-----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, Hi+ukX0edH04tvYlvJMysr14/EU9qwbOponuK050ebTCLVdTBD7DzFFDPAyNY6yF lX5S0p2anmcc2AUGBSO9+A== 0001005477-99-005038.txt : 19991110 0001005477-99-005038.hdr.sgml : 19991110 ACCESSION NUMBER: 0001005477-99-005038 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 8 CONFORMED PERIOD OF REPORT: 19990930 FILED AS OF DATE: 19991109 FILER: COMPANY DATA: COMPANY CONFORMED NAME: AXSYS TECHNOLOGIES INC CENTRAL INDEX KEY: 0000206030 STANDARD INDUSTRIAL CLASSIFICATION: MOTORS & GENERATORS [3621] IRS NUMBER: 111962029 STATE OF INCORPORATION: DE FISCAL YEAR END: 1228 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 000-16182 FILM NUMBER: 99743871 BUSINESS ADDRESS: STREET 1: 910 SYLVAN AVE CITY: ENGLEWOOD CLIFFS STATE: NJ ZIP: 07632 BUSINESS PHONE: 2018711500 MAIL ADDRESS: STREET 2: 910 SYLVAN AVE CITY: ENGLEWOOD CLIFFS STATE: NJ ZIP: 07632 FORMER COMPANY: FORMER CONFORMED NAME: VERNITRON CORP DATE OF NAME CHANGE: 19920703 10-Q 1 FORM 10-Q ================================================================================ SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 ---------- FORM 10-Q QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTER ENDED SEPTEMBER 30, 1999 Commission file number 0-16182 ---------- AXSYS TECHNOLOGIES, INC. (Exact name of registrant as specified in its charter) Delaware 11-1962029 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification Number) 910 Sylvan Avenue Englewood Cliffs, New Jersey 07632 (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code: (201) 871-1500 ---------- 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 |_| 3,968,112 shares of Common Stock, $.01 par value, were outstanding as of November 2, 1999. ================================================================================ AXSYS TECHNOLOGIES, INC. INDEX Page ---- PART I. FINANCIAL INFORMATION Item 1. Financial Statements (Unaudited): Condensed Consolidated Balance Sheets - September 30, 1999 and December 31, 1998 3 Condensed Consolidated Statements of Operations - Three Months Ended September 30, 1999 and 1998 4 Condensed Consolidated Statements of Operations - Nine Months Ended September 30, 1999 and 1998 5 Condensed Consolidated Statements of Cash Flows - Nine Months Ended September 30, 1999 and 1998 6 Notes to Condensed Consolidated Financial Statements 7 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 11 Item 3. Quantitative and Qualitative Disclosures about Market Risk 14 PART II. OTHER INFORMATION Item 4. Submission of Matters to a Vote of Security Holders 15 Item 5. Other Information 15 Item 6. Exhibits and Reports on Form 8-K 15 SIGNATURES 15 2 PART I. FINANCIAL INFORMATION Item 1. Financial Statements AXSYS TECHNOLOGIES, INC. Condensed Consolidated Balance Sheets (Dollars in thousands, except per share data) (Unaudited)
September 30, December 31, 1999 1998 -------- -------- ASSETS CURRENT ASSETS: Cash ............................................................ $ 65 $ 69 Accounts receivable - net ....................................... 15,831 16,877 Inventories - net ............................................... 28,548 27,028 Other current assets ............................................ 3,394 2,838 -------- -------- TOTAL CURRENT ASSETS .......................................... 47,838 46,812 PROPERTY, PLANT AND EQUIPMENT - net ............................... 15,075 15,080 EXCESS OF COST OVER NET ASSETS ACQUIRED - net ..................... 11,895 12,216 OTHER ASSETS ...................................................... 1,920 2,103 -------- -------- TOTAL ASSETS .................................................. $ 76,728 $ 76,211 ======== ======== LIABILITIES AND SHAREHOLDERS' EQUITY CURRENT LIABILITIES: Accounts payable ................................................ $ 7,156 $ 7,867 Accrued expenses and other liabilities .......................... 6,926 7,050 Current portion of long-term debt and capital lease obligations . 4,252 1,179 -------- -------- TOTAL CURRENT LIABILITIES ..................................... 18,334 16,096 LONG-TERM DEBT & CAPITAL LEASES, less current portion ............. 3,501 5,612 OTHER LONG-TERM LIABILITIES ....................................... 2,093 2,375 SHAREHOLDERS' EQUITY: Common Stock, issued 4,122,767 shares at September 30, 1999 and December 31, 1998 .............................................. 41 41 Capital in Excess of Par ........................................ 39,504 40,761 Retained Earnings ............................................... 14,984 12,966 Treasury Stock, at cost, 160,775 shares at September 30, 1999 and 117,750 at December 31, 1998 .................................. (1,729) (1,640) -------- -------- TOTAL SHAREHOLDERS' EQUITY .................................... 52,800 52,128 -------- -------- TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY .................... $ 76,728 $ 76,211 ======== ========
