC, subject to an equitable adjustment of Estimated Target Cost Plus Target Incentive Fee resulting from these modifications. Article 2 - Definitions A. The term "MDC" shall include McDonnell Douglas Corporation, A Wholly-Owned Subsidiary of The Boeing Company, formerly known as McDonnell Douglas Aerospace - Huntsville. B. The terms "General Agreement," "Basic Agreement," "Basic Terms and Conditions," "Agreement" and "Contract" shall mean this Contract and shall be deemed to include all exhibits, specifications, drawings, or other documents incorporated herein by reference. Article 3 - Scope of Work MDC is the prime Contractor responsible for performance of all work set forth in this Contract, including work to be performed by any subcontractor. MDC shall perform the work identified in Exhibit A, "SPACEHAB Multi-Mission Integration and Operations Contract Statement of Work, enclosed herein and made a part hereof. In accordance with the Statement of work requirements herein, it is intended that MDC will perform the Integration and Operations of four (4) SPACEHAB science missions (1 single module mission and 3 double module missions) and 5 SPACEHAB cargo double module missions aboard the NASA Orbiter within the Contract period of performance and maintain accountability and operation of SPACEHAB hardware which was developed by the Phase C/D Contracts SHB 1001, SHB 1010 and SHB 1013, or the I&O Contracts SHB 1002 and SHB 1009 between SHI and MDC. Article 4 - Studies/Analyses A. Task Directives. As set forth in WBS 9.1.9.5 of the Statement of Work, MDC will be required to perform Studies/Analyses as specified in written Task Directives. Task Directives may be authorized solely by the SHI personnel specified in Article 20 and will be jointly signed by the appropriate MDC personnel. These directives shall define the scope of work for the task to be performed, provide the time and place of performance desired, provide the total funding 1 5 authorized for this task by this Task Directive, and will provide such other instructions as may be required to properly define the effort. No work is to be performed under this clause unless authorized by a Specific Task Directive. B. The Studies/Services effort will be cost plus fixed fee of 12% and not subject to the cost/fee sharing arrangement described in Article 6. Funding authorization shall be issued annually on a SHI fiscal year basis. Funding authorized for each study area and each SHI fiscal year shall be defined in Exhibit D of this contract. If at any time during the current year, MDC has reason to believe the effort will exceed the authorized funding, MDC will notify SHI and furnish with such notification, a new estimate of the total funding required. In the event SHI desires to continue the effort, a contract change will be issued authorizing the additional funding and the contract will be adjusted. The annual level of effort under this article is anticipated to be on the order of 5 to 10 equivalent personnel plus travel and miscellaneous materials. C. Financial Management. Costs incurred under this provision for Studies shall be reported as a part of the 9.1.9.5 WBS, with expenditures segregated by Task Directive in the Monthly Compliance Report. Article 5 - Period of Performance MDC shall perform the work called for under this Contract in accordance with the agreed to Statement of Work as specified in Article 3 herein, including preparation and submission of all reports, during the period of performance beginning 14 August 1997 and continuing through 31 December 2002, and as may be extended by mutual agreement. Article 6 - Contract Amount A. General. This is a Cost Plus Incentive Fee Contract. The following estimated target cost and target incentive fee is established for the effort required by the Contract for services as specified in Statement of Work defined in Article 3 above and in accordance with the schedule specified in Article 9 for nine (9) SPACEHAB missions. The amounts include negotiated target cost and target incentive fee for Modifications 3, 6, 11, and 12 to the Letter Contract. Estimated Target Cost: $86,810,379 Estimated Target Incentive Fee: $10,365,680 Estimated Target Cost Plus Target Incentive Fee: $97,176,059 Estimated Studies Cost: $ 2,269,935 Estimated Studies Fixed Fee: $ 276,565 Total Estimated Contract Price: $99,722,559 B. Target Cost and Target Incentive Fee. The Target Cost and Incentive Fee of 12% specified in Paragraph A above are subject to adjustment if the Contract is modified in accordance with Article 6.C.2 below. 1. "Target Cost," as used in this Contract, shall mean the cost of this Contract as initially negotiated, and as modified in accordance with the Changes Clause of this Contract. 2. "Target Incentive Fee" as used in this Contract, shall mean the fee that is subject to the Incentive formula, as described in Article 6.C.1 below. C. Fees payable. 2 6 1. The Total Target Incentive Fee shall be payable under this Contract in accordance with Article 7 below and shall be increased by 30 cents for every dollar that the actual cost incurred (exclusive of fees) is less than the Target Cost, or decreased by 30 cents for every dollar that the actual cost exceeds Target Cost. In no event shall the Total Target Incentive Fee, as modified, be more than 15% or be less than 8% of the Total Target Cost. 2. Equitable Adjustment. When the work under this Contract is increased or decreased by a modification to this Contract, then the Target Cost and Incentive Fee shall be modified as appropriate in a supplemental agreement to this Contract. D. Estimated Studies Cost and Estimated Studies Fixed Fee specified in Paragraph A above are allocated to specific studies areas under WBS 9.1.9.5 and to SPACEHAB fiscal years in accordance with Exhibit C attached hereto. The specific amounts in Paragraph A above and in Exhibit C are subject to adjustment in accordance with Article 4.B above. E. Facilities Capital Cost of Money. Facilities capital cost of money shall be an allowable cost under this contract. F. Exclusion of Taxes. The parties agree that no sales or use tax, either Alabama or Florida has been included in the target cost. Sales or use tax, if any, shall be subject to the Changes Clause of this Contract. Article 7 - Payment A. MDC shall submit invoices monthly for the payment of actual costs incurred plus the Target Incentive Fee of 12%. Such invoices shall be submitted to SHI at: SPACEHAB, Inc. 1595 Spring Hill Road Suite 360 Vienna, VA 22182 Payment will be made by or on behalf of SPACEHAB, Inc. to: McDonnell Douglas Corporation P. O. Box 516 St. Louis, Missouri 63166 Attention: Accounts Receivable Such invoices shall be due and payable by SHI, 30 days after receipt of an invoice. If any such invoice remains unpaid 45 days after receipt of such invoice, MDC shall have the right to stop work under this Contract. If such invoice continues to remain unpaid 60 days after receipt of such invoice, MDC may at its option, consider SHI to have breached this Contract and may pursue remedies as provided by law. Article 8 - Limitation of Funds A. The sum of $17,356,207 is presently available for payment and is allotted to this contract covering the period of performance through 31 December 1998. It is anticipated that from time to time additional funds will be allotted in writing to this contract up to the total estimated contract price. When additional funds are allotted from time to time for continued performance 3 7 of the work under this contract, the parties shall agree on the applicable period of performance which shall be covered by such funds. B. MDC agrees to use its best efforts to perform, or have performed, the work on this contract up to the point at which the total amount paid and payable by SHI under the contract approximates but does not exceed the amount specified in Paragraph (A). Unless otherwise agreed in writing, SHI shall not be obligated to reimburse MDC for costs incurred in excess of the total amount allotted by SHI to this contract during the stated period of performance. C. Upon expenditure of 85% of allotted funds set forth in Paragraph (A), MDC shall notify SHI in writing as to the estimated amount of additional funds required for the timely performance of the contract. Such notice shall specify any additional funds and period of performance required. D. If, after the notification called for in Paragraph (C) above, additional funds are not allotted to this contract, MDC may request that this contract be terminated, in accordance with the provisions of the Terminations Clause of this contract, and SHI shall comply. E. MDC is not obligated to continue performance under this contract (including actions under the Termination clause of this contract) or otherwise incur costs, which when added to the applicable fee would be in excess of the amount then allotted to the contract by SHI until SHI notifies MDC in writing that the amount allotted has been increased. Article 9 - Supplies/Services and Delivery Schedule A. The scope of work to be performed under this Contract shall include, the provision of all labor, materials, services, and equipment necessary to perform the work as set forth in Exhibit A, SPACEHAB Multi-Mission Integration and Operations Contract Statement of Work. B. The flight schedule for which MDC shall provide services is as follows: MISSION LAUNCH DATE - Science 1, single module October, 1998 - Cargo 1, double module April, 1999 - Cargo 2, double module October, 1999 - Science 2, double module May, 2000 - Cargo 3, double module December, 2000 - Science 3, double module June, 2001 - Cargo 4, double module November, 2001 - Science 4, double module April, 2002 - Cargo 5, double module November, 2002 C. MDC shall submit on a monthly basis to SHI a compliance report mutually agreeable to MDC and SHI which documents MDC's expenditures pertaining to this contract. Article 10 - Title and Delivery The point of delivery for any hardware required shall be Cape Canaveral, Florida USA. The point of delivery for any data required shall be SPACEHAB, Inc., Vienna, VA. Article 11 - Packaging and Marking 4 8 Packaging and marking for shipment of all items ordered hereunder shall be in accordance with good commercial practice, and adequate to ensure both acceptance by common carrier and safe transportation at the most economical rate(s). Article 12 - Inspection and Acceptance The place of final inspection and acceptance for the services and deliverable hardware called for under this Contract shall be SHI's facility at Cape Canaveral, Florida, or other designated place(s) or performance. The place of inspection and acceptance of all deliverable reports and documentation shall be at SHI, Vienna, VA with copy to SHI Houston, Texas and SHI Cape Canaveral, FL as specified by SHI. Article 13 - Place of Performance MDC shall perform the work under this contract at its facility located in Huntsville, Alabama, at SHI's facility located at Cape Canaveral, Florida, and at any other locations as may be required. Article 14 - Items, Equipment, Property, Services to be Furnished by SPACEHAB, Inc. and/or the Government on a "No Charge" Basis A. SHI and/or the Government shall furnish to MDC, for use in connection with and under the terms of this contract on a "no-charge" basis, the SHI and/or Government owned equipment, property, items, services, etc. which are suitable for the intended use. SPACEHAB Furnished Equipment (SFE) to be provided is identified in Exhibit B. Government Furnished Property (GFP) to be provided is identified in Exhibit B. B. Off nominal conditions, inadequacies, and delivery delays in SHI and/or Government supplied items identified herein will be the basis for a MDC Contract Change proposal and subsequent Contract amendment reflecting the cost, fee, schedule, and technical impact of defective or late delivery of SHI and/or Government supplied items. C. MDC is authorized to commingle all material without physical segregation or identification to the individual SHI contracts. The applicability of NASA FAR 52.245-5 Government Property is agreed to apply to Government furnished or owned equipment only and does not apply to purchases under this Contract since it is understood that title to all items provided under this Contract would vest with SPACEHAB, Inc. D. SPACEHAB Furnished Equipment as identified in Exhibit B will include the following information: - Acceptance Data Package (ADP) - Functional capabilities - Interface definition - Environmental constraints - Mechanical characteristics (dimensions, weight, c.g., etc...) - Electrical power requirements (peak, start-up/in-rush, profile, ...) - Special requirements (commanding, downlink,...) - Verification data (including safety data) - Test requirements for processing/integration activities - Operations requirements and procedures (flight and ground) 5 9 Maintenance/repair of SFE that was designed and built by SHI will be the responsibility of SHI. Boeing shall be responsible to report hardware failures immediately to SHI via Material Review Record (MRR). To do this, Boeing will perform trouble shooting to locate problem to, but not within, the SFE component. Boeing support to SHI for trouble shooting within the SFE component and shipping or repairing the component will be authorized by task directive and is funded under the Studies/Services element of the statement of work (Reference Article 4 and SOW paragraph 9.1.9.5). Boeing shall be provided an ADP for all SFE at turnover. SFE hardware and corresponding documentation shall be identified by part number including revision level (and serial number when appropriate). Changes/revisions post turnover (to Boeing) shall be accompanied by the appropriate revised documentation and updated ADP. Article 15 - Exchange of Technical Information During the term of this Contract, SHI and MDC, to the extent of their right to do so, agree to exchange all such technical and management information as may reasonably be required for each to perform its obligations hereunder. To the extent that proprietary information of either party is disclosed, such information or data which is (i) submitted in writing, must be designated by an appropriate stamp, marking or legend thereon to be of proprietary or confidential nature, or (ii) orally submitted, must be identified as proprietary or confidential prior to disclosure and the disclosing party notifies the receiving party, in writing, specifically identifying any such proprietary or confidential information so orally submitted within thirty days after such oral submission. Notwithstanding termination or expiration of this Contract, each party will keep in confidence and prevent the disclosure of all such proprietary information and data, whether technical or commercial, to any third party. Neither party shall be liable for disclosure of any such proprietary information or data, if such information: A. Was in the public domain at the time it was disclosed, or later becomes part of the public domain other than throughout the action of the party receiving it; or B. Was known to the party receiving it at the time of disclosure; or C. Is disclosed with the prior written approval of the other party; or D. Is disclosed by the party providing the same, to others, on a non-restricted basis; or E. Is disclosed inadvertently despite the exercise of the same degree of care that the receiving party takes to preserve or safeguard its own proprietary information; or F. Becomes known to the receiving party from a source other than the disclosing party without breach of this Section by the receiving party; or G. Is disclosed one (1) year after expiration or termination of this Contract; or H. Is disclosed to a government agency for certification or export license purposes, taking all reasonable precautions to prevent further disclosure by such agency. Article 16 - Excusable Delays 6 10 Except for default of subcontractors at any tier, MDC shall not be in default because of any failure to perform this Contract under its terms if the failure arises from causes beyond the control and without the fault or negligence of MDC. Examples of these causes include but are not limited to are (1) acts of God or of the public enemy, (2) acts of Government in either its sovereign or contractual capacity, (3) fires, (4) floods, (5) epidemics, (6) quarantine restrictions, (7) strikes, (8) freight embargoes, and (9) unusually severe weather. In each instance, the failure to perform must be beyond the control and without the fault or negligence of MDC. "Default" includes failure to make progress in the work so as to endanger performance. MDC shall not be in default, if the failure to perform is caused by the failure of a subcontractor at any tier to perform or make progress, and if the cause of the failure was beyond the control of both MDC and subcontractor, and without fault or negligence of either, unless (1) MDC knew of other sources to obtain the subcontracted supplies or services from to meet schedule; (2) SHI ordered MDC in writing to purchase these supplies or services from the other source; and (3) MDC failed to comply reasonably with this order. If SHI determined that any failure to perform results from one or more of the causes above, the delivery schedule shall be revised, subject to the rights of SHI under the Termination Clause of this Contract. Article 17 - Changes A. SHI may at any time, by written order, and with such concurrence to not be unreasonably withheld from MDC, make changes within the general scope of this Contract in any one or more of the following: (1) Description of services to be performed. (2) Time of performance (i.e., hours of the day, days of the week, etc.). (3) Place of performance of the services. (4) Drawings, designs, or specifications. (5) Method of shipment or packing of supplies. (6) Place of delivery. (7) Types and amounts of SHI and/or Government-Furnished Property to be provided. B. If any such change causes an increase or decrease in the estimated cost of, or the time required for, performance of any part of the work under this contract, whether or not changed by the order, or otherwise affects any other terms and conditions of this contract, SHI shall make an equitable adjustment in the (1) estimated cost, delivery or completion schedule, or both; (2) amount of fee; and (3) other affected terms and shall modify the contract accordingly. C. MDC shall assert its right to an adjustment under this clause within 60 days from the date of receipt of the written order. However, if SHI decides that the facts justify it, SHI may receive and act upon a proposal submitted before final payment of the contract. D. Failure to agree to any adjustment shall be a dispute under the Disputes Clause. However, nothing in this clause shall excuse MDC from proceeding with the contract as changed. E. Notwithstanding the terms and conditions of paragraphs (a) and (b) above, the estimated cost of this contract and, if this contract is incrementally funded, the funds allotted for the performance of this contract, shall not be increased or considered to be increased except by specific written modification of the contract indicating the new contract estimated cost and, if this contract is incrementally funded, the new amount allotted to the contract. Until this modification is made, 7 11 MDC shall not be obligated to continue performance or incur costs beyond the point established in the Limitation of Funds Clause of this Contract. Article 18 - Amendments Neither this Contract, nor any term or condition thereof, shall be amended or changed in any manner except by an instrument in writing hereto, executed by both parties acting through their duly authorized representatives. Article 19 - Stop Work Orders SHI may, at any time, by written order to MDC, require MDC to stop all, or any part, of the work called for by this contract for a period of up to 90 days after the order is delivered to MDC, and for any further period to which the parties may agree. The order shall be specifically identified as a stop-work order issued under this clause. Upon receipt of the order, MDC shall immediately comply with its terms and take all reasonable steps to minimize the incurrence of costs allocable to the work covered by the order during the period of work stoppage. Article 20 - Notices A. Except as herein specifically provided otherwise, all notices, reports, and other communications hereunder shall be given in writing either by personal delivery, by first class mail, or by electronic transmission, addressed to the respective parties as specified herein below. B. The date upon which any such communication is personally delivered or, if such communication is transmitted by mail or by electronic transmission, the date upon which it is received by the addressee, shall be deemed to be the effective date of such communication. C. Each party shall promptly advise the other in the event of any change in their respective addresses. D. The SHI personnel authorized to issue written orders, in accordance with the Changes Clause, are M.E. Grayson, W.S.Dawson, or Nelda Wilbanks. The SHI personnel authorized to issue written Task Directives in accordance with Article 4. are M. D. Steffey, J. M. Lounge, and B. A. Harris. The SHI personnel authorized to give technical direction are E. M. Chewning and D. A. Bland. E. The addresses of SHI and MDC, for the purpose of Paragraph A above, are as follows: FOR COMMUNICATION TO SPACEHAB, INC. SPACEHAB, Inc. 1595 Spring Hill Road, Suite 360 Vienna, VA 22182 Attention: Nelda Wilbanks with copies to E.M. Chewning and D. A. Bland. When transmitted by mail: Same as above When transmitted by electronic transmission: Fax Number: (703) 821-3070 FOR COMMUNICATION TO MDC 8 12 The Boeing Company 499 Boeing Boulevard Huntsville, AL 35824 Attention: Contract Administrator with copy to SPACEHAB Program Manager When transmitted by mail: Same as above When transmitted by electronic transmission: Fax Number: (256) 461-2460 Article 21 - Key Personnel The personnel listed below are considered essential to the work being performed under this contract. Before removing, replacing, or diverting any of the listed personnel, MDA shall notify SHI in advance, and shall provide rationale including identification and qualifications of candidate replacement, and shall not remove, replace or divert such personnel without SHI's written consent, which shall not be unreasonably withheld. In such event, the list of personnel shall then be amended accordingly. Key Personnel Title/Position J. H. James Director, SPACEHAB Program E. L. Streams Senior Manager, SPACEHAB Product Engineering R. K. Keen Senior Manager, SPACEHAB Multi Mission Integration and Operations D. A. Biggs Senior Manager, SPACEHAB Integration and Operations W. A. Koelle Senior Manager, SPACEHAB Safety and Mission Assurance W. H. Turner Senior Manager, SPACEHAB Ground Operations Article 22 - Termination A. SHI may terminate this Contract at any time by written notice, in whole or in part, if SPACEHAB, in its sole discretion, determines that a termination is in its own best interest. SHI shall terminate by delivering to the Contractor a Notice of Termination specifying the extent of termination and the effective date. To minimize the cost of effecting the termination in accordance with MDC policy, best efforts shall be made by SHI to provide 60 to 90 days notice prior to the effective date of termination. B. In the event of a termination, SHI will reimburse MDC for all costs incurred, including applicable fee and termination costs. For purposes of the Termination Clause, incurred costs includes all outstanding commitments not yet paid and for delivery of all hardware, software and services, whether complete or incomplete, identified herein, to SHI. Termination costs are those actual and reasonable costs incurred in terminating the Contract including usual and customary severance pay and other labor costs in the ordinary course of business or as otherwise required by law, storage and protection costs, and costs of settlement and termination of subcontracts. C. SHI may terminate this contract if MDC fails to deliver the goods or perform the services required by this contract within the time specified and any extension thereto granted by SHI. Article 23 - Governing Law This agreement shall be governed by and interpreted in accordance with the law of the State of Delaware. Article 24 - Arbitration/Disputes 9 13 Disputes arising out of the interpretation or execution of this contract which cannot be resolved by negotiation shall, at the request of either Party, (after giving 30 days notice to the other Party) be submitted to arbitration. The arbitration tribunal shall sit in Huntsville, AL. Disputes shall be finally settled in accordance with the Rules of Conciliation and Arbitration of the American Arbitration Association by one or more arbitrators designated in conformity with those Rules. The decision to submit a dispute shall not excuse either party from the timely performance of its obligations hereunder which are not the subject matter of the dispute. Further, if the lack of resolution of the matter in dispute will adversely impact the timely completion of preparation for launch activities, MDC and SHI will perform the matter in dispute in the manner determined by SHI, within the framework of this Contract and without prejudice to the final resolution of the matter in dispute. Article 25 - Audit A. MDC will maintain accurate records of labor hours expended, subcontract billings and travel costs incurred by Cost Charge Number. Such records shall be made available for inspection by an independent certified public account retained by SHI during normal business hours for a period of three (3) years after completion of this Contract. B. MDC's books, records, documents and other supporting data shall be made available to an independent certified public accountant retained by SHI for inspection and audit as reasonably required in conjunction with the negotiation of any changes hereunder, including termination claims. C. In case of any dispute, the parties agree to continue Contract performance pending resolution. Article 26 - Indemnity Against Patent Infringement A. MDC shall indemnify SHI against any liabilities or losses which SHI may be required to pay in the case of any actual or alleged infringement of any United States patent or any negotiation or litigation based thereon, with respect to any products purchased pursuant to the terms of this Contract unless such products are made to a specific and detail design furnished by SHI which is not a modification of a MDC design. Such liabilities or losses (i) include: (a) counsel fees, (b) cost of replacing any infringing product with a suitable non-infringing substitute or of otherwise curing any infringement, but (ii) do not include any losses by SHI due to loss of use, at any time, of equipment or component utilizing any of said products which are the subject of any actual or alleged infringement. B. With respect to any such actual or alleged patent infringement for which MDC is obligated to indemnify SHI: (i) MDC shall, as soon as practicable, report to SHI promptly and in reasonable written detail, each notice of claim against MDC of patent infringement; and (ii) SHI will notify MDC as soon as practicable after receipt by SHI of appropriate notice of any charge of infringement or commencement of any suit or action for infringement against SHI in either case, MDC shall have the option to (a) conduct negotiations with the party or parties charging infringement or (b) assume, conduct and control the defense of any suit or action of infringement against MDC or SHI. In the event MDC does not pursue either option, then SHI shall have the option to conduct such negotiations and defense without expense or liability to SHI as provided under Paragraph A. above. Article 27 - Limitation of Liability 10 14 In no event, shall MDC be liable under any legal or equitable theory (including but not limited to contract, tort, negligence, or strict liability) for any incidental or consequential damages, including but not limited to damages for lost profits, lost sales, or loss of use of property. Article 28 - Insurance and Indemnification Upon delivery and final acceptance by SHI of a SPACEHAB module, SHI shall indemnify and save harmless MDC, its subcontractors and any officers, directors, employees, and agents of any of them from any liability and expense on account of loss of damage to the property of third parties (including the US Government) or bodily injury to any persons, including death, caused by or resulting from the use of the goods furnished hereunder and/or arising from the provision of services under this Contract excepting only such loss, damage, or injury caused by the indemnities willful misconduct, and SHI shall defend any suits or other proceedings brought against MDC and its subcontractors and the officers, directors, employees, and agents of any of them on account thereof an shall pay all expenses and satisfy all judgments which may be incurred or rendered against them or any of them in connection therewith. MDC shall give SHI prompt written notice of any claim of such loss, damage, or injury and shall cooperate with SHI and its insurers in every reasonable way in defending against such claim. SHI shall obtain insurance, naming MDC as an additional named insured, against such liabilities to third parties as are referred to in this paragraph. MDC shall indemnify SHI against any liability, loss, claim, and/or proceeding in respect of personal injury to and/or death of any person, or loss or damage to property, arising out of the performance of the Contract; but only if the same is due to the negligent acts or omission of MDC, its employees or agents; or any subcontractor, its employees or agents. Article 29 - MDC Employee Injury MDC shall indemnify and hold harmless SHI, its officers, agents, and employees from any liability, loss or damage they may suffer as a result of death or injury to any MDC employees connected with or related to the performance of Contract work on SHI's premises, and which results from the negligence of MDC, its officers, agents, or employees. Article 30 - Warranty A. MDC hereby warrants to SHI that all deliverables furnished under this contract shall be free from defects in workmanship for a period of one (1) year from the date of their acceptance. The cost of and associated fees for remedies of any defects shall be paid pursuant to the payment provisions of this contract. SHI shall notify MDC in writing, via fax or any equivalent means within 48 hours of any defects found after acceptance of the products. MDC's liability under this clause shall not extend: 1. to defects arising from the misuse of the items after acceptance. 2. to defects in materials, assemblies or other supplies issued by SHI for incorporation therein, provided always that MDC shall have properly exercised its duties as custodian of such issues and shall have incorporated them in accordance with the requirements of the contract. B. MDC's warranty shall not extend to compensation for damage resulting from the use of articles covered by the contract after acceptance. Consequently, SHI and/or SHI customers shall have no claim against MDC for damage suffered by it. 11 15 C. Where defects in items are remedied by repair under this warranty, the repaired item shall be warranted for the remainder of the unexpired warranty. Where defective items are replace by new ones the full guarantee period stipulated in the Contract shall apply to such replacement items form the date of their acceptance. D. EXCEPT AS PROVIDED IN THIS ARTICLE, MDC MAKES NO WARRANTIES OF ANY KIND, EXPRESS OR IMPLIED, INCLUDING ANY IMPLIED WARRANTY OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE. Article 31 - Relationship of Parties This Contract is not intended by the parties to constitute or create a joint venture, partnership or formal business organization of any kind. The rights and obligations of the parties shall be only those expressly set forth herein. The relationship established by this Contract is exclusively that of seller and buyer. Article 32 - Manned Space Flight Item MDC shall include the following statement in all subcontracts and purchase orders placed by it in support of this Contract, without exception as to amount or subcontractual level: For use in manned space flight; materials, manufacturing, and workmanship of highest quality standards are essential to astronaut safety. If you are able to supply the desired item with a higher quality than that of the items specified or proposed, you are requested to bring this fact to the immediate attention of the purchaser. Article 33 - Order of Precedence In the event of any conflict between Contract and the Statement of Work, the contract shall take precedence. Article 34 - Technical Data All technical data, of whatever type or kind, produced and deliverable under this Contract shall be the "joint" property of SHI and MDC, and SHI and MDC shall each have a "royalty-free" right or license to use such data for any purpose including performance under this Contract. Article 35 - Patent Rights All discovery or inventions of whatever type or kind first made or reduced to practice in connection with the performance of this Contract are the "joint" property of SHI and MDC, and SHI and MDC (and any of the parties' present or future employees, agents, consultants or subcontractors pursuant to contractual rights with one of the parties - hereinafter "Agent") shall each have a royalty-free right or license therein. Article 36 - Use of Company Logo Use of The Boeing Company logo by SHI in marketing presentations and printed or electronic publications shall be coordinated with and approved by MDC prior to dissemination. 12 16 IN WITNESS WHEREOF, the parties have caused their duly authorized representative to execute this Contract in duplicate. MCDONNELL DOUGLAS CORPORATION, SPACEHAB, INC. A WHOLLY-OWNED SUBSIDIARY OF THE BOEING COMPANY By: _____________________________ By: Name: W.D. McBride Name: Nelda Wilbanks Title: Senior Contracts Administrator Title: Contracts Administrator Date: _____________________________ Date: 13 EX-10.95 7 AMENDED AND RESTATED EMPLOYMENT AGREEMENT 1 EXHIBIT 10.95 AMENDED AND RESTATED EMPLOYMENT AND NON-INTERFERENCE AGREEMENT This Employment and Non-Interference Agreement (this "Agreement"), is dated as of April 1, 1997 (the "Effective Date") and amended on January 15, 1998 and January 15, 1999 by and between Dr. Shelley A. Harrison (the "Executive") and SPACEHAB, Incorporated, a Washington corporation (the "Company"). W I T N E S S E T H: WHEREAS, the Company wishes to retain the future services of Executive for the Company; WHEREAS, Executive is willing, upon the terms and conditions set forth in this Agreement, to provide services hereunder; and WHEREAS, the Company wishes to secure Executive's non-interference, upon the terms and conditions set forth in this Agreement. NOW, THEREFORE, in consideration of the mutual promises and covenants contained herein, and intending to be legally bound hereby, the parties hereto agree as follows: 1. Nature of Employment Subject to Section 3, the Company hereby employs Executive, and Executive agrees to accept such employment, during the Term of Employment (as defined in Section 3(a)), as Chief Executive Officer of the Company and to undertake such duties and responsibilities as may be reasonably assigned to Executive from time to time by the Board of Directors of the Company, provided however, that nothing herein shall require Executive to relocate his principal residence from the Long Island, New York area. 2. Extent of Employment (a) During the Term of Employment, Executive shall perform his obligations hereunder faithfully and to the best of his ability under the direction of the Board of Directors of the Company, or such other appropriately authorized or designated executive officer of the Company, and shall abide by the rules, customs and usages from time to time established by the Company. 2 (b) During the Term of Employment, Executive shall devote such business time, energy and skill as may be reasonably necessary for the performance of his duties, responsibilities and obligations under this Agreement (except for vacation periods and reasonable periods of illness or other incapacity), consistent with past practices and norms with respect to similar positions, provided however, that the Company acknowledges that Employee is a General Partner in several venture capital funds and is a director, consultant and/or advisor to certain companies and associations. The Company specifically agrees that such current and future activities of the same general type and scope are permitted under the terms of this Agreement and are not in derogation of Employee's duties and obligations under this Agreement. (c) Nothing contained herein shall require Executive to follow any directive or to perform any act which would violate any laws, ordinances, regulations or rules of any governmental, regulatory or administrative body, agent or authority, any court or judicial authority, or any public, private or industry regulatory authority. Executive shall act in accordance with the laws, ordinances, regulations or rules of any governmental, regulatory or administrative body, agent or authority, any court or judicial authority, or any public, private or industry regulatory authority. 3. Term of Employment; Termination (a) The "Term of Employment" shall commence on the Effective Date and shall continue for a term ending on March 31, 2002 (the "Initial Term"), subject to automatic annual renewal for one-year terms thereafter (the "Additional Term"), unless either the Company or Executive notifies the other party of its intent not to renew within ninety (90) days prior to the end of the Initial Term or an Additional Term, as the case may be. Should Executive's employment by the Company be earlier terminated pursuant to Section 3(b) or 3(c), the Term of Employment shall end on the date of such earlier termination. (b) Subject to the payments contemplated by Section 3(d), the Term of Employment may be terminated at any time by the Company: (i) upon the death of Executive; (ii) in the event that because of physical or mental disability, Executive is unable to perform and does not perform his duties hereunder, for a continuous period of 90 days, and an experienced, recognized physician specializing in such disabilities certifies as to the foregoing in writing; (iii) for Cause or Material Breach (each as defined in Section 3(d)); (iv) upon the continuous poor or unacceptable performance of 2 3 Executive's duties to the Company, in the sole judgment of the Board of Directors of the Company, which has remained uncured for a period of 90 days after the delivery of notice by the Company to the Executive of such dissatisfaction with Executive's performance; or (v) for any other reason not referred to in clauses (i) through (iv), or for no reason, such that this Agreement shall be construed as terminable at will by the Company. Executive acknowledges that no representations or promises have been made concerning the grounds for termination or the future operation of the Company's business, and that nothing contained herein or otherwise stated by or on behalf of the Company modifies or amends the right of the Company to terminate Executive at any time, with or without Material Breach or Cause. Termination shall become effective upon the delivery by the Company to Executive of notice specifying such termination and the reasons therefor, subject to the requirements for advance notice and an opportunity to cure provided in this Agreement, if and to the extent applicable. (c) Subject to the payments contemplated by Section 3(d), the Term of Employment may be terminated at any time by Executive: (i) upon the death of Executive; (ii) in the event that because of physical or mental disability, Executive is unable to perform and does not perform his duties hereunder, for a continuous period of 90 days, and an experienced, recognized physician specializing in such disabilities certifies as to the foregoing in writing; (iii) as a result of the Company's material reduction in Executive's compensation or authority, perquisites, position, title or responsibilities (other than such a reduction by the Company because of a temporary illness or disability or such a reduction which affects all of the Company's senior executives on a substantially equal or proportionate basis as a result of financial results, conditions, prospects, reorganization, workout or distressed condition of the Company), or the Company's willful, material violation of its obligations under this Agreement, in each case, after 30 days' prior written notice by Executive to the Company and its Board of Directors and the Company's failure thereafter to cure such reduction or violation within such 30 days, or for any proposal that would require the relocation of Executive from the Long Island, New York area; provided, however, that in the event the Executive's employment is terminated following a Change in Control, the Executive shall serve the Company as a consultant under the terms of the Consulting and Non-Competition Agreement between the Executive and the Company dated 3 4 January 15, 1999 (the "Consulting and Non-Competition Agreement"); or (iv) voluntarily or for any reason not referred to in clauses (i) through (iii), or for no reason, in each case, after 90 days' prior written notice to the Company and its Board of Directors. (d) For the purposes of this Section 3: "Cause" shall mean any of the following: (i) Executive's conviction of any crime or criminal offense involving the unlawful theft or conversion of substantial monies or other property or any other felony (other than a criminal offense arising solely under a statutory provision imposing criminal liability on the Executive on a per se basis due to the offices held by the Executive); or (ii) Executive's conviction of fraud or embezzlement. "Change in Control" of the Company shall be deemed to occur on: (i) the date that any person or group deemed a person under Sections 3(a)(9) and 13(d)(3) of the Act, other than the Company and its subsidiaries as determined immediately prior to that date, in a transaction or series of transactions has become the beneficial owner, directly or indirectly (with beneficial ownership determined as provided in Rule 13d-3, or any successor rule, under such Act) of 20% or more of the outstanding securities of the Company having the right under ordinary circumstances to vote at an election of the Board of Directors of the Company; (ii) the date on which one-third or more of the members of the Board of Directors of the Company shall consist of persons other than Current Directors (for these purposes, a "Current Director" shall mean any member of the Board of Directors of the Company as of the effective date of the Plan and any successor of a Current Director whose nomination or election has been approved by a majority of the Current Directors then on the Board of Directors of the Company); or (iii) the date of approval by the shareholders of the Company of an agreement providing for (A) the merger or consolidation of the Company with another corporation where the shareholders of the Company, immediately prior to the merger or consolidation, would not beneficially own, immediately after the merger or consolidation, shares entitling such shareholders to 50% or more of all votes (without consideration of the rights of any class of stock to elect directors by a separate class vote) to which all shareholders of the corporation issuing cash or securities in the merger or consolidation would be entitled in the election of directors or where the members of the Board of Directors of the Company, immediately prior to the merger or consolidation, would not, immediately after the merger or consolidation or (B) the sale or other disposition of all or substantially all the assets of the Company. "Material Breach" shall mean any of the following: (i) Executive's breach of any of his fiduciary duties to the Company or its stockholders or making of a willful misrepresentation or omission which breach, misrepresentation or omission would reasonably be expected to materially adversely affect the business, properties, assets, condition (financial or other) or prospects of the Company; (ii) Executive's willful, 4 5 continual and material neglect or failure to discharge his duties, responsibilities or obligations prescribed by Sections 1 and 2 (other than arising solely due to physical or mental disability); (iii) Executive's habitual drunkenness or substance abuse which materially interferes with Executive's ability to discharge his duties, responsibilities or obligations prescribed by Sections 1 and 2; (iv) Executive's willful, continual and material breach of any noncompetition or confidentiality agreement with the Company, including without limitation, those set forth in Sections 8 and 9 of this Agreement; and (v) Executive's gross neglect of his duties and responsibilities, as determined by the Company's Board of Directors; in each case, for purposes of clauses (i) through (v), after the Company or the Board of Directors has provided Executive with 30 days' written notice of such circumstances and the possibility of a Material Breach, and Executive fails to cure such circumstances and Material Breach within those 30 days. (i) In the event Executive's employment is terminated pursuant to Section 3(b)(i) [death], 3(b)(ii) [disability] or 3(b)(v) [by the Company for any other reason or no reason] or 3(c)(i) [death], 3(c)(ii) [disability], 3(c)(iii) [material reduction], the Company will: (A) provide to the Executive all payments, rights and benefits due as of the date of termination under the terms of the Company's employee and fringe benefit plans and programs in which the Executive participated during the Employment Period and pay to Executive (or his estate or representative) a lump-sum amount equal to the sum of his earned but unpaid base salary through the date of termination, any earned but unpaid annual bonus for any completed fiscal year, a pro rata portion of the annual bonus for the year in which the termination occurs (determined by multiplying the target annual bonus for the year of termination by a fraction the numerator of which is the number of days in the calendar year that precede the date of termination and the denominator of which is 365), and any unreimbursed business expenses or other amounts due to the Executive from the Company as of the date of termination (together with the employee and fringe benefit rights described above, the "Accrued Rights"), (B) pay to Executive (or his estate or representative) the full amounts to which the Executive would be entitled to under Sections 4(a) and 4(b) for the period from effectiveness of termination through the thirtieth month anniversary of termination; and (C) pay to Executive (or his estate or representative) the benefits described in Section 6 through the thirtieth month anniversary of termination. Payment of the amounts and provision of the benefits described above will be made in accordance with the timetable and schedule for such payments contemplated therefor as if such termination did not occur, and will be subject to the other provisions of this Agreement, including Section 3(h) and Sections 8 and 9. If the Company makes the payments required by this Section 3(d)(i), such payments will constitute severance 5 6 and liquidated damages, and the Company will not be obligated to pay any further amounts to Executive under this Agreement or otherwise be liable to Executive in connection with any termination. (ii) In the event Executive's employment is terminated pursuant to Section 3(b)(iii) [Cause or Material Breach], 3(b)(iv) [poor performance], or 3(c)(iv) [voluntary], the Company will pay and provide to the Executive any Accrued Rights and the Company will not be obligated to pay any further amounts to Executive under this Agreement. (iii) Notwithstanding the provisions of paragraphs (i) and (ii) above, in the event Executive's employment is terminated following a Change in Control pursuant to Section 3(b)(v) [by the Company for any other reason or no reason] or Section 3(c)(iii) [by the Executive for material reduction], the Company will: (A) pay and provide to Executive (or his estate or representative) any Accrued Rights; (B) pay to Executive (or his estate or representative) a lump-sum amount equal to three times the sum of (1) the Executive's then-current base salary and (2) the average of the last three annual bonuses paid to the Executive; and (C) pay to Executive (or his estate or representative) the benefits described in Section 6 through the thirty-sixth month anniversary of termination. If the Company makes the payments required by this Section 3(d)(iii), such payments will constitute severance and liquidated damages, and the Company will not be obligated to pay any further amounts to Executive under this Agreement or otherwise be liable to Executive in connection with any termination, other than any amounts under the Consulting and Non-Competition Agreement. (e) In the event the Term of Employment is terminated and the Company is obligated to make payments to Executive pursuant to Section 3(d), Executive shall not be under a duty to seek to obtain alternative employment; and if Executive thereafter obtains alternative employment, the Company's payment obligations under Section 3(d), including its obligation to provide insurance coverage, if any, will not be mitigated or reduced by Executive's compensation under such alternative employment. (f) In the event the Term of Employment is terminated and the Company is obligated to make payments pursuant to Section 3(d), Executive hereby waives any and all claims against the Company and its respective officers, directors, employees, agents, or representatives, stockholders and affiliates relating to his employment during the term hereof and this Agreement, other than claims relating to the Executive's right to payments or benefits under Sections 3(d) or 3(g) or under the Consulting and Non-Competition Agreement. (g) Notwithstanding the terms of any stock option plan or grant 6 7 documentation, any unexercised stock options granted to the Executive (whether pursuant to this Agreement or otherwise) shall immediately vest and be immediately exercisable and any and all stock options then held by Executive shall remain exercisable for their full ten year term in the event of a termination of employment, unless such termination is pursuant to Sections 3(b)(iii) of (iv) or 3(c)(iv) hereof. (h) Termination of the Term of Employment will not terminate Sections 3(d), 3(f), 3(g), and 8 through 25 or the Consulting and Non-Competition Agreement. 4. Compensation During the Term of Employment, the Company shall pay to Executive: (a) As base compensation for his services hereunder, in bi-monthly installments, a base salary at a minimum rate in the first year of this Agreement of $275,000 per annum, in the second year of the Agreement of $300,000 per annum and in the third year of the Agreement of $325,000, in the fourth year of the Agreement of $350,000 and in the fifth year of the Agreement of $375,000. Such amounts may be increased (but not decreased) annually at the discretion of the Compensation Committee of the Board of Directors based upon an annual review by the Compensation Committee of the Board of Directors of Executive's performance. (b) An annual bonus, if any, based on Executive's performance as determined and approved by the Compensation Committee of the Board of Directors. (c) In connection with the successful completion of a transaction constituting a Change in Control, the Company shall pay Executive a special completion bonus in a lump sum equal to three times the highest of the last three annual bonuses paid to the Executive (the "Completion Bonus"). The Completion Bonus shall be in addition to and shall not reduce in any way the other payments and benefits to which Executive is or may become entitled to under the terms of this Agreement or otherwise. 5. Reimbursement of Expenses During the Term of Employment, the Company shall pay all expenses, including without limitation, transportation, lodging (including but not limited to the use of an apartment in the Washington, D.C. area) and food for Executive to travel between his home and the Company's headquarters and to any of its other offices, to attend conventions, conferences and meetings that the Company determines are necessary or in the best interest of the Company, and for any ordinary and reasonable expenses incurred by Executive in the conduct of the Business of the Company. 6. Benefits 7 8 During the Term of Employment, Executive shall be entitled to benefits (including health, disability, pension and life insurance benefits consistent with Company policy, or as increased from time to time), in each case, in accordance with guidelines or established from time to time, by the Board of Directors for senior executives of the Company. 7. Parachute Tax Indemnity (a) If it shall be determined that any amount paid, distributed or treated as paid or distributed by the Company to or for the Executive's benefit (whether paid or payable or distributed or distributable pursuant to the terms of this Agreement or otherwise, but determined without regard to any additional payments required under this Section 7) (a "Payment") would be subject to the excise tax imposed by Section 4999 of the Internal Revenue Code of 1986, as amended (the "Code") or any interest or penalties are incurred by the Executive with respect to such excise tax (such excise tax, together with any such interest and penalties, being hereinafter collectively referred to as the "Excise Tax"), then the Executive shall be entitled to receive an additional payment (a "Gross-Up Payment") in an amount such that after payment by the Executive of all federal, state and local taxes (including any interest or penalties imposed with respect to such taxes), including, without limitation, any income taxes (and any interest and penalties imposed with respect thereto) and Excise Tax imposed upon the Gross-Up Payment, the Executive retains an amount of the Gross-Up Payment equal to the Excise Tax imposed upon the Payments. (b) All determinations required to be made under this Section 7, including whether and when a Gross-Up Payment is required and the amount of such Gross-Up Payment and the assumptions to be utilized in arriving at such determination, shall be made by a nationally recognized accounting firm (the "Accounting Firm") which shall provide detailed supporting calculations both to the Company and the Executive within 15 business days of the receipt of notice from the Executive that there has been a Payment, or such earlier time as is requested by the Company. The Accounting Firm shall be appointed jointly by two other nationally recognized accounting firms, one of which is appointed by the Executive and one of which is appointed by the Company for such purpose. The Accounting Firm shall not be an accounting firm serving as accountant or auditor for the individual, entity or group effecting the Change of Control. All fees and expenses of the Accounting Firm shall be borne by the Company. Any Gross-Up Payment, as determined pursuant to this Section 7, shall be paid by the Company to the Executive within five days of the receipt of the Accounting Firm's determination. Any determination by the Accounting Firm shall be binding upon the Company and the Executive. As a result of the uncertainty in the application of Section 4999 of the Code at the time of the initial determination by the Accounting Firm hereunder, it is possible that Gross-Up Payments which will not have been made by the Company should have been made ("Underpayment"), consistent with the calculations required to be made hereunder. In the event that the Company exhausts its remedies 8 9 pursuant to this Section 7 and the Executive thereafter is required to make a payment of any Excise Tax, the Accounting Firm shall determine the amount of the Underpayment that has occurred and any such Underpayment shall be promptly paid by the Company to or for the Executive's benefit. (c) The Executive shall notify the Company in writing of any claim by the Internal Revenue Service that, if successful, would require the payment by the Company of the Gross-Up Payment. Such notification shall be given as soon as practicable but no later then ten business days after the Executive is informed in writing of such claim and shall apprise the Company of the nature of such claim and the date on which such claim is requested to be paid. The Executive shall not pay such claim prior to the expiration of the 30-day period following the date on which it gives such notice to the Company (or such shorter period ending on the date that any payment of taxes with respect to such claim is due). If the Company notifies the Executive in writing prior to the expiration of such period that it desires to contest such claim, the Executive shall: (i) give the Company any information reasonably requested by the Company relating to such claim; (ii) take such action in connection with contesting such claim as the Company shall reasonably request in writing from time to time, including, without limitation, accepting legal representation with respect to such claim by an attorney reasonably selected by the Company; (iii) cooperate with the Company in good faith in order to effectively contest such claim; and (iv) permit the Company to participate in any proceeding relating to such claim; provided, however, that the Company shall bear and pay directly all costs and expenses (including additional interest and penalties) incurred in connection with such contest and shall indemnify and hold the Executive harmless, on an after-tax basis, from any Excise Tax or income tax (including interest and penalties with respect thereto) imposed as a result of such representation and payment of costs and expense. Without limitation on the foregoing provisions of this Section 7, the Company shall control all proceedings taken in connection with such contest and, at its sole option, may pursue or forego any and all administrative appeals, proceedings, hearings and conferences with the taxing authority in respect of such claim and may, at its sole option, either direct the Executive to pay the tax claimed and sue for a refund or contest the claim in any permissible manner, and the Executive agrees to prosecute such contest to a determination before any administrative tribunal, in a court of initial jurisdiction and in one or more appellate courts, as the Company shall determine; provided, however, that if the Company directs the Executive to pay such claim and sue for a refund, the Company shall advance the amount of such payment to the Executive, on an interest-free basis, and shall indemnify and hold the Executive harmless, on an after-tax basis, from any Excise Tax or income tax (including interest or penalties with respect thereto) imposed with respect to such advance or with respect to any imputed income with respect to such advance; and further provided that any extension of the statute of limitations relating to payment of taxes for the Executive's taxable year with respect to which such contested amount is claimed to be due is limited solely to such contested amount. Furthermore, the Company's control of the contest shall be limited to issues with respect to which a Gross-Up Payment would be payable hereunder and the Executive shall be entitled to settle or contest, as the case may be, any other issue raised by the Internal Revenue Service or any 9 10 other taxing authority, so long as such action does not have a material adverse effect on the contest being pursued by the Company. (d) If, after the Executive's receipt of an amount advanced by the Company pursuant to this Section 7, the Executive becomes entitled to receive any refund with respect to such claim, the Executive shall (subject to the Company's complying with the requirements of this Section 7) promptly pay to the Company the amount of such refund (together with any interest paid or credited thereon after taxes applicable thereto). If, after the Executive's receipt of an amount advanced by the Company pursuant to this Section 7, a determination is made that the Executive shall not be entitled to any refund with respect to such claim and the Company does not notify the Executive in writing of its intent to contest such denial of refund prior to the expiration of 30 days after such determination, then such advance shall be forgiven and shall not be required to be repaid and the amount of such advance shall offset, to the extent thereof, the amount of Gross-Up Payment required to be paid. 8. Confidential Information (a) Executive acknowledges that his employment hereunder gives him access to Confidential Information relating to the Company's Business and its customers which must remain confidential. Executive acknowledges that this information is valuable, special, and a unique asset of the Company's Business, and that it has been and will be developed by the Company at considerable effort and expense, and if it were to be known and used by others engaged in a Competitive Business, it would be harmful and detrimental to the interests of the Company. In consideration of the foregoing, Executive hereby agrees and covenants that, during and after the Term of Employment, Executive will not, directly or indirectly in one or a series of transactions, disclose to any person, or use or otherwise exploit for Executive's own benefit or for the benefit of anyone other than the Companies, Confidential Information (as defined in Section 11), whether prepared by Executive or not; provided, however, that any Confidential Information may be disclosed to officers, representatives, employees and agents of the Companies who need to know such Confidential Information in order to perform the services or conduct the operations required or expected of them in the Business (as defined in Section 11). Executive shall use his best efforts to prevent the removal of any Confidential Information from the premises of the Companies, except as required in his normal course of employment by the Company. Executive shall use his best efforts to cause all persons or entities to whom any Confidential Information shall be disclosed by him hereunder to observe the terms and conditions set forth herein as though each such person or entity was bound hereby. Executive shall have no obligation hereunder to keep confidential any Confidential Information if and to the extent disclosure of any thereof is specifically required by law; provided, however, that in the event disclosure is required by applicable law, Executive shall provide the Company with prompt notice of such requirement, prior to making any disclosure, so that the Company may seek an appropriate protective order. At the request of the Company, Executive agrees to deliver to the Company, at any time 10 11 during the Term of Employment, or thereafter, all Confidential Information which he may possess or control. Executive agrees that all Confidential Information of the Companies (whether now or hereafter existing) conceived, discovered or made by him during the Term of Employment exclusively belongs to the Companies (and not to Executive). Executive will promptly disclose such Confidential Information to the Company and perform all actions reasonably requested by the Company to establish and confirm such exclusive ownership. (b) In the event that Executive breaches his obligations in any material respect under this Section 8, the Company, in addition to pursuing all available remedies under this Agreement, at law or otherwise, and without limiting its right to pursue the same shall cease all payments to Executive under this Agreement. (c) The terms of this Section 8 shall survive the termination of this Agreement regardless of who terminates this Agreement, or the reasons therefor. 