See accompanying notes to condensed consolidated financial statements. 3 AXSYS TECHNOLOGIES, INC. Condensed Consolidated Statements of Operations (Unaudited, dollars in thousands, except per share data)
Three Months Ended September 30, --------------------------------- 1999 1998 ----------- ----------- NET SALES .................................... $ 26,881 $ 26,250 Cost of sales ................................ 19,709 19,102 Selling, general and administrative expenses . 5,097 4,079 Research and development expenses ............ 795 825 Amortization of intangible assets ............ 107 107 ----------- ----------- OPERATING INCOME ............................. 1,173 2,137 Interest expense, net ........................ 106 215 Adjustment to special charge ................. (216) -- Other expense ................................ 2 24 ----------- ----------- INCOME FROM CONTINUING OPERATIONS BEFORE TAXES 1,281 1,898 Provision for income taxes ................... -- -- ----------- ----------- INCOME FROM CONTINUING OPERATIONS ............ 1,281 1,898 DISCONTINUED OPERATIONS: Loss from operations, net of tax ........... -- (2) Loss on disposal, net of tax ............... -- (2,508) ----------- ----------- NET INCOME (LOSS) ............................ $ 1,281 $ (612) =========== =========== BASIC EARNINGS (LOSS) PER SHARE: Income from continuing operations .......... $ 0.32 $ 0.45 Discontinued operations .................... -- (0.60) ----------- ----------- TOTAL ........................................ $ 0.32 $ (0.15) =========== =========== Weighted average common shares outstanding ... 4,010,820 4,187,794 =========== =========== DILUTED EARNINGS (LOSS) PER SHARE: Income from continuing operations .......... $ 0.32 $ 0.45 Discontinued operations .................... -- (0.60) ----------- ----------- TOTAL ........................................ $ 0.32 $ (0.15) =========== =========== Weighted average common shares outstanding ... 4,022,713 4,202,439 =========== ===========
See accompanying notes to condensed consolidated financial statements. 4 AXSYS TECHNOLOGIES, INC. Condensed Consolidated Statements of Operations (Unaudited, dollars in thousands, except per share data)
Nine Months Ended September 30, --------------------------------- 1999 1998 ----------- ----------- NET SALES ............................................ $ 78,995 $ 89,922 Cost of sales ........................................ 57,027 62,950 Selling, general and administrative expenses.......... 15,503 15,637 Research and development expenses .................... 2,819 2,710 Amortization of intangible assets .................... 321 321 ----------- ----------- OPERATING INCOME ..................................... 3,325 8,304 Interest expense, net ................................ 518 761 Special charge ....................................... 784 -- Other expense ........................................ 5 54 ----------- ----------- INCOME FROM CONTINUING OPERATIONS BEFORE TAXES ....... 2,018 7,489 Provision for income taxes ........................... -- 1,063 ----------- ----------- INCOME FROM CONTINUING OPERATIONS .................... 2,018 6,426 DISCONTINUED OPERATIONS: Income from operations, net of tax ................. -- 63 Loss on disposal, net of tax ....................... -- (2,508) ----------- ----------- NET INCOME ........................................... $ 2,018 $ 3,981 =========== =========== BASIC EARNINGS (LOSS) PER SHARE: Income from continuing operations .................. $ 0.50 $ 1.53 Discontinued operations ............................ -- (0.58) ----------- ----------- TOTAL ................................................ $ 0.50 $ 0.95 =========== =========== Weighted average common shares outstanding ........... 4,073,640 4,208,787 =========== =========== DILUTED EARNINGS (LOSS) PER SHARE: Income from continuing operations .................. $ 0.49 $ 1.52 Discontinued operations ............................ -- (0.58) ----------- ----------- TOTAL ................................................ $ 0.49 $ 0.94 =========== =========== Weighted average common shares outstanding ........... 4,087,459 4,243,279 =========== ===========
See accompanying notes to condensed consolidated financial statements. 5 AXSYS TECHNOLOGIES, INC. Condensed Consolidated Statements of Cash Flows (Unaudited, dollars in thousands)