9. Non-Interference (a) Executive acknowledges that the services to be provided give him the opportunity to have special knowledge of the Company and its Confidential Information and the capabilities of individuals employed by or affiliated with the Company, and that interference in these relationships would cause irreparable injury to the Company. In consideration of this Agreement, Executive covenants and agrees that: (i) During the Restricted Period (which shall not include any period of violation of this Agreement by the Executive), Executive will not, without the express written approval of the Board of Directors of the Company, anywhere in the Market, directly or indirectly, in one or a series of transactions, own, manage, operate, control, invest or acquire an interest in, or otherwise engage or participate in, whether as a proprietor, partner, stockholder, lender, director, officer, employee, joint venturer, investor, lessor, supplier, customer, agent, representative or other participant, in any Competitive Business without regard to (A) whether the Competitive Business has its office, manufacturing or other business facilities within or without the Market, (B) whether any of the activities of Executive referred to above occur or are performed within or without the Market or (C) whether Executive resides, or reports to an office, within or without the Market; provided, however, that (x) Executive may, anywhere in the Market, directly or indirectly, in one or a series of transactions, own, invest or acquire an interest in up to five percent (5%) of the capital stock of a corporation whose capital stock is traded publicly, or that (y) Executive may accept employment with a successor company to the Company. (ii) During the Restricted Period (which shall not include any 11 12 period of violation of this Agreement by Executive), Executive will not without the express prior written approval of the Board of Directors of the Company (A) directly or indirectly, in one or a series of transactions, recruit, solicit or otherwise induce or influence any proprietor, partner, stockholder, lender, director, officer, employee, sales agent, joint venturer, investor, lessor, supplier, customer, agent, representative or any other person which has a business relationship with the Company or had a business relationship with the Company within the twenty-four (24) month period preceding the date of the incident in question, to discontinue, reduce or modify such employment, agency or business relationship with the Company, or (B) employ or seek to employ or cause any Competitive Business to employ or seek to employ any person or agent who is then (or was at any time within six months prior to the date Executive or the Competitive Business employs or seeks to employ such person) employed or retained by the Company. Notwithstanding the foregoing, nothing herein shall prevent Executive from providing a letter of recommendation to an employee with respect to a future employment opportunity. (iii) The scope and term of this Section 9 would not preclude him from earning a living with an entity that is not a Competitive Business. (b) The terms of this Section 9 shall survive termination of this Agreement regardless of who terminates this Agreement, or the reasons therefor. 10. Inventions (a) Each invention, improvement or discovery made or conceived by Executive, either individually or with others, during the term of his employment with the Company, which invention, improvement or discovery is related to any of the lines of business or work of the Companies, any projected or potential activities which the Companies have investigated or hereinafter investigates, or which result from or are suggested by any service performed by Executive for the Company, whether patentable or not, shall be promptly and fully disclosed by Executive to the Company. Executive assigns each such invention, improvement or discovery, and the patents thereof, or related thereto, to the Company. Executive shall, during the term of his employment with the Company and thereafter without charge to the Company, but at the request and expense of the Company, assist the Company in obtaining or vesting in itself patents upon such improvements and inventions. All such inventions, improvements or discoveries shall at all times become and remain the exclusive property of the Company. Executive represents that he does not claim ownership of any inventions, improvements, formulae or discoveries which are excluded from this Agreement. (b) In the event an arbitrator or a court of competent jurisdiction determines that Executive has breached his obligations in any material respect under 12 13 Sections 8, 9, or this Section 10, the Company, in addition to pursuing all available remedies under this Agreement, at law or otherwise, and without limiting its right to pursue the same shall cease all payments to Executive under this Agreement. 11. Definitions "Business" means (a) the design, manufacture, lease and operation of pressurized habitable space capsules and those other businesses and activities that are described in the Company's Form 10-K for the fiscal year ended June 30, 1997, or (b) any similar, incidental or related business conducted or pursued by, or engaged in, or proposed to be conducted or pursued by or engaged in, by the Companies prior to the date hereof or at any time during the Term of Employment. "Cause" is defined in Section 3(d). "Change in Control" is defined in Section 3(d). "Companies" means the Company and any of its direct or indirect subsidiaries, now existing or hereafter existing. "Company" is defined in the introduction. "Competitive Business" means any business which competes, directly or indirectly, with the Business in the Market. "Confidential Information" means any trade secret, confidential study, data, calculations, software storage media or other compilation of information, patent, patent application, copyright, trademark, trade name, service mark, service name, "know-how", trade secrets, customer lists, details of client or consultant contracts, pricing policies, sales techniques, confidential information relating to suppliers, information relating to the special and particular needs of the Companies' customers operational methods, marketing plans or strategies, products and formulae, product development techniques or plans, business acquisition plans or any portion or phase of any scientific or technical information, ideas, discoveries, designs, computer programs (including source of object codes), processes, procedures, research or technical data, improvements or other proprietary or intellectual property of the Companies, whether or not in written or tangible form, and whether or not registered, and including all files, records, manuals, books, catalogues, memoranda, notes, summaries, plans, reports, records, documents and other evidence thereof. The term "Confidential Information" does not include, and there shall be no obligation hereunder with respect to, information that is or becomes generally available to the public other than as a result of a disclosure by Executive not permissible hereunder. "Executive" means the individual identified in the first paragraph of this Agreement, or his or her estate, if deceased. 13 14 "Market" means any county in the United States of America and each similar jurisdiction in any other country in which the Business was conducted or pursued by, engaged in by the Companies prior to the date hereof or is conducted or engaged in or pursued, or is proposed to be conducted or engaged in or pursued, by the Companies at any time during the Term of Employment. "Material Breach" is defined in Section 3(d). "Non-Interference Period" means the period commencing on the date of this Agreement and continuing through the twelfth month anniversary of the termination of the Term of Employment. "Prior Employment Agreement" is defined in Section 13(a). "Restricted Period" means the period commencing on the date of this Agreement and continuing through the twelfth month anniversary of the termination of the Term of Employment. "Subsidiary" means any corporation, limited liability company, joint venture, limited and general partnership, joint stock company, association or any other type of business entity of which the Company owns, directly or indirectly through one or more intermediaries, more than fifty percent (50%) of the voting securities at the time of determination. "Term of Employment" is defined in Section 3(a). 12. Notice Any notice, request, demand or other communication required or permitted to be given under this Agreement shall be given in writing and if delivered personally, or sent by certified or registered mail, return receipt requested, as follows (or to such other addressee or address as shall be set forth in a notice given in the same manner): If to Executive: Dr. Shelley A. Harrison 5 Norma Lane Dix Hills, NY 11746 If to Company: SPACEHAB, Incorporated 1595 Spring Hill Road, Suite 3600 Vienna, Virginia 22182 Attention: President with a copy to: 14 15 Frank E. Morgan II Dewey Ballantine LLP 1301 Avenue of the Americas New York, New York 10019 Any such notices shall be deemed to be given on the date personally delivered or such return receipt is issued. 13. Previous Agreements; Executive's Representation (a) Executive and the Company hereby cancel, void and render without force and effect all prior employment or severance agreements between Executive and the Company ("Prior Employment Agreements"), and the Executive releases and discharges the Company from any further obligations or liabilities thereunder. Notwithstanding the foregoing, the terms and provisions in any Prior Employment Agreement relating to any grants of stock options or other derivative securities for the purchase of the Company's common stock, no par value per share, shall remain in full force and effect and shall not be amended in any manner as a result of the execution of this Agreement. Further, this release and discharge shall not apply in any respect to the Consulting and Non-Competition Agreement. (b) Executive hereby warrants and represents to the Company that Executive has carefully reviewed this Agreement and has consulted with such advisors as Executive considers appropriate in connection with this Agreement, is not subject to any covenants, agreements or restrictions, including without limitation any covenants, agreements or restrictions arising out of Executive's prior employment, which would be breached or violated by Executive's execution of this Agreement or by Executive's performance of his duties hereunder. 14. Other Matters Executive agrees and acknowledges that the obligations owed to Executive under this Agreement are solely the obligations of the Company, and that none of the Companies' stockholders, directors, officers, affiliates, representatives, agents or lenders will have any obligations or liabilities in respect of this Agreement and the subject matter hereof. 15. Validity If, for any reason, any provision hereof shall be determined to be invalid or unenforceable, the validity and effect of the other provisions hereof shall not be affected thereby. 15 16 17. Severability Whenever possible, each provision of this Agreement will be interpreted in such manner as to be effective and valid under applicable law, but if any provision of this Agreement is held to be invalid, illegal or unenforceable in any respect under any applicable law or rule in any jurisdiction, such invalidity, illegality or unenforceability will not affect any other provision or any other jurisdiction, but this Agreement will be reformed, construed and enforced in such jurisdiction as if such invalid, illegal or unenforceable provision had never been contained herein. If any court determines that any provision of Section 9 or any other provision hereof is unenforceable because of the power to reduce the scope or duration of such provision, as the case may be and, in its reduced form, such provision shall then be enforceable. 17. Waiver of Breach; Specific Performance The waiver by the Company or Executive of a breach of any provision of this Agreement by the other party shall not operate or be construed as a waiver of any other breach of such other party. Each of the parties (and third party beneficiaries) to this Agreement will be entitled to enforce its rights under this breach of any provision of this Agreement and to exercise all other rights existing in its favor. The parties hereto agree and acknowledge that money damages may not be an adequate remedy for any breach of the provisions of Sections 8, 9, and 10 of this Agreement and that any party (and third party beneficiaries) may in its sole discretion apply to any court of law or equity of competent jurisdiction for specific performance and/or injunctive relief, including temporary restraining orders, preliminary injunctions and permanent injunctions in order to enforce or prevent any violations of the provisions of this Agreement. 18. Successors This Agreement shall be binding upon and shall inure to the benefit of the Company, its successors and any person, firm, corporation or other entity which succeeds to all or substantially all of the business, assets or property of the Company. The Company will require any successor (whether direct or indirect, by purchase, merger, consolidation or otherwise) to all or substantially all of the business, assets or property of the Company, to expressly assume and agree to perform this Agreement in the same manner and to the same extent that the Company would be required to perform it if no such succession had taken place. As used in this Agreement, the "Company" shall mean the Company as hereinbefore defined and any successor to its business, assets or property as aforesaid which executes and delivers an agreement provided for in this Section 18 or which otherwise becomes bound by all the terms and provisions of this Agreement by operation of law. 19. Assignment; Third Parties Neither Executive nor the Company may assign, transfer, pledge, 16 17 hypothecate, encumber or otherwise dispose of this Agreement or any of his or its respective rights or obligations hereunder, without the prior written consent of the other. The parties agree and acknowledge that each of the Companies are intended to be third party beneficiaries of, and have rights and interests in respect of, Executive's agreements set forth in Sections 8, 9, and 10. 20. Amendment; Entire Agreement This Agreement may not be changed orally but only by an agreement in writing agreed to by the party against whom enforcement of any waiver, change, modification, extension or discharge is sought. This Agreement and the Consulting and Non-Competition Agreement embody the entire agreement and understanding of the parties hereto in respect of the subject matter of this Agreement, and supersede and replace all prior Agreements, understandings and commitments with respect to such subject matter. 21. Method of Payment Any lump-sum payments provided for in Section 3(d) shall be made in a cash payment, net of any required tax withholding, no later than the fifth business day following the date of the Executive's termination of employment. Any payment that is not made in a timely manner shall bear interest at a rate equal to 100% of the short term applicable federal rate, compounded semi-annually, as defined under Section 1274(d) of the Code, as in effect for the month in which payment is required to be made. 22. Litigation THIS AGREEMENT SHALL BE GOVERNED BY, CONSTRUED, APPLIED AND ENFORCED IN ACCORDANCE WITH THE LAWS OF THE COMMONWEALTH OF VIRGINIA, EXCEPT THAT NO DOCTRINE OF CHOICE OF LAW SHALL BE USED TO APPLY ANY LAW OTHER THAN THAT OF VIRGINIA, AND NO DEFENSE, COUNTERCLAIM OR RIGHT OF SET-OFF GIVEN OR ALLOWED BY THE LAWS OF ANY OTHER STATE OR JURISDICTION, OR ARISING OUT OF THE ENACTMENT, MODIFICATION OR REPEAL OF ANY LAW, REGULATION, ORDINANCE OR DECREE OF ANY FOREIGN JURISDICTION, BE INTERPOSED IN ANY ACTION HEREON. SUBJECT TO SECTION 22, EXECUTIVE AND THE COMPANY AGREE THAT ANY ACTION OR PROCEEDING TO ENFORCE OR ARISING OUT OF THIS AGREEMENT MAY BE COMMENCED IN THE COURTS OF THE COMMONWEALTH OF VIRGINIA OR THE UNITED STATES DISTRICT COURTS IN THE NORTHERN DISTRICT OF VIRGINIA. EXECUTIVE AND THE COMPANY CONSENT TO SUCH JURISDICTION, AGREE THAT VENUE WILL BE PROPER IN SUCH COURTS AND WAIVE ANY OBJECTIONS BASED UPON FORUM NON CONVENIENS. THE CHOICE OF FORUM SET FORTH IN THIS SECTION 22 SHALL NOT BE DEEMED TO PRECLUDE THE ENFORCEMENT OF ANY JUDGMENT OBTAINED 17 18 IN SUCH FORUM OR THE TAKING OF ANY ACTION UNDER THIS AGREEMENT TO ENFORCE SAME IN ANY OTHER JURISDICTION. 23. Arbitration EXECUTIVE AND THE COMPANY AGREE THAT ANY DISPUTE BETWEEN OR AMONG THE PARTIES TO THIS AGREEMENT RELATING TO OR IN RESPECT OF THIS AGREEMENT, ITS NEGOTIATION, EXECUTION, PERFORMANCE, SUBJECT MATTER, OR ANY COURSE OF CONDUCT OR DEALING OR ACTIONS UNDER OR IN RESPECT OF THIS AGREEMENT, SHALL BE SUBMITTED TO, AND RESOLVED EXCLUSIVELY PURSUANT TO ARBITRATION IN ACCORDANCE WITH THE COMMERCIAL ARBITRATION RULES OF THE AMERICAN ARBITRATION ASSOCIATION. SUCH ARBITRATION SHALL TAKE PLACE IN ARLINGTON, VIRGINIA, AND SHALL BE SUBJECT TO THE SUBSTANTIVE LAW OF THE STATE OF VIRGINIA. DECISIONS PURSUANT TO SUCH ARBITRATION SHALL BE FINAL, CONCLUSIVE AND BINDING ON THE PARTIES. UPON THE CONCLUSION OF ARBITRATION, EXECUTIVE OR THE COMPANY MAY APPLY TO ANY COURT OF THE TYPE DESCRIBED IN SECTION 22 TO ENFORCE THE DECISION PURSUANT TO SUCH ARBITRATION. IN CONNECTION WITH THE FOREGOING, THE PARTIES HEREBY WAIVE ANY RIGHTS TO A JURY TRIAL TO RESOLVE ANY DISPUTES OR CLAIMS RELATING TO THIS AGREEMENT OR ITS SUBJECT MATTER. 24. Further Action Executive and the Company agree to perform any further acts and to execute and deliver any documents which may be reasonable to carry out the provisions hereof. 25. Legal Fees and Expenses. To induce the Executive to execute this Agreement and to provide the Executive with reasonable assurance that the purposes of this Agreement will not be frustrated by the cost of its enforcement should the Company fail to perform its obligations hereunder, the Company shall pay and be solely responsible for any attorneys' fees and expenses and court costs incurred by the Executive as a result of a claim that the Company has breached or otherwise failed to perform this Agreement or any provision hereof to be performed by the Company, regardless of which party, if any, prevails in the contest. 26. Counterparts This Agreement may be executed in counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same 18 19 instrument. 19 20 IN WITNESS WHEREOF, the parties hereto have set their hands as of the day and year first written above. EXECUTIVE: ----------------------------------- Dr. Shelley A. Harrison SPACEHAB, INCORPORATED By: ----------------------------------- David A. Rossi President 20 EX-10.96 8 EUROPEAN MARKETING AGREEMENT 1 Exhibit 10.96 Revised Draft: 11 June 1998 SPACEHAB, INC. AND INTOSPACE GmbH EUROPEAN MARKETING AGREEMENT 2 This Agreement is made and entered into on this __ day of _________ 1998, by and between SPACEHAB, Inc., a corporation organized under the laws of the State of Washington, United States of America with its principal place of business located at 1595 Spring Hill Road, Vienna, Virginia 22182 (hereinafter referred to as "SPACEHAB") and INTOSPACE, GmbH, a corporation organized under the laws of the Federal Republic of Germany with its principal offices located at Sophienstrasse 6, D-30159 Hannover, Germany (hereinafter referred to as "INTOSPACE"). Since 1989 SPACEHAB and INTOSPACE have maintained a close and mutually beneficial relationship in marketing research payload flight opportunities on SPACEHAB's Space Shuttlebased carriers to user organizations in Europe. SPACEHAB, following consultations with its European partners Alenia Aerospazio and Daimler-Benz Aerospace, and INTOSPACE, following consultations with its Steering Board, now seek to enhance their relationship by concluding a new marketing Agreement to replace the "Exclusive European Broker Agreement" entered into on February 15, 1989. This Agreement is intended to focus INTOSPACE's marketing efforts on attracting additional European customers for research payload flight opportunities on SPACEHAB's Shuttle-based carriers, particularly customers from the industrial and national government sectors. In so doing, SPACEHAB and INTOSPACE hope to promote increased microgravity research and prepare for scientific and commercial utilization of the International Space Station. ARTICLE I -- RESPECTIVE RESPONSIBILITIES In implementing this Agreement, INTOSPACE shall act as the principal European agent for SPACEHAB in the marketing of research opportunities on SPACEHAB's Space Shuttle-based carriers. In carrying out its responsibilities, INTOSPACE shall: - - Market Space Shuttle research payload flight opportunities on SPACEHAB's Shuttle-based carriers to prospective customers in the European territory as defined in Article III below. - - Establish a new SPACEHAB-INTOSPACE Joint Customer Support Office as described in Article II below. - - Assist SPACEHAB in meeting current customer requirements for technical information. - - Conduct accommodation studies for potential new customers within the capabilities of the Joint Office. - - Assist SPACEHAB in concluding contracts with European customers of SPACEHAB research flight services consistent with customer requests. 3 - - Promote enhanced European and international microgravity research through continued publication and distribution of the INTOSPACE "Low G" journal on a quarterly basis including SPACEHAB special editions for international missions provided the Joint Office planned target budget (discussed in Article II, below) is reached. - - Promote SPACEHAB research payload flight opportunities to the European market through: - Distribution of a bimonthly newsletter "INTOSPACEHAB" - Participation in European exhibitions, workshops and symposia. - Periodic presentations to key European government and industry decision-makers. In carrying out its responsibilities, SPACEHAB shall: - - Keep INTOSPACE informed regarding confirmed and prospective research payload flight opportunities for SPACEHAB's Shuttle-based carriers. - - Ensure INTOSPACE has current information regarding SPACEHAB pricing, accommodation requirements and procedures and other relevant technical information. - - Pay INTOSPACE marketing fees for executed contracts in accordance with the conditions and fee structure discussed in Article V below. - - Assist INTOSPACE in its European marketing activities through: - Technical support for accommodations studies and proposal preparation. - Provision of SPACEHAB marketing literature, exhibition support and other materials. - Participation of SPACEHAB personnel in selected workshops, symposia, marketing meetings and presentations to key European decision-makers within available marketing and sales resources. - - Support the SPACEHAB-INTOSPACE Joint Customer Support Office by periodically arranging for SPACEHAB personnel to visit and temporarily work at the Office in connection with SPACEHAB's customer support and marketing activities. - - Distribute the quarterly INTOSPACE "Low G" journal to interested organizations in the United States. 4 ARTICLE II -- JOINT EUROPEAN CUSTOMER SUPPORT OFFICE In support of this marketing Agreement and as noted above, INTOSPACE will establish a Joint SPACEHAB-INTOSPACE Customer Support Office in The Netherlands as agreed in the Share Purchase Agreement dated ______. The activities of the Joint Customer Support Office will begin operations on September 1, 1998 and continue through June 2001. During the third year of operations, INTOSPACE and SPACEHAB will review the current status and accomplishments of the Joint Customer Support Office to determine whether and under what conditions the Joint Office should be continued. INTOSPACE and SPACEHAB will jointly recruit a manager for the Joint Office. In this new capacity, the Joint Office manager will carry a business card representing the Joint Customer Support Office. To guide the operation of the Joint Customer Support Office, INTOSPACE and SPACEHAB will prepare an office operations plan. This plan will include a baseline office budget as well as a target budget for the three-year period. The baseline and target budget figures will be based on the estimates developed by INTOSPACE and SPACEHAB in March 1998. The office operations plan will also elaborate on INTOSPACE's planned marketing activities on SPACEHAB's behalf. The operations plan will be completed no later than August 30, 1998 and will be reviewed annually in June. INTOSPACE's Managing Director and SPACEHAB's Vice President for Marketing and Sales will be jointly responsible for the overall direction of the Joint Customer Support Office, and for approval review and changes to the joint office operations plan. Both representatives must approve the annual office operations plan, and any amendments thereto. INTOSPACE will be responsible for providing office space and other necessary services, and for all expenses associated with the operation of the Joint Office. SPACEHAB's sole contribution to these expenses will be made through SPACEHAB's purchase of INTOSPACE shares as set forth in Paragraph 1.4 of the SPACEHAB/INTOSPACE Share Purchase Agreement dated _____________. INTOSPACE and SPACEHAB will each maintain general liability insurance to cover the acts of their respective employees who support the activities of the Joint Customer Support Office and other related SPACEHAB marketing activities in Europe. ARTICLE III -- MARKETING TERRITORY For the purposes of this Agreement, the marketing activities will be performed in Europe, which shall be defined as the geographic territory of the member nations of the European Union as of January 1, 1998 plus Switzerland and Norway. These European Union member states are Austria, Belgium, Denmark, Finland, France, Germany, Greece, Ireland, Italy, Luxembourg, The Netherlands, Portugal, Spain, Sweden, and the United Kingdom. ARTICLE IV -- NON-EXCLUSIVITY INTOSPACE will be SPACEHAB's principal European Shuttle microgravity flight opportunity marketing agent. In this role, INTOSPACE shall promote and market research payload flight opportunities on SPACEHAB's shuttle-based carriers on a non-exclusive basis throughout the European territory. 5 SPACEHAB reserves the right to establish additional marketing arrangements with, and to place contracts through, other European companies in order to expand its marketing presence in Europe. SPACEHAB will consult with INTOSPACE prior to concluding any new European marketing arrangements. SPACEHAB will also take into account concrete, pre-existing business arrangements that INTOSPACE may have made and, should these arrangements result in revenues, provide appropriate compensation to INTOSPACE for its marketing efforts. ARTICLE V -- MARKETING FEES SPACEHAB shall pay INTOSPACE marketing fees as a percentage of the final sales price actually received from contracts executed by SPACEHAB with customers in the European territory in accordance with the following schedule: 6
CUSTOMER FEE BASIS TOTAL FEE PAID -------- --------- -------------- All customers in the European territory Basic fee 2.5% European Space Agency Basic fee 2.5% European national space agencies Basic fee + 2.5% 5% European industry and European Union Basic fee + 7.5% 10%
The above fee schedule replaces the fee provisions of the February 1989 "Exclusive European Broker Agreement." Notwithstanding this change, INTOSPACE will receive a marketing fee of 10% of the executed contract amounts to be paid to SPACEHAB for the ESA contracts for the STS-95 mission and the planned STS-107 SPACEHAB mission (or its successor if the Shuttle flight assignment is altered) where INTOSPACE has entered into a reservation agreement with SPACEHAB and has already begun contract negotiations with ESA. Recent NASA/ESA Space Station barter arrangements have resulted in lost business revenues from ESA payloads on STS-95 and STS-107. Should any future ESA and NASA barters result in lost revenues and should NASA compensate SPACEHAB for these lost revenues, SPACEHAB will compensate INTOSPACE in accordance with the above fee structure. Marketing fees paid under this Agreement are based on percentages of the total executed SPACEHAB/European customer contract amounts actually received by SPACEHAB exclusive of any NASA Space Shuttle or other NASA charges. These fees will be paid within thirty (30) days of the date SPACEHAB receives full cash payment from the customer or at such times as may be mutually agreed between INTOSPACE and SPACEHAB. Marketing fee payments will be made using electronic fund transfers to a bank designated in writing by INTOSPACE. ARTICLE VI -- INDEPENDENT CONTRACTOR RELATIONSHIP The parties to this Agreement are and shall remain independent contractors to one another. Notwithstanding the above-described role of the Joint Customer Support Office manager, SPACEHAB and INTOSPACE personnel performing work in support of this contract will continue to be employees of their existing organizations. INTOSPACE and SPACEHAB employees are not authorized to make commitments or create express or implied obligations on behalf of the other party. SPACEHAB reserves the right, in its sole discretion, to refuse to enter into a contractual agreement with customers solicited by INTOSPACE except that SPACEHAB shall not unreasonably or arbitrarily refuse to enter into contracts solicited by INTOSPACE. Except as otherwise noted in this Agreement, each party shall bear its own costs with respect to the performance of this Agreement. No claim for the reimbursement of such costs shall be made. ARTICLE VII -- TITLE Title to, and ownership of, all tangible personal property and software supplied to customers or users of SPACEHAB Shuttle-based carriers or utilized in the course of business pursuant to this Agreement shall remain with and be vested in the party supplying such property and in no event shall the other party acquire any right, title or interest therein. 7 The property of each party provided in connection with the use of SPACEHAB Shuttle-based carriers shall be clearly marked as to ownership, and the other party shall not remove, change or obscure any such markings as may properly identify the title and ownership thereof. Title to, and ownership of, all intellectual property such as patents, copyrights and trade secrets which are incorporated in or related to property supplied to customers or users of SPACEHAB Shuttle-based carriers or utilized in the course of business pursuant to this agreement shall remain with and be vested in the party supplying such property, and in no event shall the other party acquire any right, title, license or interest therein. ARTICLE VIII -- PROPRIETARY INFORMATION During the term of this Agreement and for a period of five (5) years from the termination of this Agreement, each party shall not communicate, divulge or in any manner whatsoever, directly or indirectly, make known to any other person or entity, or use to the benefit of any third parties, any trade secrets, business and technical knowledge, processes of manufacturing, software or software know-how, or other proprietary information of the other party or their customers, or the knowledge such party obtains as a result of the performance of this Agreement, and which was disclosed and identified in writing, or if disclosed orally then confirmed in writing within thirty (30) days, as being the proprietary information of such disclosing party. Neither party shall have an obligation to disclose or grant to the other party any right to the technology that it brings to this Agreement, or may acquire by reason of the relationship of the parties under this Agreement. ARTICLE IX -- FULL AGREEMENT WITHOUT DELEGATION, ASSIGNMENT OR ORAL MODIFICATION This Agreement is the complete marketing agreement between SPACEHAB and INTOSPACE. It replaces and supersedes the February 15, 1989 Exclusive European Broker Agreement which hereafter is null and void. This Agreement also replaces any other representations, communications and understandings, whether written or oral, between SPACEHAB and INTOSPACE. No oral modification of this Agreement is permissible. A course of dealing does not effect a waiver or modification unless ratified in writing. Neither party shall assign its rights or delegate or otherwise transfer its duties under this Agreement without the prior written consent of the other party. ARTICLE X -- NOTICE AND COMMUNICATIONS Any notice or communication necessary to ensure the timely performance of this Agreement shall be sent to: Mr. David A. Rossi Mr. Jurgen K. von der Lippe President Managing Director SPACEHAB, Inc. INTOSPACE GmbH Suite 360 Sophienstrasse 6 1595 Spring Hill Road D-30159 Hannover Vienna, Virginia USA Germany 8 All notices and communications required pursuant to the performance of this Agreement shall be in writing. The date of any notice is the date it is received. ARTICLE XI -- MISCELLANEOUS PROVISIONS This Agreement shall be governed by the laws of the Commonwealth of Virginia, USA. Any controversy or claim arising out of or relating to this agreement, which cannot be resolved in a timely manner by the mutual agreement of the parties, shall be subject to arbitration in accordance with the commercial Rules of the American Arbitration Association if effect at the time the arbitration is initiated, unless the parties mutually agree otherwise, and judgement upon the award rendered by the arbitration may be in any court having jurisdiction thereof. Arbitration shall be held in the District of Columbia. This Agreement shall inure to the benefit of and be binding upon the parties to this Agreement and their successors and permitted assigns. Any provision of this Agreement that is prohibited or unenforceable in any jurisdiction shall be ineffective to the extent of such prohibition or unenforceability only without invalidating the remaining provisions of this Agreement and any such prohibition or unenforceability in any jurisdiction shall not invalidate or render unenforceable such provision in any other jurisdiction. Either party may waive any breach by the other of any of the provisions contained in this Agreement, or any default by such other party in the observance or performance of any covenant, agreement or condition required to be kept, observed or performed by a party under this Agreement, provided that such waiver shall not be effective unless expressed in writing, and provided that no act or omission by a party in respect of such breach or default shall extend to or be taken in any manner whatsoever to effect any subsequent breach or default, or to effect the rights of a party resulting from such subsequent breach or default. INTOSPACE shall not be responsible for the performance of any agreement between SPACEHAB and its European customers. SPACEHAB shall hold harmless and indemnify INTOSPACE with respect to any liability arising from any agreement between SPACEHAB and a European customer. INTOSPACE shall not be responsible for receiving any governmental approvals necessary for implementation of the agreements between SPACEHAB and its European customers but shall assist SPACEHAB and its European customers in obtaining any required approval. In order to optimize its marketing efforts in European countries with national space agencies, INTOSPACE may cooperate with selected local companies if so deemed to be beneficial to acquire orders from national funding authorities. INTOSPACE shall notify SPACEHAB of any prospective business cooperation arrangements with third parties and will give SPACEHAB the opportunity to review and approve such arrangements prior to INTOSPACE implementing such arrangements. The parties shall use their best efforts to inform the other of any relevant activity undertaken that may affect or be related to the subject of this Agreement. ARTICLE XII -- AGREEMENT TERM This Agreement shall take effect on July 1, 1998 with a term of three (3) years. The Agreement may be extended by mutual written agreement of the parties only. Either SPACEHAB or INTOSPACE may terminate this Agreement at any time after two years from the effective date upon six (6) months prior written notice. 9 Obligations to pay marketing fees incurred during the period this Agreement is in effect and commitments with respect to the protection of proprietary information shall survive the termination of this contract and shall remain continuing obligations of the parties. Signed on this 12th day of June, 1998. SPACEHAB, Inc. INTOSPACE, GmbH /s/ David Rossi - ------------------------- ------------------------------ David A. Rossi Jurgen K. von der Lippe President Managing Director 10 Agreement By and between SPACEHAB, Inc. Suite 360, 1595 Spring Hill Road Vienna, VA 22182 USA and INTOSPACE GmbH Sophienstrasse 6 D-30159 Hannover Germany Preamble Since 1989 SPACEHAB, Inc. and INTOSPACE GmbH have maintained a close and mutually beneficial relationship in marketing research payload flight opportunities on SPACEHAB's Space Shuttle-based carriers to user organizations in Europe. This agreement furthers that relationship through the purchase by SPACEHAB of 7.5% of INTOSPACE's share capital and the establishment of a Joint Customer Support Office. 1. SPACEHAB PURCHASE OF INTOSPACE SHARES 1.1 Status and Shareholders INTOSPACE GmbH is a private company under German law with headquarters in Hannover, Germany, and an office in Brussels, Belgium, and is presently owned by 64 shareholders from 9 European countries. 1.2 Share Value The total value of INTOSPACE's share capital is DM 1 Million or approximately U.S. $555,600. Since its establishment in 1985, INTOSPACE's shareholders have invested additional funds in the company. 11 2 1.3 Steering Board Membership As provided for in the INTOSPACE Shareholders' Agreement of May 1, 1986, shareholders having 7.5% of the total share capital have the right to nominate a representative to the INTOSPACE Steering Board. 1.4 Share Purchase SPACEHAB, Inc. agrees to purchase 7.5% of the INTOSPACE share capital at a price of US $293,000. This purchase will take effect on July 1, 1998. The purchase is payable within 30 days after signature of the purchase/transfer agreement. The payment will be made to INTOSPACE's bank account and in any event will be made no later than July 31, 1998. 1.5 Shareholders' Agreement SPACEHAB, Inc. will enter into and sign the Shareholders' Agreement on INTOSPACE GmbH, Revised Issue No. 1 of May 1, 1986. 1.6 Steering Board Nomination As provided in the INTOSPACE Shareholders' Agreement, SPACEHAB, Inc. will be entitled to one seat on the INTOSPACE Steering Board and will nominate the SPACEHAB representative in due course. 2. JOINT EUROPEAN CUSTOMER SUPPORT OFFICE 2.1 Objective SPACEHAB and INTOSPACE plan to establish a Joint Customer Support Office to provide support to SPACEHAB's European customers and to enhance INTOSPACE's marketing of research payload flight opportunities on SPACEHAB's Shuttle-based carriers. 2.2 Operation To guide the operation the Joint Customer Support Office, INTOSPACE and SPACEHAB will prepare an office operations plan. This plan will include a baseline office budget as well as a target budget for the three-year period. The line and target budget figures will be based on the estimates developed by INTOSPACE and SPACEHAB in March 1998. The office operations plan will also elaborate on INTOSPACE's planned marketing activities on SPACEHAB's behalf. The operations plan will be completed no later than August 30, 1998 and will be reviewed annually in June. 12 3 INTOSPACE's Managing Director and SPACEHAB's Vice President for Marketing and Sales will be jointly responsible for the overall direction of the Joint Customer Support Office, and for approval, review and changes to the joint office operations plan. Both representatives must approve the annual office operations plan, and any amendments thereto. 2.3 Staff The Joint Customer Support Office will be staffed by one permanent member from INTOSPACE supplemented by occasional visits of SPACEHAB personnel for technical liaison and marketing support. INTOSPACE and SPACEHAB will each fund the cost of their respective personnel assigned to work at the Joint Office. This includes travel and applicable local living expenses. INTOSPACE and SPACEHAB will jointly recruit a manager for the Joint Office. In this new capacity, the Joint Office manager will carry a business card, representing the Joint Customer Support Office. 2.4 Location The office will be established in the vicinity of the European Space Agency's ESTEC center. INTOSPACE and SPACEHAB plan to select a location which is close to other space business activities and convenient from the international travel standpoint. This is likely to be in or near the university town of Leiden. 2.5 Expenses INTOSPACE will be responsible for providing office space and other necessary services, and for all expenses associated with the operation of the Joint Office. SPACEHAB's sole contribution to these expenses will be made through SPACEHAB's purchase of INTOSPACE shares as set forth in Paragraph 1.4 above. 2.6 Liability insurance INTOSPACE and SPACEHAB will each maintain general liability insurance to cover the acts of their respective employees who support the activities of the Joint Customer Support Office and other related SPACEHAB marketing activities in Europe. 2.7 Duration The activities of the Joint Customer Support Office will begin operations on September 1, 1998 and continue through June 2001. During the third year of operations, INTOSPACE and SPACEHAB will review the current status and accomplishments of the Joint Customer Support Office to determine whether and under what conditions the Joint Office should be continued. 13 4 3. COMING INTO FORCE This Agreement will come into force, if and when the European Marketing Agreement by and between both parties is signed. Signed on this 12th day of June, 1998. SPACEHAB, Inc. INTOSPACE GmbH /s/ David A. Rossi /s/ Jurgen K. von der Lippe - ------------------------- ------------------------------ David A. Rossi Jurgen K. von der Lippe President Managing Director EX-10.97 9 LEASE 1 EXHIBIT 10.97 LEASE AGREEMENT STATE OF TEXAS COUNTY OF HARRIS THIS LEASE AGREEMENT, made and entered into by and between J.A. BILLIPP DEVELOPMENT CORPORATION, A TEXAS CORPORATION hereinafter referred to as "Landlord" and JOHNSON ENGINEERING CORPORATION hereinafter referred to as "Tenant". W I T N E S S E T H : 1. PREMISES AND TERM. In consideration of the obligation of Tenant to pay rent as herein provided, and in consideration of the other terms, provisions and covenants hereof, Landlord hereby demises and leases to Tenant, and Tenant hereby takes from Landlord certain premises to be situated at _________________ Forge River, Houston, within the County of Harris, State of Texas, 77058, more particularly described on Exhibit "A" attached hereto and incorporated herein by reference, together with all rights, privileges, easements, appurtenances and amenities belonging to or in any way pertaining to the premises and together with the building, more particularly described in the plans and specifications of the premises which are or will be signed and initialed by the parties for identification and attached hereto as Exhibit "B" (the "Plans") and incorporated herein by referenced reference of building design and construction documents, consisting of not less than 27,064 square feet of rentable area and other improvements situated or to be situated upon said premises (the said real property, building and improvements being hereinafter referred to as the "Premises"). The Plans shall include the leasehold improvements to be constructed by Landlord in the Premises. The rentable area for the entire building is expected to be 108,300 square feet. The rentable area of the Premises for purposes of this agreement shall be deemed to be 27,064 square feet, however, the actual rentable area may be adjusted upward, after final Tenant space planning is complete, as mutually agreed by Landlord and Tenant. TO HAVE AND TO HOLD the same for a term commencing on the "Commencement Date", as hereinafter defined, and ending one hundred eight (108) months thereafter, subject to the provisions of Paragraph 28 herein, provided, however, that in the event the "Commencement Date" is a date other than the first day of a calendar month, said term shall extend for said number of months in addition to the remainder of the calendar month following the "Commencement Date". (a) The "Commencement Date" shall be the date upon which the leased Premises shall have been substantially completed in accordance with the plans and specifications mutually agreed to by Landlord and Tenant, hereinafter referred to as the Commencement Date, which is anticipated to be approximately March 15, 1994, but to be not less than eleven (11) months after Tenant gives written notice to Landlord that 2 Tenant has received the NASA Related Contract (hereinafter defined) award (the "Award Notice"). Landlord shall notify Tenant in writing as soon as Landlord deems said Premises to be completed and ready for occupancy as aforesaid. The phrase "substantially completed", or derivative thereof as used herein shall be used to describe that degree of completion as is necessary to allow Tenant to enter upon and take possession of the Premises for the uses and purposes stated herein, notwithstanding the fact that certain "punch list" type items may still need to be completed. After such Commencement Date, Tenant shall, upon demand, execute and deliver to Landlord a letter of acceptance of delivery of the Premises provided, or as soon as, Landlord's architect certifies the Premises have been substantially completed. In the event of any dispute as to substantial completion of work performed or required to be performed by Landlord, the certificate of Landlord's architect shall be conclusive. (b) If Landlord is unable to tender possession of the Premises to Tenant on the Commencement Date due to any reason caused by the acts or omissions or delays of Tenant, its agents, employees or contractors after Tenant has given Landlord the Award Notice, then Landlord shall notify Tenant in writing of these events and the Commencement Date shall be postponed until the Leasehold Improvements are complete, and such postponement shall operate to extend the expiration date specified in Section 1 in order to give full effect to the stated duration of the term of this Lease. In this event, however, the commencement of installments of base rental and payment of other amounts due as provided herein shall not be postponed and shall become due and payable commencing eleven (11) months after Tenant has given Landlord the Award Notice. (c) If Landlord is unable to tender possession of the Premises to Tenant on the Commencement Date for any reason (specifically including any delays caused in the awarding of the NASA Related Contract) other than that specified in Paragraph 1(b) above, then the Commencement Date (and commencement of installments of base rental and payment of other amounts due as provided herein) shall be postponed until the Leasehold Improvements are completed, and such postponement shall operate to extend the expiration date specified in Section 1 in order to give full effect to the stated duration of the term of this Lease; provided, however, that in the event Landlord is unable to tender possession of the Premises to Tenant for any such reason not specified in Paragraph 1(b) above before the expiration of sixty (60) days after expiration of the eleven (11) month period after Tenant has given Landlord the Award Notice, then Tenant, shall have the right to terminate this Lease by giving Landlord written notice of such termination. (d) Landlord shall promptly notify Tenant in writing of any delay in the Commencement Date which in the opinion of Landlord is caused for any reason specified in Paragraph 1(b). Tenant shall promptly notify Landlord in writing of any delay in the Commencement Date which in the opinion of Tenant is caused for any reason specified in Paragraph 1(c). Any delay in the Commencement Date resulting from the acts or omissions of Landlord or Tenant of which the other party does not give such delaying party written notification shall not be included in the ninety (90) day period referred to in Paragraph 1(c) hereof. Landlord shall notify Tenant in advance and secure Tenant's approval to proceed if any change requested by Tenant will result in a delay. 2 3 The Plans shall not be changed except pursuant to a written change order or other written request, executed by Tenant and approved by Landlord. Any such change may only be requested or made on behalf of Tenant by Mr. Dale R. Johnson, or any other representative of Tenant designated to Landlord in writing. (e) Tenant's taking possession of the Premises shall be deemed conclusive evidence that as of the date of taking possession thereof, the Premises are in good order and satisfactory condition, except for latent defects and such matters as to which Tenant gave Landlord written notice on or before the Commencement Date; provided however, Landlord agrees that Tenant will have thirty (30) days from the date Tenant takes occupancy of the Premises to inspect and request any reasonable changes or repairs in defective workmanship to the Premises, but such right shall not delay the Commencement Date or the payment of installments of base rental or other amounts due hereunder. 2. RENT AND SECURITY DEPOSIT. (a) As part of the consideration for the execution of this Lease, and for the lease and use of the Premises, Tenant covenants and agrees and promises to pay as rental to Landlord or Landlord's assignees, a sum of $20,975 per month ($9.30/SF/Yr.) in months 1 - 52; and $22,555 per month ($10.00/SF/Yr.) in months 53 - 100. The first such monthly installment in the amount of $20,975 shall be due and payable on the date of execution of this agreement, which shall be credited toward the first monthly installment due on the Commencement Date, and each monthly installment as stated above shall be due and payable in advance, without demand, deduction or set off, on or before the first day of each succeeding calendar month during the hereby demised term, except that the rental payment for any fractional month at the commencement of the lease term shall be prorated. (b) In addition, Tenant agrees to deposit with Landlord on the date that Tenant gives written notice to Landlord to not renew or to terminate this lease agreement, and at least four months prior to the expiration of the lease term, the sum of twenty-two Thousand Five Hundred Fifty-Five and 00/100 Dollars ($22,555.00), which sum shall be held by Landlord, without obligation for interest, as security for the performance of Tenant's covenants and obligations under this Lease, it being expressly understood and agreed that such deposit is not an advance rental deposit or a measure of Landlord's damages in case of Tenant's default. Upon the occurrence of any event of default by Tenant, Landlord may without prejudice to any other remedy provided herein or provided by law, use such funds to the extent necessary to make good any arrears of rent or other payments due Landlord hereunder, and any other damage, injury, expense or liability caused by such event of default. Although the security deposit shall be deemed the property of the Landlord, all or any remaining balance of such deposit shall be returned by Landlord to Tenant at such time after termination of this Lease that all Tenant's obligations under this Lease have been fulfilled. (c) Tenant agrees to pay to Landlord, as additional rental, all charges for any service, goods, or materials furnished by Landlord at Tenant's request which are 3 4 not required to be furnished by Landlord under this Lease, (as well as all other sums payable by Tenant hereunder), within thirty (30) days after Landlord renders a statement therefor to Tenant. All past due installments of rent and additional rental amounts shall bear interest from the date due until paid at the rate of Texas Commerce Bank Prime Rate plus three percent (3%) per annum. Additionally, if Landlord incurs any expenses or costs as a result of Tenant's failure to pay any installment of rent or additional rental amount when due, then Tenant shall immediately upon receipt of notice of such expense or cost from Landlord reimburse Landlord for such amount. 3. USE. The Premises shall be used only for the purpose of business offices, receiving, storing, shipping, light manufacturing and selling (other than retail) products, materials, merchandise and services made and/or distributed by Tenant, photography laboratory, and for any other lawful and permitted purposes. Tenant shall conduct such activities in such a manner as to not constitute a violation of the covenants and deed restrictions of Bay Terrace Subdivision and Friendswood Development Company. Outside storage, including, without limitation, trucks and other vehicles, is prohibited without Landlord's prior written consent. Tenant shall at its own cost and expense obtain any and all licenses and permits necessary for any use of the Premises. Tenant shall comply with all governmental laws, ordinances and regulations applicable to the use of the Premises, and shall promptly comply with all governmental orders and directives for the correction, prevention and abatement of nuisances in or upon, or connected with the Premises, all at Tenant's sole expense. Tenant shall not permit any objectionable or unpleasant odors, smoke, dust, gas, noise or vibrations to emanate from the Premises. Without Landlord's prior written consent, Tenant shall not receive, store or otherwise handle any product, material or merchandise which is explosive or highly inflammable. Tenant will not permit the Premises to be used for any purpose which would render the property or liability insurance thereon void or the insurance risk more hazardous or cause the State Board of Insurance or other insurance authority to disallow any sprinkler credits. 4. TAXES AND OTHER ASSESSMENTS. (a) Tenant agrees to pay to Landlord or directly to the various taxing authorities, before they become delinquent, Tenant's prorata share of all taxes (both general and special), assessments or governmental charges of any kind and nature whatsoever (hereinafter collectively referred to as the "taxes"), levied or assessed against the Premises or any part thereof before they become delinquent. Taxes are deemed to be additional rentals payable by Tenant and are subject to the provisions of Paragraph 2(b) above. (b) If at any time during the term of this Lease, the present method of taxation shall be changed so that in lieu of the whole or any part of any taxes, assessments, levies or charges levied, assessed or imposed on the Premises thereon there shall be levied, assessed or imposed on Landlord a capital levy or other tax directly on the rents received therefrom and/or a franchise tax, assessment, levy or charge measured by or based, in whole or in part upon such rents for the Premises, then all such taxes, 4 5 assessments, levies or charges or the part thereof so measured or based, shall be deemed to be included within the term "taxes" for the purposes hereof. (c) Any payment to be made pursuant to this Paragraph 4 with respect to the real estate tax year in which this Lease commences or terminates shall bear the same ratio to the payment which would be required to be made for the full tax year as that part of such tax year covered by the term of this Lease bears to a full tax year. (d) The Landlord shall have the right to employ a tax consulting firm to attempt to assure a fair tax burden on the Premises within the applicable taxing jurisdictions. Tenant shall reimburse Landlord for the cost of such service, which shall not exceed $400/Yr., unless otherwise agreed by and between Landlord and Tenant. (e) Tenant may, at its sole cost and expense, in its own name and/or in the name of Landlord, dispute and contest any Taxes, appraisals, or valuations. Landlord, as owner of the demised Premises, agrees to lend friendly assistance to Tenant in connection with all matters pertaining to Taxes hereunder, including, without limitation, joining in any proceedings instituted by Tenant in respect thereof, provided Tenant indemnifies and holds Landlord harmless from any costs incurred by Landlord in respect thereof. (f) Tenant agrees to pay to Landlord all owners' association (Clear Lake City Community Association) annual assessments (currently covers maintenance and repair of public recreational facilities, street medians and subdivision entrance ways and ambulance service) and any special assessments levied or assessed against the Premises or any part thereof before they become delinquent. Tenant may elect to make such payments payable directly to the appropriate assessment authorities and Landlord shall give written notice to Tenant within five (5) days after receipt of assessment payments from Tenant that such payments have been forwarded to the appropriate assessment authorities. Any sums paid by Landlord on behalf of Tenant shall be deemed to be additional rental owed by Tenant to Landlord and shall be due and payable on demand by Landlord together with interest thereon at the rate of Texas Commerce Bank Prime Rate plus three percent (3%) per annum if not received from Tenant within thirty (30) days from the date the invoice is received from Landlord. 5. REPAIRS AND MAINTENANCE. (a) After completion by Landlord of the building and the leasehold improvements specified in Exhibit "B", Tenant shall at its own cost and expense keep, maintain and take good care of the Premises and, except as expressly provided in Paragraph 11(b) hereof, make all necessary repairs thereto, interior and exterior, ordinary and extraordinary, and shall suffer no waste or nuisance, however, Tenant shall not be responsible for latent construction or material defects. Landlord will be responsible only for repairs required to maintain the structural integrity of the building foundation, concrete wall panels and steel structure, unless such repairs are required as a result of Tenant damage. Any material and/or equipment warranties or guarantees provided by the construction contractor will be administered by Landlord for the benefit of Tenant. At 5 6 the end of the term or other termination of this Lease, Tenant shall deliver the Premises with all improvements thereon in good repair and condition, reasonable wear and tear only excepted. Tenant may request Landlord to complete any or all of these Tenant maintenance or repair responsibilities and will reimburse Landlord for Landlord's direct cost of such maintenance or repair. (b) Tenant at its own cost and expense shall be responsible for its prorata share of the maintenance and care of the building and grounds around the building on the Premises, including the regular mowing of grass, care of shrubs and general landscaping and will keep the parking areas, driveways, alleys and the whole of the Premises in a clean and sanitary condition. Landlord will administer these services, and Tenant shall reimburse Landlord for Tenant's prorata share of Landlord's direct cost and expense. (c) Tenant at its own cost and expense shall enter into a regularly scheduled preventive maintenance/service contract with a maintenance contractor for servicing all hot water, heating and air conditioning systems and equipment within the Premises. The service contract will include all services suggested by the equipment manufacturer within the operation/maintenance manual and will become effective (and a copy thereof delivered to Landlord) within thirty (30) days of the date Tenant takes possession of the Premises. (d) The Landlord shall provide a ten (10) year manufacturer's guaranty for the building roof system from Owens-Corning Fiberglass Corporation (or equal). The guaranty will be administered by Landlord for the benefit of Tenant(s). 6. ALTERATIONS. Tenant shall not make any alterations, additions or improvements to the Premises without the prior written consent of Landlord. Tenant may, without the consent of Landlord, but at its own cost and expense and in a good workmanlike manner make such minor alterations, additions or improvements or erect, remove or alter such partitions, or erect such shelves, bins, machinery and trade fixtures as it may deem advisable, without altering the basic character of the building or improvements and without overloading or damaging such building or improvements, and in each case complying with all applicable governmental laws, ordinances, regulations, and other requirements. All alterations, additions, improvements and partitions erected by Tenant shall be and remain the property of Tenant during the term of the Lease. Unless otherwise mutually-agreed by Landlord and Tenant, such improvements shall become the property of the Landlord as of the date of the end of the term of this Lease (as such term may be extended pursuant to any renewals, extensions or holdover period) and shall be delivered up to the Landlord with the Premises and Tenant shall have no obligation to restore the premises to their original condition. All shelves, bins, machinery and trade fixtures installed by Tenant will be removed by Tenant prior to the termination of this Lease, unless otherwise agreed by Landlord. All such removals and restoration shall be accomplished in good workmanlike manner so as not to damage the primary structure or structural qualities of the building and other improvements situated on the Premises. 6 7 7. SIGNS. Tenant shall have the right to install signs upon the exterior of the building only when first approved in writing by Landlord and subject to any applicable governmental laws, ordinances, regulations, deed restrictions and other requirements. Tenant shall remove all such signs upon the termination of this Lease. Such installations and removals shall be made in such manner as to avoid injury to or defacement of the building and other improvements. Tenant shall repair any injury or defacement, including without limitation discoloration, caused by such installation and/or removal, if so required by Landlord. Landlord will provide an allowance of up to $3,000 for the installation of a building or monument sign as specified by Tenant. 