Nine Months Ended September 30, ------------------------------- 1999 1998 ------- ------- CASH FLOWS FROM OPERATING ACTIVITIES: Net income .................................................................. $ 2,018 $ 3,981 Adjustments to reconcile net income to cash provided by operating activities: Loss on disposal of discontinued operations ................................. -- 2,508 Deferred income taxes ....................................................... (876) (172) Depreciation and amortization ............................................... 2,792 2,733 Change in net assets of discontinued operation .............................. -- 154 (Increase) decrease in current assets, other than cash ...................... (198) 298 Decrease in current liabilities ............................................. (972) (3,189) Other-net ................................................................... (176) 41 ------- ------- NET CASH PROVIDED BY OPERATING ACTIVITIES ................................. 2,588 6,354 ------- ------- CASH FLOWS FROM INVESTING ACTIVITIES: Capital expenditures ........................................................ (1,065) (2,929) Net proceeds from sale of discontinued operation ............................ 975 1,797 Advance to third party ...................................................... (608) (651) ------- ------- NET CASH USED IN INVESTING ACTIVITIES ..................................... (698) (1,783) ------- ------- CASH FLOWS FROM FINANCING ACTIVITIES: Net proceeds from borrowings ................................................ 775 -- Net repayment of borrowings ................................................. (1,250) (3,348) Purchase of Treasury Stock .................................................. (1,434) (1,664) Other ....................................................................... 15 44 ------- ------- NET CASH USED IN FINANCING ACTIVITIES ..................................... (1,894) (4,968) ------- ------- NET DECREASE IN CASH ...................................................... (4) (397) CASH AT BEGINNING OF PERIOD ................................................... 69 573 ------- ------- CASH AT END OF PERIOD ......................................................... $ 65 $ 176 ======= ======= Supplemental Cash Flow Information: Cash paid for: Interest .................................................................. $ 478 $ 629 Income Tax ................................................................ 510 1,002 Non-Cash Investing and Financing Activities: Equipment acquired under capital leases ................................... $ 1,422 $ 1,021
See accompanying notes to condensed consolidated financial statements. 6 AXSYS TECHNOLOGIES, INC. Notes to Condensed Consolidated Financial Statements (Unaudited) (Dollars in thousands, except per share data) Note 1 - Basis of Presentation The accompanying unaudited condensed consolidated financial statements of Axsys Technologies, Inc. (the "Company") have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and disclosures required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments considered necessary for a fair presentation (consisting of normal recurring accruals) have been included. Operating results for the three month and nine month periods ended September 30, 1999 are not necessarily indicative of the results that may be expected for the year ending December 31, 1999. For further information, refer to the financial statements and footnotes thereto included in the Company's Annual Report on Form 10-K for the year ended December 31, 1998. Certain reclassifications have been made to previously reported financial statements to conform to current classifications. Note 2 - Discontinued Operations On September 16, 1998, the Company sold its Sensor Systems business unit ("Sensor Systems") which manufactured position sensor devices such as potentiometers, pressure transducers and encoders primarily for defense and industrial automation applications, for $3,030, of which $1,030 was in the form of a five year, 10% subordinated note. Sensor Systems' land and building, which were not sold as part of this transaction, were sold during July 1999 for approximately their book value of $750, net of retained liabilities. The disposal of Sensor Systems has been accounted for as a discontinued operation and, accordingly, the related net assets and operating results have been reported separately from continuing operations in all periods presented. Revenues applicable to the discontinued operation for the three month and nine month periods ended September 30, 1998 were $1,185 and $4,774, respectively. Note 3 - Advances to Third Parties On August 12, 1998, the Company entered into an agreement with Westlake Technology Corporation ("WTC") whereby the Company has the exclusive right to market and sell WTC's electronic and electromechanical test equipment. In return for these exclusive rights, the Company has agreed to provide loans of up to a maximum of $1,900 to WTC. Outstanding loans bear interest at 10.5% and mature on August 12, 2001. As of September 30, 1999, the outstanding loan balance, which is recorded under "Other Assets" in the Condensed Consolidated Balance Sheet, was $1,669. Note 4 - Inventories Inventories have been determined generally by lower of cost (first-in, first-out or average) or market. Inventories consist of:
September 30, December 31, 1999 1998 -------- -------- Raw materials .......................... $ 10,110 $ 9,401 Work-in-process ........................ 9,962 8,665 Finished goods ......................... 12,605 12,642 -------- -------- 32,677 30,708 Less reserves .......................... (4,129) (3,680) -------- -------- $ 28,548 $ 27,028 ======== ========
7 AXSYS TECHNOLOGIES, INC. Notes to Condensed Consolidated Financial Statements (Unaudited) (Dollars in thousands, except per share data) Note 5 - Shareholders' Equity Treasury Stock - In August 1998, the Company's Board of Directors authorized the repurchase, from time to time, on the open market or otherwise, of up to 200,000 shares of the Company's Common Stock at prevailing market prices or at negotiated prices. During July 1999, the Company's Board of Directors authorized an increase in the share repurchase program from an aggregate of 200,000 shares of Common Stock to an aggregate of 700,000 shares. The Company plans to use the repurchased shares for general corporate purposes, including the satisfaction of commitments under its employee benefit plans. As of September 30, 1999, the Company has repurchased 262,200 shares for an aggregate purchase price of $3,098, of which 101,425 shares have been used by the Company to satisfy its obligation to issue shares under certain employee benefit plans and in connection with the acquisition of its Teletrac, Inc. subsidiary. Note 6 - Income Taxes The Company has determined, based upon the level of its current taxable income, it is more likely than not that it will realize the benefit of its deferred tax assets which previously had been fully reserved with a valuation allowance. As such, beginning in the second quarter of 1998, the Company has reversed a portion of its tax valuation allowance equal to the amount it would have recorded as a tax provision on income from continuing operations before taxes during the period. As a result, the Company reduced its third quarter continuing operations tax provisions by $566 and $784 in 1999 and 1998, respectively. For the nine month periods ended September 30, 1999 and 1998, Axsys reduced its continuing operations tax provision by $876 and $1,991, respectively. As of September 30, 1999, the Company has reversed substantially all of its remaining tax valuation allowance. Note 7 - Segment Data The Company classifies its businesses under two major groups, the Precision Systems Group ("PSG") and the Industrial Components Group ("ICG"). The PSG designs and manufactures micro-positioning and precision optical systems and components for a variety of industries including defense, space, digital imaging and electronics capital equipment. The ICG is comprised of the Precision Ball Bearings segment, which distributes and services precision miniature ball bearings, and the Electronic Interconnect Products segment, which designs and manufactures interconnect devices, barrier terminal blocks, and connectors. The products of both the ICG segments are used in a variety of industrial, consumer and other commercial applications. As discussed in Note 2, the company sold its Sensor Systems segment during the third quarter of 1998. The disposal of Sensor Systems, which previously was part of the PSG, has been accounted for as a discontinued operation and, accordingly, their related operating results have been reported separately from continuing operations and the segment data below has been restated to exclude the Sensor Systems segment. 8 AXSYS TECHNOLOGIES, INC. Notes to Condensed Consolidated Financial Statements (Unaudited) (Dollars in thousands, except per share data) Note 7 - Segment Data - Cont'd. The following tables present financial data for each of the Company's segments.