8. INSPECTION. Subject to Tenant's reasonable security regulations, Landlord and Landlord's agent and representatives shall have the right to enter and inspect the Premises at any reasonable time during business hours, for the purpose of ascertaining the condition of the Premises after receiving prior permission from Tenant. During the period that is six (6) months prior to the end of the term hereof, Landlord and Landlord's agents and representatives shall have the right, with the prior consent of Tenant, to enter the Premises at any reasonable time during business hours for the purpose of showing the Premises and shall have the right to erect on the Premises a suitable sign indicating that the Premises are available for lease. Tenant shall give written notice to Landlord at least thirty (30) days prior to vacating the Premises and shall arrange to meet with Landlord for a joint inspection of the Premises prior to vacating. 9. UTILITIES. Landlord agrees to provide water, electricity, and telephone service connections to the Premises; but Tenant shall pay all charges incurred for any utility services used on or from the Premises, and any maintenance charges for utilities, and shall furnish all replacement electric light bulbs and tubes. Landlord shall in no event be liable for any interruption or failure of utility services on the Premises. 10. ASSIGNMENT AND SUBLETTING. (a) Neither Tenant nor Tenant's legal representatives or successors in interest by operation of law or otherwise shall assign this Lease or sublease the leased Premises or any part thereof, or mortgage, pledge or hypothecate its leasehold interest or grant any concession or license within the leased Premises without the prior written permission of Landlord (which permission shall not be unreasonably withheld or delayed), and any attempt to do any of the foregoing without the prior express written permission of Landlord shall be void and of no effect. Notwithstanding the foregoing, Landlord's consent shall not be required for the assignment or subletting, in whole or in part, of the Leased Premises to any parent, subsidiary, division or affiliate of Tenant, or any corporation in or with which any of the foregoing may be duly merged, converted or consolidated under any statutory proceeding, or to NASA (National Aeronautics & Space Administration); provided, however, Tenant shall give Landlord written notice prior to any such assignment or subletting, and any such assignment or subletting by Tenant shall not serve to release Tenant from primary liability hereunder. (b) Notwithstanding that the prior written permission of Landlord to any of the aforesaid transactions may have been obtained, the following shall apply: 7 8 (1) In the event of an assignment, contemporaneously with the granting of Landlord's aforesaid consent, Tenant shall cause the assignee to expressly assume in writing and agree to perform all of the covenants, duties and obligations of Tenant hereunder. (2) A signed counterpart of all instruments relative thereto (executed by all parties to such transaction with the exception of Landlord) shall be submitted by Tenant to Landlord prior to or contemporaneously with the request for Landlord's written consent thereto (it being understood that no such instrument shall be effective without the written consent of Landlord). (3) No usage of the leased Premises different from the usage herein provided to be made by Tenant shall be permitted, and all other terms and provision of this Lease shall continue to apply after any such assignment or subleasing. 11. INSURANCE; FIRE AND CASUALTY DAMAGE. (a) Landlord agrees to maintain property insurance covering the Premises in an amount not less than 90% (or such greater percentage as may be necessary to comply with the provisions of any co-insurance clauses of the policy) of the "replacement cost" thereof as such term is defined in the Replacement Cost Endorsement to be attached thereto, insuring against the perils of Fire, Lightning, Extended Coverage, Vandalism and Malicious Mischief, extended by Special Extended Coverage Endorsement to insure against all other Risks of Direct Physical Loss, such coverage and endorsements to be as defined, provided and limited in the standard bureau forms prescribed by the insurance regulatory authority for the State of Texas for use by insurance companies admitted in Texas for the writing of such insurance on risks located within Texas. Such insurance shall cover those risks of loss that a reasonable and prudent property owner of a like or similar building located in Clear Lake City or Houston, Texas would insure against, including liability and loss of rents coverage. Subject to the provisions of subparagraphs 11(b), 11(c) and 11(g) below, such insurance shall be for the sole benefit of Landlord. Tenant shall reimburse Landlord Tenant's prorata share for Landlord's direct cost of maintaining such property insurance. (b) Tenant shall provide, at Tenant's own expense, all insurance coverage necessary or desirable to cover Tenant's goods, furniture or other property placed in the leased Premises, and Tenant shall further maintain comprehensive general liability insurance to include coverage for its business operations, independent contractors, contractual and products coverage for its business operations, independent contractors, contractual and products coverage, with limits for bodily injury liability of not less than $1,000,000 and limits for property damage of not less than the greater of $100,000 or the full insurable value of Tenant's property. Landlord shall not be obligated to insure any portion of the leased Premises consisting of tenant improvements other than the Leasehold Improvements, or any of Tenant's goods, fixtures, furniture or other property placed or incorporated in the leased Premises. 8 9 (c) If the Premises should be damaged or destroyed by any peril covered by the insurance to be provided by Landlord under subparagraph 11(a) above, Tenant shall give immediate notice thereof to Landlord and Landlord shall at its sole cost and expense, but only to the extent insurance proceeds are available, thereupon proceed with reasonable diligence to rebuild and repair the Premises to substantially the condition in which they existed prior to such damage or destruction, except that Landlord shall not be required to rebuild, repair or replace any part of the partitions, fixtures, additions and other improvements which may have been placed in, on or about the Premises by Tenant. (d) If at any time during the Lease term, the leased Premises or any portion of the building shall be damaged or destroyed by fire or other casualty in such a manner as to require substantial alteration or reconstruction of the building or the leased Premises, and such alterations or reconstruction cannot be completed within 180 days from the date of the damage, then Landlord or Tenant shall have the election to terminate this Lease. (e) In the event Tenant elects not to terminate the Lease, rental shall abate proportionately during the period and to the extent that the leased Premises are unfit for use by Tenant in the ordinary conduct of its business. If Landlord and Tenant mutually agree that Landlord is able to repair and restore the leased Premises or the building within the time provided in Subparagraph 11d) above, this Lease shall continue in full force and effect and such repairs will be made within a reasonable time thereafter, subject to delays arising from shortages of labor or material, acts of God, war or other conditions beyond Landlord's reasonable control. In the event that this Lease is terminated as herein provided, Landlord shall refund to Tenant any prepaid rent (as of the date of damage or destruction) less any sum then owing Landlord by Tenant. (f) If the Premises should be damaged or destroyed by a casualty other than a peril covered by the insurance to be provided under subparagraph 11(a) above, and the casualty or loss was the result of willful misconduct or gross negligence by Tenant or Tenant's employees, agents, guests, customers, representatives or invitees, Tenant shall at its sole cost and expense thereupon proceed with reasonable diligence to rebuild and repair the Premises to substantially the condition in which they existed prior to such damage or destruction, in accordance with the original plans and specifications for the building and Premises. (g) Notwithstanding anything herein to the contrary, in the event the holder of any indebtedness secured by a mortgage or deed of trust covering the Premises requires that the insurance proceeds be applied to such indebtedness as a result of total loss or constructive total loss of the Premises, then the Landlord shall have the right to terminate this Lease by delivering written notice of termination to Tenant within fifteen (15) days after such requirement is made by any such holder, whereupon all rights and obligations hereunder shall cease and terminate. The insurance proceeds arising out of any loss which is not a total loss or a constructive total loss shall be applied by Landlord in the manner prescribed in subparagraph 11(c) above. 9 10 (h) Each of Landlord and Tenant hereby releases the other from any and all liability or responsibility to the other or anyone claiming through or under them by way of subrogation or otherwise for any loss or damage to property caused by fire or any other perils insured in policies of insurance covering such property, even if such loss or damage shall have been caused by the fault or negligence of the other party, or anyone for whom such party may be responsible, provided, however, that this release shall be applicable and in force and effect only with respect to loss or damage occurring during such times as the releasor's policies shall contain a clause or endorsement to the effect that any such release shall not adversely affect or impair said policies or prejudice the right of the releasor to recover thereunder and then only to the extent of the insurance proceeds payable under such policies. Each of Landlord and Tenant agrees that it will request its insurance carriers to include in its policies such a clause or endorsement. If extra cost shall be charged therefor, each party shall advise the other thereof and of the amount of the extra cost, and the other party, at its election, may pay the same, but shall not be obligated to do so. 12. LIABILITY. Landlord shall not be liable to Tenant or Tenant's employees, agents, patrons or visitors, or to any other person whomsoever, for any injury to person or damage to property on or about the Premises, caused by the negligence or misconduct of Tenant, its agents, servants or employees, or of any other person entering upon the Premises under express or implied invitation of Tenant, or caused by the buildings and improvements located on the Premises becoming out of repair, or caused by leakage of gas, oil, water or steam or by electricity emanating from the Premises, or due to any cause whatsoever. Tenant shall procure and maintain throughout the term of this Lease a policy or policies of insurance, at its sole cost and expense, insuring both Landlord and Tenant against all claims, demands, or actions arising out of or in connection with: (i) the Premises; (ii) the condition of the Premises; and (iii) Tenant's operations in and maintenance and use of the Premises. The limits of such policy or policies should have a combined single limit of not less than $1,000,000 per person and per occurrence in respect of injury to persons (including death) and not less than $100,000 per occurrence in respect of property damage or destruction, including loss of use thereof. All such policies shall be procured by Tenant from responsible insurance companies satisfactory to Landlord. Certificates of Insurance for each such policies, shall be delivered to Landlord, upon Landlord's written request. Not less than fifteen (15) days prior to the expiration date of any such policies, new Certificates of Insurance shall be delivered to Landlord upon Landlord's written request. Such policies shall further provide that not less than thirty (30) days written notice shall be given to Landlord before such policy may be cancelled or changed to reduce insurance provided thereby. 13. CONDEMNATION/EMINENT DOMAIN. If there shall be taken by condemnation or by exercise of the power of eminent domain during the term of this Lease any substantial part of the leased Premises, the building or the land, either Tenant or Landlord may elect to terminate this Lease or continue same in effect. If both Landlord and Tenant may mutually elect to continue this Lease in effect, the base rental shall be reduced in proportion to the area of the leased Premises taken, if any, and Landlord shall repair any damage to the leased Premises or the building which results from such taking. All sums awarded or agreed upon between Landlord and the 10 11 condemning authority for the taking of the interest of Landlord or Tenant, whether as damages or as compensation, will be the property of Landlord, without prejudice, except for claims of Tenant against the condemning authority on account of the unamortized cost of improvements which have been paid for by Tenant or relocation assistance, as applicable. If this Lease should be terminated under any provisions of this Paragraph 13, base rental and other sums payable hereunder, shall be payable up to the date that possession is taken by the taking authority, and Landlord will refund to Tenant any prepaid unaccrued rent, less any sum then owing by Tenant to Landlord. Should such partial taking render the remaining portion of the Leased Premises unusable for the conduct of Tenant's business, then Tenant shall have the right to terminate this Lease. 14. HOLDING OVER. Tenant will, at the termination of this Lease by lapse of time or otherwise, yield up immediate possession to Landlord. If Landlord agrees in writing that Tenant may hold over after the expiration or termination of this Lease, unless the parties hereto otherwise agree in writing on the terms of such holding over, the hold over tenancy shall be subject to termination by Landlord at any time upon not less than five (5) days advance written notice, or by Tenant at any time upon not less than thirty (30) days advance written notice, and all of the other terms and provisions of this Lease shall be applicable during that period, except that Tenant shall pay Landlord from time to time upon demand, as rental for the period of any hold over, an amount equal to one and one-half (1-1/2) times rent in effect on the expiration or termination date, computed on a daily basis for each day of the hold over period. No holding over by Tenant, whether with or without consent of Landlord, shall operate to extend this Lease except as otherwise expressly provided. The preceding provisions of this Paragraph 14 shall not be construed as Landlord's consent for Tenant to hold over. 15. QUIET ENJOYMENT. Landlord covenants that it now has, or will acquire before Tenant takes possession of the Premises, good title to the Premises, free and clear, of all liens and encumbrances, excepting only the lien for current taxes not yet due, such mortgage or mortgages as are permitted by the terms of this Lease, zoning ordinances and other building and fire ordinances and governmental regulations relating to the use of such property, and easements, restrictions and other conditions of record. Landlord represents and warrants that it has full right and authority to enter into this Lease and that Tenant upon paying the rental herein set forth and performing its other covenants and agreements herein set forth, shall peaceably and quietly enjoy the Premises for the term hereof without hindrance or molestation from any person, subject to the terms and provisions of this Lease. 16. EVENTS OF DEFAULT. The following events shall be deemed to be events of default by Tenant under this Lease: (a) Tenant shall fail to pay any installment of the rent hereby reserved when due, or any other payment or reimbursement to Landlord required herein, and such failure shall continue for a period of ten (10) days from the date of written notification from Landlord to Tenant delivered to address herein. 11 12 (b) Tenant shall become insolvent, or shall make a transfer in fraud of creditors, or shall make an assignment for the benefit of creditors. (c) Tenant shall file a petition, voluntary or involuntary, under any section or chapter of the National Bankruptcy Act, as amended, or under any similar law or statute of the United States or any State thereof, or Tenant shall be adjudged bankrupt, or insolvent in proceedings filed against Tenant thereunder. (d) A receiver or trustee shall be appointed for all or substantially all of the assets of Tenant. (e) Tenant shall fail to comply with any term, provision or covenant of this Lease (other than the foregoing in this Paragraph 16), and shall not undertake good faith efforts to cure such failure within twenty (20) days after written notice thereof to Tenant. 17. REMEDIES. Upon the occurrence of any of such events of default described in Paragraph 16 hereof, Landlord shall have the option to pursue any one or more of the following remedies without any notice or demand whatsoever: (a) Terminate this Lease, after first giving thirty (30) days written notice to Tenant at its Houston address, in which event Tenant shall immediately surrender the Premises to Landlord, and if Tenant fails so to do, Landlord may, without prejudice to any other remedy which it may have for possession or arrearage in rent, enter upon and take possession of the Premises and Tenant agrees to pay to Landlord on demand the amount of any loss and damage which Landlord may suffer by reason of such termination, whether through inability to relet the Premises on satisfactory terms or otherwise. (b) Enter upon and take possession of the Premises; and relet the Premises and receive the rent therefor; and Tenant agrees to pay to the Landlord on demand any deficiency that may arise by reason of such reletting. In the event Landlord is successful in reletting the Premises at a rental in excess of that agreed to be paid by Tenant pursuant to the terms of this Lease, Landlord and Tenant each mutually agree that Tenant shall not be entitled, under any circumstances, to such excess rental, and Tenant does hereby specifically waive any claim to such excess rental. (c) Enter upon the Premises, and do whatever Tenant is obligated to do under the terms of this Lease; and Tenant agrees to reimburse Landlord on demand for any expenses which Landlord may incur in thus effecting compliance with Tenant's obligations under this Lease. (d) Alter locks and other security devices at the Premises. (e) Receive payment from Tenant, in addition to any sum provided to be paid above, for any and all of the following expenses for which Tenant shall be considered liable: 12 13 1. Broker's fees incurred by Landlord in connection with reletting the whole or any part of the Premises; 2. The cost of repairing, altering, remodeling or otherwise putting the Premises into condition, acceptable to a new tenant or tenants, plus a reasonable charge to cover overhead; 3. The cost of removing and storing Tenant's or other occupants' property; and 4. All reasonable expenses incurred by Landlord in enforcing Landlord's remedies. In the event Tenant fails to pay and installment of rent hereunder as and when such installment is due, to help defray the additional cost to Landlord for processing such late payments Tenant shall pay to Landlord on demand a late charge in an amount equal to five percent (5%) of such installment; and the failure to pay such amount within thirty (30) days after receipt of written demand notice from Landlord to Tenant shall be an event of default hereunder. The provision for such late charge shall be in addition to all of Landlord's other rights and remedies hereunder or at law and shall not be construed as liquidated damages or as limiting Landlord's remedies in any manner. Pursuit of any of the foregoing remedies shall not preclude pursuit of any of the other remedies herein provided or any other remedies provided by law, nor shall pursuit of any remedy herein provided constitute a forfeiture or waiver of any rent due to Landlord hereunder or of any damages accruing to Landlord by reason of the violation of any of the terms, provisions and covenants herein contained. No act or thing done by the Landlord or its agents during the term hereby granted shall be deemed a termination of this Lease or an acceptance of the surrender of the Premises, and no agreement to terminate this Lease or to accept a surrender of said Premises shall be valid unless in writing and signed by Landlord. No waiver by Landlord of any violation or breach of any of the terms, provisions and covenants herein contained shall be deemed or construed to constitute a waiver of any other violation or breach of any of the other terms, provisions and covenants herein contained. Landlord's acceptance of the payment of rental or other payments hereunder after the occurrence of an event of default shall not be construed as a waiver of such default, unless Landlord so notifies Tenant in writing. Forbearance by Landlord to enforce one or more of the remedies herein provided upon an event of default shall not be deemed or construed to constitute a waiver of such default or of any subsequent default. If, on account of any breach or default by Tenant in Tenant's obligations under the terms and conditions of this Lease, it shall become necessary or appropriate for Landlord to employ or consult with an attorney concerning any of Landlord's rights or remedies hereunder or to enforce or defend any of the Landlord's rights or remedies hereunder, Tenant agrees to pay any reasonable attorney's fees so incurred. 13 14 18. SUBORDINATION AND LANDLORD'S MORTGAGEE. (a) This Lease Agreement shall be automatically subject to and subordinated, at Landlord's option, to any lease wherein Landlord is the tenant and to any lien of any mortgage or deed of trust, provided Landlord delivers to Tenant a non-disturbance agreement executed by Landlord's mortgagee(s) in a form reasonably acceptable to Tenant, Landlord, and Landlord's mortgagee(s). Although no instrument or act on the part of the Tenant shall be necessary to effectuate such subordination, the Tenant will, nevertheless, execute and deliver such further instruments, including reasonable non-material amendments to this Lease, subordinating this Lease to the lien of any such lease or mortgage, as may be required by the lessor or mortgagee(s), provided that any such instrument Tenant is requested to execute, shall contain a reasonable non-disturbance and attornment agreement by the lessor or mortgagee requesting subordination. (b) Tenant will, at such time or times as Landlord or Landlord's mortgagee may request, sign a certificate stating whether this Lease is in full force and effect; whether any amendments or modifications exist; whether there are any defaults hereunder; and such other information and agreements, as may be reasonably requested. 19. LANDLORD'S DEFAULT. (a) In the event Landlord should default in any of its obligations hereunder, Tenant shall simultaneously give Landlord and Landlord's mortgagee written notice specifying such default and Landlord shall thereupon have thirty (30) days (plus an additional reasonable period as may be required in the exercise by Landlord of due diligence) in which to cure any such default. In addition, Landlord's mortgagee shall have the right (but not the obligation) to cure or remedy such default during the period that is permitted to Landlord hereunder, plus an additional period of thirty (30) days, and Tenant will accept such curative or remedial action taken by Landlord's mortgagee with the same effect as if such action had been taken by Landlord. (b) Upon the failure of Landlord or Landlord's mortgagee to cure such default in accordance with the provisions of Paragraph 19(a) hereof, Tenant shall be authorized and empowered to pay any such items for and on behalf of Landlord, and the amount of any item so paid by Tenant for and on behalf of Landlord, together with any interest or penalty required to be paid in connection therewith, shall be payable on demand by Landlord to Tenant. 20. ASSIGNMENT BY LANDLORD. Landlord shall have the right to assign or transfer, in whole or in part every feature of its rights and obligations hereunder and the Premises provided such assignee or transferee recognizes and agrees to be bound by the terms of this Lease. Such assignments or transfers may be made to a corporation, trust, trust company, individual or group of individuals, and howsoever made shall be in all things respected and recognized by Tenant. 14 15 21. DISCLAIMER. This Lease and the obligation of Tenant to pay rent hereunder and perform all of the other covenants and agreements hereunder on the part of the Tenant to be performed shall not be affected, impaired or executed because Landlord is unable to fulfill any of its covenants and obligations under this Lease, expressly or impliedly to be performed by Landlord, if Landlord is prevented or delayed from doing so by reason of strikes, labor troubles, accident, or by any reason or cause whatsoever reasonably beyond Landlord's control. Reasons beyond Landlord's control shall include, but not be limited to, laws, governmental preemption in connection with a National Emergency or by any reason of any rule, order or regulation of any governmental agency, federal state, county or municipal authority or any department or subdivision thereof, or by reason of the conditions of supply and demand which have been or are affected by war or other emergency. In the event Landlord is unable to fulfill any of its covenants and obligations under this Lease for reasons beyond its control, such that Tenant's ability to use the Premises for its intended purpose is partially or wholly impaired, and this condition continues for a period of sixty (60) consecutive days, after receipt of written notice to Landlord from Tenant, then Tenant's obligation to pay rent hereunder shall partially or wholly abate until such condition is cured, at which time Tenant's obligation to pay rent hereunder shall resume. 22. MECHANIC'S LIENS. Tenant shall have no authority, express or implied, to create or place any lien or encumbrance, of any kind or nature whatsoever, upon, or in any manner to bind, the interest of Landlord in the Premises for any claim in favor of any person dealing with Tenant, including those who may furnish materials or perform labor for any construction or repairs, and each such claim shall affect and each such lien shall attach to, if at all, only the leasehold interest granted to Tenant by this instrument. Tenant covenants and agrees that it will pay or cause to be paid all sums legally due and payable by it on account of any labor performed or materials furnished in connection with any work performed on the Premises on which any lien is or can be validly and legally asserted against its leasehold interest in the Premises or the improvements thereon, and that it will save and hold Landlord harmless from any and all loss, cost or expense based on or arising out of asserted claims or liens against the leasehold estate or against the right, title and interest of the Landlord in the Premises or under the terms of this Lease. 23. NOTICES. Each provision of this instrument or of any applicable governmental laws, ordinances, regulations and other requirements with reference to the sending, mailing or delivery of any notice or the making of any payment by Landlord to Tenant or with reference to the sending, mailing or delivery of any notice or the making of any payment by Tenant to Landlord shall be deemed to be complied with when and if the following steps are taken: (a) All rent and other payments required to be made by Tenant to Landlord hereunder shall be payable to Landlord at the address hereinbelow set forth or at such other address as Landlord may specify from time to time by written notice delivered in accordance herewith. Tenant's obligation to pay rent and any other amounts to Landlord under the terms of this Lease shall not be deemed satisfied until rent and other amounts have been actually received by Landlord. 15 16 (b) All payments required to be made by Landlord to Tenant hereunder shall be payable to Tenant at the address hereinbelow set forth, or at such other address within the continental United States as Tenant may specify from time to time by written notice delivered in accordance herewith. (c) Any notice or document required or permitted to be delivered hereunder shall be deemed to be delivered whether actually received or not when deposited in the United States Mail, postage prepaid, Certified or Registered Mail, addressed to the parties hereto at the respective addresses set out below, or at such other address as they have theretofore specified by written notice delivered in accordance herewith: LANDLORD: TENANT: Before Commencement Date: J.A. BILLIPP DEVELOPMENT CORPORATION JOHNSON ENGINEERING CORPORATION c/o J.A. BILLIPP COMPANY 3055 Center Green Drive 10000 Memorial Drive, Suite 310 Boulder, CO 80301-5406 Houston, TX 77024 After Commencement Date: JOHNSON ENGINEERING CORPORATION Forge River Road Houston, TX 77058-2777 If and when included within the term "Landlord", as used in this instrument, there are more than one person, firm or corporation, all shall jointly arrange among themselves for their joint execution of such a notice specifying some individual at some specific address for the receipt of notices and payments to Landlord; if and when included within the term "Tenant", as used in this instrument, there are more than one person, firm or corporation, all shall jointly arrange among themselves for their joint execution of such a notice specifying some individual at some specific address within the continental United States for the receipt of notices and payments to Tenant. All parties included within the terms "Landlord" and "Tenant", respectively, shall be bound by notices given in accordance with the provisions of this Paragraph to the same effect as if each had received such notice. 24. MISCELLANEOUS. (a) Words of any gender used in this Lease shall be held and construed to include any other gender and words in the singular number shall be held to include the plural, unless the context otherwise requires. (b) The terms, provisions, covenants and conditions contained in this Lease shall apply to, inure to the benefit of, and be binding upon, the parties hereto and 16 17 upon their respective heirs, legal representatives, successors and permitted assigns except as otherwise herein expressly provided. (c) The captions inserted in this Lease are for convenience only and in no way define, limit or otherwise describe the scope or intent of this Lease, or any provision hereof, or in any way affect the interpretation of this Lease. (d) Tenant agrees, from time to time, within ten (10) days after request of Landlord, to deliver to Landlord, or Landlord's designee, an estoppel certificate stating that this Lease is in full force and effect, the date to which rent has been paid, the unexpired term of this Lease and such other matters pertaining to this Lease as may be reasonably requested by Landlord. (e) All obligations of Tenant hereunder not fully performed as of the expiration or earlier termination of the term of this Lease shall survive the expiration or earlier termination of the term hereof, including, without limitation, all payment obligations with respect to taxes and insurance and all obligations concerning the condition of the Premises. Upon the expiration or earlier termination of the term hereof, and prior to Tenant vacating the Premises, Tenant shall pay to Landlord the amount reasonably estimated by Landlord as necessary to put the Premises, including, without limitation, all heating and air conditioning systems and equipment therein, in good condition and repair. Tenant shall also, prior to vacating the Premises, pay to Landlord the amount, as estimated by Landlord, of Tenant's obligation hereunder for real estate taxes and insurance premiums for the year in which the Lease expires or terminates. All such amounts shall be used and held by Landlord for payment of such obligations of Tenant hereunder, with Tenant being liable for any additional costs therefor upon demand by Landlord, or with any excess to be returned to Tenant after all such obligations have been determined and satisfied, as the case may be. (f) If any clause or provision of this Lease is illegal, invalid or unenforceable under present or future laws effective during the term of this Lease, then and in that event, it is the intention of the parties hereto that the remainder of this Lease shall not be affected thereby, and it is also the intention of the parties to this Lease that, in lieu of each clause or provision of this Lease that is illegal, invalid or unenforceable, there be added as a part of this Lease contract a clause or provision as similar in terms to such illegal, invalid or unenforceable clause or provision as may be possible and be legal, valid and enforceable. (g) All references in this Lease to "the date hereof" or similar references shall be deemed to refer to the last date, in point of time, on which all parties hereto have executed this Lease. (h) This Lease may not be altered, changed or amended except by an instrument in writing signed by both parties hereto. 17 18 (i) Landlord and Tenant acknowledge and agree that this Lease shall be interpreted and enforced in accordance with the laws of the State of Texas and all obligations and duties are performable exclusively in Houston, Harris County, Texas. (j) party agrees to furnish to the other, promptly upon demand, a corporate resolution, proof of due authorization by partners, or other appropriate documentation evidencing the due authorization of such party to enter into this Lease. (k) Whenever a clause or provision of this Lease requires Landlord's consent or approval, Landlord agrees not to withhold or delay its consent or approval unreasonably. (l) This Lease may be signed in any number of counterparts, each of which shall be an original for all purposes, but all of which taken together shall constitute only one agreement. The production of any executed counterpart of this Lease shall be sufficient for all purposes without producing or accounting for the other counterparts hereof. (m) For purposes of determining Tenant's responsibility for payment of operating expenses for the Premises (including but not limited to real estate taxes, property insurance, building and grounds and common area maintenance items, property owners association fees, etc.), in the event that Tenant does not occupy the total building of which the Premises is a part, Tenant's proportionate share of expense will be determined by the ratio of the square footage of the Tenant Premises to the total square footage in the building of which the Premises is a part. 25. HAZARDOUS SUBSTANCES AND ENVIRONMENTAL INDEMNIFICATION. Tenant shall not cause or permit any Hazardous Substances to be used, stored, generated or disposed of in, on or about the real property, building or Premises by Tenant, its agents, employees, contractors or invitees, except for such Hazardous Substances as are normally utilized in an office environment and photography laboratory, and are necessary to Tenant's business. Any such Hazardous Substances permitted on the Premises as hereinabove provided, and all containers therefor, shall be used, kept, stored and disposed of in a manner that complies with all federal, state and local laws or regulations applicable to any such Hazardous Substances. Tenant agrees to indemnify, defend and hold Landlord and its employees and agents harmless from any claims, judgments, damages, penalties, fines, costs, liabilities and losses, including attorneys' fees, which arise during or after the term of this Lease from or in connection with the use, storage, generation or disposal of Hazardous Substances, or the presence of toxic or Hazardous Substances in the soil or ground water on or under the building, but only to the extent such toxic or hazardous substances are present as a result of actions of Tenant, its officers, employees, agents, contractors or invitees. Except to the extent described in the preceding sentence, Landlord agrees to indemnify, defend and hold Tenant and its officers, employees and agents harmless from and claims, judgments, damages, penalties, fines, costs, liabilities and losses, including attorneys' fees, which arise before, during or after the term of this Lease from or in connection with the presence of toxic or hazardous substances in the soil or ground water on or under the 18 19 building. The term "hazardous substances" as utilized in this clause shall have the meaning as defined in the Comprehensive Environmental Response Compensation and Liability Act of 1980, as amended. ENVIRONMENTAL CERTIFICATION Landlord hereby certifies that to the best of its knowledge: (a) The Premises does not contain any asbestos or asbestos containing materials; (b) The Premises does not contain nor is served by any electrical equipment containing polychlorinated biphenyls ("PCB's), including but not limited to transformers, capacitors, or ballasts; (c) The Premises and building are not impacted by any environmental or industrial hygiene impairment. 26. INDEMNIFICATION. (a) Subject to the provisions of Paragraph 11(h), Tenant agrees to defend, indemnify and hold and save harmless Landlord and its partners, agents, employees, invitees and contractors from any and all claims, losses, costs, damages, or expenses resulting or arising or alleged to result to arise from any and all injuries to or death of any person or damage to or loss of any property caused by Tenant's willful misconduct, negligence or the negligence of its agents, employees, invitees or contractors. (b) Subject to the provisions of Paragraph 11(h), Landlord agrees to defend, indemnify and hold and save harmless Tenant and its agents, employees, invitees and contractors from any and all claims, losses, costs, damages, or expenses resulting or arising or alleged to result to arise from any and all injuries to or death of any person or damage to or loss of any property caused by Landlord's willful misconduct, negligence or the negligence of its agents, employees, invitees or contractors. 27. OPTIONS TO RENEW. (a) Provided that Tenant is not then in default under this Lease and there shall not have occurred and be continuing any event of default, Tenant shall have the right to renew and extend this Lease with respect to all of the leased Premises, for one (1) renewal term of up to sixty (60) months (such term being hereinafter referred to as the "Renewal Term"), commencing upon the expiration of the initial one hundred eight (108) month term of this Lease. The base rental applicable to the Renewal Term shall be mutually agreed by Landlord and Tenant. 19 20 (b) In order to exercise such renewal option, Tenant shall advise Landlord in writing of its intention to renew not less than six (6) months prior to the expiration of the initial term of the Lease. (c) During the Renewal Term of this Lease, the renewal Premises shall be leased by Tenant on an "as is" basis, unless otherwise agreed upon in writing, and Landlord shall not be obligated to make any alterations or install or modify any improvements therein. The leasing of the Premises during any Renewal Term hereof shall be upon the same terms and conditions as are set forth in this Lease. 28. EARLY TERMINATION PROVISION. Only in the event that Tenant no longer has the NASA "Flight Crew Systems Development Contract" (FCSDC) or its equivalent being more fully described in Exhibit "C" attached hereto ("NASA Related Contract"), Tenant shall have the right after five (5) years from the date of commencement of the NASA Related Contract, but not less than fifty-two (52) months from the Lease Commencement Date, to wholly (but not partially) terminate this Lease with no further rental payments or obligations, after first giving four (4) months prior written notice to Landlord ("First Right to Terminate"). Similarly, if Tenant no longer has the NASA Related Contract or its equivalent, Tenant shall also have the right after eight (8) years from the date of commencement of the NASA Related Contract, to wholly (but not partially) terminate this Lease with no further rental payments or obligations, after first giving four (4) months prior written notice to Landlord ("Second Right to Terminate"). 29. EXPANSION OPTIONS. After receiving written notice from Landlord of its intent to lease to a third-party tenant, Tenant shall have the first right, prior to building completion, to lease up to 4,050 square feet (one 135' X 30' bay) immediately adjacent to the Premises, with the expansion lease term to coincide with the primary Lease term. Landlord shall provide a Tenant improvement allowance of $16.00 per square foot for this expansion space, with the annual base rental rate for the expansion space to be the same as the annual base rental rate for the primary Premises. 30. PARKING. In accordance with Clear Lake City Development Guidelines and Friendswood Development Company requirements, Landlord shall provide a minimum of 4.5 automobile parking spaces per 1,000 square feet of Tenant lease area. 31. OPERATING EXPENSES AND BUILDING MANAGEMENT. Notwithstanding Tenant obligations as stated herein, Landlord shall agree to perform all building and property maintenance and management functions on behalf of Tenant, and Tenant shall reimburse Landlord for Landlord's cost of providing these services. In this regard, Landlord shall guarantee Tenant that for the initial Lease year the cost of building/grounds maintenance and services, janitorial and trash removal, and property management shall not exceed $1.50 per square foot in the aggregate. Tenant acknowledges that it will continue to be responsible for its prorata share of property taxes, owners association fees, extended coverage building insurance, electrical service and water service, which shall be invoiced by the Landlord and paid directly by the Tenant. 20 21 Landlord will allow Tenant to audit Landlord's books and records relating to the operating expenses and building management during normal business hours after a written request to Landlord describing which expenses Tenant wishes to examine. Landlord will use its best efforts to obtain services, including building maintenance, management, and property insurance that are competitively priced and of the quality befitting a Class "A" office/technical building in the Clear Lake area. 32. NASA CONTRACT AWARD. All terms of this Lease Agreement shall be subject to Landlord receiving written notice from Tenant confirming that Tenant has been awarded the NASA Related Contract for a contract term (including NASA options) of at least nine (9) years, and confirming the final square footage of the Premises and the commencement date of the NASA Related Contract. Unless otherwise agreed by Landlord and Tenant, if Tenant has not provided such written notice prior to April 30, 1993, Landlord and Tenant may agree in good faith to adjust the Commencement Date and/or the Base Rental Rates and/or the building size stated herein, if required to satisfy possible changes in development schedule and/or interest rates and/or project financing requirements. If both parties are unable to reach a mutually-acceptable Lease Agreement amendment, Landlord may either proceed with the terms of the Lease Agreement as stated herein, or Landlord may terminate the Lease Agreement with no further obligation. In this event, Landlord shall return the full amount of the Tenant's first rental payment which is payable upon execution of this Lease Agreement, less one-half (1/2) of the amount of Landlord's project design and development expense; provided, however, Tenant's prorata share shall not exceed $1,600.00. In the event that the NASA Related Contract terms are such that Tenant requires more than 31,114 square feet of rentable area, or less than 27,064 square feet of rentable area initially, to accomplish the scope of work on the NASA Related Contract, Landlord may terminate this Lease Agreement and neither party will have any further obligations under this Lease Agreement. In this event, Landlord shall return the full amount of the Tenant's first rental payment which is payable upon execution of this Lease Agreement, less one-half (1/2) of the amount of Landlord's project design and development expense; provided, however, Tenant's prorata share shall not exceed $1,600.00. This termination would not preclude Landlord and Tenant from mutually agreeing to a revision to this Lease Agreement or a new lease agreement for a substantially smaller or larger lease area than defined in Paragraph 1. 33. TENANT IMPROVEMENT BUILD-OUT ALLOWANCE. Included in the base rental is a $16.50 per square foot build-out allowance to be provided by Landlord for "Tenant Improvements", as indicated on the preliminary architectural drawing (floor plan) dated October 14, 1992, attached hereto as Exhibit "D" and incorporated herein by reference, which may be revised as mutually agreed by Landlord and Tenant before final construction documents are prepared for construction purposes. If, the cost for the Tenant Improvements exceeds $16.50 per square foot, Tenant shall have the option, in its sole discretion, to either: (i) mutually agree with Landlord as to the excess cost of the Tenant Improvements, and equally amortize said excess cost over the first fifty-two (52) months of the Lease term in addition to the monthly base rental for the Premises, provided Landlord is able to increase its construction loan and permanent 21 22 financing amount; or (ii) pay directly for the excess cost of the Tenant Improvements over the $16.50 per square foot build-out allowance. 34. BROKERAGE. Landlord and Tenant each represent that it has not dealt with any real estate broker or agent in connection with this Lease or its negotiation other than Cole-Gross Company. Landlord and Tenant shall each indemnify and hold the other harmless from and against any and all expenses, judgments and reasonable attorneys' fees incurred in defending the claim of any other agent or broker who alleges that Landlord or Tenant dealt with him in connection with this Lease. Landlord shall pay a commission to Cole-Gross Company in accordance with a separate written commission agreement. EXECUTED this 30th day of April, 1993. J.A. BILLIPP DEVELOPMENT CORPORATION By: /s/ J. Andrew Billipp -------------------------------- Title: President - LANDLORD JOHNSON ENGINEERING CORPORATION By: /s/ Dale R. Johnson -------------------------------- Title: President - TENANT 22 23 FIRST AMENDMENT TO LEASE AGREEMENT THIS FIRST AMENDMENT TO LEASE AGREEMENT (the "First Amendment") is entered into effective as of the 22nd day of September, 1993, by and between J.A. BILLIPP DEVELOPMENT CORPORATION, a Texas corporation (hereinafter referred to as "Landlord") and JOHNSON ENGINEERING CORPORATION (hereinafter referred to as "Tenant"). WHEREAS, Landlord and Tenant entered into that certain Lease Agreement dated April 30, 1993 (the "Lease"), demising a portion of the improvements (the "Premises") located on that certain real property whose street address is 555 Forge River Drive situated in Harris County, Texas (the "Property"), both the Premises and the Property being more particularly described in the Lease; and WHEREAS, Landlord and Tenant desire to amend the Lease in order to change certain terms of the Lease and to expand the size of the Premises; NOW, THEREFORE, based upon the mutual promises and covenants contained herein and other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, Landlord and Tenant hereby agree as follows: 1. One (1) additional bay totaling 4,050 square feet of rentable area ("First Expansion Area") is added to the Premises under the terms of Section 29 of the Lease, "Expansion Options". 2. The total rentable area of the Tenant Premises is increased to 31,114 square feet. 3. The building floor plan which has been modified to incorporate the 4,050 square feet First Expansion Area is attached as Exhibit A to the First Amendment to the Lease and incorporated herein by reference. Landlord and Tenant have approved the floor plan for completion of construction documents. In accordance with Section 29 of the Lease, Landlord will provide a $16.00 per square foot allowance for interior office and tenant improvements to be constructed within the 4,050 SF First Expansion Area. 4. The monthly rental as defined in Section 2(a) of the Lease will be increased by $3,139 per month in months 1-52 and $3,375 per month in months 53-100 to include rental for the First Expansion Area. The total monthly rental for the 31,114 square feet Premises will be $24,114 per month in months 1-52 and $25,930 per month in months 53-100. Landlord acknowledges receipt of $20,975 which is to be applied toward the rental for the first full month of the Lease term. An additional $3,139 is due and payable on the date of execution of this First Amendment, which will be applied toward the balance of the first month's rental due for the total 31,114 square feet Premises. 24 5. Except as expressly provided herein, all other terms, covenants and conditions of the Lease Agreement shall remain the same, in full force and effect, and are hereby ratified and confirmed by Landlord and Tenant. EXECUTED effective as of the date first written above. J.A. BILLIPP DEVELOPMENT CORPORATION JOHNSON ENGINEERING CORPORATION By:_________________________________ By:____________________________ Name: J. ANDREW BILLIPP Name: DALE R. JOHNSON Title: PRESIDENT Title: PRESIDENT LANDLORD TENANT 2 NY--360135.1 25 SECOND AMENDMENT TO LEASE AGREEMENT THIS SECOND AMENDMENT TO LEASE AGREEMENT (the "Second Amendment") is entered into effective as the 1st day of August, 1994, by and between J.A. BILLIPP DEVELOPMENT CORPORATION, a Texas corporation (hereinafter referred to as "Landlord") and JOHNSON ENGINEERING CORPORATION (hereinafter referred to as "Tenant"). WHEREAS, Landlord and Tenant entered into that certain Lease Agreement dated April 30, 1993 as amended by First Amendment to Lease Agreement dated September 22, 1993 (the "Lease"), demising a portion of the improvements (the "Premises") located on that certain real property whose street address is 555 Forge River Drive situated in Harris County, Texas (the "Property"), both the Premises and the Property being more particularly described in the Lease; and WHEREAS, Landlord and Tenant desire to amend the Lease in order to clarify certain terms of the Lease; NOW, THEREFORE, based upon the mutual promises and covenants contained herein and other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, Landlord and Tenant hereby agree as follows: 1. The term of the Lease is 108 months plus 4 days as confirmed by letter agreement dated June 29, 1994. 2. The monthly rental as defined in Section 2(a) of the Lease, as further modified in the First Amendment to Lease Agreement, shall be Twenty-Four Thousand One Hundred Fourteen and 00/100 Dollars ($24,114.00) per month for months 1-52 (plus a proportionate amount for the initial 4 days), and Twenty-Five Thousand Nine Hundred Thirty and 00/100 Dollars ($25,930.00) per month for months 53-108. 3. Except as expressly provided herein, all other terms, covenants and conditions of the Lease shall remain the same, in full force and effect, and are hereby ratified and confirmed by Landlord and Tenant. EXECUTED effective as of the date first written above. J.A. BILLIPP DEVELOPMENT JOHNSON ENGINEERING CORPORATION CORPORATION By: By: ----------------------------------- ----------------------------------- Name: J. ANDREW BILLIPP Name: DALE R. JOHNSON ------------------------------- --------------------------------- Title: PRESIDENT Title: PRESIDENT ------------------------------- ------------------------------- LANDLORD TENANT 26 THIRD AMENDMENT TO LEASE AGREEMENT THIS THIRD AMENDMENT TO LEASE AGREEMENT (the "Third Amendment") is entered into effective as of the 20th day of February, 1997, by and between J.A. BILLIPP DEVELOPMENT CORPORATION, a Texas corporation (hereinafter referred to as "Landlord") and JOHNSON ENGINEERING CORPORATION (hereinafter referred to as "Tenant"). WHEREAS, Landlord and Tenant entered into that certain Lease Agreement dated April 30, 1993, as amended by First Amendment to Lease Agreement dated September 22, 1993, and as amended by Second Amendment to Lease Agreement dated August 1, 1994 (the "Lease"), demising a portion of the improvements (the "Premises") located on that certain real property located at 555 Forge River Drive, in the City of Webster, Harris County, Texas (the "Property"), both the Premises and the Property being more particularly described in the Lease; and WHEREAS, Landlord and Tenant desire to amend the Lease in order to expand the size of the Premises and to modify certain other terms of the Lease; NOW, THEREFORE, based upon the mutual promises and covenants contained herein and other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, Landlord and Tenant hereby agree as follows: 1. Approximately 7,890 SF or rentable area ("Second Expansion Area") is added to the Premises as of the date of substantial completion of the tenant improvements, as documented by Landlord's architect, Munson Kennedy Architects. The commencement date for rental payments and all other lease obligations relating to the Second Expansion Area shall be the earlier of such date of substantial completion or July 15, 1997 ("Second Expansion Area Commencement Date"). The Second Expansion Area Commencement Date will be confirmed and documented by a separate letter agreement between Landlord and Tenant. 2. The 7,890 SF Second Expansion Area increases the total rentable area of the Premises to approximately 39,004 SF. 3. Attached as Exhibit A to this Third Amendment, is a building floor plan showing the delineated 7,890 SF Second Expansion Area, and an approximately 4,500 SF area marked "Short-term Storage Area" which is contiguous to the Second Expansion Area. 4. Landlord shall provide an allowance of up to One Hundred Thirty-Four Thousand Seven Hundred Fifty and No/100 Dollars ($134,750.00) for the construction of the tenant improvements within the Second Expansion Area, to include all office and technical/storage area finish, heating and air conditioning, separate electrical service, mini-blinds, permit fees, sales tax costs, etc., in accordance with construction documents mutually approved by Landlord and Tenant. Landlord shall provide an additional allowance of up to Nine Thousand Eight Hundred Sixty-Two and 50/100 Dollars ($9,862.50) for the architectural and engineering 2 27 services and construction documents associated with the facility design and construction. Upon completion of construction drawings, Landlord agrees to competitively bid the tenant improvements construction work to at least two (2) qualified general contractors as mutually agreed by Landlord and Tenant, one of whom may be selected by Tenant. All contractors must be pre-approved by Landlord prior to being allowed to bid on the construction contract. Landlord will give Tenant a preliminary estimate of the total costs for designing and constructing the tenant improvements associated with the Second Expansion Area as soon as possible after preliminary design is complete. If the actual total cost of design and construction is greater than the sum of the two respective allowances provided, Tenant shall pay to Landlord that amount which exceeds the stated allowances within twenty (20) days after receipt of Landlord invoice, or as otherwise mutually agreed prior to commencement of tenant improvements construction. 5. The monthly rental as defined in Section 2(a) of the Lease, and as further modified in the First Amendment to Lease Agreement and Second Amendment to Lease Agreement, shall be increased by Five Thousand Six Hundred Fifty-Five and No/100 Dollars ($5,655.00) per month beginning on the Second Expansion Area Commencement Date. Any partial month will be prorated based upon the number of days then remaining in the month. Thereafter, the total monthly rental for the 39,004 SF will be Twenty-Nine Thousand Seven Hundred Sixty-Nine and No/100 Dollars ($29,679.00) per month for the current lease term period through October 31, 1998, and Thirty-One Thousand Five Hundred Eighty-Five and No/100 Dollars ($31,585.00) per month for the period November 1, 1998 through June 30, 2003. 6. Landlord shall provide, at Landlord's sole cost, a thirty-foot (30') flagpole to be located as mutually agreed by Landlord and Tenant in the vicinity of the parking area near the Tenant main entry to the building, of which the Premises is a part. The single flagpole and U.S. Flag will be comparable to the flagpoles located at the east end of the building. 7. Tenant shall have the use of the Short-term Storage Area at no charge until such time as this area is either leased to Tenant on a longer-term basis, or is leased to a third-party tenant, or is otherwise required for use by Landlord. Landlord shall give Tenant at least thirty (30) days prior written notice before requiring Tenant to vacate the Short-term Storage Area. At any time prior to such notice, Landlord and Tenant may agree to a longer-term lease of all or a portion of the Short-term Storage Area as may be available, with lease terms to be mutually agreed at the time of the lease expansion. Until such formal lease agreement amendment incorporates all or a portion of the Short-term Storage Area within the total rentable area of the Premises, this Short-Term Storage Area is provided "as-is" and with no services, warranties, or finish to be provided by Landlord. Tenant shall make no alterations or improvements in the Short-term Storage Area without prior written approval from Landlord. 3 28 8. In the event that Tenant exercises its right to terminate the Lease pertaining to the expanded 39,004 SF Lease Premises, under the conditions and procedures outlined in Paragraph 28 of the Lease Agreement, Tenant shall nevertheless be obligated to make all lease payments and expenses reimbursements (to include Tenant's proportionate share of property taxes, insurance, common area maintenance ["CAM"] costs) for the Second Expansion Area for a minimum of thirty-six (36) months after the Second Expansion Area Commencement Date. 9. Except as expressly provided herein, all other terms, covenants and conditions of the Lease shall remain the same, in full force and effect, and are hereby ratified and confirmed by Landlord and Tenant. EXECUTED effective as of the date first written above. J.A. BILLIPP DEVELOPMENT JOHNSON ENGINEERING CORPORATION CORPORATION By: By: --------------------------------- --------------------------------- Name: J. ANDREW BILLIPP Name: ------------------------------- ------------------------------- Title: PRESIDENT Title: ------------------------------ ------------------------------ LANDLORD TENANT 4 NY--360180.1 29 FOURTH AMENDMENT TO LEASE AGREEMENT THIS FOURTH AMENDMENT TO LEASE AGREEMENT ( the "Fourth Amendment") is entered into effective as of the 7th day of January, 1997, by and between J.A. BILLIPP DEVELOPMENT CORPORATION, a Texas corporation (hereinafter referred to as "Landlord") and JOHNSON ENGINEERING CORPORATION (hereinafter referred to as "Tenant"). WHEREAS, Landlord and Tenant entered into that certain Lease Agreement dated April 30, 1993, as amended by First Amendment to Lease Agreement dated September 22, 1993, as amended by Second Amendment to Lease Agreement dated August 1, 1994, and as amended by Third Amendment to Lease Agreement dated February 20, 1997 (the "Lease"), demising a portion of the improvements (the "Premises") located on that certain property located at 555 Forge River Drive, in the City of Webster, Harris County, Texas (the "Property"), both the Premises and the Property being more particularly described in the Lease; and WHEREAS, Landlord and Tenant desire to amend the Lease in order to expand the size of the Premises and to modify certain other terms of the Lease; NOW, THEREFORE, based upon the mutual promises and covenants contained herein and other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, Landlord and Tenant agree as follows: 1. Approximately 9,210 SF of rentable area ("Third Expansion Area") is added to the Premises as of the date of substantial completion of the tenant improvements, as documented by Landlord's architect, Munson Kennedy Architects. The commencement date for rental payments and all other lease obligations relating to the Third Expansion Area shall be the date of substantial completion of the interior improvement construction to be completed by Landlord, but not later than April 1, 1998 unless mutually agreed by both parties ("Third Expansion Area Commencement Date"). The Third Expansion Area Commencement Date will be confirmed and documented by a separate letter agreement between Landlord and Tenant, and, if required by the Property lender, additionally by an estoppel letter. 2. The 9,210 SF Third Expansion Area increases the total rentable area of the Premises to approximately 48,214 SF. 3. Attached as Exhibit A to this Fourth Amendment is a building floor plan showing the delineated 9,210 SF Third Expansion Area. 4. Landlord shall provide an allowance of up to One Hundred Thirty-Three Thousand Eighty-Five and No/100 Dollars ($133,085.00) for the construction of the tenant improvements within the Third Expansion Area, to include all office, shop and storage area improvements in accordance with construction documents mutually approved by Landlord and Tenant ("Standard Tenant Finish Allowance Provided by Landlord"). 5 30 5. Landlord shall also provide an allowance of up to Eleven Thousand Five Hundred Fifteen and No/100 Dollars ($11,515.00) for the architectural and engineering services and construction documents associated with the facility design and construction ("A & E Allowance Provided by Landlord"). Upon completion of construction drawings, Landlord agrees to competitively bid the tenant improvements construction work to at least two (2) qualified general contractors. If the actual total cost of design and construction is greater than the total sum of the Standard Tenant Finish Allowance Provided by Landlord and the A & E Allowance Provided by Landlord ("Over Allowance Cost"), Tenant shall pay to Landlord the Over Allowance Cost within twenty (20) days after receipt of Landlord invoice, or as otherwise mutually agreed prior to commencement of tenant improvement construction. 6. Within five (5) days after the construction cost bid amounts are given to Tenant by Landlord, Tenant may elect to have Landlord provide an additional Fifty Thousand and No/100 Dollars ($50,000.00) tenant finish allowance ("Additional $50,000.00 Landlord Allowance") which would decrease the payment due Landlord for the Over Allowance Cost described in Paragraph 5 above by Fifty Thousand and No/100 Dollars ($50,000.00) and would concurrently increase the base monthly rental as described below. 7. The monthly rental as defined in Section 2(a) of the Lease, and as further modified in the First Amendment to Lease Agreement, Second Amendment to Lease Agreement, and Third Amendment to Lease Agreement ("Prior Base Monthly Rental"), shall be increased as follows beginning on the Third Expansion Area Commencement Date. Any partial month rentals due for the Third Expansion Area will be prorated based upon the number of days then remaining in the month.
THROUGH NOV. 1, 1998 - OCT. 31, 1998 JUNE 30, 2003 ---------------- ---------------- Prior Base Monthly Rental: $29,769.00 $31,585.00 Third Expansion Base Monthly Rental: 6,907.00 6,907.00 ----------- ----------- TOTAL BASE MONTHLY RENTAL WITHOUT ADDITIONAL $50,000 LANDLORD ALLOWANCE: $36,676.00 $38,492.00 Incremental Base Monthly Rental for Additional $50,000 Landlord Allowance: 1,255.00 1,255.00 ------------ ------------ TOTAL BASE MONTHLY RENTAL WITH ADDITIONAL $50,000 LANDLORD ALLOWANCE: $37,931.00 $39,747.00 ============ ============
8. In the event that Tenant exercises its right to terminate the Lease under the conditions and procedures outlined in Paragraph 28 of the Lease Agreement, Tenant shall nevertheless be obligated to make all lease payments and expense reimbursements (to include Tenant's proportionate share of property taxes, insurance, common area maintenance ["CAM"] costs, etc.) for the Third 6 31 Expansion Area for a minimum of fifty (50) months after the Third Expansion Area Commencement Date. 9. Except as expressly provided herein, all other terms, covenants and conditions of the Lease shall remain the same, in full force and effect, and are hereby ratified and confirmed by Landlord and Tenant. EXECUTED effective as of the date first written above. J.A. BILLIPP DEVELOPMENT JOHNSON ENGINEERING CORPORATION CORPORATION By:---------------------------------- By:----------------------------------- Name: J. ANDREW BILLIPP Name: DALE R. JOHNSON ------------------------------- -------------------------------- Title: PRESIDENT Title: PRESIDENT ------------------------------- -------------------------------- LANDLORD TENANT 7 EX-10.98 10 LEASE 1 Exhibit 10.98 NASSAU DEVELOPMENT COMPANY "LESSOR" AND JOHNSON ENGINEERING INC. "LESSEE" 2
TABLE OF CONTENTS LESSOR AND LESSEE........................................................................................1 I.A LEASED PREMISES...............................................................................1 II.A TERM..........................................................................................1 II.B USE...........................................................................................1 II.C BASE RENTAL RATE..............................................................................2 II.D SECURITY DEPOSIT..............................................................................2 II.E RENTAL ESCALATION.............................................................................2 II.F BASIC COSTS FOR ESCALATION....................................................................3 II.G PAYMENT OF RENT...............................................................................4 III.A SERVICES TO BE FURNISHED BY LESSOR............................................................4 III.B PEACEFUL ENJOYMENT............................................................................5 IV.A PAYMENTS BY LESSEE............................................................................5 IV.B REPAIRS BY LESSOR.............................................................................5 IV.C REPAIRS BY LESSEE.............................................................................6 IV.D CARE OF THE LEASED PREMISES...................................................................6 IV.E ASSIGNMENT OR SUBLEASE........................................................................6 IV.F ALTERATIONS, ADDITIONS AND IMPROVEMENTS.......................................................6 IV.G LEGAL USE AND VIOLATIONS OF INSURANCE COVERAGE................................................7 IV.H LAWS AND REGULATIONS; RULES OF BUILDING.......................................................7 IV.I ENTRY FOR REPAIRS AND INSPECTION..............................................................7 IV.J NUISANCE......................................................................................7 IV.K ASSIGNMENT....................................................................................7 IV.L DEFAULT.......................................................................................8 IV.M WAIVER........................................................................................8 IV.N BANKRUPTCY BY LESSEE..........................................................................9 IV.O AD VALOREM TAXES..............................................................................9 IV.P CASUALTY INSURANCE............................................................................9 IV.Q INDEMNITY.....................................................................................9 V.A CONDEMNATION AND LOSS OR DAMAGE..............................................................10 V.B LESSOR'S LIEN FOR RENT.......................................................................10 V.C ABANDONMENT..................................................................................11 V.D HOLDING OVER.................................................................................11 V.E FIRE CLAUSE..................................................................................11 V.F ESTOPPEL CERTIFICATE.........................................................................12 V.G ATTORNEY'S FEE...............................................................................12 V.H ALTERATION...................................................................................12 V.I WAIVER OF SUBROGATION RIGHTS.................................................................12 V.J NOTICES......................................................................................13 V.K LEGAL INTERPRETATION.........................................................................13
i 3 LEASE AGREEMENT THE STATE OF TEXAS COUNTY OF HARRIS LESSOR AND LESSEE This Lease Agreement made and entered into on this the 19th day of February, 1998, between Nassau Development Company, "Lessor" whose address for purposes hereof is 18100 Upper Bay Road, Suite A, Houston, Texas 77058, acting by and through its duly authorized representative, and Johnson Engineering Inc., "Lessee" whose address in Houston, Texas, for purposes hereof is 18100 Upper Bay Road, Suite 207, Houston, Texas 77058. W I T N E S S E T H: I. I.A LEASED PREMISES (1) Subject to and upon the terms, provisions and conditions hereinafter set forth, and each in consideration of the duties, covenants and obligations of the other hereunder, Lessor has leased, demised and rented to Lessee the following described premises, suites 204, 207 and 220 (herein referred to as "Leased Premises") which is a total of 3,952 rentable square feet, situated in B. XII, the "Building," located at 18100 Upper Bay Road, Suite 207, Houston, Harris County, Texas. (2) The number of square feet of gross rentable area comprising the building of which the Leased Premises are situated in shall be 24,148 square feet unless enlarged or reduced by written amendment or addendum hereto. II. II.A TERM Subject to and upon the terms and conditions set forth herein, or in any exhibit or addendum hereto, this lease shall continue in force for a term of one year, beginning on the 1st of March, 1998. This Lease will expire on February 28, 1999. II.B USE The Leased Premises are to be used and occupied by Lessee solely for the purposes of conducting its business of aerospace engineering. Provided, however, that Lessee may 4 not use the Leased Premises in such a way as to interfere with the use and enjoyment of other tenants or which is otherwise inconsistent with the terms of this Agreement. II.C BASE RENTAL RATE The base rental shall be $9.60 per square foot per year ($.80 per square foot per month) for each square foot of gross rentable area then being leased by Lessee under the terms and provisions hereof. ($3,161.60 Dollars of Rent per Month). II.D SECURITY DEPOSIT [text cut off] Lessee shall timely discharge in full all its obligation under this Agreement, the security deposit shall be returned to Lessee thirty (30) days after the expiration of the term of this Agreement. In the event of transfer of this Agreement by Lessor, Lessor shall have the right to transfer the security deposit to the transferee in which event Lessor shall have no further obligation to Lessee for return of the security deposit. II.E RENTAL ESCALATION (1) The term "Lease Year," as used herein, shall mean the fiscal year ending March 31 of the year in which this Lease Agreement is entered into and any subsequent fiscal year(s) during the initial term hereof and any extensions or renewals hereof. In any Lease Year in which the Basic Costs (as defined in paragraph II.F below) for maintaining and operating the Building, of which the leased premises are a part, exceed the amount of FIVE AND 00/100 Dollars ($5.00) per square foot of rentable area then leased by Lessee for that year (the "Base Stop"), Lessee shall pay as additional rent the amount equal to Lessee's proportionate share of the amount of the Basic Costs that exceed the Base Stop. Lessee's "proportionate share" of the amount of Basic Costs that exceed the Base Stop shall be the same percentage of the amount of Basic Costs over the Base Stop as is equal to the percentage which the gross rentable area then leased by Lessee in the Building bears to the total gross rentable area contained in the Building. (2) Lessor may submit to Lessee, and Lessee agrees to pay, a bill or invoice as frequently as each month for one-twelfth (1/12) of the estimated annual amount as may be ascertained by Lessor to be due by Lessee under this Article. Alternatively, Lessor may submit to Lessee (at Lessor's sole discretion), and Lessee agrees to pay, a bill or invoice as frequently as each month for the actual increase in Basic Costs over the amount of the Base Stop for that month and any preceding months for which rental escalation is due under this Article. In the event of such billing or invoicing as provided hereunder by Lessor, Lessee agrees and covenants to pay such additional amount contemporaneously with the Base Rental on the first day of each calendar month, monthly in advance. (3) Following the close of each Lease Year, Lessor shall determine the Basic Costs for such Lease Year and give written notice thereof to Lessee which notice shall also contain or be accompanied by a computation of additional rental, if any, paid by Lessee as above provided and the balance, if any, then owing by Lessee. In the event a balance is owing 2 5 by Lessee, same shall be paid by Lessee within ten (10) days of such notice. In the event the computation for such Lease Year reflects a negative balance, same shall be refunded by Lessor to Lessee within ten (10) days of such notice provided that in no event shall the rental to be paid by Lessee for the leased premises during the term of this Lease Agreement, and any extensions or renewals hereof, ever be less than the base rental stated in Paragraph II.C of this Lease Agreement. Lessee shall receive no benefit for a decrease in Basic Costs or the amount of Basic Costs below the Base Stop for any calendar or fiscal year, or any part thereof, during the term of this Lease Agreement, or any extensions and renewals thereof. For the last Lease Year, Lessee shall only pay for such Lease Year that portion of its proportionate share of the amount of Basic Costs that exceed the Base Stop as the number of calendar days in the last Lease Year that this Lease Agreement is in effect bears to 365. II.F BASIC COSTS FOR ESCALATION (1) "Basic Costs" as said term is used herein shall consist of the operating expenses of the Building, which shall be computed on the accrual basis. All operating expenses shall be determined in accordance with generally accepted accounting principles which shall be consistently applied. The term "operating expenses" as used herein shall mean all expenses, costs and disbursements (but not replacement of capital investment items) of every kind and nature which Lessor shall incur, pay or be obligated to pay because of or in connection with the ownership, and/or operating of the Building, including, but not limited to, the following: (a) All expenses of employment of all employees engaged in operation and maintenance of the Building including wages and salaries, employer's Social Security taxes, unemployment taxes or insurance, and any other taxes which may be levied on such wages and salaries as well as the cost of disability and hospitalization insurance and pension or retirement benefits for such employees. (b) All supplies and materials used in operation and maintenance of the Building. (c) Cost of utilities, except those billed directly to tenants, including but not limited to water and power, heating, lighting, air conditioning and ventilating the Building. (d) Cost of all maintenance and service agreements on equipment, including alarm service, janitorial service, landscaping, window cleaning and elevator maintenance. (e) Cost of casualty and liability insurance applicable to the Building and Lessor's personal property used in connection therewith. (f) All taxes, assessments and governmental charges whether federal, state, county or municipal, and whether they be by taxing districts or authorities 3 6 presently taxing the Leased Premises or by others, subsequently created or otherwise, and any other taxes and assessments attributable to the Building or its operation excluding, however, federal and state taxes on income. (g) Cost of repairs and general maintenance. (The costs of repairs and general maintenance shall exclude alterations attributable solely to tenants of the Building other than Lessee.) (h) Management fees not to exceed five (5%) percent of the base rentals, rental escalations, tenant assessments and other rents, costs, charges or expenses incurred, derived from or associated with the Building. (i) Accounting fees actually incurred by Lessor in operation of the Building and determination of escalation charges. (j) A reasonable amortization charge on account of any capital expenditures incurred to effect a reduction in operating expenses of the Building. (2) Lessee at its expense shall have the right at all reasonable times to audit Lessor's book and records relating to this lease for any year or years for which additional rental payments become due. II.G PAYMENT OF RENT (1) The annual base rent adjusted in accordance with any exhibits hereto, if applicable, shall be due and payable in advance in twelve (12) equal monthly installments on the first day of each calendar month during the initial term and any extensions or renewals thereof, and Lessee hereby agrees to so pay such rent to Lessor at Lessor's address as provided herein monthly in advance without demand. Additional rental for Lessee's share of Lessor's increased costs in accordance with the escalation formula shall be due and payable quarterly as provided in II.E above. III. III.A SERVICES TO BE FURNISHED BY LESSOR (1) Lessee shall pay for the electricity, gas and water utilized in operating any and all facilities servicing the Leased Premises except as otherwise provided herein. (2) "Lessor shall furnish to Lessee, while occupying the premises: (a) Hot and cold water at those points of supply provided for general use of other tenants in the Building, central heat and air conditioning in season, at such times as Lessor normally furnishes these services to other tenants in the Building, and at such temperatures and in such amounts as are considered by Lessor to be standard, such service on Saturdays, Sundays and legal holidays to be furnished only upon the request of Lessee, who 4 7 shall bear the entire cost thereof; janitorial service on a five (5) day week basis, electric lighting service for all public areas and special service areas of the Building in the manner and to the extent deemed by Lessor to be standard; but failure by Lessor to any extent to furnish these defined services, or any cessation thereof, resulting from causes beyond the control of Lessor, shall not render Lessor liable in any respect for damages to either person or property, not be construed as an eviction of Lessee, nor work an abatement of rent, nor relieve Lessee from fulfillment of any covenant or agreement hereof. Should any of the equipment or machinery break down, or for any cause cease to function properly, Lessor shall use reasonable diligence to repair same promptly, but Lessee shall have no claim for rebate of rent or damages on account of any interruptions in service occasioned thereby or resulting therefrom. (b) Proper electrical facilities to furnish sufficient power for typewriters, voice writers, calculating machines and other machines of similar low electrical consumption; provided, however, that Lessee shall bear the utility costs, air conditioning costs and costs to install appropriate meters to determine such costs occasioned by electro-data processing machines and similar machines of high electrical consumption. Such machines of high electrical consumption shall not be installed within the Building without the prior written consent of Lessor. III.B PEACEFUL ENJOYMENT (1) Lessee shall, any may peacefully have, hold and enjoy the Leased Premises, subject to the other terms hereof, provided that Lessee pays the rental herein recited and performs all of its covenants, duties and agreements herein contained. IV. IV.A PAYMENTS BY LESSEE (1) Lessee shall pay all rent and sums provided to be paid by lessor hereunder at the times and in the manner herein provided. IV.B REPAIRS BY LESSOR (1) Unless otherwise expressly stipulated herein, Lessor shall not be required to make any improvements or repairs of any kind or character on the Leased Premises during the term of this lease, except such repairs as may be required for structural or exterior building maintenance including the painting of and repairs to walls, floors, corridors, windows, and other structures and Building equipment within and serving the Leased Premises, and such additional maintenance as may be necessary because of damages by persons other than Lessee, its invites, visitors, or anyone acting at its direction or on its behalf; and as may be necessary solely because of the negligence of Lessor at its expense beginning not more than fifteen (15) days after written notice thereof by Lessee. 5 8 IV.C REPAIRS BY LESSEE (1) At its own cost and expense, Lessee shall repair or replace any damage or injury done to the Building, or any part thereof, caused by Lessee, its agents, employees, invitees, or visitors; provided however, if Lessee fails to make such repairs or replacements promptly Lessor may, at its option, make such repairs or replacements, and Lessee shall repay the costs thereof to Lessor on demand. Lessee's indemnity obligation hereunder shall survive regardless of whether Lessor is or is alleged to have caused or contributed to such damages through its actions or interactions constituting negligence, or giving rise to strict liability or statutory liability. Lessee agrees to keep the Leased Premises and the Building free at all times of any mechanics' and materialmen's liens or other liens arising from such repair or replacement, including, but not limited to, posting bond to obtain a release of any such lien. IV.D CARE OF THE LEASED PREMISES (1) Lessee shall not commit or allow any waste or damage to be committed on any portion of the Leased Premises, and at the termination of this lease, by lapse of time or otherwise, shall deliver up said Leased Premises to Lessor in as good condition as at date of original possession by Lessee, ordinary wear and tear excepted, and upon such termination of this lease, Lessor shall have the right to re-enter and resume possession of the Leased Premises. IV.E ASSIGNMENT OR SUBLEASE (1) Lessee shall not assign this Agreement or sublet the Leased Premises, or any part thereof, without first obtaining the written consent of Lessor, however Lessor agrees that it will not unreasonably or arbitrarily refuse to give such permission or consent. No assignment or sublease of the Leased Premises shall be valid or binding upon Lessor without such consent. In no event shall any such assignment or sublease ever release Lessee from any obligation or liability hereunder. IV.F ALTERATIONS, ADDITIONS AND IMPROVEMENTS (1) Lessee shall not permit the Leased Premises to be used for any other purpose than that stated in the use clause hereof, or make or allow to be made any alterations [text cut off]. (2) The cost of any alterations, physical additions, or improvements shall be borne and paid for solely by Lessee. Lessee agrees to keep the Leased Premises and the Building free at all times of any mechanics' and materialmen's liens or other liens arising from such alterations, physical additions or improvements including, but not limited to, posting a bond to obtain a release of any such lien. Lessor shall have the right to insist on adequate security by way of insurance, bonding or other means, prior to any modification or alteration to ensure compliance with this clause. 6 9 (3) Though all alterations, physical additions, or improvements made by Lessee become the property of Lessor upon the termination of this lease, Lessor may require that Lessee remove any or all alterations, additions, and improvements installed or made by Lessee, and any other property placed on the premises by Lessee, upon termination of the lease. In the event that Lessor requires Lessee to remove all such alterations, additions, or improvements, Lessee shall bear and pay the cost of such removal and shall repair any damage to the premises caused by such removal and, absent express written permission of Lessor, to restore the Leased Premises to its original condition, reasonable wear and tear excepted. IV.G LEGAL USE AND VIOLATIONS OF INSURANCE COVERAGE (1) Lessee shall not occupy or use, or permit any portion of the Leased Premises to be occupied or used for any business or purpose which is unlawful, disreputable or deemed to be extra-hazardous on account of fire, or permit anything to be done which would in any way increase the rate of fire insurance coverage on said Building and/or its contents. IV.H LAWS AND REGULATIONS; RULES OF BUILDING (1) Lessee shall comply with all laws, ordinances, orders, rules and regulations (state, federal, municipal and other agencies or bodies having any jurisdiction thereof) relating to the use, condition or occupancy of the Leased Premises. Lessee will comply with the rules of the Building adopted by Lessor which are set forth as Exhibit "B" attached hereto to be initialed by the parties hereto, and made a part hereof as fully as though set forth herein. Lessor shall have the right at all times to change such rules and regulations or to amend them in any reasonable manner as may be deemed advisable by Lessor for the safety, care and cleanliness of the Leased Premises and for preservation of good order therein, all of which changes and amendments will be sent by Lessor to Lessee in writing and shall be thereafter carried out and observed by Lessee. IV.I ENTRY FOR REPAIRS AND INSPECTION (1) Lessee shall permit Lessor, its agents or representatives to enter into and upon any part of the Leased Premises at all reasonable hours to inspect same or to clean, make repairs, alterations or additions thereto, as Lessor may deem necessary or desirable, and Lessee shall not be entitled to any abatement or reduction of rent by reason thereof. IV.J NUISANCE (1) Lessee shall conduct its business and control its agents, employees, invitees, and visitors in such manner as not to create any nuisance, or interfere with, annoy or disturb any other tenant or Lessor in his operation of the Building. IV.K ASSIGNMENT (1) Lessor shall have the right to transfer and assign, in whole or in part, all of its rights and 7 10 IV.L DEFAULT (1) Default on the part of the Lessee on paying said rent or any installment thereof, as herein above provided, or default on Lessee's part in keeping or performing any other term, covenant or condition of this lease such as to create a breach thereof, shall authorize Lessor, at its sole option at any time after such default, and after ten (10) days' written notice thereof to Lessee, to declare this lease terminated, and upon the occurrence of any one or more of such defaults, Lessor immediately, or at any time thereafter, may re-enter said premises and remove all persons therefrom with or without legal process, and without prejudice to any of its other legal rights. All claims for damages by reason of such re-entry are expressly waived, as also are all claims for damages by reason of any distress warrants or proceedings by way of sequestration which Lessor may employ to recover said rents or possession of said premises; provided, that Lessor shall not have the right to declare this lease terminated, if, within ten (10) days after notice of any default, Lessee corrects the default. Provided, however, that nothing herein shall restrict Lessor's rights at law or equity to recover possession of the Leased Premises in the event of multiple or repeated defaults, if consistent with the laws of this state. (2) If Lessee defaults, Lessor shall be entitled to recover damages, including, but not limited to, the total of all payments owing and unpaid as of the date of the default, plus interest from the date due until paid at the greatest possible non-usurious rate permitted by law (provided that if no usury statute shall apply, past due rent and other payments shall bear interest at eighteen percent (18%) per annum from the due date until paid); the costs of re-entry and reletting, including without limitation the cost of any clean-up, reasonable refurbishing, removal of Lessee's property and fixtures; other expenses caused by Lessee's failure to quit the premises and leave the same in the required condition; reasonable attorney's fees, including those incurred at trial and all appeals; court costs; expert witness fees; advertising costs; and the difference between (i) the annual base rent and all of Lessee's other obligations under this lease and (ii) the actual annual base rent received by the landlord for the period commencing with the date of the default and continuing through the termination date. Damages shall survive the termination of this lease. (3) Pursuit of any of the above-stated remedies by Lessor after a default by Lessee shall not preclude pursuit of any other remedies provided in this lease or applicable law, nor shall pursuit of any remedy constitute a forfeiture or waiver of any payment due to Lessor. IV.M WAIVER (1) Failure of Lessor to declare any default immediately upon occurrence thereof, or delay in taking any action in connection therewith, shall not waive such default, but Lessor shall have the right to declare any such default at any time and take such action as might be lawful or authorized hereunder, either in law or in equity. 8 11 IV.N BANKRUPTCY BY LESSEE (1) If voluntary bankruptcy proceedings are instituted by Lessee, or if Lessee is adjudged a bankrupt, or if Lessee makes an assignment for the benefit of its creditors, or if execution is issued against it, or if the interest of Lessee hereunder passes by operation of law to any person other than Lessee, this lease may, at the option of Lessor, be terminated by notice mailed by registered mail and addressed to Lessee. IV.O AD VALOREM TAXES (1) Lessor shall pay all ad valorem taxes which accrue against the Building during the term of this lease. Lessee shall pay all ad valorem and similar taxes levied upon or applicable to all personal property within the Leased Premises and improvements in excess of building standard improvements. IV.P CASUALTY INSURANCE (1) Lessor shall, at all times during the term of this lease, at its expense, maintain a policy or policies of insurance issued by and binding upon some insurance company, insuring the Building against loss or damage by fire, explosion, or other hazards and contingencies for the full insurable value thereof; provided that Lessor shall not insure any goods, property, or supplies not owned by Lessor and/or covered lease which Lessee may bring or obtain upon the Leased Premises, or any additional improvements which Lessee may construct thereon. If the annual premiums charged Lessor for such casualty insurance exceed the standard premium rates because the nature of Lessee's operation results in extra-hazardous exposure, then Lessee shall upon receipt of appropriate premium invoices reimburse Lessor for any such increases covering in such premiums. (2) Lessee shall be responsible for providing, at Lessee's own expense, all insurance coverage necessary for protection against loss or damage from fire, theft, or other casualty of Lessee's goods, furniture, leasehold improvements, equipment, files and all other property placed in the Leased Premises and liability insurance covering the Leased Premises. IV.Q INDEMNITY (1) Lessee agrees to and does hereby hold harmless and unconditionally indemnify Lessor, its agent, officers, directors, employees, representatives, invitees, guests, and contractors (collectively referred to in this paragraph as "Lessor") against and for all costs, expenses, claims, liability, and damages of every nature (including, but not limited to attorney's fees, court costs, expert witness fees and interest) which Lessor may at any time suffer, sustain or become liable for by reason of any and all accidents, damages, losses or injuries resulting in personal injury, death and/or loss of or damage to any property in any manner arising from or related to, in whole or in part, the presence, conduct of business or any act or omission of Lessee, its agents, officers, directors, employees, representatives, invitees, guests, contractors or any parties contracting or conducting business with Lessee. Lessee agrees to hold Lessor harmless for such costs, 9 12 expenses, claims, liability and damages even if same arise or are alleged to arise in any manner from any negligent act or omission of Lessor, or any act for which Lessor could be liable under theories of strict or statutory liability, excepting only that arising from the sole negligence of Lessor. In case of any action or proceeding brought against Lessor by reason of such claim, Lessee, upon notice from Lessor, shall defend such action or proceeding by counsel of Lessor's own choosing. V. V.A CONDEMNATION AND LOSS OR DAMAGE (1) If the Leased Premises shall be taken or condemned in whole or in part for any public purpose, this lease shall, at the option of either party, forthwith cease and terminate; and Lessor or Lessee shall not be liable or responsible to each other for any loss or damage to any property or person occasioned by theft, fire, act of God, public enemy, injunction, riot, strike, insurrection, war, court order, requisition, or order of [text cut off on bottom of page] governmental body or authority beyond the control of Lessor or Lessee, as the case may be, or for any damage or inconvenience which may arise through repair or alteration of any part of the Building, or failure to make any such repairs, or from any cause whatever, unless caused solely by Lessor's or Lessee's gross negligence, as the case may be, except as may be herein otherwise expressly provided. V.B LESSOR'S LIEN FOR RENT (1) Lessor shall have, at all times, a valid security interest to secure payment of all rentals and other sums of money becoming due under this Lease from Lessee, and to secure payment of any damages or loss that Lessor may suffer by reason of the breach by Lessee of any covenant, agreement or condition contained in this Lease, upon all goods, wares, equipment, fixtures, furniture, and other personal property of Lessee which is now on the premises or which is placed on the premises at some later date, and all proceeds from them. This property shall not be removed from the premises without the consent of Lessor until all arrearages in rent and all other sums of money then due to Lessor under this Lease have been paid and discharged, and all the covenants, agreements, and conditions of this Lease have been fully complied with and performed by Lessee. Upon the occurrence of an event of* default by Lessee, Lessor may, in addition to any other remedies provided in this Lease or by law, after giving reasonable notice of the intent to take possession and giving an opportunity for a hearing on the issue, enter upon the premises and take possession of any and all goods, wares, equipment, fixtures, furniture, and other personal property of Lessee situated on the premises without liability for trespass or conversion, and sell the same at public or private sale, with or without having the property at the sake, after giving Lessee reasonable notice of the time and place of * Upon the occurrence of an event of default by Lessee, Lessor shall not take possession of any government owned goods, wares, equipment, furniture, and other kinds of government property situated on the premises. 10 13 any public sale or of the time after which any private sale is to be made. Lessor or its assigns may purchase any items to be sold at such a sale unless they are prohibited from doing so by law. Unless otherwise provided by law, and without intending to exclude any other manner of giving Lessee reasonable notice, the requirement of reasonable notice shall be met if such notice is given at least twenty-one (21) days before the time of the sale. The proceeds from any such dispositions, less any and all expenses connected with the taking of possession, holding and selling of the property (including reasonable attorney's fees and other expenses), shall be applied as a credit against the indebtedness secured by the security interest granted in this section. Any surplus shall be paid to Lessee or as otherwise required by law; and Lessee shall pay any deficiencies immediately. Upon request by Lessor, Lessee agrees to execute and deliver to Lessor a financing statement in form sufficient to perfect the security interest of Lessor in the aforementioned property and proceeds under the provisions of the Uniform Commercial Code in force in the State of Texas. The statutory lien for rent is not waived, the security interest granted in this article being in additions and supplementary, to that lien. V.C ABANDONMENT (1) In the event the Leased Premises are abandoned by Lessee, Lessor shall have the right, but not the obligation, to relet same for the remainder of the term provided for herein; and if the rent received through such reletting does not at least equal the rent provided for herein, Lessee shall pay and satisfy any deficiency between the amount of the rent so provided for and that received through reletting, and, in addition thereto, shall pay all expenses incurred in connection with any such reletting, including, but not limited to, the cost of restoring premises to its prior condition. Nothing herein shall be construed as in any way denying Lessor the right in the event of abandonment of said premises or other breach of this Agreement by Lessee, to treat the same as an entire breach and at Lessor's option immediately sue for the entire breach of this Agreement and any and all damages which Lessor suffers thereby. V.D HOLDING OVER (1) In the event of holding over by Lessee after expiration of termination of this lease, Lessee shall pay as liquidated damages double rent on a per diem basis, for the entire holdover period. No holding over by Lessee after the term of this lease, either with or without consent and acquiescence of Lessor, shall operate to extend the lease for a longer period than one (1) month; and any holding over with the consent of Lessor in writing shall thereafter constitute this lease a lease from month to month. V.E FIRE CLAUSE (1) In the event of a fire in the Leased Premises, Lessee shall immediately give notice thereof to Lessor, if the Leased Premises, through no fault or neglect of Lessee, its agents, employees, invitees or visitors, shall be partially destroyed by fire or other casualty so as to render the premises untenantable, the rental herein shall cease thereafter until such time as the Leased Premises are made tenantable by Lessor. In the event of the total destruction of the Leased Premises without fault or neglect of Lessee, its agents, 11 14 employees, invitees or visitors, or if from such cause the same shall be so damaged that Lessor shall decide not to rebuild, then all rent owed up to the time of such destruction or termination shall be paid by Lessee and thenceforth this lease shall cease and come to an end. If such damage is due to the fault or neglect of Lessee, then all repairs shall be at Lessee's expense and there shall be no abatement of rent. This obligation shall survive regardless of whether Lessor is or is alleged to be concurrently negligent in connection with said damages. V.F ESTOPPEL CERTIFICATE (1) The Lessee agrees, at any time and from time to time, upon not less than fifteen (15) business days' prior notice from the Lessor, to execute, acknowledge and deliver to the Lessor a statement in writing (1) certifying that this Lease is unmodified and in full force and effect (or if there have been modifications, that this Lease is in full force and effect as modified and stating the modifications); (2) stating the dates to which the rent and other charges hereunder have been paid by the Lessee; (3) stating whether or not the Lessee has knowledge that the Lessor is in default in the performance of any covenant, agreement or condition contained in this Lease, and, if the Lessee has knowledge of such a default, specifying each such default and (4) stating the address to which notices to the Lessee shall be sent. Prior to the commencement of or during the term of this Lease the Lessor shall, if requested by the Lessee, deliver an estoppel certificate, in the substance and form described above, relative to the status of this Lease and/or any ground lease, underlying lease and/or mortgage encumbering the building, parking facility or land. V.G ATTORNEY'S FEE (1) In the event Lessee makes default in the performance of any of the terms, covenants, agreements or conditions contained in this lease such as to create a breach thereof, and Lessor places the enforcement of this lease, or any part thereof, or the collection of any rent due, or to become due hereunder, or recovery of the possession of the Leased Premises in the hands of an attorney, or files suit upon the same, Lessee agrees to pay Lessor its reasonable attorney's fees, court costs, expert witness fees, and other costs of collection as may be reasonably incurred by Lessor. V.H ALTERATION (1) Lessor and Lessee agree that this Agreement supersedes all prior oral or written agreements and may not be altered, changed or amended, except by an instrument in writing, signed by both parties hereto. V.I WAIVER OF SUBROGATION RIGHTS (1) Anything in this lease to the contrary notwithstanding, Lessee hereto hereby waives any and all rights of recovery, claim, action or cause of action, against Lessor, its agents, officers, employees and representatives for any loss or damage that may occur to the premises hereby demised, or any improvements thereto, or said Building of which the Leased Premises are a part, or any improvements thereto, by reason of fire, the elements, 12 15 or any other cause which could be insured against under the terms of standard fire and extended coverage or liability insurance policies, regardless of cause or origin, including negligence, strict liability or statutory liability of the Lessor, its agents, officers, employees and representatives. V.J NOTICES (1) Any and all notices or other communication required or permitted by this lease to be served on or given to either party to this lease by the other party hereto shall be in writing and shall be deemed duly served and given when personally delivered to the party to whom it is directed, or in lieu of such personal service, when deposited in the United States mail, properly addressed, with postage prepaid, to the parties at the following addresses: Lessor Name: Michael L. Austin Title: Property Manager Company: Nassau Development Company Address: 18100 Upper Bay Road, Ste. A Houston, TX 77058 Lessee Name: Scott Hanson Title: Controller Company: Johnson Engineering Inc. Address: 555 Forge River Road, Suite 150 Webster, Texas 77598 The addresses or other information provided above may be changed by either party upon giving the other party seven (7) days written notice of such change. Such notice shall identify this Lease Agreement and shall provide the information specified above. V.K LEGAL INTERPRETATION (1) This lease shall be governed by and construed in accordance with the laws of the State of Texas. If any clause or provision of this lease is illegal, invalid or unenforceable under present or future laws effective during the lease term or any renewals or extensions thereof, then and in that event, it is the intention of the parties hereto that the remainder of this lease shall not be affected thereby, and it is also the intention of the parties to this lease that in lieu of each clause or provision of this lease that is illegal, invalid or unenforceable, there be added as a part of this lease a clause or provision as may be possible and legal, valid and enforceable. The heading of the paragraphs have been inserted for convenience only and are not to be considered in any way in the construction or interpretation of this lease agreement. 13 16 This lease shall be binding upon and inure to the benefit of the heirs, personal representatives and assigns of Lessor, and shall be binding upon and inure to the benefit of the successors and assigns of Lessee. The pronouns of any gender shall include the other genders, and either the singular or the plural shall include the other. The undersigned represent that they are authorized to sign this document, agree to the foregoing and accept same on behalf of and as an act and deed of Lessor and Lessee, as evidenced by their signatures below. - ------------------------------ ----------------------------------- Lessor Lessee BY: BY: --------------------------- -------------------------------- TITLE: TITLE: ------------------------ ----------------------------- DATE: DATE: ------------------------- ------------------------------ 14 17 NASSAU DEVELOPMENT COMPANY "LESSOR" AND JOHNSON ENGINEERING INC. "LESSEE" 18
TABLE OF CONTENTS PARTIES..................................................................................................1 I.A LEASED PREMISES...............................................................................1 II.A TERM..........................................................................................1 II.B USE...........................................................................................1 II.C BASE RENTAL RATE..............................................................................2 II.D SECURITY DEPOSIT..............................................................................2 II.E RENTAL ESCALATION.............................................................................2 II.F BASIC COSTS OF ESCALATION.....................................................................3 II.G PAYMENT OF RENT...............................................................................4 III.A SERVICES TO BE FURNISHED BY LESSOR............................................................4 III.B PEACEFUL ENJOYMENT............................................................................5 IV.A PAYMENTS BY LESSEE............................................................................5 IV.B REPAIRS BY LESSOR.............................................................................5 IV.C REPAIRS BY LESSEE.............................................................................6 IV.D CARE OF LEASED PREMISES.......................................................................6 IV.E ASSIGNMENT OR SUBLEASE........................................................................6 IV.F ALTERATIONS, ADDITIONS, AND IMPROVEMENTS......................................................6 IV.G LEGAL USE AND VIOLATIONS OF INSURANCE COVERAGE................................................7 IV.H LAWS AND REGULATIONS; RULES OF BUILDING.......................................................7 IV.I ENTRY FOR REPAIRS AND INSPECTION..............................................................7 IV.J NUISANCE......................................................................................8 IV.K ASSIGNMENT....................................................................................8 IV.L DEFAULT.......................................................................................8 IV.M WAIVER........................................................................................9 IV.N BANKRUPTCY BY LESSEE..........................................................................9 IV.O AD VALOREM TAXES..............................................................................9 IV.P CASUALTY INSURANCE............................................................................9 IV.Q INDEMNITY....................................................................................10 V.A CONDEMNATION AND LOSS OR DAMAGE..............................................................10 V.B LESSOR'S LIEN FOR RENT.......................................................................10 V.C ABANDONMENT..................................................................................11 V.D HOLDING OVER.................................................................................11 V.E FIRE CLAUSE..................................................................................12 V.F ESTOPPEL CERTIFICATE.........................................................................12 V.G ATTORNEY'S FEE...............................................................................12 V.H ALTERATION...................................................................................13
i 19 LEASE AGREEMENT THE STATE OF TEXAS COUNTY OF HARRIS LESSOR AND LESSEE This Lease Agreement made and entered into on this the 26th day of January, 1998, between Nassau Development Company, "Lessor" whose address for purposes hereof is 18100 Upper Bay Road, Suite A, Houston, Texas 77058, acting by and through its duly authorized representative, and Johnson Engineering Corporation, "Lessee" whose address in Houston, Texas, for purposes hereof is 18100 Upper Bay Road, Suite 208, Houston, Texas 77058. W I T N E S S E T H: I. I.A LEASED PREMISES (1) Subject to and upon the terms, provisions and conditions hereinafter set forth, and each in consideration of the duties, covenants and obligations of the other hereunder, Lessor has leased, demised and rented to Lessee the following described premises (herein referred to as "Leased Premises") which is a total of 2,958 rentable square feet, situated in B.XII, the "Building", located at 18100 Upper Bay Road, Suite 208, Houston, Harris County, Texas. (2) The number of square feet of gross rentable area comprising the building of which the Leased Premises are situated in shall be 24,148 square feet unless enlarged or reduced by written amendment or addendum hereto. II. II.A TERM Subject to and upon the terms and conditions set forth herein, or in any exhibit or addendum hereto, this lease shall continue in force for a term of six (6) months, beginning on the 1st of February, 1998. This Lease will expire on July 31, 1998. II.B USE The Leased Premises are to be used and occupied by Lessee solely for the purposes of conducting its business of aerospace engineering. Provided, however, that Lessee may not use the Leased Premises in such a way as to interfere with the use and enjoyment of other tenants or which is otherwise inconsistent with the terms of this Agreement. 20 II.C BASE RENTAL RATE The base rental rate shall be $9.60 per square foot per year ($.80 per square foot per month) for each square foot of gross rentable area then being leased by Lessee under the terms and provisions hereof. ($2,366.40 Dollars of Rent per Month). II.D SECURITY DEPOSIT Lessee has deposited with Lessor the sum of TWO THOUSAND THREE HUNDRED SIXTY SIX & 40/100 DOLLARS ($2,366.40) as security for the faithful performance by Lessee of its obligations under this Lease Agreement. In the event Lessee defaults in any of its obligations hereunder, it is agreed Lessor, at its option without notice to Lessee may use, apply or retain the whole or any part of the funds so deposited as security to the extent required to discharge any such obligation of Lessee and in the event such sum shall be insufficient to discharge such obligation, Lessee shall remain liable for the balance of any such sum remaining after application of the security deposit. In the event Lessee shall timely discharge in full all its obligation under this Agreement, the security deposit shall be returned to Lessee thirty (30) days after the expiration of the term of this Agreement. In the event of transfer of this Agreement by Lessor, Lessor shall have the right to transfer the security deposit to the transferee in which event Lessor shall have no further obligation to Lessee for return of the security deposit. II.E RENTAL ESCALATION (1) The term "Lease Year", as used herein, shall mean the fiscal year ending March 31 of the year in which this Lease Agreement is entered into and any subsequent fiscal year(s) during the initial term hereof and any extensions or renewals hereof. In any Lease Year in which the Basic Costs (as defined in paragraph II.F below) for maintaining and operating the Building, of which the leased premises are a part, exceed the amount of FIVE AND XX/100 Dollars ($5.00) per square foot of rentable area then leased by Lessee for that year (the "Base Stop"), Lessee shall pay as additional rent the amount equal to Lessee's proportionate share of the amount of the Basic Costs that exceed the Base Stop. Lessee's "proportionate share" of the amount of Basic Costs that exceed the Base Stop shall be the same percentage of the amount of Basic Costs over the Base Stop as is equal to the percentage which the gross rentable area then leased by Lessee in the Building bears to the total gross rentable area contained in the Building. (2) Lessor may submit to Lessee, and Lessee agrees to pay, a bill or invoice as frequently as each month for one-twelfth (1/12) of the estimated annual amount as may be ascertained by Lessor to be due by Lessee under this Article. Alternatively, Lessor may submit to Lessee (at Lessor's sole discretion), and Lessee agrees to pay, a bill or invoice as frequently as each month for the actual increase in Basic Costs over the amount of the Base Stop for that month and any preceding months for which rental escalation is due under this Article. In the event of such billing or invoicing as provided hereunder by Lessor, Lessee agrees, and covenants to pay such additional amount contemporaneously with the Base Rental on the first day of each calendar month, monthly in advance. 2 21 (3) Following the close of each Lease Year, Lessor shall determine the Basic Costs for such Lease Year and give written notice thereof to Lessee which notice shall also contain or be accompanied by a computation of additional rental, if any, paid by Lessee as above provided and the balance, if any, then owing by Lessee. In the event a balance is owing by Lessee, same shall be paid by Lessee within ten (10) days of such notice. In the event the computation for such Lease Year reflects a negative balance, same shall be refunded by Lessor to Lessee within ten (10) days of such notice provided that in no event shall the rental to be paid by Lessee for the leased premises during the term of this Lease Agreement, and any extensions or renewals hereof, ever be less than the base rental stated in Paragraph II.C of this Lease Agreement. Lessee shall receive no benefit for a decrease in Basic Costs or the amount of Basic Costs below the Base Stop for any calendar or fiscal year, or any part thereof, during the term of this Lease Agreement, or any extensions and renewals thereof. For the last Lease Year, Lessee shall only pay for such Lease Year that portion of its proportionate share of the amount of Basic Costs that exceed the Base Stop as the number of calendar days in the last Lease Year that this Lease Agreement is in effect bears to 365. II.F BASIC COSTS FOR ESCALATION (1) "Basic Costs as said term is used herein shall consist of the operating expenses of the Building, which shall be computed on the accrual basis. All operating expenses shall be determined in accordance with generally accepted accounting principles which shall be consistently applied. The term "operating expenses" as used herein shall mean all expenses, costs and disbursements (but not replacement of capital investment items) of every kind and nature which Lessor shall incur, pay or be obligated to pay because of or in connection with the ownership, and/or operation of the Building, including, but not limited to, the following: (a) All expenses of employment of all employees engaged in operation and maintenance of the Building including wages and salaries, employer's Social Security taxes, unemployment taxes or insurance, and any other taxes which may be levied on such wages and salaries as well as the cost of disability and hospitalization insurance and pension or retirement benefits for such employees. (b) All supplies and materials used in operation and maintenance of the Building. (c) Cost of utilities, except those billed directly to tenants, including but not limited to water and power, heating, lighting, air conditioning and ventilating the Building. (d) Cost of all maintenance and service agreements on equipment, including alarm service, janitorial service, landscaping, window cleaning and elevator maintenance. 