Three Months Ended September 30, Nine Months Ended September 30, -------------------------------- ------------------------------- 1999 1998 1999 1998 ---- ---- ---- ---- Net sales: PSG ............................................ $ 15,200 $ 16,051 $ 44,899 $ 55,909 -------- -------- -------- -------- Precision Ball Bearings ........................ 6,677 6,010 19,583 19,849 Electronic Interconnect Products ............... 5,004 4,189 14,513 14,164 -------- -------- -------- -------- Total ICG .................................... 11,681 10,199 34,096 34,013 -------- -------- -------- -------- Total Sales ................................ $ 26,881 $ 26,250 $ 78,995 $ 89,922 ======== ======== ======== ======== Earnings before amortization, interest and taxes: PSG ............................................ $ (91) $ 1,549 $ 712 $ 6,228 -------- -------- -------- -------- Precision Ball Bearings ........................ 1,278 678 2,855 2,563 Electronic Interconnect Products ............... 892 652 2,490 2,291 -------- -------- -------- -------- Total ICG .................................... 2,170 1,330 5,345 4,854 Non-allocated expenses ......................... (798) (981) (4,039) (3,593) -------- -------- -------- -------- Income from continuing operations before taxes $ 1,281 $ 1,898 $ 2,018 $ 7,489 ======== ======== ======== ========
September 30, December 31, 1999 1998 ------- ------- Identifiable assets: PSG ............................................ $37,219 $38,585 ------- ------- Precision Ball Bearings ........................ 14,537 13,653 Electronic Interconnect Products ............... 9,311 8,351 ------- ------- Total ICG .................................... 23,848 22,004 Non-allocated assets ........................... 15,661 15,622 ------- ------- Total assets ........................... $76,728 $76,211 ======= ======= Included in non-allocated expenses are the following: general corporate expense, interest expense, amortization of goodwill, special charges and other income and expense. Identifiable assets by segment consist of those assets that are used in the segments' operations. Non-allocated assets are comprised primarily of goodwill and net deferred tax assets. Note 8 - Other Information September 30, December 31, 1999 1998 ------- ------- Allowance for doubtful accounts .................... $ 619 $ 507 ======= ======= Accumulated depreciation and amortization of property, plant and equipment .................. $13,956 $11,531 ======= ======= Accumulated amortization of excess of cost over net assets acquired ......................... $ 1,911 $ 1,590 ======= ======= 9 AXSYS TECHNOLOGIES, INC. Notes to Condensed Consolidated Financial Statements (Unaudited) (Dollars in thousands, except per share data) Note 9 - Special Charge On November 20, 1998, the Company's Chairman and CEO and the owner of approximately 31% of the Company's common stock ("the Chairman"), submitted an offer to purchase all of the common stock not owned by him for $15.00 per share in cash (the "Chairman's Proposal"). Shortly thereafter, the Company's Board of Directors formed a Special Committee to evaluate the Chairman's Proposal. On January 11, 1999, the Company received an unsolicited offer to purchase the Company for $20.00 per share in cash. In response to this unsolicited offer, the Chairman withdrew his proposal, and on January 13, 1999, the Company's Board of Directors dissolved the Special Committee. On January 14, 1999, the Company engaged investment bankers to explore various strategic alternatives, including the potential sale of the Company. On January 29, 1999, the Company publicly announced that the Board of Directors had instructed its investment bankers to explore the potential sale of the Company. During the first quarter of 1999, the Company recorded a pre-tax special charge of $1,000 for expenses related to a process of exploring the potential sale of the Company. On June 15, 1999, the Company publicly announced that its Board of Directors had determined not to pursue a sale of the Company at that time. During the third quarter of 1999, the Company reduced its first quarter pre-tax special charge by $216 to reflect actual costs. 10 Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Results of Operations The following table sets forth certain financial data as a percentage of net sales for the three month and nine month periods ended September 30, 1999 and 1998. On September 16, 1998 the Company sold certain assets related to its Sensor Systems segment. The divestiture, which was previously part of the PSG, has been accounted for as a discontinued operation. Accordingly, the results of the operations of Sensor Systems through the date of the sale and the loss from the disposal are reflected in discontinued operations.