3 22 (e) Cost of casualty and liability insurance applicable to the Building and Lessor's personal property used in connection therewith. (f) All taxes, assessments and governmental charges whether federal, state, county or municipal, and whether they be by taxing districts or authorities presently taxing the Leased Premises or by others, subsequently created or otherwise, and any other taxes and assessments attributable to the Building or its operation excluding, however, federal and state taxes on income. (g) Cost of repairs and general maintenance (The costs of repairs and general maintenance shall exclude alterations attributable solely to tenants of the Building other than Lessee.) (h) Management fees not to exceed five (5%) percent of the base rentals, rental escalations, tenant assessments and other rents, costs, charges or expenses incurred, derived from or associated with the Building. (i) Accounting fees actually incurred by Lessor in operation of the Building and determination of escalation charges. (j) A reasonable amortization charge on account of any capital expenditures incurred to effect a reduction in operating expenses of the Building. (2) Lessee at its expense shall have the right at all reasonable times to audit Lessor's book and records relating to this lease for any year or years for which additional rental payments become due. II.G PAYMENT OF RENT (1) The annual base rent adjusted in accordance, with any exhibits hereto, if applicable, shall be due and payable in advance in twelve (12) equal monthly installments on the first day of each calendar month during the initial term and any extensions or renewals thereof, and Lessee hereby agrees to so pay such rent to Lessor at Lessor's address, as provided herein monthly in advance without demand. Additional rental for Lessee's share of Lessor's increased costs in accordance with the escalation formula shall be due and payable quarterly as provided in II.E above. III. III.A SERVICES TO BE FURNISHED BY LESSOR (1) Lessee shall pay for the electricity, gas and water utilized in operating any and all facilities serving the Leased Premises except as otherwise provided herein. (2) "Lessor shall furnish to Lessee, while occupying the premises: (a) Hot and cold water at those points of supply provided for general use of other tenants in the Building, central heat and air conditioning in season, at 4 23 such times as Lessor normally furnishes these services to other tenants in the Building, and at such temperatures and in such amounts as are considered by Lessor to be standard, such service on Saturdays, Sundays and legal holidays to be furnished only upon the request of Lessee, who shall bear the entire cost thereof; janitorial service on a five (5) day week basis, electric lighting service for all public areas and special service areas of the Building in the manner and to the extent deemed by Lessor to be standard; but failure by Lessor to any extent to furnish these defined services, or any cessation thereof, resulting from causes beyond the control of Lessor, shall not render Lessor liable in any respect for damages to either person or property, nor be construed as an eviction of Lessee, nor work an abatement of rent, nor relieve Lessee from fulfillment of any covenant or agreement hereof. Should any of the equipment or machinery break down, or for any cause cease to function properly, Lessor shall use reasonable diligence to repair same promptly, but Lessee shall have no claim for rebate of rent or damages on account of any interruptions in service occasioned thereby or resulting therefrom. (b) Proper electrical facilities to furnish sufficient power for typewriters, voice writers, calculating machines and other machines of similar low electrical consumption; provided, however, that Lessee shall bear the utility costs, air conditioning costs and costs to install appropriate meters to determine such costs occasioned by electro-data processing machines and similar machines of high electrical consumption. Such machines of high electrical consumption shall not be installed within the Building without the prior written consent of Lessor. III.B PEACEFUL ENJOYMENT (1) Lessee shall, and may peacefully have, hold and enjoy the Leased Premises, subject to the other terms hereof, provided that Lessee pays the rental herein recited and performs all of its covenants, duties and agreements herein contained. IV. IV.A PAYMENTS BY LESSEE (1) Lessee shall pay all rent and sums provided to be paid by Lessor hereunder at the times and in the manner herein provided. IV.B REPAIRS BY LESSOR (1) Unless otherwise expressly stipulated herein, Lessor shall not be required to make any improvements or repairs of any kind or character on the Leased Premises during the term of this lease, except such repairs as may be required for structural or exterior building maintenance including the painting of and repairs to walls, floors, corridors, windows, and other structures and Building equipment within and serving the Leased 5 24 Premises, and such additional maintenance as may be necessary because of damages by persons other than Lessee, its invites, visitors, or anyone acting at its direction or on its behalf, and as may be necessary solely because of the negligence of Lessor at its expense beginning not more than fifteen (15) days after written notice thereof by Lessee. IV.C REPAIRS BY LESSEE (1) At its own cost and expense, Lessee shall repair or replace any damage or injury done to the Building, or any part thereof, caused by Lessee, its agents, employees, invitees, or visitors; provided, however, if Lessee fails to make such repairs or replacements promptly Lessor may, at its option, make such repairs or replacements, and Lessee shall repay the costs thereof to Lessor on demand. Lessee's indemnity obligation hereunder shall survive regardless of whether Lessor is or is alleged to have caused or contributed to such damages through its actions or interactions constituting negligence, or giving rise to strict liability or statutory liability. Lessee agrees to keep the Leased Premises and the Building free at all times of any mechanics' and materialmen's liens or other liens arising from such repair or replacement including, but not limited to, posting bond to obtain a release of any such lien. IV.D CARE OF LEASED PREMISES (1) Lessee shall not commit or allow any waste or damage to be committed on any portion of the Leased Premises, and at the termination of this lease, by lapse of time or otherwise, shall deliver up said Leased Premises to Lessor in as good condition as at date of original possession by Lessee, ordinary wear and tear excepted, and upon such termination of this lease, Lessor shall have the right to re-enter and resume possession of the Leased Premises. IV.E ASSIGNMENT OR SUBLEASE (1) Lessee shall not assign this Agreement or sublet the Leased Premises, or any part thereof, without first obtaining the written consent of Lessor, however Lessor agrees that it will not unreasonably or arbitrarily refuse to give such permission or consent. No assignment or sublease of the Leased Premises shall be valid or binding upon Lessor without such consent. In no event shall any such assignment or sublease ever release Lessee from any obligation or liability hereunder. IV.F ALTERATIONS, ADDITIONS, AND IMPROVEMENTS (1) Lessee shall not permit the Leased Premises to be used for any other purpose than that stated in the use clause hereof, or make or allow to be made any alterations or physical additions in or to the Leased Premises without first obtaining the written consent of the Lessor. Any and all alterations, physical additions, or improvements, when made to the Leased Premises by Lessee, shall at once become the property of Lessor and shall be surrendered to Lessor upon the termination of this lease by lapse of time or otherwise; provided, however, this clause shall not apply to moveable equipment or furniture owned by Lessee. 6 25 (2) The cost of any alterations, physical additions, or improvements shall be borne and paid for solely by Lessee. Lessee agrees to keep the Leased Premises and the Building free at all times of any mechanics' and materialmen's liens or other liens arising from such alterations, physical additions or improvements including, but not limited to, posting a bond to obtain a release of any such lien. Lessor shall have the right to insist on adequate security by way of insurance, bonding or other means, prior to any modification or alteration to ensure compliance with this clause. (3) Though all alterations, physical additions, or improvements made by Lessee become the property of Lessor upon the termination of this lease, Lessor may require that Lessee remove any or all alterations, additions, or improvements installed or made by Lessee, and any other property placed on the premises by Lessee, upon termination of the lease. In the event that Lessor requires Lessee to remove all such alterations, additions, or, improvements, Lessee shall bear and pay the cost of such removal and shall repair any damage to the premises caused by such removal and, absent express written permission of Lessor, to restore the Leased Premises to its original condition, reasonable wear and tear excepted. IV.G LEGAL USE AND VIOLATIONS OF INSURANCE COVERAGE (1) Lessee shall not occupy or use, or permit any portion of the Leased Premises to be occupied or used for any business purpose which is unlawful, disreputable or deemed to be extra-hazardous on account of fire, or permit anything to be done which would in any way increase the rate of fire insurance coverage on said Building and/or its contents. IV.H LAWS AND REGULATIONS; RULES OF BUILDING (1) Lessee shall comply with all laws, ordinances, orders, rules and regulations (state, federal, municipal and other agencies or bodies having any jurisdiction thereof) relating to the use, condition or occupancy of the Leased Premises. Lessee will comply with the rules of the Building adopted by Lessor which are set forth as Exhibit "B" attached hereto to be initialed by the parties hereto, and made a part hereof as fully as though set forth herein. Lessor shall have the right at all times to change such rules and regulations or to amend them in any reasonable manner as may be deemed advisable by Lessor for the safety, care and cleanliness of the Leased Premises and for preservation of good order therein, all of which changes and amendments Will be sent by Lessor to Lessee in writing and shall be there after carried out and observed by Lessee. IV.I ENTRY FOR REPAIRS AND INSPECTION (1) Lessee shall permit Lessor, its agents or representatives to enter into and upon any part of the Leased Promises at all reasonable hours to inspect same or to clean, make repairs, alterations or additions thereto, as Lessor may deem necessary or desirable, and Lessee shall not be entitled to any abatement or reduction of rent by reason thereof 7 26 IV.J NUISANCE (1) Lessee shall conduct its business and control its agents, employees, invitees, and visitors in such manner as not to create any nuisance, or interfere with, annoy or disturb any other tenant or Lessor in his operation of the Building. IV.K ASSIGNMENT (1) Lessor shall have the right to transfer and assign, in whole or in part, all of its rights and obligations hereunder in the Building and property referred to herein and Lease shall execute any estoppel certificate reasonably required in connection therewith within fifteen (15) days of receipt of request for such estoppel certificate, as further explained in Paragraph V.F. IV.L DEFAULT (1) Default on the part of the Lessee on paying said rent or any installment thereof, as hereinabove provided, or default on Lessee's in keeping or performing any other term, covenant or condition of this lease such as to create a breach thereof, shall authorize Lessor, at its sole option at any time after such default, and after ten (10) days' written notice thereof to Lessee, to declare this lease terminated, and upon the occurrence of any one or more of such defaults, Lessor immediately, or at any time thereafter may re-enter said premises and remove all persons therefrom with or without legal process, and without prejudice to any of its other legal rights. All claims for damages by reason of such re-entry are expressly waived, as also are all claims for damages by reason of any distress warrants or proceedings by way or sequestration which Lessor may employ to recover said rents or possession of said premises; provided, that Lessor shall not have the right to declare this lease terminated if within ten (10) days after notice of any default, Lessee corrects the default. Provided, however, that nothing herein shall restrict Lessor's rights at law or equity to recover possession of the Leased Premises in the event of multiple or repeated defaults, if consistent with the laws of this state. (2) If Lessee defaults, Lessor shall be entitled to recover damages, including, but not limited to, the total of all payments owing and unpaid as of the date of the default, plus interest from the date due until paid at the greatest possible non-usurious rate permitted by law (provided that if no usury statute shall apply, past due rent and other payments shall bear interest at eighteen percent (18%) per annum from the due date until paid); the costs of re-entry and reletting, including without limitation the cost of any clean-up, reasonable refurbishing, removal of Lessee's property and fixtures; other expenses caused by Lessee's failure to quit the premises and leave the same in the required condition; reasonable attorney's fees, including those incurred at trial and all appeals; court costs; expert witness fees; advertising costs; and the difference between (i) the annual base rent and all of Lessee's other obligations under this lease and (ii) the actual annual base rent received by the landlord for the period commencing with the date of the default and continuing through the termination date. Damages shall survive the termination of this lease. 8 27 (3) Pursuit of any of the above-stated remedies by Lessor after a default by Lessee shall not preclude pursuit of any other remedies provided in this lease or applicable law, nor shall pursuit of any remedy constitute a forfeiture or waiver of any payment due to Lessor. IV.M WAIVER (1) Failure of Lessor to declare any default immediately upon occurrence thereof, or delay in taking any action in connection therewith, shall not waive such default, but Lessor shall have the right to declare any such default at any time and take such action as might be lawful or authorized hereunder, either in law or in equity. IV.N BANKRUPTCY BY LESSEE (1) If voluntary bankruptcy proceedings are instituted by Lessee, or if Lessee is adjudged a bankrupt, or if Lessee makes an assignment for the benefit of its creditors, or if execution is issued against it, or if the interest of Lessee hereunder passes by operation of law to any person other than Lessee, this lease may, at the option of Lessor, be terminated by notice mailed by registered mail and addressed to Lessee. IV.O AD VALOREM TAXES (1) Lessor shall pay all ad valorem taxes which accrue against the Building during the term of this lease. Lessee shall pay all ad valorem and similar taxes levied upon or applicable to all personal property within the Leased Premises and improvements in excess of building standard improvements. IV.P CASUALTY INSURANCE (1) Lessor shall, at all times during the term of this lease, at its expense, maintain a policy or policies of insurance issued by and binding upon some insurance company, insuring the Building against loss or damage by fire, explosion, or other hazards and contingencies for the full insurable value thereof, provided that Lessor shall not insure any goods, property, or supplies not owned by Lessor and/or covered lease which lessee may bring or obtain upon the Leased Premises, or any additional improvements which Lessee may construct thereon. If the annual premiums charged Lessor for such casualty insurance exceed the standard premium rates because the nature of Lessee's operation results in extra-hazardous exposure, then Lessee shall upon receipt of appropriate premium invoices reimburse Lessor for any such increases covering in such premiums. (2) Lessee shall be responsible for providing, at Lessee's own expense, all insurance coverage necessary for protection against loss or damage from fire, theft, or other casualty of Lessee's goods, furniture, leasehold improvements, equipment, files, and all other property placed in the Leased Premises and liability insurance covering the Leased Premises. 9 28 IV.Q INDEMNITY (1) Lessee agrees to and does hereby hold harmless and unconditionally indemnify Lessor, its agents, officers, directors, employees, representatives, invitees, guests, and contractors (collectively referred to in this paragraph as "Lessor") against and for all costs, expenses, claims, liability, and damages of every nature (including, but, not limited to attorney's fees, court costs, expert witness fees and interest) which Lessor may at any time suffer, sustain or become liable for by reason of any and all accidents, damages, losses or injuries resulting in personal injury, death and/or loss of or damage to any property in any manner arising from or related to, in whole or in part, the presence, conduct of business or any act or omission of Lessee, its agents, officers, directors, employees, representatives, invitees, guests, contractors or any parties contracting or conducting business with Lessee. Lessee agrees to hold Lessor harmless for such costs, expenses, claims, liability and damages even if same arise or are alleged to arise in any manner from any negligent act or omission of Lessor, or any act for which Lessor could be liable under theories of strict or statutory liability, excepting only that arising from the sole negligence of Lessor. In case of any action or proceeding brought against Lessor by reason of such claim, Lessee, upon notice from Lessor, shall defend such action or proceeding by counsel of Lessor's own choosing. V. V.A CONDEMNATION AND LOSS OR DAMAGE (1) If the Leased Premises shall be taken or condemned in whole or in part for any public purpose, this lease shall, at the option of either party, forthwith cease and terminate; and Lessor or Lessee shall not be liable or responsible to each other for any loss or damage to any property or person occasioned by theft, fire, act of God, public enemy, injunction, riot, strike, insurrection, war, court order, requisition or order of governmental body or authority beyond the control of Lessor or Lessee, as the case may be, or for any damage or inconvenience which may arise through repair or alteration of any part of the Building, or failure to make any such repairs, or from any cause whatever, unless caused solely by Lessor's or Lessee's gross negligence, as the case may be, except as may be herein otherwise expressly provided. V.B LESSOR'S LIEN FOR RENT (1) Lessor shall have at all times, a valid security interest to secure payment of all rentals and other sums of money due under this Lease from Lessee, and to secure payment of any damages or loss that Lessor may suffer by reason of the breach by Lessee of any covenant, agreement or condition contained in this Lease, upon all goods, wares, equipment, fixtures, furniture, and other personal property of Lessee which is now on the premises or which is placed on the premises at some later date, and all proceeds from them. This property shall not be removed from the premises without the consent of Lessor until all arrearages in rent and all other sums of money then due to Lessor under this Lease have been paid and discharged, and all the covenants, agreements, and conditions of this Lease have been fully complied with and performed by Lessee. Upon 10 29 the occurrence of an event of* default by Lessee, Lessor may, in addition to any other remedies provided in this Lease or by law, after giving reasonable notice of the intent to take possession and giving an opportunity for a hearing on the issue, enter upon the premises and take possession of any and all goods, wares, equipment, fixtures, furniture, and other personal property of Lessee situated on the premises without liability for trespass or conversion, and sell the same at public or private sale, with or without having the property at the sale, after giving Lessee reasonable notice of the time and place of any public sale or of the time after which any private sale is to be made. Lessor or its assigns may purchase any items to be sold at such a sale unless they are prohibited from doing so by law. Unless otherwise provided by law, and without intending to exclude any other manner of giving Lessee reasonable notice, the requirement of reasonable notice shall be met if such notice is given at least twenty-one (21) days before the time of the sale. The proceeds from any such dispositions, less any and all expenses connected with the taking of possession, holding and selling of the property (including reasonable attorney's fees and other expenses), shall be applied as a credit against the indebtedness secured by the security interest granted in this section. Any surplus shall be paid to Lessee or as otherwise required by law; and Lessee shall pay any deficiencies immediately. Upon request by Lessor, Lessee agrees to execute and deliver to Lessor a financing statement in form sufficient to perfect the security interest of Lessor in the aforementioned property and proceeds under the provisions of the Uniform Commercial Code in force in the State of Texas. The statutory lien for rent is not waived, the security interest granted in this article being in additions and supplementary, to that lien. V.C ABANDONMENT (1) In the event the Leased Premises are abandoned by Lessee, Lessor shall have the right, but not the obligation, to relet same for the remainder of the term provided for herein; and if the rent received through such reletting does not at least equal the rent provided for herein, Lessee shall pay and satisfy any deficiency between the amount of the rent so provided for and that received through reletting, and, in addition thereto, shall pay all expenses incurred in connection with any such reletting including but not limited to the cost of restoring premises to its prior condition. Nothing herein shall be construed as in any way denying Lessor the right in the event of abandonment of said premises or other breach of this Agreement by Lessee, to treat the same as an entire breach and at Lessor's option immediately sue for the entire breach of this Agreement and any and all damages which Lessor suffers thereby. V.D HOLDING OVER (1) In the event of holding over by Lessee after expiration of termination of this lease, Lessee shall pay as liquidated damages double rent on a per diem basis, for the entire * Upon the occurrence of an event of default by Lessee, Lessor shall not take possession of any government owned goods, wares, equipment, furniture, and other kinds of government property situated on the premises. 11 30 holdover period. No holding over by Lessee after the term of this lease, either with or without consent and acquiescence of Lessor, shall operate to extend the lease for a longer period than one (1) month; and any holding over with the consent of Lessor in writing shall thereafter constitute this lease a lease from month to month. V.E FIRE CLAUSE (I) In the event of a fire in the Leased Premises, Lessee shall immediately give notice thereof to Lessor, if the Leased Premises, through no fault or neglect of Lessee, its agents, employees, invitees or visitors, shall be partially destroyed by fire or other casualty so as to render the premises untenantable, the rental herein shall cease thereafter until such time as the Leased Premises are made tenantable by Lessor. In the event of the total destruction of the Leased Premises without fault or neglect of Lessee, its agents, employees, invitees or visitors, or if from such cause the same shall be so damaged that Lessor shall decide not to rebuild, then all rent owed up to the time of such destruction or termination shall be paid by Lessee and thenceforth this lease shall cease and come to an end. If such damage is due to the fault or neglect of Lessee, then all repairs shall be at Lessee's expense and there shall be no abatement of rent. This obligation shall survive regardless of whether Lessor is or is alleged to be concurrently negligent in connection with said damages. V.F ESTOPPEL CERTIFICATE (1) The Lessee agrees, at any time and from time to time, upon not less than fifteen (15) business days' prior notice from the Lessor, to execute, acknowledge and deliver to the Lessor a statement in writing (1) certifying that this Lease is unmodified and in full force and effect (or if there have been modifications, that this Lease is in full force and effect as modified and stating the modifications); (2) stating the dates to which the rent and other charges hereunder have been paid by the Lessee; (3) stating whether or not the Lessee has knowledge that the Lessor is in default in the performance of any covenant, agreement or condition contained in this Lease, and, if the Lessee has knowledge of such a default specifying each such default; and (4) stating the address to which notices to the Lessee shall be sent. Prior to the commencement of or during the term of this Lease the Lessor shall, if requested by the Lessee, deliver an estoppel certificate, in the substance and form described above, relative to the status of this Lease and/or any ground lease, underlying lease and/or mortgage encumbering the building, parking facility or land. V.G ATTORNEY'S FEE (1) In the event Lessee makes default in the performance of any of the terms, covenants, agreements or conditions contained in this lease such as to create a breach thereof, and Lessor places the enforcement of this lease, or any part thereof, or the collection of any rent due, or to become due hereunder, or recovery of the possession of the Leased Premises in the hands of an attorney, or files suit upon the same, Lessee agrees to pay Lessor its reasonable attorney's fees, court costs, expert witness fees, and other costs of collection as may be reasonably incurred by Lessor. 12 31 V.H ALTERATION (1) Lessor and Lessee agree that this Agreement supersedes all prior oral or written agreements and may not be altered, changed or amended, except by an instrument in writing, signed by both parties hereto. This lease shall be binding upon and inure to the benefit of the heirs, personal representatives and assigns of Lessor, and shall be binding upon and inure to the benefit of the successors and assigns of Lessee. The pronouns of any gender shall include the other genders, and either the singular or the plural shall include the other. The undersigned represent that they are authorized to sign this document, agree to the foregoing and accept same on behalf of and as an act and deed of Lessor and Lessee, as evidenced by their signatures below. - -------------------------- ----------------------------------- Lessor Lessee BY: BY: ------------------------ -------------------------------- TITLE: TITLE: ------------------------ ------------------------------ DATE: DATE: --------------------- ------------------------------ 13 32 NASSAU DEVELOPMENT COMPANY "LESSOR" AND JOHNSON ENGINEERING CORPORATION "LESSEE" STATE OF TEXAS COUNTY OF HARRIS This is an addendum to the above mentioned Lease Agreements whereby effective August 1, 1999, the existing Leases are hereby merged to form a single Lease (hereinafter becoming The Lease) with a master suite address of 18100 Upper Bay Road, Suite 207, Houston, Harris County, Texas 77058; hereinafter the term Leased Premises shall apply to all rentable area under lease by Lessor to Lessee. The following Articles, are hereby amended to read as follows: ARTICLE I.A. LEASED PREMISES: 1. Subject to and upon the terms, provisions and conditions hereinafter set forth, and each in consideration of the duties, covenants and obligations of the other hereunder, Lessor has leased, demised and rented to Lessee the following described premises (hereinafter referred to as "Leased Premises") which is a total of 6,910 rentable square feet, situated in B. XII, the "Building", located at 18100 Upper Bay Road, Suite 207, Houston, Harris County, Texas 77058. 2. The number of square feet of gross rentable area comprising the building of which the Leased Premises are situated shall be 24,148 square feet unless enlarged or reduced by written amendment or addendum hereto. ARTICLE II.A TERM: Subject to and upon the terms and conditions set forth herein, or in any exhibit or addendum hereto, this Lease shall continue in force for a term of one (1) year, beginning on the 1st of August, 1999. The Lease will expire on July 31, 2000. ARTICLE II.C BASE RENTAL RATE: The base rental rate shall be $9.60 per square foot per year ($.80 per square foot per month) for each square foot of gross rentable area then being leased by Lessee under the terms and provisions hereof. The Rent due for the Leased Premises is therefore $5,528.00 Dollars of Rent per Month. Exhibit D.1 becomes an attachment to the Lease per this Lease Amendment. 33 All other terms and conditions of the above mentioned lease shall remain the same and enforced. The undersigned represents that they are authorized to sign this document, agree to the foregoing and accept same on behalf of and as an act and deed of Lessor and Lessee, as evidenced by their signatures below. - --------------------------- --------------------------------- LESSOR LESSEE BY: BY: ------------------------ ----------------------------- TITLE: TITLE: --------------------- --------------------------- DATE: DATE: ---------------------- ---------------------------- 2 EX-10.99 11 LEASE 1 EXHIBIT 10.99 STANDARD COMMERCIAL LEASE ARTICLE 1.00 BASIC LEASE TERMS 1.01. PARTIES. This lease agreement ("Lease") is entered into by and between the following Lessor and Lessee: Clear Lake Properties ("Lessor") - -------------------------------------------------------------------------------- Johnson Engineering ("Lessee") - -------------------------------------------------------------------------------- 1.02. LEASED PREMISES. In consideration of the rents, terms, provisions and covenants of this Lease, Lessor hereby leases, lets and demises to Lessee the following described premises ("leased premises"): 17,920 square feet of warehouse/showroom space located at Gemini Park (Name of building or project) 920 Gemini Avenue (Street address/suite number) Houston, Texas 77058 (City, State, and Zip Code) 1.03. TERM. Subject to and upon the conditions set forth herein, the term of this Lease shall commence on (February 1, 1998 the "commencement date"), and shall terminate on the last day of the 36th month thereafter. Tenant to occupy and Lease to commence December 22, 1997 at no cost until February 1, 1998. 1.04. BASE RENT AND SECURITY DEPOSIT. Base rent is $See Article 16.01 per month. Security deposit is $7,710.00. 1.05. ADDRESSES.
Lessor's Address: Lessee's Address: Clear Lake Properties c/o The Centra Group, L.L.C. 555 Forge River Road, #150 - -------------------------------------------------- -------------------------- 1001 West Loop South, Suite 810 Webster, Texas 77598 - -------------------------------------------------- -------------------------- Houston, Texas 77027 Attn.: William A. Jackson - -------------------------------------------------- --------------------------
1.06. PERMITTED USE. Warehouse/showroom, assembly, light manufacturing, welding, and machine shop. ARTICLE 2.00 RENT 2.01. BASE RENT. Lessee agrees to pay monthly as base rent during the term of this Lease the sum of money set forth in section 1.04 of this Lease, which amount shall be payable to Lessor at 2 the address shown above. One monthly installment of rent shall be due and payable on the date of execution of this Lease by Lessee for the first month's rent and a like monthly installment shall be due and payable on or before the first day of each calendar month succeeding the commencement date or completion date during the term of this Lease; provided, if the commencement date or the completion date should be a date other than the first day of a calendar month, the monthly rental set forth above shall be prorated to the end of that calendar month, and all succeeding installments of rent shall be payable on or before the first day of each succeeding calendar month during the term of this Lease. Lessee shall pay, as additional rent, all other sums due under this Lease. 2.02. OPERATING EXPENSES. In the event Lessor's operating expenses for the building and/or project of which the leased premises are a part shall, in any calendar year during the term of this Lease, exceed the sum of $1997 Base Year Operating Expenses, including taxes and insurance per square foot, taxes, and insurance. Lessee agrees to pay as additional rent lessee's pro rata share of such excess operating expenses. Lessee occupies 17,920 square feet of space in a project totaling 140,762 square feet (12.73%). Lessor may invoice Lessee monthly for Lessee's pro rata share of the estimated operating expenses for each calendar year, which amount shall be adjusted each year based upon anticipated operating expenses. Within nine months following the close of each calendar year, Lessor shall provide Lessee an accounting showing in reasonable detail all computations of additional rent due under this section. In the event the accounting shows that the total of the monthly payments made by Lessee exceeds the amount of additional rent due by Lessee under this section, the accounting shall be accompanied by a refund. In the event the accounting shows that the total of the monthly payments made by Lessee is less than the amount of additional rent due by Lessee under this section, the account shall be accompanied by an invoice for the additional rent. Notwithstanding any other provision in this Lease, during the year in which the Lease terminates, Lessor, prior to the termination date, shall have the option to invoice Lessee for Lessee's pro rata share of the excess operating expenses based upon the previous year's operating expenses. If this Lease shall terminate on a day other than the last day of a calendar year, the amount of any additional rent payable by Lessee applicable to the year in which such termination shall occur shall be prorated on the ratio that the number of days from the commencement of the calendar year to and including the termination date bears to 365. Lessee shall have the right, at its own expense and within a reasonable time, to audit Lessor's books relevant to the additional rent payable under this section. Lessee agrees to pay any additional rent due under this section within ten days following receipt of the invoice or accounting showing additional rent due. 2.03. DEFINITION OF OPERATING EXPENSES. The term "operating expenses" includes all expenses incurred by Lessor with respect to the maintenance and operation of the building of which the leased premises are a part, including, but not limited to, the following: maintenance, repair and replacement costs; security; management fees, wages and benefits payable to employees of Lessor whose duties are directly connected with the operation and maintenance of the building; all services, utilities, supplies, repairs, replacements or other expenses for maintaining and operating the common parking and plaza areas; the cost, including interest, amortized over its useful life, of any capital improvement made to the building by Lessor after the date of this Lease which is required under any governmental law or regulation that was not applicable to the building at the time it was constructed; the cost, including interest, amortized over its useful life, of installation of any device or other equipment which improves the operating efficiency of any 2 3 system within the leased premises and thereby reduces operating expenses; all other expenses which would generally be regarded as operating and maintenance expenses which would reasonably be amortized over a period not to exceed five years; all real property taxes and installments of special assessments, including dues and assessments by means of deed restrictions and/or owners' associations which accrue against the building of which the leased premises are a part during the term of this Lease; and all insurance premiums Lessor is required to pay or deems necessary to pay, including public liability insurance, with respect to the building. The term operating expenses does not include the following: repairs, restoration or other work occasioned by fire, wind, the elements or other casualty; income and franchise taxes of Lessor; expenses incurred in leasing to or procuring of lessees, leasing commissions, advertising expenses and expenses for the renovating of space for new lessees; interest or principal payments on any mortgage or other indebtedness of Lessor; compensation paid to any employee of Lessor above the grade of property manager, any depreciation allowance or expense; or operating expenses which are the responsibility of Lessee. 2.04. LATE PAYMENT CHARGE. Other remedies for nonpayment of rent withstanding, if the monthly rental payment is not received by Lessor on or before the tenth day of the month for which the rent is due, or if any other payment due Lessor by Lessee is not received by Lessor on or before the tenth day of the month next following the month in which Lessee was invoiced, a late payment charge of five percent of such past due amount shall become due and payable in addition to such amounts owed under this Lease. 2.05. INCREASE IN INSURANCE PREMIUMS. If an increase in any insurance premiums paid by Lessor for the building is caused by Lessee's use of the leased premises in a manner other than as set forth in section 1.06, or if Lessee vacates the leased premises and causes an increase in such premiums, then Lessee shall pay as additional rent the amount of such increase to Lessor. 2.06. SECURITY DEPOSIT. The security deposit set forth above shall be held by Lessor for the performance of Lessee's covenants and obligations under this Lease, it being expressly understood that the deposit shall not be considered an advance payment of rental or a measure of Lessor's damage in case of default by Lessee. Upon the occurrence of any event of default by Lessee or breach by Lessee of Lessee's covenants under this Lease, Lessor may, from time to time, without prejudice to any other remedy, use the security deposit to the extent necessary to make good any arrears of rent, or to repair any damage or injury, or pay any expense or liability incurred by Lessor as a result of the event of default or breach of covenant, and any remaining balance of the security deposit shall be returned by Lessor to Lessee upon termination of this Lease. If any portion of the security deposit is so used or applied, Lessee shall upon ten days written notice from Lessor, deposit with Lessor by cash or cashier's check an amount sufficient to restore the security deposit to its original amount. The security deposit shall transfer and be the responsibility of any new Owner or transferee. 2.07. HOLDING OVER. In the event that the Lessee does not vacate the leased premises upon the expiration or termination of this Lease, Lessee shall be a tenant at will for the holdover period and all of the terms and provisions of this Lease shall be applicable during that period, except that Lessee shall pay Lessor as base rental for the period of such holdover an amount equal to one and one-half times the base rent which would have been payable by Lessee had the holdover period been a part of the original term of this Lease. Lessee agrees to vacate and deliver the 3 4 leased premises to Lessor upon Lessee's receipt of notice from Lessor to vacate. The rental payable during the holdover period shall be payable to Lessor on demand. No holding over by Lessee, whether with or without the consent of Lessor, shall operate to extend the term of this Lease. ARTICLE 3.00 OCCUPANCY AND USE 3.01. USE. Lessee warrants and represents to Lessor that the leased premises shall be used and occupied only for the purpose as set forth in section 1.06. Lessee shall occupy the leased premises, conduct its business and control its agents, employees, invitees and visitors in such a manner as is lawful, reputable and will not create a nuisance. Lessee shall not permit any operation which emits any odor or matter which intrudes into other portions of the building, use any apparatus or machine which makes undue noise or causes vibration in any portion of the building or otherwise interfere with, annoy or disturb any other lessee in its normal business operations or Lessor in its management of the building. Lessee shall neither permit any waste on the lease premises nor allow the leased premises to be used in any way which would, in the opinion of Lessor, be extra hazardous on account of fire or which would in any way increase or render void the fire insurance on the building. Lessee warrants to Lessor that the insurance questionnaire (filled out by Lessee, signed and presented to Lessor prior to the execution of this Lease) accurately reflects Lessee's original intended use of the leased premises. The insurance questionnaire is made a part of this Lease by reference as though fully copied herein. If at any time during the term of this Lease the State Board of Insurance or other insurance authority disallows any of Lessor's sprinkler credits or imposes any additional penalty or surcharge in Lessor's insurance premiums because of Lessee's original or subsequent placement or use of storage racks or bins, method of storage or nature of Lessee's inventory or any other act of Lessee, Lessee agrees to pay as additional rent the increase (between fire walls) in Lessor's insurance premiums. 3.02. SIGNS. No sign of any type or description shall be erected, placed or painted in or about the leased premises or project except those signs submitted to Lessor in writing and approved by Lessor in writing, and which signs are in conformance with Lessor's sign criteria established for the project. 3.03. COMPLIANCE WITH LAWS, RULES AND REGULATIONS. Lessee, at Lessee's sole cost and expense, shall comply with all laws, ordinance, orders, rules and regulations of state, federal, municipal or other agencies or bodies having jurisdiction over use, condition and occupancy of the leased premises. Lessee will comply with the rules and regulations of the building adopted by Lessor which are set forth on a schedule attached to this Lease. Lessor shall have the right at all times to change and amend the rules and regulations in any reasonable manner as may be deemed advisable for the safety, care, cleanliness, preservation of good order and operation or use of the building or the lease premises. All changes and amendments to the rules and regulations of the building will be sent by Lessor to Lessee in writing and shall thereafter be carried out and observed by Lessee. 3.04. WARRANTY OF POSSESSION. Lessor warrants that it has the right and authority to execute this Lease, and Lessee, upon payment of the required rents and subject to the terms, conditions, covenants and agreements contained in this Lease, shall have possession of the leased premises 4 5 during the full term of this Lease as well as any extension or renewal thereof. Lessor shall not be responsible for the acts or omissions of any other lessee or third party that may interfere with Lessee's use and enjoyment of the leased premises. In the event of sale or transfer of building, Tenant's lease shall not be disturbed. 3.05. INSPECTION. Lessor or its authorized agents shall at any and all reasonable times have the right to enter the leased premises with reasonable notice to inspect the same, to supply janitorial service or any other service to be provided by Lessor, to show the leased premises to prospective purchasers or lessees, and to alter improve or repair the leased premises or any other portion of the building. Lessee hereby waives any claim for damages for injury or inconvenience to or interference with Lessee's business, any loss of occupancy or use of the leased premises, and any other loss occasioned thereby. Lessor shall at all times have and retain a key with which to unlock all of the doors in, upon and about the leased premises. Lessee shall not change Lessor's lock system or in any other manner prohibit Lessor from entering the leased premises. Lessor shall have the right to use any and all means which Lessor may deem proper to open any door in an emergency without liability therefor. ARTICLE 4.00 UTILITIES AND SERVICE 4.01. BUILDING SERVICES. Lessor shall provide the normal utility serve connections to the building. Lessee shall pay the cost of all utility services, including, but not limited to, initial connection charges, all charges for gas, electricity, water, sanitary and storm sewer service, and for all electric lights. However, in a multi-occupancy building, Lessor may provide water to the leased premises, in which case Lessee agrees to pay to Lessor its pro rata share of the cost of such water. Lessee shall pay all costs caused by Lessee introducing excessive pollutants or solids other than ordinary human waste into the sanitary sewer system, including permits, fees and charges levied by any governmental subdivision for any such pollutants or solids. Lessee shall be responsible for the installation and maintenance of any dilution tanks, holding tanks, settling tanks, sewer sampling devices, sand traps, grease traps or similar devices as may be required by any governmental subdivision for Lessee's use of the sanitary sewer system. If the leased premises are in a multi-occupancy building, Lessee shall pay all surcharges levied due to Lessee's use of sanitary sewer or waste removal services insofar as such surcharges affect Lessor or other lessees in the building. Lessor shall not be required to pay for any utility services, supplies or upkeep in connection with the leased premises or building. 4.02. THEFT OR BURGLARY. Lessor shall not be liable to Lessee for losses to Lessee's property or personal injury caused by criminal acts or entry by unauthorized persons into the leased premises or the building. ARTICLE 5.00 REPAIRS AND MAINTENANCE 5.01. LESSOR REPAIRS. Lessor shall not be required to make any improvements, replacements or repairs of any kind or character to the leased premises or the project during the term of this Lease except as are set forth in this section. Lessor shall maintain only the roof, foundation, parking and common areas, and the structural soundness of the exterior walls (excluding windows, window glass, plate glass and doors). Lessor's costs of maintaining the items set forth in this section are subject to the additional rent provisions in section 2.02. Lessor shall not be 5 6 liable to Lessee, except as expressly provided in this Lease, for any damage or inconvenience; and Lessee shall not be entitled to any abatement or reduction of rent by reason of any repairs, alterations or additions made by Lessor under this Lease. Roof shall be free of any leakage upon Tenant's occupancy or a reasonable time thereafter. 5.02. LESSEE REPAIRS. Lessee shall, at its sole cost and expense, maintain, repair and replace all other parts of the leased premises in good repair and condition, including, but not limited to, heating, ventilating and air conditioning systems, down spouts, fire sprinkler system, dock bumpers, lawn maintenance, pest control and extermination, trash pick-up and removal, and painting the building and exterior doors. Lessee shall repair and pay for any damage caused by any act or omission of Lessee or Lessee's agents, employees, invitees, licensees or visitors. If the leased premises are in a multi-occupancy building or project, Lessor shall perform, on behalf of Lessee, lawn maintenance, painting, and trash pick-up and removal; Lessee agrees to pay Lessor, as additional rent, Lessee's pro rata share of the cost of such services within ten days from receipt of lessor's invoice, or Lessor may by monthly invoice direct Lessee to prepay the estimated costs for the current calendar year, and such amount shall be adjusted annually. If the leased premises are served by rail, Lessee agrees, if requested by the railroad, to enter into a joint maintenance agreement with the railroad and bear its pro rata share of the cost of maintaining the railroad ____. If Lessee fails to make the repairs or replacements promptly as required herein, Lessor may, at its option, make the repairs and replacements and the cost of such repairs and replacements shall be charged to Lessee as additional rent and shall become due and payable by Lessee within ten days from receipt of Lessor's invoice. Costs incurred under this section are the total responsibility of Lessee and do not constitute operating expense under section 2.02. 5.03. REQUEST FOR REPAIRS. All requests for repairs or maintenance that are the responsibility of Lessor pursuant to any provision of this Lease must be made in writing to Lessor at the address in section 1.05. If Landlord does not repair within a reasonable time, Tenant shall make repairs and seek reimbursement from Landlord or offset future rent due. 5.04. LESSEE DAMAGES. Lessee shall not allow any damage to be committed on any portion of the leased premises or building, and at the termination of this Lease, by lapse of time or otherwise, Lessee shall deliver the leased premises to Lessor in as good condition as existed at the commencement date of this Lease, ordinary wear and tear excepted. The cost and expense of any repairs necessary to restore the condition of the leased premises shall be borne by Lessee. 5.05. MAINTENANCE CONTRACT. Lessee shall, at its sole cost and expense, during the term of this Lease maintain a regularly scheduled preventative maintenance service contract with a maintenance contractor for the servicing of all hot water, heating and air conditioning systems and equipment within the leased premises. The maintenance contractor and contract must be approved by Lessor and must include all services suggested by the equipment manufacturer. ARTICLE 6.00 ALTERATIONS AND IMPROVEMENTS 6.01. LESSOR IMPROVEMENTS. If construction to the leased premises is to be performed by Lessor prior to or during Lessee's occupancy, Lessor will complete the construction of the improvements to the leased premises, in accordance with plans and specifications agreed to by Lessor and Lessee, which plans and specifications are made a part of this Lease by reference. 6 7 Lessee shall execute a copy of the plans and specifications and change orders, if applicable, setting forth the amount of any costs to be borne by Lessee within seven days of receipt of the plans and specifications. In the event Lessee fails to execute the plans and specifications and change order within the seven day period, Lessor may, at its sole option, declare this Lease cancelled or notify Lessee that the base rent shall commence on the completion date even though the improvements to be constructed by Lessor may not be complete. Any changes or modifications to the approved plans and specifications shall be made and accepted by written change order or agreement signed by Lessor and Lessee and shall constitute an amendment to this Lease. 6.02. LESSEE IMPROVEMENTS. Lessee shall not make or allow to be made any alterations or physical additions in or to the leased premises without first obtaining the written consent of Lessor. Any alterations, physical additions or improvements to the leased premises made by Lessee shall at once become the property of Lessor and shall be surrendered to Lessor upon the termination of this Lease; provided, however, Lessor, at its option, may require Lessee to remove any physical additions and/or repair any alterations in order to restore the leased premises to the condition existing at the time Lessee took possession, all costs and removal and/or alterations to be borne by Lessee. This clause shall not apply to moveable equipment or furniture owned by Lessee, which may be removed by Lessee at the end of the term of this Lease if Lessee is not then in default and if such equipment and furniture are not then subject to any other rights, liens and interest of Lessor. ARTICLE 7.00 CASUALTY AND INSURANCE 7.01. SUBSTANTIAL DESTRUCTION. If the leased premises should be totally destroyed by fire or other casualty, or if the leased premises should be damaged so that rebuilding cannot reasonably be completed within ninety working days after the date of written notification by Lessee to Lessor of the destruction, this Lease shall terminate and the rent shall be abated for the unexpired portion of the Lease, effective as of the date of the written notification. 7.02. PARTIAL DESTRUCTION. If the leased premises should be partially damaged by fire or other casualty, and rebuilding or repairs can reasonably be completed within ninety working days from the date of written notification by Lessee to Lessor of the destruction, this Lease shall not terminate, and Lessor shall at its sole risk and expense proceed with reasonable diligence to rebuild or repair the building or other improvements to substantially the same condition in which they existed prior to the damage. If the leased premises are to be rebuilt or repaired and are untenantable in whole or in part following the damage, and the damage or destruction was not caused or contributed to by act or negligence of Lessee, its agents, employees, invitees or those for whom Lessee is responsible, the rent payable under this Lease during the period for which the leased premises are untenantable shall be adjusted to such an extent, as may be fair and reasonable under the circumstances. In the event that Lessor fails to complete the necessary repairs or rebuilding within ninety working days from the date of written notification by Lessee to Lessor of the destruction, Lessee may at its option terminate this Lease by delivering written notice of termination to Lessor, whereupon all rights and obligations under this Lease shall cease to exist. 7 8 7.03. PROPERTY INSURANCE. Lessor shall at all times during the term of this Lease maintain a policy or policies of insurance with the premiums paid in advance, issued by and binding upon some solvent insurance company, insuring the building against all risk of direct physical loss in an amount equal to at least ninety percent of the full replacement cost of the building structure and its improvements as of the date of the loss; provided, Lessor shall not be obligated in any way or manner to insure any personal property (including, but not limited to, any furniture, machinery, goods or supplies) of Lessee upon or within the leased premises, any fixtures installed or paid for by Lessee upon or within the leased premises, or any improvements which Lessee may construct on the leased premises. Lessee shall have no right in or claim to the proceeds of any policy of insurance maintained by Lessor even if the cost of such insurance is borne by Lessee as set forth in article 2.00. 7.04. WAIVER OF SUBROGATION. Anything in this Lease to the contrary notwithstanding, Lessor and Lessee hereby waives and release each other of and from any and all right of recovery, claim, action or cause of action, against each other, their agents, officers and employees, for any loss or damage that may occur to the leased premises, improvements to the building of which the leased premises are a part, or personal property within the building, by reason of fire or the elements, regardless of cause or origin, including negligence of Lessor or Lessee and their agents, officers and employees. Lessor and Lessee agree immediately to give their respective insurance companies which have issued policies of insurance covering all risk of direct physical loss, written notice of the terms of the mutual waivers contained in this section, and to have the insurance policies properly endorsed, if necessary, to prevent the invalidation of the insurance coverages by reason of the mutual waivers. 7.05. HOLD HARMLESS. Lessor shall not be liable to Lessee's employees, agents, invitees, licensees, or to any other person, for an injury to person or damage to property on or about the leased premises caused by any act or omission of Lessee, its agents, servants or employees, or of any other person entering upon the leased premises under express or implied invitation by Lessee, or caused by the improvements located on the leased premises becoming out of repair, the failure or cessation of any service provided by Lessor (including security service and devices), or caused by leakage of gas, oil, water or steam or by electricity emanating from the leased premises. Lessee agrees to indemnify and hold harmless Lessor of and from any loss, attorney's fees, expenses or claims arising out of any such damage or injury. ARTICLE 8.00 CONDEMNATION 8.01. SUBSTANTIAL TAKING. If all or a substantial part of the leased premises are taken for any public or quasi-public use under any governmental law, ordinance or regulation, or by right of eminent domain or by purchase in lieu thereof, and the taking would prevent or materially interfere with the use of the leased premises for the purpose for which it is then being used, this Lease shall terminate and the rent shall be abated during the unexpired portion of this Lease effective on the date physical possession is taken by the condemning authority. Lessee shall have no claim to the condemnation award or proceeds in lieu thereof. 8.02. PARTIAL TAKING. If a portion of the leased premises shall be taken for any public or quasi-public use under any governmental law, ordinance or regulation, or by right of eminent domain or by purchase in lieu thereof, and this Lease is not terminated as provided in section 8.01 above, 8 9 Lessor shall at Lessor's sole risk and expense, restore and reconstruct the building and other improvements on the leased premises to the extent necessary to make it reasonably tenantable. The rent payable under this Lease during the unexpired portion of the term shall be adjusted to such an extent as may be fair and reasonable under the circumstances. Lessee shall have no claim to the condemnation award or proceeds in lieu thereof. ARTICLE 9.00 ASSIGNMENT OR SUBLEASE 9.01. LESSOR ASSIGNMENT. Lessor shall have the right to sell, transfer or assign, in whole or in part, its rights and obligations under this Lease and in the building. Any such sale, transfer or assignment shall operate to release Lessor from any and all liabilities under this Lease arising after the date of such sale, assignment or transfer, except Security Deposit shall be transferred to the new party. 9.02. LESSEE ASSIGNMENT. Lessee shall not assign, in whole or in part, this Lease, or allow it to be assigned, in whole or in part, by operation of law or otherwise (including without limitation by transfer of a majority interest of stock, merger, or dissolution, which transfer of majority interest of stock, merger or dissolution shall be deemed an assignment) or mortgage or pledge the same, or sublet the leased premises, in whole or in part, without the prior written consent of Lessor, and in no event shall any such assignment or sublease ever release Lessee or any guarantor from any obligation or liability hereunder. No assignee or sublessee of the leased premises or any portion thereof may assign or sublet the leased premises or any portion thereof. Landlord shall not unreasonably withhold consent to Sublease. 9.03. CONDITIONS OF ASSIGNMENT. If Lessee desires to assign or sublet all or any part of the leased premises to an outside third party, it shall so notify Lessor at least thirty days in advance of the date on which Lessee desires to make such assignment or sublease. Lessee shall provide Lessor with a copy of the proposed assignment or sublease and such information as Lessor might request concerning the proposed sublessee or assignee to allow Lessor to make informed judgments as to the financial condition, reputation, operations and general desirability of the proposed sublessee or assignee. Within fifteen days after Lessor's receipt of Lessee's proposed assignment or sublease and all required information concerning the proposed sublessee or assignee, Lessor shall have the following options: (1) cancel this Lease as to the leased premises or portion thereof proposed to be assigned or sublet; (2) consent to the proposed assignment or sublease, and, if the rent due and payable by any assignee or sublessee under any such permitted assignment or sublease (or a combination of the rent payable under such assignment or sublease plus any bonus or any other consideration or any payment incident thereto) exceeds the rent payable under this Lease for such space, Lessee shall pay to Lessor all such excess rent and other excess consideration within ten days following receipt thereof by Lessee; or (3) refuse, with reasonable cause, to consent to the proposed assignment or sublease, which refusal shall be deemed to have been exercised unless Lessor gives Lessee written notice providing otherwise. Upon the occurrence of an event of default, if all or any part of the leased premises are then assigned or sublet, Lessor, in addition to any other remedies provided by this Lease or provided by law, may, at its option, collect directly from the assignee or sublessee all rents becoming due to Lessee by reason of the assignment or sublease, and Lessor shall have a security interest in all properties on the leased premises to secure payment of such sums. Any collection directly by 9 10 Lessor from the assignee or sublessee shall not be construed to constitute a novation or a release of Lessee or any guarantor from the further performance of its obligations under this Lease. 9.04. RIGHTS OF MORTGAGEE. Lessee accepts this Lease subject and subordinate to any recorded mortgage or deed of trust lien presently existing or hereafter created upon the building or project and to all existing recorded restrictions, covenants, easements and agreements with respect to the building or project. Lessor is hereby irrevocably vested with full power and authority to subordinate Lessee's interest under this Lease to any first mortgage or deed of trust lien hereafter placed on the leased premises, and Lessee agrees upon demand to execute additional instruments subordinating this Lease as Lessor may require. If the interest of Lessor under this Lease shall be transferred by reason of foreclosure or other proceedings for enforcement of any first mortgage or deed of trust on the leased premises, Lessee shall be bound to the transferee (sometimes called the "Purchaser") at the option of the Purchaser, under the terms, covenants and conditions of this Lease for the balance of the term remaining, including any extensions or renewals, with the same force and effect as if the Purchaser were Lessor under this Lease, and, if requested by the Purchaser, Lessee agrees to attorn to the Purchaser, including the first mortgagee under any such mortgage if it be the Purchaser, as its Lessor. 9.05. ESTOPPEL CERTIFICATES. Lessee agrees to furnish, from time to time, within ten days after receipt of a request from Lessor or Lessor's mortgagee, a statement certifying, if applicable, the following: Lessee is in possession of the leased premises; the leased premises are acceptable; the Lease is in full force and effect; the Lease is unmodified; Lessee claims no present charge, lien, or claim of offset against rent; the rent is paid for the current month, but is not prepaid for more than one month and will not be prepaid for more than one month in advance; there is no existing default by reason of some act or omission by Lessor; and such other matters as may be reasonably required by Lessor or Lessor's mortgagee. Lessee's failure to deliver such statement, in addition to being a default under this Lease, shall be deemed to establish conclusively that this Lease is in full force and effect except as declared by Lessor, that Lessor is not in default of any of its obligations under this Lease, and that Lessor has not received more than one month's rent in advance. ARTICLE 10.00 LIENS 10.01. LANDLORD'S LIEN. As security for payment of rent, damages and all other payments required to be made by this Lease, Lessee hereby grants to Lessor a lien upon all property of Lessee now or subsequently located upon the leased premises. If Lessee abandons or vacates any substantial portion of the leased premises or is in default in the payment of any rentals, damages or other payments required to be made by this Lease or is in default of any other provision of this Lease, Lessor may enter upon the leased premises, by picking or changing locks if necessary, and take possession of all or any part of the personal property, and may sell all or any part of the personal property at a public or private sale, in one or successive sales, with or without notice, to the highest bidder for cash, and, on behalf of Lessee, sell and convey all or part of the personal property to the highest bidder, delivering to the highest bidder all of Lessee's title and interest in the personal property sold. The proceeds of the sale of the personal property shall be applied by Lessor toward the reasonable costs and expenses of the sale, including attorney's fees, and then toward the payment of all sums then due by Lessee to Lessor under the terms of 10 11 this Lease. Any excess remaining shall be paid to Lessee or any other person entitled thereto by law. 10.02. UNIFORM COMMERCIAL CODE. This Lease is intended as and constitutes a security agreement within the meaning of the Uniform Commercial Code of the state in which the leased premises are situated. Lessor, in addition to the rights prescribed in this Lease, shall have all of the rights, titles, liens and interests in and to Lessee's property, now or hereafter located upon the leased premises, which may be granted a secured party, as that term is defined, under the Uniform Commercial Code to secure to Lessor payment of all sums due and the full performance of all Lessee's covenants under this Lease. Lessee will on request execute and deliver to Lessor a financing statement for the purpose of perfecting Lessor's security interest under this Lease or Lessor may file this Lease or a copy thereof as a financing statement. Unless otherwise provided by law and for the purpose of exercising any right pursuant to this section, Lessor and Lessee agree that reasonable notice shall be met if such notice is given by ten days written notice, certified mail, return receipt requested, to Lessor or Lessee at the addresses specified herein. 10.03. LANDLORD'S LIEN. Landlord's lien shall subordinate to Tenant's first lienholders and shall not apply to contents owned by outside parties. ARTICLE 11.00 DEFAULT AND REMEDIES 11.01. DEFAULT BY LESSEE. The following shall be deemed to be events of default by Lessee under this Lease: (1) Lessee shall fail to pay when due any installment of rent or any other payment required pursuant to this Lease; (2) Lessee shall abandon any substantial portion of the leased premises; (3) Lessee shall fail to comply with any term, provision or covenant of this Lease, other than the payment of rent, and the failure is not cured within ten days after written notice to Lessee; (4) Lessee shall file a petition or be adjudged bankrupt or insolvent under any applicable federal or state bankruptcy or insolvency law or admit that it cannot meet its financial obligations as they become due; or a receiver or trustee shall be appointed for all or substantially all of the assets of Lessee; or Lessee shall make a transfer in fraud of creditors or shall make an assignment for the benefit of creditors; or (5) Lessee shall do or permit to be done any act which results in a lien being filed against the leased premises or the building and/or project of which the leased premises are a part. 11.02. REMEDIES FOR LESSEE'S DEFAULT. Upon the occurrence of any event of default set forth in this Lease, Lessor shall have the option to pursue any one or more of the remedies set forth herein without any notice or demand. (1) Lessor may enter upon and take possession of the leased premises, by picking or changing locks if necessary, and lock out, expel or remove Lessee and any other person who may be occupying all or any part of the leased premises without being liable for any claim for damages, and relet the leased premises on behalf of Lessee and receive the rent directly by reason of the reletting. Lessee agrees to pay Lessor on demand any deficiency that may arise by reason of any reletting of the leased premises; further, Lessee agrees to reimburse Lessor for any expenditures made by it in order to relet the leased premises, including, but not limited to, remodeling and repair costs. (2) Lessor may enter upon the leased premises, by picking or changing locks if necessary, without being liable for any claim for damages, and do whatever Lessee is obligated to do under the terms of this Lease. Lessee agrees to reimburse Lessor on demand for any expenses which Lessor may incur in effecting 11 12 compliance with Lessee's obligations under this Lease; further, Lessee agrees that Lessor shall not be liable for any damages resulting to Lessee from effecting compliance with Lessee's obligations under this Lease caused by the negligence of Lessor or otherwise. (3) Lessor may terminate this Lease, in which event Lessee shall immediately surrender the leased premises to Lessor, and if Lessee fails to surrender the leased premises, Lessor may, without prejudice to any other remedy which it may have for possession or arrearages in rent, enter upon and take possession of the leased premises, by picking or changing locks if necessary, and lock out, expel or remove Lessee and any other person who may be occupying all or any part of the lease premises without being liable for any claim for damages. Lessee agrees to pay on demand the amount of all loss and damage which Lessor may suffer by reason of the termination of this Lease under this section, whether through inability to relet the leased premises on satisfactory terms or otherwise. Notwithstanding any other remedy set forth in this Lease, in the event Lessor has made rent concessions of any type or character, or waived any base rent, and Lessee fails to take possession of the leased premises on the commencement or completion date or otherwise defaults at any time during the term of this Lease, the rent concessions, including any waived base rent, shall be cancelled and the amount of the base rent or other rent concessions shall be due and payable immediately as if no rent concessions or waiver of any base rent had ever been granted. A rent concession or waiver of the base rent shall not relieve Lessee of any obligation to pay any other charge due and payable under this Lease including without limitation any sum due under section 2.02. Notwithstanding anything contained in this Lease to the contrary, this Lease may be terminated by Lessor only by mailing or delivering written notice of such termination to Lessee, and no other act or omission of Lessor shall be construed as a termination of this Lease. ARTICLE 12.00 DEFINITIONS 12.01. ABANDON. "Abandon" means the vacating of all or a substantial portion of the leased premises by Lessee, whether or not Lessee is in default of the rental payments due under this Lease. 12.02. ACT OF GOD OR FORCE MAJEURE. An "act of God" or "force majeure" is defined for purposes of this Lease as strikes, lockouts, sit downs, material or labor restrictions by any governmental authority, unusual transportation delays, riots, floods, washouts, explosions, earthquakes, fire, storms, weather (including wet grounds or inclement weather which prevents construction), acts of the public enemy, wars, insurrections and any other cause not reasonably within the control of Lessor and which by the exercise of due diligence Lessor is unable, wholly or in part, to prevent or overcome. 12.03. BUILDING OR PROJECT. "Building" or "project" as used in this Lease means the building and/or project described in section 1.02, including the leased premises and the land upon which the building or project is situated. 12.04. COMMENCEMENT DATE. "Commencement date" shall be the date set forth in section 1.03. The commencement date shall constitute the commencement of the term of this Lease for all purposes, whether or not Lessee has actually taken possession. 12 13 12.05. COMPLETION DATE. "Completion Date" shall be the date on which the improvements erected and to be erected upon the leased premises shall have been completed in accordance with the plans and specifications described in article 6.00. The completion date shall constitute the commencement of the term of this Lease for all purposes, whether or not Lessee has actually taken possession. Lessor shall use its best efforts to establish the completion date as the date set forth in section 1.03. In the event that the improvements have not in fact been completed as of that date, Lessee shall notify Lessor in writing of its objections. Lessor shall have a reasonable time after delivery of the notice in which to take such corrective action as may be necessary and shall notify Lessee in writing as soon as it deems such corrective action has been completed and the improvements are ready for occupancy. Upon completion of construction, Lessee shall deliver to Lessor a letter accepting the leased premises as suitable for the purposes for which they are let and the date of such letter shall constitute the commencement of the term of this Lease. Whether or not Lessee has executed such letter of acceptance, taking possession of the leased premises by Lessee shall be deemed to establish conclusively that the improvements have been completed in accordance with the plans and specifications, are suitable for the purposes for which the leased premises are let, and that the leased premises are in good and satisfactory condition as of the date possession was so taken by Lessee, except for latent defects, if any. 12.06. SQUARE FEET. "Square feet" or "square foot" as used in this Lease includes the area contained within the leased premises. ARTICLE 13.00 MISCELLANEOUS 13.01. WAIVER. Failure of Lessor to declare an event of default immediately upon its occurrence, or delay in taking any action in connection with an event of default, shall not constitute a waiver of the default, but Lessor shall have the right to declare the default at any time and take such action as is lawful or authorized under this Lease. Pursuit of any one or more of the remedies set forth in article 11.00 above shall not preclude pursuit of any one or more of the other remedies provided elsewhere in this Lease or provided by law, nor shall pursuit of any remedy constitute forfeiture or waiver of any rent or damages accruing to Lessor by reason of the violation of any of the terms, provisions or covenants of this Lease. Failure by Lessor to enforce one or more of the remedies provided upon an event of default shall not be deemed or construed to constitute a waiver of the default or of any other violation or breach of any of the terms, provisions and covenants contained in this Lease. 13.02. ACT OF GOD. Lessor shall not be required to perform any covenant or obligation in this Lease, or be liable in damages to Lessee, so long as the performance or non-performance of the covenant of obligation is delayed, caused or prevented by an act of God, force majeure or by Lessee. 13.03. ATTORNEY'S FEES. In the event Lessee defaults in the performance of any of the terms, covenants, agreements or conditions contained in this Lease and Lessor places in the hands of an attorney the enforcement of all or any part of this Lease, the collection of any rent due or to become due or recovery of the possession of the lease premises, Lessee agrees to pay Lessor's costs of collection, including reasonable attorney's fees for the services of the attorney, whether suit is actually filed or not. 13 14 13.04. SUCCESSORS. This Lease shall be binding upon and inure to the benefit of Lessor and Lessee and their respective heirs, personal representatives, successors and assigns. It is hereby convenanted and agreed that should Lessor's interest in the leased premises cease to exist for any reason during the term of this Lease, then notwithstanding the happening of such event this Lease nevertheless shall remain unimpaired and in full force and effect, and Lessee hereunder agrees to attorn to the then owner of the leased premises. 13.05. RENT TAX. If applicable in the jurisdiction where the leased premises are situated, Lessee shall pay and be liable for all rental, sales and use taxes or other similar taxes, if any, levied or imposed by any city, state, county or other governmental body having authority, such payments to be in addition to all other payments required to be paid to Lessor by Lessee under the terms of this Lease. Any such payment shall be paid concurrently with the payment of the rent, additional rent, operating expenses or other charge upon which the tax is based as set forth above. 13.06. CAPTIONS. The captions appearing in this Lease are inserted only as a matter of convenience and in no way define, limit, construe or describe the scope or intent of any section. 13.07. NOTICE. All rent and other payments required to be made by Lessee shall be payable to Lessor at the address set forth in section 1.05. All payments required to be made by Lessor to Lessee shall be payable to Lessee at the address set forth in section 1.05, or at any other address within the United States as Lessee may specify from time to time by written notice. Any notice or document required or permitted to be delivered by the terms of this Lease shall be deemed to be delivered (whether or not actually received) when deposited in the United States Mail, postage prepaid, certified mail, return receipt requested, addressed to the parties at the respective addresses set forth in section 1.05. 13.08. SUBMISSION OF LEASE. Submission of this Lease to Lessee for signature does not constitute a reservation of space or an option to lease. This Lease is not effective until execution by and delivery to both Lessor and Lessee. 13.09. CORPORATE AUTHORITY. If Lessee executes this Lease as a corporation, each of the persons executing this Lease on behalf of Lessee does hereby personally represent and warrant that Lessee is a duly authorized and existing corporation, that Lessee is qualified to do business in the state in which the leased premises are located, that the corporation has full right and authority to enter into this Lease, and that each person signing on behalf of the corporation is authorized to do so. In the event any representation or warranty is false, all persons who execute this Lease shall be liable, individually, as Lessee. 13.10. SEVERABILITY. If any provision of this Lease or the application thereof to any person or circumstance shall be invalid or unenforceable to any extent, the remainder of this Lease and the application of such provisions to other persons or circumstances shall not be affected thereby and shall be enforced to the greatest extent permitted by law. 13.11. LESSOR'S LIABILITY. If Lessor shall be in default under this Lease and, if as a consequence of such default, Lessee shall recover a money judgment against Lessor, such judgment shall be satisfied only out of the right, title and interest of Lessor in the building as the same may then be encumbered and neither Lessor nor any person or entity comprising Lessor shall be liable for any 14 15 deficiency. In no event shall Lessee have the right to levy execution against any property of Lessor nor any person or entity comprising Lessor other than its interest in the building as herein expressly provided. 13.12. INDEMNITY. Lessor agrees to indemnify and hold harmless Lessee from and against any liability or claim, whether meritorious or not, arising with respect to any broker, except Tenant's Broker Zann Commercial Brokerage, Inc., which shall be paid a three percent (3%) commission, whose claim arises by, through or on behalf of Lessor. Lessee agrees to indemnify and hold harmless Lessor from and against any liability or claim, whether meritorious or not, arising with respect to any broker whose claim arises by, through or on behalf of Lessee. ARTICLE 14.00 AMENDMENT AND LIMITATION OF WARRANTIES 14.01. ENTIRE AGREEMENT. IT IS EXPRESSELY AGREED BY LESSEE, AS A MATERIAL CONSIDERATION FOR THE EXECUTION OF THIS LEASE, THAT THIS LEASE, WITH THE SPECIFIC REFERENCES TO WRITTEN EXTRINSIC DOCUMENTS, IS THE ENTIRE AGREEMENT OF THE PARTIES; THAT THERE ARE, AND WERE, NO VERBAL REPRESENTATIONS, WARRANTIES, UNDERSTANDINGS, STIPULATIONS, AGREEMENTS OR PROMISES PERTAINING TO THIS LEASE OR TO THE EXPRESSLY MENTIONED WRITTEN EXTRINSIC DOCUMENTS NOT INCORPORATED IN WRITING IN THIS LEASE. 14.02. AMENDMENT. THIS LEASE MAY NOT BE ALTERED, WAIVED, AMENDED OR EXTENDED EXCEPT BY AN INSTRUMENT IN WRITING SIGNED BY LESSOR AND LESSEE. 14.03. LIMITATION OF WARRANTIES. LESSOR AND LESSEE EXPRESSELY AGREE THAT THERE ARE AND SHALL BE NO IMPLIED WARRANTIES OF MERCHANTABILITY, HABITABILITY, FITNESS FOR A PARTICULAR PURPOSE OR OF ANY OTHER KIND ARISING OUT OF THIS LEASE, AND THERE ARE NO WARRANTIES WHICH EXTEND BEYOND THOSE EXPRESSELY SET FORTH IN THIS LEASE. ARTICLE 15.00 OTHER PROVISIONS 15.01. MONTHLY RENTAL SCHEDULE. 2-01-98 - 1-31-2001 $8064.00\Month 15.02. EXHIBIT "A": - SITE PLAN 15.03. EXHIBIT "B" - SPACE PLAN 15.04. EXHIBIT "C" - LANDLORD'S IMPROVEMENTS 15.05. BUILDING RULES AND REGULATIONS. SEE ATTACHED. 15 16 15.06. Tenant shall have Two (2), Two (2) year options to renew lease at a negotiated market rate. Tenant shall give Landlord ninety (90) days written notice prior to end of lease term to exercise said renewal options. 15.07. Landlord shall provide a courtesy notification of any contiguous space, which becomes available during this lease. 15.08. Tenant shall be permitted to occupy the leased premises before commencement date and upon full execution of the Lease document. (See Clause 1.03) ARTICLE 16.00 SIGNATURES SIGNED at Houston this 22 day of December ,1997 LESSOR LESSEE Clear Lake Properties Johnson Engineering, Inc. - ----------------------------- -------------------------------- By: By: - ----------------------------- -------------------------------- - ----------------------------- -------------------------------- (Type Name and Title) (Type Name and Title) 16 17 FIRST AMENDMENT TO LEASE WHEREAS, CLEAR LAKE PROPERTIES as "Lessor" and Johnson Engineering as "Lessee" entered into that certain lease agreement (the "Lease Agreement") dated December 22, 1997 covering approximately 17,920 square feet of net rentable space known as 920 Gemini-Building B; and WHEREAS, Lessor and Lessee desire to amend the Lease Agreement and extend the Lease Agreement; WITNESSETH WHEREAS, Lessor and Lessee hereby amend the Lease Agreement as follows: AGREEMENT NOW, THEREFORE, for and in consideration of the covenants and mutual benefits to be derived by the parties hereto for; the matter set forth herein, and for other good and valuable consideration, Lessor and Lessee agree as follows: I IT IS AGREED that the Leased Premises will be expanded to include Suite 926 and Suite 928 Gemini containing approximately 4,531 and 8992 square feet respectively for a total Leased Premises of 31,443 square feet. II IT IS FURTHER AGREED that Lessor will provide Lessee with build out allowance in the amount of only $21,358.00 to be used toward on (1) fifteen (15) ton HVAC installed in Suite 920, together with attending electrical wiring and insulation of R-10 factor, as well as other improvements in Suite 920, 926 and in 928 ("Improvements"). Lessee will use good faith efforts to have the Improvements completed by April 30, 1999. Lessor shall cooperate with Lessee or Lessee's agent as may be necessary to complete the Improvements. Lessee, through Lessee's contractor(s), will construct the Improvements. Once the Improvements are substantially complete, Lessee will submit to Lessor a copy of the contractor's invoice. Lessor will then have the option of inspecting the Leased Premises to insure that the Improvements, in Lessor's reasonable judgment, have been completed. Lessor will then pay to Lessee's contractor (which payment will be made within thirty (30) days) the amount of any and all invoices up to $21,358.00. If the actual amount of invoices total more than $21,358.00, Lessee will pay the excess amount. III IT IS FURTHER AGREED that Lessee will deposit and additional $6,753.78 as security deposit, making the security deposit by Lessee a total of $14,463.78. 1 18 FIRST AMENDMENT TO LEASE IV IT IS FURTHER AGREED that the Lease shall be extended by fifteen (15) months from the expiration of the Lease Agreement to expire on April 30, 2002. V IT IS FURTHER AGREED that the new monthly Base Rent will be as follows: 11/01/1998 Thru 10/03/2000 = $14,149.35 or $0.45 per sq. ft. per month. 11/01/2000 Thru 04/30/2002 = $14,463.78 or $0.46 per sq. ft. per month. VI IT IS FURTHER AGREED that Lessor will warrant the existing HVAC in Suite 928 through April 30, 1999. VII IT IS FURTHER AGREED that all the terms of the Lease Agreement shall remain in full force and effect, according to the terms thereof. Lessor and Lessee hereby ratify and confirm the Lease Agreement and expressly acknowledge that the Lease Agreement, as modified by this First Amendment, represents the entire agreement between Lessor and Lessee. Lessee expressingly acknowledges that Lessee knows of no default on the part of Lessor that would otherwise affect the rights and obligations of the parties under the Lease Agreement. Lessee further acknowledges and agrees that Lessor nor Lessor's agents has not made and is not making any warranties, representations, promises or statements, except to the extent that the same are expressly set forth in the Lease Agreement and this document. EXECUTED, in multiple and counterparts, each of which shall have the full force and affect. LESSOR: LESSEE: Clear Lake Properties Johnson Engineering By: ________________________ By: ___________________________ 2 EX-10.100 12 LEASE 1 EXHIBIT 10.100 OFFICE LEASE 300 D. THIRD STREET, S.W. WASHINGTON, D.C. Between Washington Design Center L.L.C. Landlord and SPACEHAB, Incorporated Tenant December 16, 1998 2 TABLE OF CONTENTS
Page ---- ARTICLE I Premises; Landlord's Rights 1 1.01 Premises 1 1.02 Landlord's Rights 1 1.03 Roof-Top Rights 2 ARTICLE II Term; Commencement Date 2 2.01 Term 2 2.02 Commencement Date 2 2.03 Commencement of Work 2 2.04 Tenant Allowance 2 2.05 Renewal Option 3 ARTICLE III Use; Legal Requirements 4 3.01 Use 4 3.02 Legal Requirements 4 ARTICLE IV Base Rent; Additional Rent 4 4.01 Rent Generally 4 4.02 Base Rent 4 4.03 Additional Rent 5 4.04 Rent Payments; No Waiver 5 4.05 Moratorium 6 4.06 No Conditions 6 ARTICLE V Rent Adjustments 6 5.01 Real Estate Taxes 6 5.02 Operating Expense 7 5.03 Payments of Rent Adjustments 7 5.04 Audit Rights by Tenant 8 ARTICLE VI Financial Reports 9 6.01 Tenant's Financial Reports 9 ARTICLE VII Condition of Premises; Duty of Care 9 7.01 Condition of the Premises 9 7.02 Tenant's Duty of Care 9 ARTICLE VIII Tenant's Alterations and Equipment 9 8.01 Alterations; Equipment 9 8.02 Landlord's Consent 10 ARTICLE IX Services 11 9.01 Business Hours 11
-i- 3 9.02 Utilities; Access 11 9.03 HVAC 11 9.04 Cleaning 11 9.05 Security 12 9.06 Signage 12 9.07 Parking 12 ARTICLE X Assignment; Sublease 12 10.01 Prohibited Leasehold 12 10.02 Landlord's Consent 12 10.03 Recapture 14 ARTICLE XI Right of First Offer 15 11.01 Right of First Offer 15 ARTICLE XII Surrender; Holdover 15 12.01 Surrender of the Premises 15 12.02 Holdover 16 ARTICLE XIII Quiet Enjoyment; Subordination 17 13.01 Covenant of Quiet Enjoyment 17 13.02 Subordination 17 13.03 Subordination, Attornment and Non-Disturbance Agreement; Estoppel Certificate 18 ARTICLE XIV Fire or Casualty; Condemnation 19 14.01 Fire or Casualty 19 14.02 Condemnation 19 ARTICLE XV Landlord's Access, Repairs and Alterations 20 15.01 Access, Repairs; Alterations 20 ARTICLE XVI Insurance; Waiver of Claims; Indemnity 21 16.01 Insurance Generally 21 16.02 Casualty Insurance 22 16.03 Property Insurance 22 16.04 Waiver of Claim 22 16.05 Indemnity 22 16.06 Landlord's Insurance 23 ARTICLE XVII [RESERVED] 23 ARTICLE XVIII Insolvency; Events of Default; Remedies 23 18.01 Events of Insolvency 23 18.02 Events of Default 24
-ii- 4 18.03 Remedies; Waivers 25 18.04 Intentionally Deleted 26 18.05 Late Payments; Interest 26 18.06 Landlord's Right to Cure Defaults 26 ARTICLE XIX Miscellaneous 26 19.01 Rules and Regulations 26 19.02 Brokerage 26 19.03 Transfers of Title 27 19.04 Notices 27 19.05 Interpretation 28 19.06 Successors and Assigns 28 19.07 Cumulative Rights and Remedies 29 19.08 Counterpart 29 19.09 Rule Against Perpetuities 29 19.10 Authority/Limitation of Landlord's Liability 29 19.11 Affirmative Action Program 30
Addendum Exhibit A-1 Office Space A-2 Land Exhibit B Reserved Exhibit C Reserved Exhibit D Reserved Exhibit E Cleaning Services Exhibit F Reserved Exhibit G Form of Estoppel Certificate Exhibit H Rules and Regulations Exhibit I License Agreement Exhibit J Affirmative Action Program Exhibit K Title Instruments of Record -iii- 5 DEED OF LEASE THIS DEED OF LEASE (the "Lease") made as of December 16, 1998, between WASHINGTON DESIGN CENTER L.L.C., a Delaware limited liability company ("Landlord"), and SPACEHAB, INCORPORATED, a Washington corporation ("Tenant"). In consideration of the mutual promises set forth below, the parties agree as follows: ARTICLE I PREMISES; LANDLORD'S RIGHTS 1.01 Premises. Subject to the terms and conditions hereof, Landlord hereby leases to Tenant and Tenant hereby leases from Landlord Suite 814, containing approximately 15,499 rentable square feet as indicated on the floor plan attached hereto as Exhibit A- 1 (the "Premises"), of the building constructed on the land identified in the legal description attached hereto as Exhibit A-2 (the "Land"), known by street address as 300 D Street, S.W., Washington, D.C. (the "Building"). The "Property" consists of the Land and the Building, together with all present and future easements, additions, expansions, improvements and other rights appurtenant thereto. In addition to the exclusive right to use and occupy the Premises subject to the terms hereof, Tenant shall, subject to the terms hereof, have nonexclusive access to such portions of the Property which are designated by Landlord as common areas and which are reasonably required for the access to and use of the Premises (e.g., main lobby entrances, common elevators, and the corridors, elevator lobby and restrooms on the floor on which the Premises is located). Tenant shall have no other rights to any portion of the Property other than as expressly set forth herein. Landlord and Tenant agree that the rentable area of the Premises set forth above shall be conclusive for all purposes of this Lease. 1.02 Landlord's Rights. Landlord retains the exclusive right to use or modify in any manner whatsoever all Property other than the Premises located outside of the interior walls, ceiling and floor of the Premises, Building systems, and structural parts of the Building. For example, Landlord may: (1) change the name or the street address of the Building, (2) install or replace any signs located outside the Premises; (3) regulate window treatments, fighting fixtures and similar items visible from the common areas or exterior of the Building; (4) regulate the finishing of services [including utilities and telephone (but not including the telephone equipment within Tenant's Premises or the servicer used by Tenant provided that such servicer shall have no right to install equipment or fines of any type in the Building except within the Premises) at commercially reasonable rates] to the Building or any occupant thereof, (5) grant any person the exclusive right to conduct any business or render any service in the Building, provided that such exclusive right shall not operate to exclude Tenant from any use expressly permitted herein; and (6) regulate the movement of individuals and property into and throughout the Building outside the Premises, provided that the exercise of such rights does not unreasonably limit access to the Premises or Tenant's right to conduct its business and operate the Premises in its discretion (subject to the other terms of this Lease). Landlord also retains the right to demolish that portion of the Building which does not contain the Premises and to erect new improvements on the Land, so long as such demolition and construction does not interfere with and interrupt Tenant's use of the Premises; provided that, Landlord shall not demolish the restrooms on the floor on which the Premises are located, the existing means of access to the Premises, or any systems 1 6 which provide HVAC, electricity, plumbing or other services to the Premises, unless Landlord makes arrangements for substitute facilities or services for the same. 1.03 Roof-Top Rights. Provided Tenant first executes and delivers to Landlord the License Agreement attached hereto as Exhibit I, Tenant shall have the right to utilize a portion of the roof of the Building for purposes of installing and operating one or more satellite dishes or antennas, subject to and in accordance with the terms of said Exhibit I. ARTICLE II TERM; COMMENCEMENT DATE 2.01 Term. The initial term of this Lease (the "Initial Term") shall commence upon the date of this Lease (the "Commencement Date") and shall end at 11:59 p.m. on the day preceding the ninth (9th) anniversary of the Rent Commencement Date as defined herein or any earlier date on which this Lease is terminated (the "Expiration Date"). The Initial Term, together with the Renewal Term (if any), is referred to herein as the "Term." 2.02 Commencement Date. Landlord shall deliver all available portions of the Premises to Tenant upon the execution hereof, and shall use reasonable efforts to deliver the remainder of the Premises on or before January 20, 1998. If Landlord fails to tender possession of the entire Premises to Tenant by January 20, 1998, Landlord shall not be subject to liability, nor shall this Lease be void or voidable in whole or in part, but in such event the Tenant shall be entitled to one (1) additional day of rent abatement with regard to the Premises for each day of delay in the tender of the Premises or any portion thereof not tendered by January 20, 1998 which is not due to the acts or omissions of Tenant or Tenant's agents, employees or contractors. The Premises shall be provided to tenant in an "as is" condition pursuant to Section 7.01. Upon delivery of the remainder of the Premises, Tenant shall execute and deliver to Landlord a Declarations to Date of Delivery and Acceptance of Premises, substantially in the form of Exhibit C attached hereto, confirming the Commencement Date and delivery of the entire Premises. 2.03 Commencement of Work. Tenant shall be permitted, subject to the terms hereof, to commence construction of the Tenant Work (as herein defined) and installation of telephones, computers, fixtures, furniture, etc., in the Premises upon delivery thereof. 2.04 Tenant Allowance. Landlord will provide Tenant with and allowance (the "Tenant Allowance") of up to Three Hundred Nine Thousand Nine Hundred Eighty Dollars ($309,980.00) for any construction, architectural, design, MEP and cabling costs incurred in connection with the Tenant Work, Landlord will reimburse Tenant for such costs incurred by the Tenant (not to exceed the amount of the Tenant Allowance) upon completion of Tenant Work and Tenant providing Landlord copies of paid bills supporting the amount of Tenant Allowance requested and appropriate lien waiver and releases of liens. After final completion of the Tenant Work and full payment of all costs incurred in connection therewith, if directed by Tenant any unused Tenant Allowance shall be applied to Tenant's rent obligations under this Lease next due after Tenant provides written notice to Landlord to so apply the Tenant Allowance or remaining portion thereof. 2.05 Renewal Option. Subject to the terms and conditions hereof, Tenant is hereby granted one (1) option (the "Renewal Option") to extend the Term for an additional period of five (5) years (the "Renewal Term"), to commence at the expiration of the Initial Term provided Tenant notifies 2 7 Landlord in writing of its intent to exercise the Renewal Option a minimum of nine (9) months prior to the Expiration Date, and further provided that if Tenant is in default on the date of giving such notice, said notice shall be totally ineffective, or if Tenant is in default beyond the applicable notice and cure period(s) (if any) pursuant to Section 18.02 on the last day of the Initial Term at Landlord's option the Renewal Term shall not commence and this Lease shall terminate at the end of the Initial Term. It is mutually agreed that all provisions of the Lease, unless otherwise provided, will remain in full force and effect for the Renewal Term (including the pass through of increases in Operating Expenses and Real Estate Taxes which shall continue uninterrupted) and further provided that Base Rent shall be the prevailing fair rental value of the Premises as determined in accordance with this Section 2.05 at the time the Renewal Term is to commence. Landlord shall notify Tenant of its determination of fair rental value within thirty (30) days after Tenant exercises its Renewal Option. If Tenant does not agree with Landlord's determination of fair rental value, Tenant shall advise Landlord and each party shall designate in writing, within ten (10) days after the expiration of the aforementioned thirty (30) day period, an MAI or similarly accredited appraiser having at least 10 years experience in the appraisal of commercial real estate in the Metropolitan Washington, D.C. area, for the purpose of determining fair rental value. The appraiser may not be affiliated in any respect with either Landlord or Tenant or their respective affiliates. Within fifteen (15) days after the designation of the appraisers, the two appraisers so designated shall designate a third appraiser of the same qualifications. The appraisers so designated, shall within forty-five (45) days after the date the third appraiser is designated, determine the fair rental value of the Premises, taking into consideration all relevant factors (including, but not limited to, that the Tax Base Year and the Operating Expense Base Year are not being updated). If the three appraisers are unable to agree upon the fair rental value, then the fair rental value of the Premises shall be the average of the two closest appraisals. ARTICLE III USE; LEGAL REQUIREMENTS 3.01 Use. The Premises shall be used solely for general office purposes and not in violation of any Legal Requirements (as defined in Section 3.02 hereof. Tenant shall not carry on or permit any activities which might: (1) invalidate or increase the costs of any insurance coverages carried with respect to the Building; (2) involve the storage, use or disposal of medical or hazardous wastes or substances or the creation of an environmental hazard; or (3) impair or interfere with (i) the structure of the Building or the operation of Building systems, (ii) the character, reputation or appearance of the Building as a first-class office building, (iii) the furnishing of services (including utilities and telephone) to any portion of the Building or (iv) the enjoyment by other occupants of the Building of the benefits of such occupancy (for example, free of noise, odors or vibration emanating from the Premises). The Premises shall not be used for the purposes of so-called "office suites," schools, governmental agencies, employment agencies, medical treatment facilities, or any commercial or retail activities (other than general office purposes as set forth above). Tenant shall at no expense to Landlord comply with all Legal Requirements imposing any duty on Tenant or, to the extent responsibility for the action required by such Legal Requirement is allocated to Tenant hereunder with respect to the Premises and the use or occupation thereof by Tenant. 3.02 Legal Requirements. "Legal Requirements" means: (1) all laws, statutes, ordinances, rules, regulations, directives and orders of federal state, county or municipal authorities, whether now or hereafter in effect which may be applicable to any portion of the Property, the use or operation thereof or any interest therein; and (2) all requirements, obligations and conditions of all instruments of record (as described on Exhibit K attached hereto and made a part hereof) pertaining to any portion of 3 8 the Property, the use or operation thereof or any interest therein, now or hereafter of record; provided that "Legal Requirements" shall exclude any affirmative obligations imposed by any instrument placed of record after the date hereof which exceed the Tenant's obligations hereunder or which conflict with Tenant's rights hereunder. ARTICLE IV BASE RENT; ADDITIONAL RENT 4.01 Rent Generally. Each reference herein to "rent" shall unless otherwise specified, mean the aggregate amount of "Base Rent" and "additional rent" payable at any time or from time to time hereunder. Each item of rent shall accrue continuously from the Rent Commencement Date until the Expiration Date, and Tenant's obligation to pay the same shall survive termination of Tenant's right of possession to the Premises and the end of the Term. 4.02 Base Rent. (a) From December 28, 1998 (the "Rent Commencement Date") and during each of the Lease Years (as defined below), the "Base Rent" shall be Four Hundred Sixty-eight Thousand Eight Hundred Forty-four and 75/100 Dollars ($468,844.75) annually (the annual Base Rent being the product of 15,499 rentable square feet times $30.25 per rentable square foot), payable by Tenant, without demand therefor, in advance on the first day of each calendar month in equal installments of Thirty-nine Thousand Seventy and 40/100 Dollars ($39,070.40); provided that the first installment of Base Rent shall be due upon the execution of this Lease. Commencing on the first day of the sixth Lease Year, Base Rent shall increase by $1.00 per square foot above the then escalated amount of Base Rent. Notwithstanding the provisions of this subparagraph (a) provided Tenant is not in default hereunder, Base Rent shall abate for the ninety (90) day period commencing on the Rent Commencement Date. (b) Commencing with the first day of the second Lease Year (as defined below) and the first day of each Lease Year thereafter, with the exception of the sixth Lease Year, Base Rent shall increase by an amount equal to 2% of the Base Rent payable for the immediately preceding Lease Year, said increase to be payable in equal monthly installments as aforesaid. The Base Rent as so adjusted shall be the new Base Rent. (c) "Lease Year" shall mean the twelve-month period beginning on the first day of a calendar month occurring on or immediately after the Rent Commencement Date, and each twelve-month period thereafter beginning on the anniversary of such first day. If the Commencement Date is other than the first day of a calendar month or this Lease terminates other than on the last day of a calendar month, the Base Rent for each such partial calendar month shall be prorated on the basis of 1/365 of the then current annual Base Rent. 4.03 Additional Rent. All amounts, other than the Base Rent, payable by Tenant hereunder or under any other agreement between Landlord and Tenant relating to the Premises or Tenant's use or occupancy thereof shall be deemed to be "additional rent." Each item of additional rent shall be payable immediately upon Landlord's demand, unless otherwise expressly provided for herein. Landlord's failure to make demand upon Tenant during the Term for any item of additional rent (including rent adjustments provided for in Article V hereof) shall not operate as a waiver of Landlord's right to demand or Tenant's obligation to pay such additional rent, so long as Landlord makes such demand 4 9 within two (2) years after the date such amounts were originally due in accordance with the terms hereof The determination of any item of additional rent shall result in no decrease in the Base Rent. Whenever an item of additional rent is to be determined based upon the amount of Base Rent, such amount shall be determined pursuant to Section 4.02 hereof with no reduction for credits, abatements or concessions. 4.04 Rent Payments; No Waiver. Tenant shall pay all rents in lawful money of the United States by good check (subject to collection) drawn to Landlord's order on a national bank, and delivered to Landlord, c/o Merchandise Mart Properties, Inc., 222 Merchandise Mart Plaza, Room 470, Chicago, Illinois 60654. Landlord's acceptance of rent with the knowledge of an existing default hereunder shall not constitute a waiver thereof. Each rent payment shall be on account of rents longest past due, and Landlord's acceptance of less than the full amount of rent then due shall not constitute a waiver of any unpaid rent. No writing accompanying any check or payment of rent shall constitute an accord and satisfaction and Landlord may accept and endorse such check or payment without limiting Landlord's right to recover the balance of such rent or pursue any other remedy hereunder. 4.05 Moratorium. If by virtue of any Legal Requirement the amount of rent which Landlord may collect hereunder is limited, Tenant shall remain liable for all rent provided for hereunder and such rent shall continue to accrue. When such limitation is no longer in effect, Tenant shall promptly pay all accrued and unpaid rent upon Landlord's demand, so long as Landlord makes such demand within two (2) years after the date such amounts were originally due in accordance with the terms hereof 4.06 No Conditions. Tenant's covenant to pay rent is independent of all other covenants and conditions, except for Landlord's covenant of quiet enjoyment set forth in Section 13.01. Notwithstanding any other provision hereof Tenant shall pay in full each item of rent when due without any demand (unless expressly provided for herein), deduction or set-off, except with respect to unused Tenant Allowance pursuant to Section 2.04 above and regardless of any counterclaim. ARTICLE V RENT ADJUSTMENTS 5.01 Real Estate Taxes. (a) In addition to the Base Rent, Tenant shall, in monthly installments pursuant to Section 5.04 hereof pay to Landlord as additional rent an amount (the "Tax Adjustment") equal to four and one tenth percent (4.1%), subject to adjustment as provided for below ("Tenant's Share of Real Estate Tax Increases"), of the amount by which Real Estate Taxes (as defined below) for the then current Tax Year exceed Real Estate Taxes for the Tax Base Year. "Tax Year" shall mean the 12-month, District of Columbia tax year commencing each October 1 and ending the following September 30. "Tax Base Year" shall mean the Tax Year commencing October 1, 1998 and ending September 30, 1999. If the Tax Year changes and the effect of the change can be reasonably determined, Landlord may adjust Real Estate Taxes for the Tax Base Year to produce Tax Adjustments substantially equivalent to those which would have been calculated without a change in the Tax Year. Real Estate Taxes shall be calculated for each Tax Year, including the Tax Base Year as if the building was at least 95% occupied. (b) "Real Estate Taxes" shall mean all taxes, rates and assessments, general and special foreseen or unforeseen of every kind and nature which Landlord shall pay or become obligated 5 10 to pay because of or in any way connected with the ownership, leasing or operation of the Property, including general real estate taxes, assessments, impositions and governmental charges (including vault fees and transit or other special district assessments) levied on or charged against the real estate or personal property used in connection with the operation of the Property, or on the right or privilege of leasing real estate or on the rentals or other receipts from the Property (or on the value of the leases thereon), or on the value of improvements made to the Property at any time for any purpose, or in any way attributable to the ownership, leasing or operation of the Property. Real Estate Taxes shall include all reassessments in connection with the sale or lease of any portion of the Property, and all fees, costs and expenses (including reasonable attorneys' fees and expenses) that Landlord incurs contesting or attempting to reduce or limit Real Estate Taxes. The amount of any tax refunds shall be applied as a credit to Real Estate Taxes for the relevant Tax Year. If a refund is applicable to the Tax Base Year, Real Estate Taxes for the Tax Base Year shall be reduced thereby, and Tax Adjustments shall be recalculated. If the system of real estate taxation is changed or any new tax or assessment is imposed or levied on the Property in lieu of any item of Real Estate Taxes presently imposed or levied on real estate or fixtures in the District of Columbia, Real Estate Taxes shall include the new tax, assessment and levy. Real Estate Taxes shall not include any net income, inheritance or estate taxes. 5.02 Operating Expenses. (a) In addition to the Base Rent, Tenant shall, in monthly installments pursuant to Section 5.04 hereof pay to Landlord as additional rent an amount (the "Operating Expense Adjustment") equal to four and one tenth percent (4.1%) ("Tenant's Share of Operating Expense Increases") of the amount by which Operating Expenses (as defined below) for the then current calendar year exceed Operating Expenses for the calendar year commencing the January 1, 1999 (the "Operating Expense Base Year"). Operating Expenses shall be calculated for each calendar year as if the Building was not less than 95% occupied. (b) "Operating Expenses" shall mean all expenses, costs and disbursements of every kind and nature paid, incurred, or otherwise arising because of or in any way connected with the management, maintenance, servicing repair and/or operation of the Property (including the costs of electrical service, HVAC, cleaning, employee salaries, withholding and other taxes and employee benefits, water and sewerage, landscaping, maintenance and service contracts, security systems, management fees (not to exceed four percent) equipment rental and all other usual and customary costs of operating and maintaining a first-class office building in downtown Washington, D.C.). Operating Expenses shall not include: (1) interest payments; (2) ground rental; (3) depreciation; or (4) capital expenditures other than (i) those capital expenditures incurred to reduce Operating Expenses and (ii) those capital expenditures incurred to comply with any Legal Requirement to the extent such compliance is not required as of the date hereof Landlord agrees to amortize the cost of any capital expenditure (together with interest thereon at nine percent) over the shorter of (i) the useful life thereof as determined under generally accepted accounting principles, or (ii) the depreciation period permitted by the Internal Revenue Code and only the portion of such amortization allocable to each year shall be included in Operating Expenses for such year. 5.03 Payments of Rent Adjustments. Commencing on the first day of the month immediately following a notice from Landlord setting forth the then cur-rent estimated Tax Adjustment and/or Operating Expense Adjustment (collectively, "Rent Adjustments"), as estimated by Landlord from time to time, Tenant shall pay monthly installments on account of Rent Adjustments. The amount of each such installment shall equal the aggregate unpaid balance of the then current estimated Rent Adjustments, divided by the number of months remaining in the Lease Year. If upon the final determination of Rent Adjustments for each Lease Year, the total installments paid on account of Rent 6 11 Adjustments do not equal the total actual amount of Rent Adjustments, Tenant shall pay any balance due within thirty (30) days after receiving Landlord's demand therefor, or, if applicable, Landlord shall credit against the next payment of Base Rent due hereunder the amount of any overpayment. 