Three Months Ended Nine Months Ended September 30, September 30, ------------- ------------- 1999 1998 1999 1998 ----- ----- ----- ----- Net sales: PSG ............................................ 56.6% 61.1% 56.8% 62.2% ----- ----- ----- ----- Precision Ball Bearings ........................ 24.8 22.9 24.8 22.0 Electronic Interconnect Products ............... 18.6 16.0 18.4 15.8 ----- ----- ----- ----- Total ICG .................................. 43.4 38.9 43.2 37.8 ----- ----- ----- ----- Total Company .......................... 100.0 100.0 100.0 100.0 ----- ----- ----- ----- Cost of sales ...................................... 73.3 72.8 72.2 70.0 ----- ----- ----- ----- Gross profit ....................................... 26.7 27.2 27.8 30.0 ----- ----- ----- ----- Operating expenses: Selling, general and administrative expenses ... 19.0 15.6 19.6 17.4 Research and development expenses .............. 2.9 3.1 3.6 3.0 Amortization of intangible assets .............. 0.4 0.4 0.4 0.4 ----- ----- ----- ----- 22.3 19.1 23.6 20.8 ----- ----- ----- ----- Operating income ................................... 4.4 8.1 4.2 9.2 Interest expense ............................... 0.4 0.8 0.6 0.8 Special charge ................................. (0.8) -- 1.0 -- Other expense .................................. -- 0.1 -- 0.1 ----- ----- ----- ----- Income from continuing operations before taxes ..... 4.8 7.2 2.6 8.3 Provision for income taxes ....................... -- -- -- 1.2 ----- ----- ----- ----- Income from continuing operations .................. 4.8 7.2 2.6 7.1 Discontinued operations: Income from operations, net of tax ............... -- -- -- 0.1 Loss on disposal, net of tax ..................... -- (9.5) -- (2.8) ----- ----- ----- ----- Net income ......................................... 4.8% 2.3% 2.6% 4.4% ===== ===== ===== ===== Gross profit (as a percentage of related net sales): PSG ................................................ 20.9% 26.0% 24.5% 29.8% ICG ................................................ 34.1 29.1 32.0 30.4
11 Comparison of the Three Months Ended September 30, 1999 and September 30, 1998 Net sales. Net sales increased by 2.4%, or $0.6 million, from $26.3 million in the three month period ended September 30, 1998 to $26.9 million in the same period of 1999. The PSG's sales decreased by 5.3%, or $0.9 million, from $16.1 million in 1998 to $15.2 million in 1999. This decrease was primarily the result of lower sales to the electronics capital equipment, digital imaging and space markets, partially offset by an increase in sales to the defense market. In the electronics capital equipment market, overall soft market conditions, especially in the data storage segment, continue to impact sales volume. Lower sales to the digital imaging market were due to a combination of soft market conditions and technical problems that have delayed new product introductions and slowed shipments of existing products. In the space market, lower sales were primarily due to the timing of major satellite programs. Partially offsetting these negative variances was an increase in sales to the defense market primarily due to shipments under a large space-based defense program. The ICG's sales increased by 14.5%, or $1.5 million, from $10.2 million in the three month period ended September 30, 1998 to $11.7 million in the same period of 1999. Sales of the precision ball bearings were up 11.1% over the prior year primarily due to improving conditions in the electronics capital equipment market and the identification of new customer opportunities. Sales of electronic interconnect products grew 19.5% over the prior year primarily due to improving market conditions and the continued success of new products introduced over the past two years. Gross profit. The Company's gross profit of $7.2 million in the third quarter of 1999 was substantially the same as the prior year. Gross profit margin decreased from 27.2% of net sales in 1998 to 26.7% in 1999. The gross margin for the PSG decreased from 26.0% of net sales in 1998 to 20.9% in 1999 and, for the ICG, increased from 29.1% of net sales in 1998 to 34.1% in 1999. The decline in the PSG gross profit margin was due to a number of factors including a $0.3 million sales return and inventory write-off related to the resolution of a technical issue with a product, sales volume related labor and overhead inefficiencies, and the reversal of an incentive compensation accrual in the third quarter of 1998 as a result of poor operating performance. The improved margins in the ICG were primarily