5.04 Audit Rights by Tenant. If Tenant disputes any Operating Expenses or Real Estate Taxes statement, Tenant must provide Landlord with specific written objections within 30 days after receiving the statement (failing which, the statement will be deemed conclusive). Within 30 days after receiving these objections, Landlord will either adjust the disputed statement in response to Tenant's objection(s) and credit any overpayment to Tenant as stated above, or notify Tenant that it believes Tenant's objection is without merit. If Tenant timely disputes a statement and Landlord notifies Tenant that Tenant's objection is without merit, Tenant may -- if Tenant is not then in default beyond any applicable cure period -- cause a nationally recognized independent, certified public accountant ("CPA") to audit the supporting data for the disputed statement. However, Tenant may not exercise its audit right unless the audit commences within 20 days after Landlord notifies Tenant that Tenant's objection is without merit, nor may Tenant audit any statement more than once. The CPA must sign a confidentiality statement in form acceptable to Landlord. Each audit under this Section 5.04 must be conducted at Landlord's property manager's District of Columbia office. If Landlord does not agree with the audit results of the CPA Tenant selects, Landlord and Tenant will endeavor to resolve their differences (failing which, the dispute will be conclusively determined based on an independent audit by a third-party CPA selected by the parties or, failing agreement, appointed by the American Arbitration Association or any recognized successor thereto upon application by either party). The parties will make any necessary adjustments in accordance with the third-party CPA audit. Tenant must pay all costs and expenses of Tenant's audit (including, but not limited to, reasonable copying charges). In addition, Tenant must pay the costs incurred in connection with the third-party CPA audit (including, but not limited to, reasonable copying charges) unless the amounts paid by Tenant to Landlord for the year in question exceeded the amounts to which Landlord was entitled by more than 5%, in which event Landlord will pay the costs incurred in connection with the third-party CPA audit. If the third-party CPA audit shows Tenant has underpaid Operating Expenses or Real Estate Taxes (or both), in addition to paying to Landlord the underpayment amount and bearing the third-party CPA audit costs, Tenant must reimburse Landlord upon demand for all reasonable costs, expenses and fees incurred by Landlord in connection with such dispute. Tenant has no right to withhold or reduce any performance by Tenant under the Lease pending or based upon any audit under this Section 5.04. ARTICLE VI FINANCIAL REPORTS 6.01 Tenant's Financial Reports. Tenant shall deliver to Landlord as they become available, a copy of Tenant's quarterly and annual reports. ARTICLE VII CONDITION OF PREMISES; DUTY OF CARE 7.01 Condition of the Premises. Tenant shall accept possession of the Premises in their current "as-is" condition, broom clean with all equipment in working order. In compliance with Article VIII 7 12 hereof and at no expense to Landlord, Tenant shall do such work as Tenant shall deem necessary or desirable to render the Premises suitable for Tenant's use. Landlord shall have no obligation with respect to the alteration, remodeling or improvement of the Premises. 7.02 Tenant's Duty of Care. Tenant at its expense shall take good care of and allow no damage (other than ordinary wear and tear) to the Premises, and shall keep the Premises in clean, safe and sanitary condition. Tenant shall segregate, store and dispose of trash and garbage in the manner Landlord reasonably specifies. Tenant shall promptly notify Landlord of the occurrence of any event or the existence of any condition that may adversely affect the Premises or the Building or the occupancy, use or operation thereof If the Building or the Premises are damaged by Tenant its employees, agents, contractors, licensees or invitees (including any damage in connection with the making of an Alteration or Tenant's surrender of the Premises), Tenant shall promptly notify Landlord and, except to the extent such damage is covered by nominal and customary extended coverage fire and casualty insurance, shall pay to Landlord upon demand as additional rent all actual documented costs (including attorneys' fees and expenses and Landlord's customary overhead, profit and costs of general conditions) Landlord incurs for the repair and restoration of the same. Tenant shall promptly remove from all common areas in or around the Property Tenant's property and items placed or delivered there on Tenant's behalf ARTICLE VIII TENANT'S ALTERATIONS AND EQUIPMENT 8.01 Alterations; Equipment. Except as expressly permitted herein, Tenant shall not, without in each instance obtaining Landlord's prior consent, make or permit any Alteration. "Alteration" shall mean any alteration, installation, removal or improvement of any nature with respect to the Premises or the Building, or any installation, removal or operation in the Premises of any equipment or machinery, except for office equipment which (1) is normally used in modem offices for general office use, and (2) does not (i) require electrical power in excess of the power requirements for office tenants of the Building (it being understood that Tenant's connected load for fighting and outlets shall not exceed five (5) watts per square foot of the Premises); (ii) require changes to the electrical, water, plumbing, or HVAC systems, (iii) be so heavy as to create any risk of structural damage to the Building, or (iv) cause any unreasonable noise, vibration or odor to be transmitted to the structure of the Building or outside the Premises. 8.02 Landlord's Consent. Landlord shall not unreasonably withhold, delay or condition its consent to the making of any Alteration. Landlord shall not be obligated to give its consent if Landlord believes in good faith that there is a significant risk that the Alteration (x) would not be made in a manner comparable in workmanship and quality with the reputation and character of the Building as a first-class office building, or (y) would materially adversely affect (i) the structure or the appearance of the Building or the operation of Budding systems, (ii) Landlord's ability to rent the Premises at the end of the Term to other tenants at then current market rates, or (iii) the enjoyment by other occupants of the Building of the benefits of such occupancy. Landlord's consent to an Alteration, if given, shall be subject in each instance to the following conditions: (1) Landlord acknowledges that it has approved Tenant's preliminary plans for the Premises. At least ten (10) days prior to commencing work, Tenant shall submit to Landlord final plans and specifications therefor which are consistent with the preliminary plans previously approved by Landlord and sufficient to obtain a building permit therefor, together with detailed background 8 13 information, references and, with respect to contractors and subcontractors, current financial statements, about the architects, engineers, contractors and subcontractors to be utilized, and full information regarding the materials to be used, and Tenant shall promptly submit for Landlord's approval every material change to the work, the scope of the work or the plans and/or specifications therefor. A "material charge" shall mean any change which (i) requires a building permit or permit modification (ii) involves the Building mechanical, electrical, plumbing, HVAC or other systems, (iii) is likely to adversely affect any other tenant or occupant of the Building, or (iv) will cost in excess of Two Thousand Five Hundred Dollars ($2,500.00) to implement. The work shall be performed by persons and pursuant to plans, specifications and change orders that Landlord shall have approved (such approval not to be unreasonably withheld or delayed) and in accordance with all Legal Requirements and requirements of Landlord's insurance carriers, and Tenant shall at no expense to Landlord insure continuous compliance with the same and, upon demand, promptly submit to Landlord satisfactory evidence of such performance (including all permits, approvals and certificates required therefor). If in connection with making any Alteration any conflict arises for any reason whatsoever between any persons under Tenant's direct or indirect control engaged in making the Alteration and Landlord's contractors, subcontractors or other persons performing work for Landlord, Tenant shall take all reasonable actions necessary to eliminate such conflict. (2) All architects and engineers shall continuously carry errors and omissions insurance in such reasonable amounts as Landlord may specify, and all contractors and subcontractors shall continuously carry such amounts of workers' compensation, employer's liability and commercial/comprehensive general liability insurance as Landlord may reasonably specify, and, upon demand, Tenant shall furnish Landlord with certificates evidencing such insurance coverages. (3) Upon completion of the Alteration, Tenant shall furnish Landlord with enforceable releases of all claims and waivers of all liens executed by each contractor, subcontractor and material supplier involved in making the Alteration and paid invoices with respect to the costs thereof. If in connection with the work any mechanic's materialman's lien is filed against any portion of the Property, Tenant shall at no expense to Landlord cause such lien to be released of record within ten (10) days after notice thereof. (4) In connection with the making of the Alteration or the maintenance or repair thereof, Landlord shall have no obligation to modify, install or replace any structural component or system contained in the Building or bear any cost. (5) At the time Landlord consents to any Alteration, improvements, fixtures and other property, Landlord shall advise Tenant what Alterations, improvements, fixtures and other property must be removed by Tenant before the end of the Term. ARTICLE IX SERVICES 9.01 Business Hours. "Business Hours" shall mean 7:00 a.m. to 6:00 p.m., Monday through Friday, and 9:00 a.m. to 1:00 p.m., Saturday, except for holidays recognized by the Federal government ("Holidays"). 9.02 Utilities; Access. Twenty-four hours a day, seven days a week, Landlord shall provide to the Premises: (1) electricity, running water, and sewerage removal services at (i) current locations and 9 14 (ii) such usage levels as are customary in general office space; and (2) access via at least one operating elevator. 9.03 HVAC. During Business Hours, Landlord shall provide heating and cooling to the Premises. Upon twenty-four (24) hours prior notice, Landlord shall provide heating and cooling to the Premises outside Business Hours, with the minimum charge being based on four (4) hours usage. Landlord shall adjust overtime charges to reflect actual heating and cooling expenses. Initially, the following hourly rates will apply: Monday - Saturday $ 25.00/hour Sunday 37.50/hour Holidays 37.50/hour
9.04 Cleaning. After Business Hours, Monday through Friday, except for Holidays, Landlord shall provide the Premises with the cleaning and janitorial services specified in Exhibit E attached hereto. 9.05 Security. Landlord shall provide the following security services: a staffed reception/guard desk in the lobby of the Building during Business Hours. 9.06 Signage. Landlord intends that all tenants will be identified on the Budding directory signs. Landlord shall, at its expense for the initial names designated by Tenant at the Commencement Date, provide Tenant with a pro rata number of lines on the directory in the Building lobby. Any names placed on the directory after the initial name shall be at Tenant's expense. Landlord, at its sole cost and expense, will also provide Tenant with building standard signage on Tenant's suite entry door. 9.07 Parking. Tenant may, by notice to Landlord, acquire up to fifteen (15) monthly parking contracts in the Building garage at the prevailing monthly rates in effect from time to time, subject to availability. Tenant shall abide the rules and regulations issued by the Building garage operator. ARTICLE X ASSIGNMENT; SUBLEASE 10.01 Prohibited Leasehold Transfers. (a) Except as expressly permitted herein, Tenant shall not, without in each instance obtaining Landlord's prior consent, make or permit any Leasehold Transfer. "Leasehold Transfer" shall mean, whether voluntarily or by operation of law, the assignment, transfer, subleasing or encumbering of any portion of Tenant's rights to and interest in this Lease or the Premises, including permitting any person to use or occupy any portion of the Premises (except in connection with Tenant's use of the Premises permitted herein). The transfer (however effected) of a "controlling ownership interest" in a person (defined to mean an ownership interest in whatever form by which the holder thereof exercises effective control over the management and policies of such person) shall be deemed to be a Leasehold Transfer if such person holds any interest in this Lease or the Premises; provided that, this sentence shall not apply to transfers of a controlling ownership interest in any corporation while the stock of such corporation is publicly traded on the New York or American Stock Exchanges or while listed in the NASDAQ National Market. 10 15 (b) Any apparent Leasehold Transfer made without Landlord's consent shall be void. Nevertheless, without waiving any of Tenant's obligations hereunder or the failure to obtain Landlord's consent Landlord may collect from any person occupying the Premises in connection with an attempted Leasehold Transfer all rent due with respect to the portion of the Premises occupied thereby, and apply the same to the satisfaction of Tenant's obligations hereunder. 10.02 Landlord's Consent. (a) In seeking Landlord's consent to a Leasehold Transfer, Tenant shall at least twenty (20) days before the anticipated effective date of the Leasehold Transfer submit: (1) the proposed terms and conditions of the Leasehold Transfer; (2) all relevant information about the proposed transferee; and (3) satisfactory evidence that the Leasehold Transfer will result in the Premises being used only as permitted pursuant to Article III hereof. (b) Landlord shall not unreasonably withhold, delay or condition its consent to any Leasehold Transfer. The reasonableness of any decision by Landlord to withhold, delay or condition its consent shall be evaluated in light of all of the relevant circumstances. Landlord shall not be obligated to give its consent if (i) any event exists which constitutes or which with the lapse of time or the giving of notice would constitute a material default hereunder, (ii) Landlord has pursuant to Section 10.03 hereof exercised its recapture right with respect to the Leasehold Transfer, (iii) the Leasehold Transfer would result in the Premises being used for a purpose prohibited hereunder, or (iv) if the Leasehold Transfer is to be effectuated during the last two (2) years of the Initial Term or the Renewal Term, the rent under the Leasehold Transfer would be less than the rental rate at which Landlord is then offering to lease comparable space in the Building. Landlord's consent to a Leasehold Transfer, if given, shall be subject in each instance to the following conditions: (1) Tenant shall remain fully and primarily liable for the performance of all of Tenant's obligations hereunder, whenever such performance may be required. The transferee with respect to the Leasehold Transfer shall be subject to any defaults by Tenant hereunder and bound by all of the terms and conditions of this Article X. Landlord's consent to any Leasehold Transfer shall not constitute consent to any other or subsequent Leasehold Transfer, except in each case as permitted herein. (2) Within five (5) days after Tenant receives Landlord's consent thereto and prior to the effective date of the Leasehold Transfer, Tenant shall deliver to Landlord a fully executed and acknowledged instrument in form and substance satisfactory to Landlord, providing for: (i) the Leasehold Transfer on substantially the same terms and conditions previously submitted to Landlord; (ii) the transferee's unconditional agreement to be bound by, and to hold the Premises subject to, all of the terms and conditions hereof and, if the Leasehold Transfer involves an assignment of all or a portion of the Premises, to assume a of Tenant's obligations hereunder with respect thereto; and (iii) an effective date of the Leasehold Transfer not later than six (6) months after the execution of such instrument. The Leasehold Transfer shall be effective only in accordance with the terms and conditions of such instrument. Landlord and Tenant may amend this Lease at any time, and Landlord may take any other action in connection herewith, and Landlord shall not be obligated to give any notice to or obtain the consent of any Leasehold Transfer transferee for any reason whatsoever. The transferee shall automatically be bound by the terms and conditions of this Lease as amended by Landlord and Tenant at any time. (3) Tenant hereby assigns to Landlord the rents due from the transferee and authorizes the transferee to pay such rents directly to Landlord, at Landlord's option, upon the 11 16 occurrence of any default by Tenant under this Lease, whereupon Landlord may, without waiving any of Tenant's obligations hereunder, collect and apply such rents to the satisfaction of such obligations. (4) Tenant shall promptly reimburse Landlord upon demand for all reasonable costs (including reasonable attorney's fees and expenses) Landlord incurs in connection with the Leasehold Transfer and the transferee thereunder. (5) Tenant shall promptly pay Landlord as additional rent fifty percent (50%) of all of the consideration for the Leasehold Transfer. "Consideration" shall mean (i) all rents in excess of the rents payable by Tenant hereunder with respect to the space subject to the Leasehold Transfer, and all profits in connection with the Leasehold Transfer (including, but not limited to, all proceeds from the sale or rental of Tenant's fixtures, leasehold improvements, equipment, furniture, furnishings and other personal property, to the extent the price or rent paid therefor exceeds the fair market value or the fair rental value, as the case may be, of the fixtures, improvements, equipment, furniture, furnishings or other personal property so sold or rented), less (ii) all reasonable out-of-pocket expenses Tenant incurs in effecting the Leasehold Transfer. Upon demand, Tenant's chief financial officer shall promptly certify to Landlord accountings setting forth the character, amount and date of receipt or expenditure of each item of consideration and expense, and submit such supporting documentation as Landlord may reasonably request. 10.03 Recapture. Landlord may, with respect to each Leasehold Transfer for which Landlord's consent is required, elect to: (1) become Tenant's subtenant with respect to the space subject to the proposed Leasehold Transfer, or (2) terminate Tenant's leasehold interest in such space, in either case effective thirty (30) days after Landlord notifies Tenant of Landlord's exercise of its recapture right with respect to the Leasehold Transfer. With respect to a Leasehold Transfer for which Tenant has requested Landlord's consent, Landlord shall so notify Tenant within twenty (20) days after receiving Tenant's request or Landlord shall be deemed to have declined to exercise its recapture right with respect to such Leasehold Transfer. If Landlord declines to exercise its recapture right with respect to a Leasehold Transfer, Landlord's consent to the Leasehold Transfer shall nonetheless be required. If Landlord exercises its recapture right with respect to a Leasehold Transfer: (i) Landlord may at Tenant's expense reconfigure the Premises to provide public access to the recaptured space; and (ii) Tenant shall promptly execute and deliver to Landlord (x) if Landlord elects to sublet the space, a sublease in a form reasonably satisfactory to Landlord and providing that Landlord shall be required during the term of the sublease to abate all rents accruing with respect to the space, or (y) if Landlord elects to terminate Tenant's leasehold interest in the space, an amendment hereto in a form reasonably satisfactory to Landlord and providing for such termination. Landlord may, without incurring any liability to Tenant, lease or sublet the recaptured space to any person (including any person which Tenant proposed as a transferee under a Leasehold Transfer). ARTICLE XI RIGHT OF FIRST OFFER 11.01 Right of First Offer. Provided no Event of Default has occurred under this Lease, and subject to the right of Landlord to renew the lease of any tenant currently leasing space on the eighth (8th) floor on the date of this Lease, Tenant shall have the right of first offering to lease contiguous office space located on the eighth (8th) floor of the Building (the "Additional Premises"). Such right shall arise whenever, during the Term the Landlord wishes to lease the Additional Premises. Landlord shall provide Tenant with not less than thirty (30) days written notice ("Landlord's Notice") setting forth the date the Additional Premises will be 12 17 available. Tenant shall exercise its right of first offering (if at all) by written notice ("Tenant's Notice"), delivered to Landlord not later than twenty (20) days after delivery of Landlord's Notice to Tenant, and agreeing to lease the Additional Premises commencing on the date the Additional Premises are available as set forth in Landlord's Notice. In the event the Tenant's Notice is not timely given, Tenant shall be deemed to have waived its right of first offering and Landlord may proceed to lease the Additional Premises to third parties. Prior to the commencement of the term for the Additional Premises, Tenant agrees to execute an amendment to this Lease incorporating the Additional Premises into this Lease as part of the Premises on the following terms and conditions: (a) If the Tenant exercises its right of first offer for the Additional Premises during the first three Lease Years the terms and conditions applicable to the Additional Premises shall be the same terms and conditions as the terms of this Lease including rental rates. The term for the Additional Premises will be co-terminous with the Term under this Lease. The Tenant allowance shall be prorated based on the number of months remaining in the first three Lease Years. (b) If the Tenant takes the Additional Premises during the last six Lease Years, the rental rate, Tenant allowance and other terms applicable to the Additional Premises (other than Lease Term, which will be co-terminous with the Lease Term for the Premises) will be subject to the then current market terms and conditions for similar space within the Building (taking into consideration the applicable Lease Term). ARTICLE XII SURRENDER; HOLDOVER 12.01 Surrender of the Premises. (a) At the end of the Term Tenant shall deliver to Landlord exclusive possession of the Premises, broom clean and in "as is" condition on the Commencement Date, ordinary wear and tear excepted; provided, however, that Tenant shall remove from the Premises and the Building all property specified in subsection (b) below. The delivery of keys to the Premises to anyone (including delivery of the keys to Landlord so that Landlord may sublet the Premises for Tenant) shall not terminate this Lease or effect a surrender of the Premises. (b) Tenant may not, without Landlord's consent, remove any Alterations, other improvements to the Premises or fixtures (including all such improvements and fixtures existing on the Commencement Date), which cannot be removed without damage to the Premises or the Building. Tenant shall, at no expense to Landlord and subject to Article VIII hereof, remove any Alteration, improvements, fixtures and other property which, pursuant to Section 8.02(5) Landlord has advised Tenant must be removed before the end of the Term. Where furnished by Tenant or at its expense, all moveable furnishings and trade fixtures shall remain Tenant's property, which Tenant may at no expense to Landlord remove before the end of the Term. Alterations, improvements, fixtures and other property, which Tenant is required pursuant to Section 8.02(5) or permitted to remove from the Premises and which remain on the Premises after the end of the Term, shall be deemed to be abandoned, and Landlord may, at Tenant's expense and without incurring any liability (as a bailee or otherwise) to Tenant, remove and dispose of the same in any fashion. 13 18 (c) Upon demand, Tenant shall promptly pay to Landlord as additional rent all reasonable direct costs (including reasonable attorneys' fees and expenses), Landlord incurs in connection with the removal of property from the Premises and the Building and the disposal thereof pursuant hereto, and the repair of any damage to the Premises or the Building occasioned thereby. 12.02 Holdover. If Tenant fails to surrender the Premises at the end of the Term, at Landlord's option the Tenant shall become a month-to-month tenant subject to all of the terms and conditions hereof, except that Tenant shall on account of such tenancy pay in advance on the first day of each calendar month, without demand therefor, a monthly rental equal to the greater of (i) two hundred percent (200%) of the aggregate amount of Base Rent plus Rent Adjustments in effect immediately preceding the end of the Lease Term, or (ii) the fair market rental value of the Premises, prorated on a monthly basis; provided that, notwithstanding the foregoing, during the first (1st) ninety (90) days of any such monthly tenancy, Tenant shall pay a monthly rental equal to the greater of (i) one hundred fifty percent (150%) of the aggregate amount of Base Rent plus Rent Adjustments in effect immediately preceding the end of the Lease Term, or (ii) the fair market rental value of the Premises. Such tenancy may be terminated by either party upon thirty (30) days prior notice. During such tenancy Landlord may with respect to any default hereunder exercise all rights and remedies provided for herein. Notwithstanding the foregoing, any time prior to Landlord's acceptance of rent from Tenant as a monthly tenant hereunder, Landlord, at its option, may forthwith re-enter and take possession of the Premises by any means permitted by law, TENANT HEREBY WAIVING ANY NOTICE TO QUIT; provided, however, that (i) Tenant shall pay Landlord as damages (but not as rent) the greater of the fair market value rent for the Premises or two (2) times (1.5 times, during the first 90 days of such holdover) the Base Rent plus all Additional Rent payable for the last month of the Term, for each month or portion thereof that Tenant remains in possession following the Expiration Date, and (ii) Tenant shall defend, indemnify and hold Landlord harmless from and against any and all claims, losses, liabilities or damages resulting from Tenant's failure to surrender possession of the Premises on the Expiration Date (including, but not limited to, claims made by any succeeding tenant). ARTICLE XIII QUIET ENJOYMENT; SUBORDINATION 13.01 Covenant of Quiet Enjoyment. Subject to all of the terms and conditions of this Lease, Tenant's interest in this Lease and possession of the Premises shall not be terminated during the Term by Landlord or any person claiming an interest in the Premises, the Building or the Land through Landlord. Neither Landlord's inability to perform Landlord's obligations hereunder (including the furnishing of utilities and HVAC) by virtue of any circumstance beyond Landlord's reasonable control nor the taking of any action in or around the Premises permitted hereunder, shall constitute an actual or constructive eviction of Tenant in whole or in part or provide any grounds (including an interruption or reduction in Tenant s business) for an abatement of rent or for Landlord's liability; provided that, notwithstanding the foregoing, if Landlord fails to provide HVAC or electric service to the Premises for a period in excess of five (5) consecutive business days, Landlord agrees to thereafter abate the Rent payable hereunder for so long as Tenant cannot and in fact does not use the Premises as a result of such failure. 14 19 13.02 Subordination. (a) This Lease shall be automatically subordinate to and bound by each underlying lease, deed of trust and mortgage (including all advances made thereunder at any time), and all amendments thereto and renewals, extensions, modifications, consolidations, replacements and transfers thereof (whether by sale, assignment, foreclosure or otherwise), now or hereafter affecting any portion of the Land, the Building or the Premises (in each case, a "Superior Instrument"). Tenant may not terminate this Lease, and this Lease shall remain in effect upon any sale or assignment or foreclosure upon, any portion of the Property pursuant to any Superior Instrument, or upon the termination of any Superior Instrument. Notwithstanding any other provision hereof, no holder of a Superior Instrument shall be liable for any act, omission or default of Landlord, subject to any offsets, claims or defenses which Tenant may have against Landlord, bound by any rent that Tenant paid to Landlord more than one (1) month in advance, or bound by any amendment, waiver or termination of this Lease, unless consented to by such holder in writing. If by virtue of Landlord's default Tenant may obtain an abatement of rent remedy such default or terminate this Lease, Tenant shall not exercise such right(s) unless Tenant first notifies each holder of a Superior Instrument (which notice may be given simultaneously with any notice Tenant gives to Landlord), which has furnished Tenant with its address, and such holder fails to initiate promptly and use reasonable efforts to cure such Landlord's default. If in connection with any financing of any portion of the Property or improvements thereto the holder of a Superior Instrument requires modifications to this Lease, Tenant shall not unreasonably withhold, delay or condition Tenant's consent to such modifications, so long as such modifications do not increase the rents payable by Tenant hereunder, reduce or extend the Term, reduce or increase the area of the Premises, or materially adversely affect Tenant's rights and obligations hereunder. The holder of a Superior Instrument may subordinate such Instrument to this Lease at any time and Tenant hereby consents to such subordination. Upon request Tenant shall execute, acknowledge and deliver in recordable form such instruments effecting such subordination. (b) Upon request of the holder or beneficiary of any Superior Instrument (each a "Lender"), Tenant shall agree in writing that no action taken by such holder or beneficiary to enforce said Superior Instrument shall terminate this Lease or invalidate or constitute a breach of any of the provisions hereof and Tenant will attorn to such Lender, or to any purchaser of the Budding or Property at any foreclosure sale or sale in lieu of foreclosure, for the balance of the Term of this Lease and on all other terms and conditions herein set forth. Tenant, by entering into this Lease, covenants and agrees that (a) upon the written direction of Lender it shall pay all rents arising under this Lease as directed by such Lender; and (b) in the event such Lender enforces its rights under the Superior Instrument due to a default by Landlord this Lease is not extinguished by a foreclosure of the Superior Instrument, and Tenant will upon request of any person succeeding to the interest of Landlord in the Property ("successor in interest") as the result of said enforcement, automatically attorn to such successor in interest, without any change in terms or other provisions of this Lease; provided, however, that said successor in interest shall not be: (i) bound by any payment of rent or additional rent for more than one month in advance, except payments in the nature of security (but only to the extent such payments have been delivered to such successor in interest); (ii) bound by any modifications to the Lease (including, but not limited to, any agreement providing for early termination or cancellation of the Lease) made without any requisite consent of the Lender or any such successor in interest; (iii) liable for damages for any act or omission of any prior landlord (including, but not limited to, Landlord); or (iv) subject to any offsets or defenses which Tenant might have against any prior landlord (including, but not limited to, Landlord). Notwithstanding the foregoing, Tenant shall retain any rights it may have to proceed against the original Landlord. 15 20 13.03 Subordination, Attornment and Non-Disturbance Agreement; Estoppel Certificate. Within ten (10) days after demand therefor by Landlord, the holder or beneficiary of any Superior Instrument or any of their successors in interest, Tenant shall execute, acknowledge and deliver in recordable form: (1) a Subordination, Attornment and Non-Disturbance Agreement and/or (2) an estoppel certificate substantially in the form of Exhibit G attached hereto. ARTICLE XIV FIRE OR CASUALTY; CONDEMNATION 14.01 Fire or Casualty. (a) The occurrence of any fire or other casualty shall constitute no basis for the termination of this Lease or any abatement of rent, except as expressly provided for herein. If the Building is damaged by fire or other casualty (whether or not the Premises are damaged) and if Landlord obtains a reasonable professional estimate that the cost of restoring the Building would exceed fifty percent (50%) of the full insurable value of the Building, Landlord may, by notice to Tenant within sixty (60) days after such fire or other casualty, terminate this Lease without incurring any liability to Tenant. If Landlord fails so to notify Tenant, Landlord shall use reasonable efforts to repair the Building (including the restoration of the demising walls of the Premises and Building services to the outside perimeter of the Premises) with reasonable dispatch, allowing for the adjustment and settlement of insurance claims, the preparation of plans and specifications, the obtaining of governmental approvals and certificates, the obtaining of contractors and laborers and any other delay. So long as Landlord restores the Building so it is suitable for substantially the same uses, Landlord shall not be obligated to duplicate the original construction or design of the Building. Landlord shall not be obligated to repair, restore or replace: (1) any property within the Premises; (2) any damage that occurs during the last year of the Term (as extended, if at all, pursuant to the exercise of any Renewal Option); or (3) any damage for the repair of which insurance proceeds are not available. Tenant shall cooperate fully with all repairs made to the Building (including removing Tenant's moveable property and trade fixtures from the Premises as soon as practicable to clear the way therefor). (b) Rents hereunder shall be abated during the period and to the extent that a material portion of the Premises is rendered untenantable because of a fire or other casualty. If more than thirty percent (30%) of the Premises is rendered untenantable by fire or other casualty and Landlord cannot, given Tenant's full cooperation, substantially complete such repairs so that the Premises are rendered substantially tenantable within one hundred eighty (180) days after such fire or other casualty, then Tenant may, by notice to Landlord, terminate this Lease with thirty (30) days of the date of such casualty. 14.02 Condemnation. (a) The occurrence of any condemnation or taking pursuant to the exercise of the power of eminent domain, or any sale in lieu thereof, shall constitute no basis for the termination of this Lease or any abatement of rent, except as expressly provided for herein. If the entire Premises are lawfully condemned or taken, this Lease shall terminate as of the date title vests 16 21 pursuant to such condemnation or taking, and Tenant shall have no claim for the value of the unexpired portion hereof. If fifteen percent (15%) or more of the Premises, or the means of access thereto, are lawfully condemned or taken, Tenant may, by notice to Landlord within thirty (30) days after the date title vest pursuant to such condemnation or taking, terminate this Lease. If any portion of the Premises is lawfully condemned or taken and this Lease is not terminated as provided herein, Tenant shall be entitled to a rent abatement with respect thereto, commencing the date title vests pursuant to such condemnation or taking. However, if any portion of the Premises is condemned or taken without compensation to effect compliance with any Legal Requirement and if such compliance is Tenant's obligation hereunder, Tenant shall be entitled to no rent abatement. If only a portion of the Building is lawfully condemned or taken and if such condemnation or taking would permit Landlord to terminate leases with respect to a significant portion of the leased space in the Building, Landlord may, by notice to Tenant within thirty (30) days after the date title vests pursuant to such condemnation or taking, terminate this Lease (whether or not the Premises are affected by such condemnation or taking). (b) Landlord shall receive the entire award made in each proceeding in connection with the condemnation or taking of the Building, the Premises or any portion thereof (including any award made for the value of Tenant's interest in this Lease or the Premises), and Tenant hereby assigns to Landlord any and all right, title and interest Tenant may have now or in the future to any such award or any part thereof Tenant may pursue a separate claim against the condemning authority, so long as such claim does not in any way diminish the award or compensation payable to or recoverable by Landlord in connection with such taking or condemnation. ARTICLE XV LANDLORD'S ACCESS, REPAIRS AND ALTERATIONS 15.01 Access, Repairs; Alterations. Tenant shall furnish Landlord with keys and other means of effecting entry into all portions of the Premises at all times. Upon prior notice to Tenant Landlord may enter the Premises from time to time to: (1) inspect, maintain, clean, repair, make alterations to and install equipment in the Premises (and for such purposes Landlord may bring into and store in the Premises reasonable quantities of equipment and materials); (2) comply with the demand of any person submitting reasonable evidence of a lawful purpose and a legal entitlement to access to the Premises; (3) show the Premises to potential purchasers and mortgagees of the Building; and (4) within the last twelve (12) months of the Term, show the Premises to prospective tenants. Landlord may change the arrangement and location of entrances, passageways, doorways, corridors, elevators, stairways, toilets and other parts of the Premises and the Building, so long as doing so will not substantially or materially adversely interfere with Tenant's access to the Premises. In any emergency, Landlord may without notice enter the Premises by any and all means which are reasonable under the circumstances and take all necessary or desirable measures to resolve the emergency. In resolving an emergency, Landlord shall not be liable for any damage to Tenant's property, so long as such damage is not caused by Landlord's gross negligence or willful misconduct in taking actions permitted by this Section, Landlord shall use reasonable efforts to accommodate Tenant, but shall not be obligated to incur overtime or premium costs. ARTICLE XVI INSURANCE; WAIVER OF CLAIMS; INDEMNITY 16.01 Insurance Generally. (a) Throughout the Term, Landlord and Tenant shall each obtain and maintain in effect the insurance coverages specified in this Article, by virtue of insurance policies underwritten only 17 22 by solvent insurance companies authorized to do business in the District of Columbia. The insurance policies that Tenant is required to carry hereunder shall: (1) be written as primary coverage and not contributing with or in excess of any coverages Landlord may carry, (2) contain an endorsement requiring each insurer to provide thirty (30) days prior written notice to Landlord before any cancellation or material change in the type or amount of any coverage thereunder, and (3) designate Landlord as an "additional insured" and, at Landlord's request, if available, include a standard mortgagee clause for the benefit of any person holding an insurable interest in the Premises or the Building. (b) Tenant shall give Landlord prompt notice and a detailed description of each event which might constitute the basis for a material claim under any of the insurance policies required to be carried hereunder. Tenant shall cooperate fully with Landlord in prosecuting and resolving all such claims. Whether or not Tenant fully complies with all of the provisions of this Article, the description of required insurance policies and related maximum coverage amounts set forth herein shall not operate to limit Tenant's liability under any provision of this Lease. On an annual basis, if requested by Landlord, Tenant shall promptly furnish Landlord certificates evidencing the insurance coverages required to be maintained hereunder and the payment of premiums therefor. (c) Tenant shall not act or fail to act, or permit any person under Tenant's reasonable control to act or fad to act, in any way which might invalidate or reduce any coverages or increase the premiums therefor under any insurance policies required to be carried hereunder or carried by Landlord with respect to the Property or the use or operation thereof. If any insurance carrier or board of underwriters determines that any such coverage shall be invalidated or reduced or premiums therefor shall be increased as a direct or indirect result of any act or omission of Tenant or any person under Tenant's reasonable control (whether or not such act or omission would otherwise constitute a default hereunder), Tenant shall promptly pay to Landlord as additional rent the costs of securing comparable coverages and the increased premiums. (d) Each party hereunder shall, at its own expense, cause each insurance policy that it obtains in connection with this Lease, the Premises or the Building to contain an endorsement providing that: (1) the issuer of such policy waives all rights of subrogation against the other party; and (2) such policy shall not be invalidated if the insured, prior to a loss, waives in writing all rights of recovery against any person for losses covered by such policy. 16.02 Casualty Insurance. Tenant shall maintain a commercial/comprehensive general liability policy with a limit of at least $3,000,000 per occurrence and $3,000,000 in the general aggregate and the following coverages: (1) a broad form, commercial liability endorsement; (2) endorsements covering premises/operations, independent contractors and host liquor liability; and (3) a broad form contractual liability endorsement insuring the performance of Tenant's indemnification obligations hereunder. 16.03 Property Insurance. Tenant shall carry all risk property insurance in such amounts as shall be sufficient to cover the repair, restoration and replacement of all Alterations, other improvements to the Premises and fixtures (including all such improvements and fixtures existing on the Commencement Date). Tenant shall carry such other insurance as Tenant may deem necessary or desirable to protect Tenant's property located in or around the Premises. Landlord shall have no obligation to insure the Premises or Tenant's property. Landlord shall obtain and maintain all risk property insurance in an amount equal to the full replacement cost of the Building. 18 23 16.04 Waiver of Claim. Each party hereunder hereby waives all rights of recovery against the other party for any claim, loss, injury or expense in connection with any property damage or loss, to the extent such claims are covered by casualty insurance maintained (or required hereby to be maintained) by the injured party, each party hereby agreeing to look only to its insurance policies for recovery in respect of any such property damage or suffered by it. Notwithstanding anything herein contained to the contrary, Landlord shall not be liable for any claim, loss, injury or expense (including any claim for compensation for reduction in the value of Tenant's leasehold or interest in the Premises, inconvenience or annoyance to Tenant, injury to Tenant's business or property, or, except as expressly set forth herein, rent abatement in connection with Landlord's taking any action permitted hereunder) in connection with this Lease, the Property, or Tenant's use or occupancy of the Premises. In any event Landlord's aggregate liability in connection with this Lease, the Property and Tenant's use and occupancy of the Premises shall be limited as set forth in Section 19.10 and in no event shall Landlord be liable for any indirect or consequential damages for any reason whatsoever. 16.05 Indemnity. Subject to the provisions of Section 16.04 above, Tenant hereby indemnifies and shall hold harmless and defend Landlord, its partners, directors, officers, employees, contractors and agents against all claim, liabilities, losses, injuries and expenses (including attorneys' fees and expenses and the costs of investigating and/or settlement claims) arising directly or indirectly out of. (1) the occurrence of any event within the Premises; (2) any act or omission of Tenant, its employees or agents, or any contractor performing work in or to, or any licensee operating within, the Premises; (3) alterations to, or installation or operation of equipment in, any portion of the Building or the Premises by Tenant or a Leasehold Transfer transferee; (4) any breach of Tenant's representations, warranties or covenants hereunder, or (5) any act or failure to act by Tenant or any Leasehold Transfer transferee invalidating or reducing any coverages under any insurance policies required to be carried hereunder or carried by Landlord with respect to the Property or the use or operation thereof. The foregoing indemnity shall not be applicable insofar as Landlord incurs a loss or expense through its gross negligence or willful misconduct. The provisions of this Section shall survive termination of Tenant's right of possession to the Premises and the end of the Term. 16.06 Landlord's Insurance. Landlord agrees to carry broad form fire and casualty insurance with respect to the Budding, in such amounts and form as required by Landlord's mortgagee with respect to the Building from time to time, but in all events in an amount sufficient to satisfy any insurance requirements. ARTICLE XVII [RESERVED] 19 24 ARTICLE XVIII INSOLVENCY; EVENTS OF DEFAULT; REMEDIES 18.01 Events of Insolvency. (a) "Event of Insolvency" means: (1) Tenant (including, with respect to Events of Insolvency, any guarantor of Tenant's obligations hereunder) becomes bankrupt or insolvent under any applicable federal, state or local state or rule of law (collectively, "Insolvency Laws"); (2) Tenant files a petition, or acquiesces in a petition filed, under any Insolvency Law; (3) an involuntary petition is filed against Tenant under any Insolvency Law, which is neither dismissed within sixty (60) days after such filing or results in the issuance of an order for relief against Tenant whichever occurs earlier; (4) a receiver or trustee is appointed for, or a foreclosure action is instituted upon, all or a substantial portion of Tenant's property or assets; or (5) Tenant makes or consents to an assignment or other conveyance in trust for the benefit of creditors. (b) This Lease shall not be considered an asset of Tenant's estate in bankruptcy or insolvency. Upon an Event of Insolvency, Landlord may by notice to Tenant terminate this Lease; provided that Tenant shall remain liable for all rents and other damages payable hereunder without prejudice to Landlord's right in any proceeding under any Insolvency Law to prove and obtain as liquidated damages the maximum such amount permitted thereby; and provided, further, that if, by virtue of any Insolvency Law, Landlord is not permitted to enforce such termination, the following provisions shall apply, to the extent enforceable: (1) If there is an uncured default under this Lease, no receiver or trustee may assume and retain, or assign, this Lease unless at the time of such assumption or assignment the receiver or trustee (x) cures such default or provides adequate assurance to Landlord's reasonable satisfaction that such default will be cured promptly, (y) compensates, or provides adequate assurance to Landlord's reasonable satisfaction that such receiver or trustee will promptly compensate, Landlord for any actual pecuniary loss incurred by Landlord as a result of such default, and (z) provides adequate assurance to Landlord's reasonable satisfaction of the future performance of all of Tenant's obligations under this Lease. (2) No receiver or trustee may require Landlord to furnish any services or supplies required to be furnished under this Lease unless (x) Landlord is compensated therefor before such services or supplies are furnished, or (y) such receiver or trustee assumes this Lease as provided in clause (1) above. 18.02 Events of Default. The occurrence of an Event of Default shall constitute a breach of Tenant's obligations hereunder. "Event of Default" shall mean any of the following: (a) the failure to pay Landlord an installment of Base Rent or any Rent Adjustment within five (5) days after notice to Tenant of the failure to make such payment when due, or the failure to make any other payment of additional rent within five (5) days after Landlord's second demand therefor, (b) the transfer by operation of law or otherwise of any portion of Tenant's interest herein or in any portion of the Premises to any person other than as expressly permitted hereunder, 20 25 (c) by virtue of Tenant's interest herein or occupancy of the Premises or any act or omission of Tenant, its employees, agents, contractors, invitees or licensees, or any transferee under a Leasehold Transfer, any portion of the Property or Landlord's interest therein becomes subject to any claim, lien or other encumbrance which is not irrevocably released and removed of record at no expense to Landlord within thirty (30) days thereafter, (d) the failure to maintain insurance in the amounts and coverages required to be maintained by Tenant hereunder, (e) the abandonment or vacating of the Premises for a continuous period of thirty (30) days or more, except as expressly permitted hereunder, provided that, abandonment of the Premises shall not be deemed an Event of Default if (i) Tenant notifies Landlord in writing of Tenant's intent to vacate or abandon not less than thirty (30) days in advance, (ii) Tenant obtains and provides to Landlord prior to vacating all necessary endorsements required to ensure that Tenant's insurance with respect to the Premises shall remain in full force and effect notwithstanding such abandonment, (iii) Tenant takes all commercially reasonable steps necessary to secure the Premises against unauthorized entry during the period of such vacancy or abandonment, and (iv) Tenant indemnifies Landlord against any claim, cost, damage, expense, fee, liability or suit arising from or out of, or in connection with, such vacating or abandonment. (f) the occurrence of any breach of any of Tenant's representations, warranties or covenants hereunder (excluding the Events of Default described above) or of a material breach under any other agreement between Landlord and Tenant relating to the Premises or under any other lease between Tenant and Landlord: (1) which breach is not cured within thirty (30) days thereafter, or (2) if such breach cannot be cured with reasonable efforts within such thirty-day period and if extending the cure period will not (i) subject Landlord to the risk of a civil claim or criminal liability or the Property to any claim or encumbrance, or (ii) result in the termination or impairment of any Superior Instrument, the failure of Tenant to initiate the cure thereof within such thirty-day period and to continuously and diligently prosecute the same to completion; or (g) the occurrence more than twice in any twelve-month period of any event which would have constituted an Event of Default but for the curing thereof within the applicable grace period provided for herein. 18.03 Remedies; Waivers. (a) In the event of any breach of any of Tenant's representations, warranties or covenants hereunder, Landlord may pursue any and all remedies available at law or in equity. Upon demand, Tenant shall pay Landlord as additional rent: (1) all damages, losses and expenses Landlord reasonably incurs as the result of each such breach, including (i) reasonable attorneys' fees and expenses in enforcing Landlord's rights and remedies hereunder, and (ii) in connection with any attempt by Landlord to re-let the Premises, attorneys' fees and expenses, advertising costs, brokerage commissions, lease concessions, improvement allowances, architects' and engineers' fees and expenses; and (2) the aggregate amount of all abatements of Base Rent, tenant allowances under the Work Letter and all other concessionary payments to Tenant. (b) Upon the occurrence of an Event of Insolvency or Event of Default, Landlord may, without incurring any liability to Tenant: (1) by notice to Tenant terminate this Lease; or (2) with or without terminating this Lease and without notice to Tenant to quit or making a demand for rent or possession (such notices and demands being hereby waived by Tenant), enter into and take 21 26 possession of the Premises pursuant to summary dispossession proceedings or any other action at law. Without limiting whatsoever any of its rights and remedies hereunder, Landlord may retain all monies (including the Security Deposit) that Tenant has paid, and shall credit the same against rents payable hereunder. Landlord shall use reasonable efforts to re-let the Premises for Tenant's benefit, in which event Landlord shall credit against rent payable hereunder, but only to the extent thereof, the rent Landlord collects on or before the Expiration Date from such reletting. (c) Landlord may initiate legal proceedings against Tenant at any time and from time to time to recover any and all rent due hereunder, and the bringing of any such proceedings shall not preclude Landlord from bringing, simultaneously and in the future, other proceedings against Tenant in connection with this Lease. No provision of this Lease shall be deemed to require Landlord to postpone any legal or equitable proceedings until the end of the Term. Tenant hereby waives all rights of redemption available under any present or future law, regardless of the grounds that might support any claim to such rights. Landlord and Tenant hereby waive trial by jury in any action, proceeding or counterclaim arising in connection with this Lease, the relationship of Landlord and Tenant, or Tenant's use or occupancy of the Premises. 18.04 Intentionally Deleted. 18.05 Late Payments; Interest. Tenant shall promptly pay to Landlord as additional rent with respect to any amount due hereunder and not paid interest accruing at an annual rate equal to the lesser of eighteen percent (18%) and the maximum rate, if any, that Landlord may charge Tenant under applicable law (the "Interest Rate"), from the date upon which such amount is due (as specified herein with respect to installment payments and, with respect to other rent payments, as specified in Landlord's demand to Tenant for payment as provided for herein). If Tenant shall fail to pay any installment of Base Rent, Real Estate Taxes, Operating Expenses, or annual Base Rent Adjustments when due and payable as provided for herein, a five percent (5%) late charge shall be added to each such late installment. 18.06 Landlord's Right to Cure Defaults. Upon a breach of any of Tenant's obligations hereunder, Landlord may, at Tenant's expense and without limiting Tenant's liability for such breach and without incurring any liability to Tenant, take all necessary or desirable actions (including entering the Premises) to cure such breach. Upon demand, Tenant shall pay to Landlord as additional rent (1) all direct and indirect costs (including the fees and disbursements of attorneys, architects and engineers and Landlord's customary overhead, profit and costs of general conditions) Landlord incurs in taking such actions, together with (2) interest thereon, which interest shall accrue at the Interest Rate from the date Landlord incurs such costs. ARTICLE XIX MISCELLANEOUS 19.01 Rules and Regulations. Tenant shall comply, and cause all persons under Tenant's reasonable control to comply, with the rules and regulations set forth in Exhibit H attached hereto and such additional rules and regulations as Landlord may reasonably adopt (collectively, the "Rules and Regulations"). If any of the Rules and Regulations conflict with the provisions of this Lease, the provisions of the lease shall control. Landlord shall not be required to enforce, and shall not be liable for fading to enforce, the Rules and Regulations against any other tenant in the Building, and 22 27 Landlord's failure to enforce the Rules and Regulations against any such tenant shall not constitute a waiver of Tenant's obligations hereunder. 19.02 Brokerage. Tenant represents and wan-ants that neither it nor its employees nor agents have dealt with any broker or finder other than Cushman and Wakefield of Washington, D.C., Incorporated ("Landlord's Broker") and Spaulding & Slye ("Tenant's Broker") (collectively the "Brokers") in connection with this Lease or the transactions contemplated hereby. Landlord shall have no obligation to compensate the Brokers, other than the compensation Landlord shall pay to Landlord's Broker pursuant to the separate agreement between Landlord's Broker and Landlord. By executing this Lease, Tenant's Broker releases Landlord from all claims whatsoever in connection with the negotiation and execution of this Lease and all options Tenant may exercise hereunder. Tenant's Broker agrees to look to Landlord's Broker for compensation pursuant to a separate agreement between Landlord's Broker and Tenant's Broker. 19.03 Transfers of Title. If title to the Building or any other portion of the Property is transferred or the leasehold estate in the entire Building becomes vested in another person (whether voluntarily or by operation of law), thereafter and upon notice to Tenant and the delivery of the Security Deposit if any, to the transferee, the transferor shall be entirely released from and relieved of all existing and future covenants, obligations and liabilities hereunder so long as transferee is obligated to perform all of Landlord's obligations hereunder. The provisions of this Section shall be self-executing and deemed to be a covenant running with the land. 19.04 Notices. (a) Any notice, demand, consent, approval disapproval or statement (collectively, "Notices") required or permitted to be given hereunder or any applicable law shall be in writing and shall be deemed duly given when personally delivered or deposited in the mail (postage prepaid, registered or certified mail) or with an overnight courier service, in each case with return receipt requested addressed as follows (or pursuant to such other address as any party may specify upon ten (10) days prior Notice): If to Landlord: Washington Design Center L.L.C. 300 D Street, S.W. Washington, D.C. 20024 Attention: Vice President, Property Manager and Merchandise Mart Properties, Inc. 222 Merchandise Mart Plaza Room 470 Chicago, IL 60654 Attention: Executive Vice President, Chief Operating Officer 23 28 If to Tenant prior to the Rent Commencement Date: Spacehab, Incorporated 1595 Springhill Road Suite 360 Vienna, Virginia 22182 Attention: Director, Human Resources; and If to Tenant after the Rent Commencement Date: Spacehab, Incorporated 300 D Street, S.W. Suite 814 Washington, D.C. 20024 Attention: Director, Human Resources. (b) A Notice shall be deemed received: (1) if delivered, as of the date of delivery as indicated by affidavit, if personally delivered, or return receipt, if delivered by mail or overnight courier, or (2) if not delivered because of a changed address of which no Notice was given or a refusal to accept delivery, as of the date such delivery was attempted but unsuccessful as indicated by affidavit, if personal delivery was attempted, or return receipt, if delivery by mail or overnight courier was attempted. (c) Where this Lease provides for a specified period of time for providing notice, taking action, etc., and the end of such period, as specified, would occur on a day that is a holiday, the end of such period shall be deemed to occur on the immediately following business day that is not a holiday. 19.05 Interpretation. (a) "Person" means any individual or entity, private or governmental, having substance under any applicable law. "Including" means "including without limitation." "Landlord" means only the owner, the mortgagee in possession or the lessor, for the time being, of the Building. "Tenant" means the party executing this Lease as tenant and each transferee pursuant to a permitted Leasehold Transfer. "Hereof," "herein" and "hereunder" and other compounds of "here" refer to this Lease in its entirety, unless otherwise expressly specified. The "end of the Term," the "expiration of the Term," and "termination of this Lease" are used interchangeably to mean the termination of this Lease, whether pursuant hereto, by agreement or by operation of law. The captions appearing herein are for convenience and identification only and shall not define or limit the scope of any provision hereof. Words and pronouns shall be deemed to include any gender and number as the context may require. The Addendum and all exhibits attached hereto are incorporated herein by reference and made a part hereof (b) Except as expressly set forth herein, neither Landlord nor its employees nor agents has made any representations or warranties concerning the Premises, the Building, the operation thereof, the surrounding vicinity, or Tenant's ability or prospects for carrying out any business by virtue of Tenant's occupancy of the Premises. This Lease contains the entire agreement between the parties as of the date hereof. This Lease cannot be modified, or any term or condition hereof waived, except by a written instrument executed by the party against whom enforcement of the modification or waiver is sought. 24 29 (c) The laws of the District of Columbia shall govern the validity, enforcement and interpretation of this Lease. If any provision of this Lease or the application thereof is held invalid or unenforceable, the other provisions hereof shall not be affected thereby and shall be enforced to the extent possible. 19.06 Successors and Assigns. This Lease shall not give rise to any rights for the benefit of any persons other than the parties hereto. This Lease shall bind and inure to the benefit of the parties hereto and their respective heirs, administrators, successors and assigns; provided, however, that no transferee of Tenant's interest herein or in the Premises shall be entitled to any benefit of this Lease except pursuant to a permitted Leasehold Transfer. 19.07 Cumulative Rights and Remedies. The rights and remedies provided for hereunder are cumulative, and the exercise of any one right or remedy by a party hereto shall not preclude or waive such party's recourse to any or all other rights and remedies available at law or in equity. 19.08 Counterpart. This Lease may be executed in one or more counterparts, each of which shall be fully effective as an original, and together all such counterparts shall constitute the same instrument. 19.09 Rule Against Perpetuities. If this Lease has not been previously terminated pursuant to the terms and provisions contained herein, and if the term of this Lease and/or the Commencement Date has not occurred within five (5) years from the date hereof, then and in that event this Lease shall thereupon become null and void and have no further force and effect. 19.10 Authority/Limitation of Landlord's Liability. (a) Landlord has appointed Merchandise Mart Properties, Inc. ("MMPI"), as its authorized signatory to execute this Lease. Tenant acknowledges that MMPI will not be acting in a personal capacity, but rather in a representative capacity as the authorized signatory for Landlord. Tenant agrees that it shall look only to Landlord, subject to the provisions of Section 19.10(b), for the performance of Landlord's obligations under this Lease and for the satisfaction of any right of Tenant for the collection of any claim, judgment or other judicial determinations (whether at law or in equity) or arbitration award requiring the payment of money, and neither MMPI nor any of its agents, incorporators, shareholders, beneficiaries, trustees, officers, directors, employees, partners, principals (disclosed or nondisclosed) or affiliates or any of their respective assets or property shall be subject to any claim, judgment, levy, lien, execution, attachment or other enforcement procedure (whether at law or in equity) for the satisfaction of Tenant's rights and remedies under or with respect to this Lease or under law, or Tenant's use and occupancy of the Premises or any liability or obligation of Landlord to Tenant. The limitation of MMPI's liability under this Lease, including any waiver of subrogation rights, shall apply with equal force and effect to, and as a limitation on and a waiver of any liability of MMPI. (b) Tenant agrees to look solely to Landlord's interest in the Property for the enforcement or payment of any judgment, award, order or other remedy under or in connection with this Lease or any related agreement, instrument or document or in respect of any matter whatsoever relating to this Lease, the Premises or the Property. No other assets of Landlord (or any assets of any partners, beneficiaries, managers, members, stockholders, officers, employees or agents of Landlord) shall be subject to levy, execution or other procedures for the satisfaction of Tenant's remedies. No personal liability is assumed by, nor shall at any time be asserted or enforceable against Landlord, its 25 30 members, any successor owner or their respective successors or assigns or the members, partners, beneficiaries, officers, directors, employees, shareholders or partners thereof, or the agents or employees of any of them on account of this Lease or any covenant, undertaking or agreement of Landlord in this Lease contained. 19.11 Affirmative Action Program. Tenant acknowledges receipt of a copy of Section III of the Affirmative Action Program submitted with respect to the Building (the same being attached hereto as Exhibit J). Tenant is not a party to this program and this Lease is not subject to the terms thereof. Nonetheless, Landlord encourages Tenant to utilize the procedures contained in said Section III regarding the dissemination of employment information. IN WITNESS WHEREOF, each of the undersigned has caused its duly authorized representative to execute this Lease under seal as of the date first written above. LANDLORD WASHINGTON DESIGN CENTER L.L.C. By: Merchandise Mart Properties, Inc., agent --------------------------------------- TENANT SPACEHAB, INCORPORATED By: [SEAL] --------------------------------------- ---------------------------------------- General Counsel ---------------------------------------- BROKER Accepted and agreed to only for the purposes of Section 19.02 hereof CUSHMAN & WAKEFIELD OF WASHINGTON, D.C., INCORPORATED By: [SEAL] --------------------------------------- DIRECTOR --------------------------------------- --------------------------------------- 26 31 SPAULDING & SLYE By: [SEAL] --------------------------------------- --------------------------------------- --------------------------------------- 27 EX-10.101 13 LEASE 1 EXHIBIT 10.101 [LOGO] TEXAS ASSOCIATION OF REALTORS(R) COMMERCIAL LEASE This lease agreement is made and entered into by and between Computer Extension Systems, Inc. (Landlord) and Johnson Engineering, Inc. (Tenant). Landlord hereby leases to Tenant and Tenant hereby leases from Landlord that certain property with the improvements thereon, containing approximately ____ square feet, hereinafter called the "leased premises", known as 16850 Titan Drive, Houston, Texas 77058 (address), Lot ____, Block ____, ________________ Addition, City of Houston, Harris County, Texas; or as more particularly described below or on attached exhibit: Approximately 13,357 square feet (See attached Exhibit A "Leased Premises") The primary term of this lease shall be 24 months commencing on the 1st day of August, 1999, and ending on the last day of July, 2001, upon the following terms, conditions, and covenants: 1. TAXES. Each year during the term of this lease, Landlord shall pay real estate taxes assessed against the leased premises in an amount equal to the total real estate taxes assessed against the leased premises in the base year. Each year during the term of this lease, Tenant shall pay as additional rental, upon receipt of a statement from Landlord together with tax statements or other verification from the proper taxing authority, his pro rata share of any increase in real estate taxes over the base year on the property of which the leased premises is a part. Any increase in real estate taxes for a fractional year shall be prorated. The base year shall be 1999. 2. UTILITIES. Tenant shall pay all charges for utility services to the leased premises except for a pro rata share which shall be paid by the Landlord. 3. HOLDING OVER. Failure of Tenant to surrender the leased premises at the expiration of the lease constitutes a holding over which shall be construed as a tenancy from month to month at a rental of $11,991 per month. 4. RENT. Tenant agrees to and shall pay Landlord at 16580 Titan Drive, County of Harris, Texas, or at such other place Landlord shall designate from time to time in writing, as rent for the leased premises, the total sum of $191,856.00 payable without demand in equal monthly payments of $7,994.00 each in advance on or before the 1st day of each month, commencing on August 1, 1999, and continuing thereafter until the total sum shall be paid. Adjustment to the rent, if any, for rent escalators, for percentage of net rent, or for increases in building operation costs (including but not limited to insurance, custodial services, maintenance and utilities) shall be as set forth in an attached addendum. Rent received after the first day of the month shall be deemed delinquent. If rent is not received by Landlord by the 10th of each month, Tenant shall pay a late charge of $25.00 plus a penalty of $10.00 per day until rent is received in full. Tenant shall pay $25.00 for each returned check. 2 5. USE. Tenant shall use the leased premises for the following purpose and not other: Production and warehousing of space flight materials and office support. 6. SECURITY DEPOSIT. Tenant shall pay to Landlord a security deposit in the sum of $7,994.00, payable on or before the commencement of this lease for Tenant's faithful performance hereunder. Refund thereof shall be made upon performance of this lease agreement by Tenant, minus any assessments or damages unless Landlord and Tenant provide otherwise in Special Provisions. 7. INSURANCE. Landlord shall pay for fire and extended coverage insurance on the buildings and other improvements on the leased premises in an amount not less than $500,000.00, which amount shall be increased yearly in proportion to the increase in market value of the premises. If Landlord provides any insurance herein, Tenant shall pay to Landlord, during the term hereof, the amount of any increase in premiums for the insurance required over and above such premiums paid during the first year of this lease. Tenant shall provide public liability and property damage insurance for its business operations on the leased premises in the amount of $100,000.00 which policy shall cover the Landlord as well as the Tenant. Said insurance policies required to be provided by Tenant herein shall name Landlord as an insured and shall be issued by an insurance company approved by Landlord. Tenant shall provide Landlord with certificates of insurance evidencing the coverage required herein. Tenant shall be solely responsible for fire and casualty insurance on Tenant's property on or about the leased premises. If Tenant does not maintain such insurance in full force and effect, Landlord may notify Tenant of such failure and if Tenant does not deliver to Landlord within 10 days after such notice certification showing all such insurance to be in full force and effect, Landlord may at his option, take out the necessary insurance to comply with the provision hereof and pay the premiums on the items specified in such notice, and Tenant covenants thereupon on demand to reimburse and pay Landlord any amount so paid or expended in the payment of the insurance premiums required hereby and specified in the notice, with interest thereon at the rate of 10 percent per annum from the date of such payment by Landlord until repaid by Tenant. 8. CONDITION OF PREMISES. Tenant has examined and accepts the leased premises in its present as is condition as suitable for the purposes for which the same are leased, and does hereby accept the leased premises regardless of reasonable deterioration between the date of this lease and the date Tenant begins occupying the leased premises unless Landlord and Tenant agree to repairs or refurbishment as noted in Special Provisions. 9. MAINTENANCE AND REPAIRS. Landlord shall keep the foundation, the exterior walls (except glass; window; doors; door closure devices; window and door frames, molding, locks, and hardware; and interior painting or other treatment of exterior walls), and the roof of the leased premises in good repair except that Landlord shall not be required to make any repairs occasioned by the act or negligence of Tenant, its employees, subtenants, licensees and concessionaires. Landlord is responsible for maintenance of the common area and common area equipment. If Landlord is responsible for any such repair and maintenance, Tenant agrees to give Landlord written 2 3 notice of needed repairs. Landlord shall make such repairs within a reasonable time. Tenant shall notify Landlord immediately of any emergency repairs. Tenant shall keep the leased premises in good, clean condition and shall at its sole cost and expense, make all needed repairs and replacements, including replacement of cracked or broken glass, except for repairs and replacements required to be made by Landlord under this section. If any repairs required to be made by Tenant hereunder are not made within ten (10) days after written notice delivered to Tenant by Landlord, Landlord may at its option make such repairs without liability to Tenant for any loss or damage which may result by reason of such repairs, and Tenant shall pay to Landlord upon demand as additional rent hereunder the cost of such repairs plus interest. At the termination of this lease, Tenant shall deliver the leased premises in good order and condition, reasonable wear and tear excepted. 10. ALTERATIONS. All alterations, additions and improvements, except trade fixtures, installed at expense of Tenant, shall become the property of Landlord and shall remain upon and be surrendered with the leased premises as a part thereof on the termination of this lease. Such alterations, additions, and improvements may only be made with the prior written consent of Landlord, which consent shall not be unreasonably withheld. If consent is granted for the making of improvements or alterations to the leased premises, such improvements and alterations shall not commence until Tenant has furnished to Landlord a certificate of insurance showing coverage in an amount satisfactory to Landlord protecting Landlord from liability for injury to any person and damage to any personal property, on or off the leased premises, in connection with the making of such improvements or alterations. No cooling tower, equipment, or structure of any kind shall be placed on the roof or elsewhere on the leased premises by Tenant without prior written permission of Landlord. If such permission is granted, such work or installation shall be done at Tenant's expense and in such a manner that the roof shall not be damaged thereby. If it becomes necessary to remove such cooling tower, equipment or structure temporarily, so that repairs to the roof can be made, Tenant shall promptly remove and reinstall the cooling tower, equipment or structure at Tenant's expense and shall repair at Tenant's expense any damage resulting from such removal or reinstallation. Upon termination of this lease, Tenant shall remove or cause to be removed from the roof any cooling tower, equipment or structure if directed to do so by Landlord. Tenant shall promptly repair at its expense any damages resulting from such removal. At the termination of this lease, Tenant shall deliver the leased premises in good order and condition, natural deterioration only excepted. Any damage caused by the installation or removal of trade fixtures shall be repaired at Tenant's expense prior to the expiration of the lease term. All alterations, improvements, additions, and repairs made by Tenant shall be made in good and workmanlike manner. 11. COMPLIANCE WITH LAWS AND REGULATIONS. Tenant shall, at its own expense, comply with all laws, orders, and requirements of all governmental entities with reference to the use and occupancy of the leased premises. Tenant and Tenant's agents, employees and invitees shall fully comply with any rules and regulations governing the use of the building or other improvements to the leased premises as required by Landlord. Landlord may make reasonable changes in such rules and 3 4 regulations from time to time as deemed advisable for the safety, care and cleanliness of the leased premises, provided same are in writing and are not in conflict with this lease. 12. ASSIGNMENT AND SUBLETTING. Tenant shall not assign this lease nor sublet the leased premises or any interest therein without first obtaining the written consent of Landlord. An assignment or subletting without the written consent of Landlord shall be void and shall, at the option of Landlord, terminate this lease. (Landlord consent shall not be unreasonably withheld.) 13. DESTRUCTION. In the event the leased premises is partially damaged or destroyed or rendered partially unfit for occupancy by fire or other casualty, Tenant shall give immediate notice to Landlord. Landlord may repair the damage and restore the leased premises to substantially the same condition as immediately prior to the occurrence of the casualty. Such repairs shall be made at Landlord's expense unless due to Tenant's negligence. Landlord shall allow Tenant a fair reduction of rent during the time the leased premises are partially unfit for occupancy. If the leased premises are totally destroyed or deemed by the Landlord to be rendered unfit for occupancy by fire or other casualty, or if Landlord shall decide not to repair or rebuild, this lease shall terminate and the rent shall be paid to the time of such casualty. 14. TENANT DEFAULT. If Tenant abandons the premises or otherwise defaults in the performance of any obligations or covenants herein, Landlord may enforce the performance of this lease in any manner provided by law. This lease may be terminated at Landlord's discretion if such abandonment or default continues for a period of 10 days after Landlord notifies Tenant of such abandonment or default and of Landlord's intention to declare this lease terminated. Such notice shall be sent by Landlord to Tenant at the leased premises by certified mail or otherwise. If Tenant has not completely removed or cured default within the 10 day period, this lease shall terminate. Thereafter, Landlord or its agents shall have the right, without further notice or demand, to enter the leased premises and remove all persons and property without being deemed guilty of trespass and without waiving any other remedies for arrears of rent or breach of covenant. Upon abandonment or default by Tenant, the remaining unpaid portion of the rental from paragraph 4 herein, shall become due and payable. 15. LIEN. Landlord is granted an express contractual lien, in addition to any lien provided by law, and a security interest in all property of Tenant found on the leased premises to secure the compliance by Tenant with all terms of this lease. In the event of default, Landlord or its agents may peaceably enter the leased premises and remove all property and dispose of same as Landlord shall see fit. 16. SUBORDINATION. Landlord is hereby irrevocably vested with full power and authority to subordinate this lease to any mortgage, deed of Trust, or other lien hereafter placed on the demised premised and Tenant agrees on demand to execute such further instruments subordinating this lease as Landlord may request, provided such subordination shall be on the express condition that this lease shall be recognized by the mortgagee, and the rights of Tenant shall remain in full force and effect during the term 4 5 of this lease so long as Tenant shall continue to perform all of the covenants and conditions of this lease. 17. INDEMNITY. Landlord and its employees and agents shall not be liable to Tenant or to Tenant's employees, patrons, visitors, invitees, or any other persons for any injury to any such persons or for nay damage to personal property caused by an act, omission, or neglect of Tenant or Tenant's agents or of any other tenant of the premises of which the leased premises is a part. Tenant agrees to indemnify and hold Landlord and its employees and agents harmless from any and all claims for such injury and damages, whether the injury occurs on or off the leased premises. 18. SIGNS. Tenant shall not post or paint any signs at, on, or about the leased premises or paint the exterior walls of the building except with the prior written consent of the Landlord. Landlord shall have the right to remove any sign or signs in order to maintain the leased premises or to make any repairs or alterations thereto. 19. TENANT BANKRUPTCY. If Tenant becomes bankrupt or makes voluntary assignment for the benefits of creditors or if a receiver is appointed for Tenant, Landlord may terminate this lease by giving five (5) days written notice to Tenant of Landlord's intention to do so. 20. CONDEMNATION. If the whole or any substantial par of the leased premises is taken for any public or quasi-public use under any governmental law, ordinance or regulation or by right of eminent domain or should the leased premises be sold to a condemning authority under threat of condemnation, this lease shall terminate and the rent shall be abated during the unexpired portion of the lease effective from the date of the physical taking of the leased premises. 21. BROKER'S FEE. ZANN COMMERCIAL BROKERAGE, INC. Broker and CB RICHARD ELLIS Co-Broker, as Real Estate Broker (the Broker) has negotiated this lease and Landlord agrees to pay Broker in Harris County, Texas, upon commencement of this lease, a negotiated fee of $________ or 6% of the total rental provided for in this lease to be divided as follows: 4% to co-broker, 2% to broker. In the event this lease is extended, expanded or renewed, Landlord agrees to pay Broker an additional negotiated fee of $________ or 4% of the total rental for such extension, expansion or renewal period, payable at the time of commencement of such extension, expansion or renewal, said fee to be divided as follows: 3% to co-broker, 1% to broker. Tenant warrants that it has had no dealings with any real estate broker or agents in connection with the negotiation of this lease excepting only CB RICHARD ELLIS and it knows of no other real estate broker or agent who is entitled to a commission in connection with this Lease. If Tenant during the term of this Lease, or any extension, expansion or renewal period thereof, or within 180 days of the expiration of this Lease, or any extension, expansion or renewal period thereof, purchases the property herein leased, Landlord agrees to pay Broker,_________________ in Harris County, Texas, a negotiated fee of $__________ or 6% of the sales price upon closing of the sale of this property. 5 6 22. NOTICES. Notices to Tenant shall be by certified mail or other delivery to the leased premises. Notices to Landlord shall be by certified mail to the place where rent is payable. 23. DEFAULT BY LANDLORD. In the event of breach by Landlord of any covenant, warranty, term or obligation of this lease, then Landlord's failure to cure same or commence a good faith effort to cure same within 10 days after written notice thereof by Tenant shall be considered a default and shall entitle Tenant either to terminate this lease or cure the default and make the necessary repairs and any expense incurred by Tenant shall be reimbursed by the Landlord after reasonable notice of the repairs and expenses incurred. If any utility services furnished by Landlord are interrupted and continue to be interrupted despite the good faith efforts of Landlord to remedy same, Landlord shall not be liable in any respect for damages to the person or property of Tenant or Tenant's employees, agents, or guests, and same shall not be construed as grounds for constructive eviction or abatement of rent. Landlord shall use reasonable diligence to repair and remedy such interruption promptly. 24. SIGNS. During the last 90 days of this lease, a "For Sale" sign and/or a "For Lease" sign may be displayed on the leased premises and the leased premises may be shown at reasonable times to prospective purchasers or tenants. 25. RIGHT OF ENTRY. Landlord shall have the right during normal business hours to enter the demised premises; a) to inspect the general condition and state of repair thereof, b) to make repairs required or permitted under this lease, or c) for any other reasonable purpose. 26. WAIVER OF BREACH. The waiver by Landlord of any breach of any provision of this lease shall not constitute a continuing waiver or a waiver of any subsequent breach of the same or a different provision of this lease. 27. TIME OF ESSENCE. Time is expressly declared to be of the essence in this lease. 28. BINDING OF HEIRS AND ASSIGNS. Subject to the provisions of this lease pertaining to assignment of the Tenant's interest, all provisions of this lease shall extend to and bind, or inure to the benefit not only of the parties to this lease but to each and every one of the heirs, executors, representatives, successors, and assigns of Landlord or Tenant. 29. RIGHTS AND REMEDIES CUMULATIVE. The rights and remedies by this lease agreement are cumulative and the use of any one right or remedy by either party shall not preclude or waive its right to use any or all other remedies. Said rights and remedies are given in addition to any other rights the parties may have by law, statute, ordinance, or otherwise. 30. TEXAS LAW TO APPLY. This agreement shall be construed under and in accordance with the laws of the State of Texas. 6 7 31. LEGAL CONSTRUCTION. In case any one or more of the provisions contained in this agreement shall for any reason be held to be invalid, illegal, or unenforceable in any respect, such invalidity, illegality, or unenforceability shall not affect any other provision hereof and this agreement shall be construed as if such invalid, illegal, or unenforceable provision had never been contained herein. 32. PRIOR AGREEMENTS SUPERCEDED. This agreement constitutes the sole and only agreement of the parties to this lease and supersedes any prior understandings or written or oral agreements between the parties respecting the subject matter of this lease. 33. AMENDMENT. No amendment, modification, or alteration of the terms hereof shall be binding unless it is in writing, dated subsequent to the date hereof, and duly executed by the parties. 34. ATTORNEY'S FEES. Any signatory to this lease agreement who is the prevailing party in any legal proceeding against any other signatory brought under or with relation to this lease agreement or this transaction shall be additionally entitled to recover court costs, reasonable attorney fees, and all other out-of-pocket costs of litigation, including deposition, travel and witness costs, from the nonprevailing party. 35. SPECIAL PROVISIONS. (This section to include additional factual data not included above.) See attached Exhibit B SPECIAL PROVISIONS EXECUTED this ____ day of __________, 19___. TENANT or TENANTS LANDLORD COMPUTER EXTENSION SYSTEMS, INC. - ------------------------------ --------------------------------- /s/ /s/ Kurt Wagner, President REAL ESTATE BROKER REAL ESTATE BROKER CB RICHARD ELLIS ZANN COMMERCIAL BROKERAGE, INC. License No. 0433521 By:___________________________ By:______________________________ [Note: This form has been prepared by Babb & Hanna, P.C., attorneys for the Texas Association of REALTORS (TAR). Babb & Hanna, P.C. has approved this form for use by TAR member brokers and salespersons for the purpose of leasing improved commercial real property for business purposes. This form has not been drafted for a specific transaction, therefore, the parties are advised to consult an attorney of their choice before signing.] 7 EX-10.102 14 LEASE 1 EXHIBIT 10.102 AGREEMENT OF SALE AND PURCHASE OF LEASEHOLD INTEREST between EASTERN AMERICAN TECHNOLOGIES CORPORATION (formerly known as Eastern American Teak Corporation), as Seller and SPACEHAB, INCORPORATED, as Buyer 2 Table of Contents
Page ---- 1. Agreement to Sell and Purchase............................................ 1 2. Purchase Price............................................................ 1 3. Closing................................................................... 1 4. Documents to be Delivered at Closing by Seller............................ 2 5. Documents to be Delivered at Closing by Buyer............................. 2 6. Representations and Warranties of Seller.................................. 2 7. Survival.................................................................. 3 8. Environmental Matters..................................................... 4 9. Notices................................................................... 5 10. Miscellaneous............................................................. 7
(i) 3 AGREEMENT OF SALE AND PURCHASE THIS AGREEMENT made this _____ day of August, 1997, by and between EASTERN AMERICAN TECHNOLOGIES CORPORATION (formerly known as Eastern American Teak Corporation), having an address at 720 Mullet Road, Suite H, Cape Canaveral, Florida 32920 ("Seller") and SPACEHAB, INCORPORATED having an address at 1595 Spring Hill Road, Suite 360, Vienna, Virginia 22182 ("Buyer"). WITNESSETH : In consideration of the covenants and provisions contained in this Agreement, the parties agree as follows: 1. Agreement to Sell and Purchase. Seller agrees to sell to Buyer, and Buyer agrees to purchase from Seller, subject to all of the terms and conditions of this Agreement, Seller's interest (the "Interest") in that certain Lease Agreement between Canaveral Port Authority ("CPA"), as lessor, and Seller, as lessee, dated February 1, 1991, for certain real property located at State Road #401 and 620 Magellan Road in Port Canaveral, County of Brevard, State of Florida, as more particularly described on Schedule A attached hereto. 2. Purchase Price. (a) Purchase Price. The purchase price ("Purchase Price") for the Interest, subject to adjustments as provided in this Agreement, shall be One Million Six Hundred Thousand Dollars ($1,600,000) and shall be paid by Buyer to Seller at Closing (as hereinafter defined) by wire transfer of immediately available funds. 3. Closing. The closing and settlement of this transaction ("Closing") shall take place by mail. Closing shall be on August __, 1997, or on such earlier date as Buyer shall designate by at least five (5) days' prior written notice to Seller (the "Closing Date"). 4. Buyer's Conditions to Closing. Buyer's obligation to purchase the interest is subject to the following: (a) compliance by Seller with its obligations hereunder; (b) Buyer's receipt of an irrevocable title insurance commitment issued by a reputable title insurance company selected by Buyer and the premium shall have been paid in full by Seller insuring the Interest in a form reasonably satisfactory to Buyer with the title insurance policy to be delivered post-Closing; (c) Buyer's receipt of a Collateral Assignment of Lease executed by CPA in a form reasonably satisfactory to Buyer, a form of which is attached hereto as Exhibit ; 4 (d) CIT shall have funded Spacehab $3,719,025 of which $1,600,000 shall be used to pay the Purchase Price; (e) receipt by CIT of a title insurance commitment followed by a policy of title insurance issued at Buyer's expense by a reputable title insurance company selected by CIT insuring CIT's lien on the Interest; and (f) Buyer's receipt of evidence of CPA's consent to the assignment of the Interest and a landlord's estoppel by CPA, each in a form reasonably satisfactory to Buyer. 5. Seller's Conditions to Closing. Seller's obligation to sell the interest is subject to the compliance by Buyer with its obligations hereunder. 6. Documents to be Delivered at Closing by Seller. At Closing, Seller shall deliver to Buyer the following documents duly executed by Seller, acknowledged and in recordable form, where appropriate, and dated as of the date of Closing: (a) the Assignment and Assumption of Lease in form and substance satisfactory to the parties hereto, together with the Lease, the cost of documentary stamp tax and recording to be paid by Buyer; and (b) any other document reasonably deemed necessary by Buyer. 7. Documents to be Delivered at Closing by Buyer. At Closing, Buyer shall deliver to Seller the following documents duly executed by Buyer, acknowledged and in recordable form, where appropriate, and dated as of the date of Closing: (a) the Assignment and Assumption of Lease in form and substance satisfactory to the parties hereto and to CPA; and (b) any other document reasonably deemed necessary by Seller. 8. Representations and Warranties of Seller. Seller, to induce Buyer to enter into this Agreement and to complete Closing, makes the following representations and warranties to Buyer, which representations and warranties are true and correct as of the date of this Agreement, and shall be true and correct at and as of the Closing Date in all respects as though such representations and warranties were made both at and as of the date of this Agreement and at and as of the Closing Date. (a) Seller was duly organized as a corporation and is in good standing under the laws of the State of its formation and in the State where the Property is located, and is qualified to do business in the state where the Property is located. (b) The execution and delivery of this Agreement and the performance by Seller of its obligations under it have been duly authorized by all requisite corporate 2 5 action, and will not conflict with or result in a breach of any of the terms, conditions or provisions of the Certificate of Incorporation or Bylaws of Seller, and will not conflict with or result in a breach of any law, regulation or order, or any agreement or instrument to which Seller is a party or by which Seller is bound or the Property is subject; and this Agreement and the documents to be delivered by Seller pursuant to this Agreement, will each constitute the legal, valid, and binding obligations of Seller, enforceable in accordance with their respective terms, covenants, and conditions. (c) To the best knowledge of Seller, there is no action, suit or proceeding pending or threatened against or affecting Seller or the Property, or relating to or arising out of Seller's ownership of the Interest, in any court or before or by any federal, state, county or municipal department, commission, board, bureau, or agency or other governmental instrumentality. (d) Buyer has been in full possession and occupancy of the Property since August 6, 1991 and Seller has not conducted any activity on the Property since August 7, 1992. 9. Representations and Warranties of Buyer. (a) Buyer was duly organized as a corporation and is in good standing under the laws of the State of its formation and in the State where the Property is located, and is qualified to do business in the state where the Property is located. (b) The execution and delivery of this Agreement and the performance by Buyer of its obligations under it have been duly authorized by all requisite corporate action, and will not conflict with or result in a breach of any of the terms, conditions or provisions of the Certificate of Incorporation or Bylaws of Buyer, and will not conflict with or result in a breach of any law, regulation or order, or any agreement or instrument to which Buyer is a party or by which Buyer is bound or the Property is subject; and this Agreement and the documents to be delivered by Buyer pursuant to this Agreement, will each constitute the legal, valid, and binding obligations of Buyer, enforceable in accordance with their respective terms, covenants, and conditions. 10. Survival. (a) Surviving Representations and Warranties. The representations and warranties of Seller set forth in Section 8 shall remain in effect for a period of two (2) years following the Closing Date and also thereafter if Buyer shall have given to Seller notice of a breach thereof within such two-year period. (b) Notices. Promptly after receipt thereof by Seller, Seller shall deliver to Buyer a copy of any notice of default given or received under the Lease. 11. Environmental Matters. (a) Representations and Warranties. Seller represents and warrants to Buyer that: 3 6 (i) As of August 7, 1992 and to the best of Seller's knowledge without inquiry, the Property and all activities and conditions at the Property were in compliance with the Comprehensive Environmental Response, Compensation and Liability Act, 42 U.S.C.Sections 9601 et seq., as amended from time to time ("CERCLA"), the Resource Conservation and Recovery Act, 42 U.S.C. Sections 6901 et seq., as amended from time to time ("RCRA"), the Clean Water Act, 33 U.S.C. Sections 1251 et seq., as amended from time to time, the Clean Air Act, 42 U.S.C. Sections 7401 et seq., as amended from time to time, the Toxic Substances Control Act, 15 U.S.C. Sections 2601 et seq., as amended from time to time, and with all other federal, state and local environmental statutes, ordinances, regulations, orders and requirements of common law, including without limitation: (A) those relating to the construction, operation, maintenance or repair of any improvements or equipment or other Personal Property, (B) the discharge, emission or release of any Contaminant (hereinafter defined) to the air, soil, surface water or ground water; the discharge of any dredge or fill material to a wetland or other water of the United States (as hereinafter defined), (C) the storage, treatment, disposal or handling of any Contaminant, or (D) the construction, operation, maintenance or repair of aboveground or underground storage tanks (collectively, "Environmental Laws"). (ii) As of August 7, 1992, Seller did not, nor to the best of its knowledge without inquiry did anyone else, generate, store, treat, dispose of, discharge, release, emit or otherwise handle any Contaminant on, over, under, from or in any manner affecting the Property. The term "Contaminant" shall mean any "hazardous substance", "pollutant or contaminant" as defined pursuant to CERCLA, "petroleum" as defined pursuant to RCRA or any material containing petroleum, any polychlorinated biphenyls ("PCBs") or substances containing PCBs, any urea formaldehyde foam, or any asbestos or materials containing asbestos; provided, the term "Contaminant" shall not include construction materials (other than asbestos, PCBs or urea formaldehyde foam), office equipment, fuel and other similar products contained in vehicles and cleaning solutions and other maintenance materials that are customarily used or stored incidental to and are reasonably necessary for the operation or maintenance of the Property. (iii) As of August 7, 1992 Seller disclosed to Buyer the location of all underground or aboveground storage tanks located at the Property. (iv) Seller has to the best of its knowledge without inquiry provided Buyer with copies of all: (A) permits, licenses, certificates, registrations, approvals, and any amendments thereto, required for the Property and for the use of the Property pursuant to or necessary for compliance with Environmental Laws; (B) applications, reports or other materials submitted to any governmental agency in connection with any Environmental Law; (C) records or manifests required to be maintained pursuant to Environmental Laws or which are relevant to the issue of compliance with Environmental Laws; (D) correspondence, notices of violation, summonses, orders, administrative, civil or criminal complaints, 4 7 requests for information or other documents received by Seller or its agents pertaining to compliance with Environmental Laws or the generation, storage, treatment, handling, discharge, emission, release or migration of any Contaminant on, over, under, from or affecting the Property; and (E) records and analyses of any environmental tests pertaining to the Property, including without limitation the results of any air, water or soil analyses or tank integrity testing, which are in the possession of Seller. (v) No notice has been received by Seller that any civil, criminal or administrative proceeding is pending or threatened relating to Environmental Laws or Contaminants on, over, under, from or affecting the Property; Seller has not received any notice of violation or potential liability regarding the Property or activities thereon relating to Environmental Law or Contaminants on, over, under, from or affecting the Property and Seller has no reason to believe such notices will be received and has no reason to know of circumstances that would give rise to such notices or proceedings in the future; Seller has not entered into any consent order, consent decree, administrative order, judicial order or settlement relating to Environmental Laws or Contaminants on, over, under, migrating from or affecting the Property. (b) Cooperation. Seller will assist Buyer in giving notice to applicable government agencies and in transferring or reissuing to Buyer any permit, license, certificate, registration or other approval necessary to continue operations at the Property, or in obtaining for Buyer any new permit, license, certificate, registration or approval required of Buyer under any Environmental Law. (c) Survival. The provisions of this Section 11 shall survive Closing. 12. Notices. (a) Written. All notices, demands, requests or other communications from each party to the other required or permitted under the term of this Agreement shall be in writing and, unless and until otherwise specified in a written notice by the party to whom notice is intended to be given, shall be sent to the parties at the following respective addresses: if intended for Seller: Eastern American Technologies Corporation 720 Mullet Road, Suite H Cape Canaveral, Florida 32920 Fax No.: (407) 799-1245 Attention: Mr. Gene Smith 5 8 with a copy to: Dean, Mead, Spielvogel, Goldman & Boyd 101 South Courtenay Parkway P.O. Box 541366 Merritt Island, Florida 32954-1366 Fax No.: (407) 453-8641 Attention: Leonard Spielvogel, Esq. if intended for Buyer: Spacehab, Incorporated 1595 Spring Hill Road, Suite 360 Vienna, Virginia 22182 Fax No.: (703) 821-3070 Attention: William Dawson, Esq. with a copy to: Dewey Ballantine 1301 Avenue of the Americas New York, New York 10019 Fax No.: 212/259-6333 Attention: Frank E. Morgan, II, Esq. Notices may be given on behalf of any party by its legal counsel. (b) Manner of Giving. Each such notice, demand, request or other communication shall be given (i) against a written receipt of delivery, (ii) by registered or certified mail of the United States Postal Service, return receipt requested, postage prepaid, or (iii) by a nationally recognized overnight courier service for next business day delivery, or (iv) delivered via telecopier or facsimile transmission to the facsimile number listed above, provided, however, that if such communication is given via telecopier or facsimile transmission, an original counterpart of such communication shall concurrently be sent in either the manner specified in clause (i) or (iii) above. (c) Deemed Given. Each such notice, demand request, or other communication shall be deemed to have been given upon the earliest of (i) actual receipt or refusal by the addressee, or (ii) deposit thereof at any main or branch United States post office if sent in accordance with section (b)(ii) above or (iii) deposit thereof with the courier if sent pursuant to section (b)(iii) above. 13. Miscellaneous. (a) Captions. The captions in this Agreement are inserted for convenience of reference only; they form no part of this Agreement and shall not affect its interpretation. 6 9 (b) Successors and Assigns. With respect to Seller, this Agreement shall not be assignable; provided, however, that any representations and warranties that survive Closing pursuant to the terms hereof shall be binding on Seller's successors and assigns. This Agreement shall be binding upon and shall inure to the benefit of Buyer and its heirs, personal representatives, successors and assigns. (c) Entire Agreement; Governing Law. This Agreement contains the entire understanding of the parties with respect to the subject matter hereof, supersedes all prior or other negotiations, representations, understandings and agreements of, by or among the parties, express or implied, oral or written, which are fully merged herein. The express terms of this Agreement control and supersede any course of performance and/or customary practice inconsistent with any such terms. Any agreement hereafter made shall be ineffective to change, modify, discharge or effect an abandonment of this Agreement unless such agreement is in writing and signed by the party against whom enforcement of such change, modification, discharge or abandonment is sought. This Agreement shall be governed by and construed under the laws of the State of Florida. (d) Provisions Separable. The provisions of this Agreement are independent of and separable from each other, and no provision shall be affected or rendered invalid or unenforceable by virtue of the fact that for any reason any other provision may be invalid or unenforceable in whole or in part. (e) Gender, etc. Words used in this Agreement, regardless of the number and gender specifically used, shall be deemed and construed to include any other number, singular or plural, and any other gender, masculine, feminine or neuter, as the context indicates is appropriate. (f) Counterparts. This Agreement may be executed in any number of counterparts, each of which shall be deemed to be an original as against any party whose signature appears thereon, and all of which shall together constitute one and the same instrument. This Agreement shall be binding when one or more counterparts hereof, individually or taken together, shall bear the signatures of all of the parties reflected on this Agreement as the signatories. (g) No Waiver. Neither the failure nor any delay on the part of either party to this Agreement to exercise any right, remedy, power or privilege under this Agreement shall operate as a waiver thereof, nor shall any single or partial exercise of any right, remedy, power or privilege preclude any other or further exercise of the same or of any other right, remedy, power or privilege, nor shall any waiver of any right, remedy, power or privilege with respect to any occurrence be construed as a waiver of any such right, remedy, power or privilege with respect to any other occurrence. No waiver shall be effective unless it is in writing and is signed by the party asserted to have granted such waiver. (h) Interpretation. No provision of this Agreement is to be interpreted for or against either party because that party or that party's legal representative or counsel drafted such provision. 7 10 (i) Time. Time is of the essence of this Agreement. In computing the number of days for purposes of this Agreement, all days shall be counted, including Saturdays, Sundays and holidays; provided, however, that if the final day of any time period provided in this Agreement shall end on a Saturday, Sunday or legal holiday, then the final day shall extend to 5:00 p.m. of the next full business day. For the purposes of this Section, the term "holiday" shall mean a day other than a Saturday or Sunday on which banks in the state in which the Property is located are or may elect to be closed. (j) Buyer's Exercise of Right to Terminate. If Buyer desires to terminate its obligations under this Agreement pursuant to any of the provisions hereof, Buyer shall do so by delivering written notice of termination to Seller. Upon any such termination, this Agreement shall be and become null and void and neither party shall have any further rights or obligations under this Agreement. (k) Confidentiality. No press release or other public disclosure concerning the transaction contemplated by this Agreement shall be made by either party without the prior written consent of the other. IN WITNESS WHEREOF, intending to be legally bound, the parties have executed this Agreement as a sealed instrument as of the day and year first above written. Witness: SELLER: EASTERN AMERICAN TECHNOLOGIES CORPORATION, a Florida corporation - ------------------------------ By /s/ Henry Happel (SEAL) ------------------------------------- Name: Henry Happel Title: President Witness: BUYER: SPACEHAB, INCORPORATED, a Washington corporation - ------------------------------ By (SEAL) ------------------------------------- Name: Title: 8 EX-11 15 STATEMENT RE COMPUTATION OF PER SHARE EARNINGS 1 EXHIBIT 11 SPACEHAB, INCORPORATED AND SUBSIDIARIES COMPUTATION OF EARNINGS PER COMMON SHARE
(IN THOUSANDS, EXCEPT SHARE DATA) YEAR YEAR YEAR ENDED ENDED ENDED JUNE 30, JUNE 30, JUNE 30, ------------ ------------ ------------ 1999 1998 1997 ------------ ------------ ------------ Net Income (loss) and Adjusted Earnings: Net income (loss) applicable to common Shareholders used for primary Computations $ (2,589) $ 9,604 $ 13,832 ------------ ------------ ------------ Fully diluted adjustments: Savings in convertible note payable interest expense, net of tax 3,036 2,625 -- ------------ ------------ ------------ Adjusted net income applicable to Common shareholders assuming full dilution $ 447 $ 12,229 $ 13,832 ============ ============ ============ Average number of shares of common stock used for basic computation 11,184,742 11,154,271 11,118,825 ------------ ------------ ------------ Diluted adjustments (1): Weighted Average Shares and Share Equivalents Outstanding: Stock options assumed exercised at average Fair market value 109,928 269,898 14,168 Assumed conversion of convertible debt 4,642,202 3,147,109 27,329 ------------ ------------ ------------ Total number of shares assumed to be Outstanding assuming full dilution 15,936,872 14,571,278 11,186,886 ------------ ------------ ------------ Earnings Common Per Share: Income (loss) per common share: Income (loss) before extraordinary item ($ 0.23) $ 0.86 $ 0.95 Extraordinary item -- -- 0.29 ------------ ------------ ------------ Basic ($ 0.23) $ 0.86 $ 1.24 ============ ============ ============ Income (loss) before extraordinary item $ 0.03 $ 0.84 $ 0.95 Extraordinary item -- -- 0.29 ------------ ------------ ------------ Diluted (1): $ 0.03 $ 0.84 $ 1.24 ------------ ------------ ------------
(1) The assumed exercise of options and warrants and the conversion of convertible debt is anti-dilutive but are included in the calculation of dilutive earnings per share in accordance with Regulation S-K Item 601 (a)(11). EX-23 16 CONSENT OF KPMG LLP 1 EXHIBIT 23 ACCOUNTANTS' CONSENT The Board of Directors SPACEHAB, Incorporated: We consent to incorporation by reference in the registration statements (Nos. 333-3634, 333-36779, 333-43159, and 333-43181) on Form S-8 and the registration statement (No. 333-43221) on Form S-3 of SPACEHAB, Incorporated of our report dated August 13, 1999, relating to the consolidated balance sheets of SPACEHAB, Incorporated and subsidiary as of June 30, 1999 and 1998, and the related consolidated statements of operations, stockholders' equity, and cash flows for each of the years in the three-year period ended June 30, 1999 which report appears in the June 30, 1999, annual report on Form 10-K of SPACEHAB, Incorporated. KPMG LLP McLean, Virginia September 16, 1999 EX-27 17 FINANCIAL DATA SCHEDULE
5 0001001907 SPACEHAB, INC. 1,000 U.S. DOLLAR 12-MOS JUN-30-1999 JUL-01-1998 JUN-30-1999 1,000 21,346 0 17,471 0 0 39,963 181,431 49,247 204,346 27,589 0 0 0 81,585 16 204,346 107,720 107,720 89,283 89,283 18,235 0 4,906 (3,088) (499) (2,589) 0 0 0 (2,589) (0.23) (0.23)
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