due to a recovery of duty charges overpaid in prior years on the import of precision ball bearings. Selling, general and administrative expenses. SG&A expenses increased by 25.0%, or $1.0 million, from $4.1 million in 1998 to $5.1 million in 1999. The increase in SG&A expenses was primarily due to a reversal of incentive expense accruals in the third quarter of 1998 as a result of poor operating performance. Research and development expenses. R&D expenses of $0.8 million in 1999 were substantially the same as 1998. Interest expense, net. Net interest expense decreased by 50.7%, or $0.1 million, from $0.2 million in 1998 to $0.1 million in 1999. The decrease was primarily due to interest income recorded on the Company's Sensor Systems and Westlake Technology Corporation notes (see Notes 2 and 3 to the Condensed Consolidated Financial Statements). Adjustment to Special Charge. The Company reduced its first quarter special charge related to the process of exploring the potential sale of the Company by $0.2 million, pre-tax, to reflect actual costs (see Note 9 to the Condensed Consolidated Financial Statements). Taxes. The Company recorded no provision for income taxes in 1999 and 1998. As discussed in Note 6 to the Condensed Consolidated Financial Statements, the Company offset its normal third quarter continuing operations tax provision in both 1999 and 1998 by the reversal of a portion of its tax valuation allowance. As of September 30, 1999, the tax valuation allowance has been substantially eliminated. The Company will continue to assess the realizability of its deferred tax assets in 12 future periods. Discontinued Operations. In September 1998, the Company sold its Sensor Systems business unit. Results of operations from the discontinued business have been reported separately from continuing operations in 1998. Comparison of the Nine Months Ended September 30, 1999 and September 30, 1998 Net sales. Net sales decreased by 12.1%, or $10.9 million, from $89.9 million in the nine month period ended September 30, 1998 to $79.0 million in the same period of 1999. The PSG's sales decreased by 19.7%, or $11.0 million, from $55.9 million in 1998 to $44.9 million in 1999. The explanations for PSG sales decrease are substantially the same as those discussed in the three month comparison above and include, softness in the digital imaging and data storage markets, the timing of major satellite programs and technical problems which have delayed new product introductions and slowed shipments of existing products to the digital imaging market. Partially offsetting these negative variances was an increase in sales to the defense market primarily due to shipments under a large space-based defense program. The ICG's sales increased 0.2% or $0.1 million, from $34.0 million in 1998, to $34.1 million in 1999. Sales of precision ball bearings were down 1.3% over the prior year. After record high sales in the first quarter of 1998, the precision ball bearings segment began to feel the impact that the economic difficulties in Asia and the soft manufacturing segment in general were having on its customers. These soft market conditions appear to be improving as the precision ball bearings segment recorded its first year over year increase in quarterly sales since the record high first quarter of 1998. Sales of electronic interconnect products increased by 2.5% over the prior year reflecting improved market conditions and the continued success of new products introduced over the past two years. Gross profit. The Company's gross profit decreased by 18.6%, or approximately $5.0 million, from $27.0 million in 1998 to $22.0 million in 1999. Gross profit margin decreased from 30.0% of net sales in 1998 to 27.8% in 1999. The gross margin for the PSG decreased from 29.8% of net sales in 1998 to 24.5% in 1999 and, for the ICG, increased from 30.4% of net sales in 1998 to 32.0% in 1999. The decline in the PSG gross profit margin was primarily due to the spreading of fixed costs over a lower sales volume. The improved margins in the ICG were primarily due to a recovery of duty charges overpaid in prior years on the import of precision ball bearings. Selling, general and administrative expenses. SG&A expenses of $15.6 million in 1999 were substantially the same as 1998. Research and development expenses. R&D expenses of $2.8 million in 1999 were slightly higher than the $2.7 million incurred in 1998 primarily due to higher spending on new product development for the digital imaging market. Interest expense, net. Net interest expense decreased by 31.9%, or approximately $0.2 million, from $0.8 million in 1998 to $0.5 million in 1999. The decrease was primarily due to a combination of lower average borrowings and interest income recorded on the Company's Sensor Systems and Westlake Technology Corporation notes (see Notes 2 and 3 to the Condensed Consolidated Financial Statements). Special Charge. The Company recorded a pre-tax special charge of $0.8 million for expenses related to the process of exploring the potential sale of the Company, which was discontinued during the second quarter of 1999 (see Note 9 to the Condensed Consolidated Financial Statements). Taxes. The Company's effective tax rate decreased from 14.2% in 1998 to none in 1999. Commencing in the second quarter of 1998, the Company began to offset its normal continuing operations tax provision by the reversal of a portion of its tax valuation allowance (see Note 6 to the Condensed Consolidated Financial Statements). Discontinued Operations. See discussion in "Comparison of the Three Months Ended September 30, 1999 and September 30, 1998". Backlog A substantial portion of the Company's business is of a build-to-order nature requiring various engineering, manufacturing, testing and other processes to be performed prior to shipment. As a result, the Company generally has a significant backlog of orders to be shipped. The Company's backlog of orders decreased by 4.7% or $2.3 million, from $49.0 million at December 31, 1998 to $46.7 million at September 30, 1999. This decrease is primarily in backlog from the defense and space markets. The decline in the backlog of orders from the defense market is primarily due to the maturing of two large defense programs and the timing of orders which can be uneven and comprised of multiple dates over a period of time. The decline in the space 13 market is due to the lack of new major space opportunities. The Company believes that a substantial portion of the backlog of orders at September 30, 1999 will be shipped over the next twelve months. Liquidity and Capital Resources Net cash provided by operations for the nine months ended September 30, 1999 and 1998 was $2.6 million and $6.4 million, respectively. The decrease in cash provided from operations in 1999 was primarily due to reduced earnings. The Company's working capital was $29.5 million and $30.7 million on September 30, 1999 and December 31, 1998, respectively. Net cash used in investing activities for the nine months ended September 30, 1999 and 1998 was $0.7 million and $1.8 million, respectively. This reduction in use of cash was primarily due to lower capital expenditures and an increase in the use of capital lease financing. In addition, the Company received net proceeds from the sale of its former Sensor Systems division of $1.8 million in 1998. In 1999, the Company received $1.0 million, before retained liabilities, from the sale of the former Sensor Systems division's land and building. The Company had no material commitments for capital expenditures as of September 30, 1999. The Company funds its operations primarily from cash flow generated by operations and, to a lesser extent, from borrowings under its credit facility and through capital lease transactions. The Company has an $11.0 million senior secured revolving credit facility which expires on April 25, 2000 (the "Credit Facility"), of which $2.9 million was outstanding as of September 30, 1999. The Credit Facility contains restrictive covenants which, among other things, impose limitations with respect to the incurrence of additional liens and indebtedness, mergers, consolidations and specified sale of assets and requires the Company to meet certain financial tests including minimum levels of earnings and net worth and various other financial ratios. In addition, the Credit Facility prohibits the payment of cash dividends. The Company believes that it will be able to extend its current Credit Facility beyond April 25, 2000 or enter into a credit agreement with a new group of lenders with terms and covenants which are at least as favorable as those existing under the current facility. The Company further believes that its borrowing capacity under an extended Credit Facility or a new credit arrangement and cash generated from operations will be sufficient to finance its future capital expenditures, working capital requirements and the purchase of additional Company Common Stock for at least the next 12 months. Year 2000 The Company is continuously monitoring Year 2000 compliance issues affecting its information technology ("IT") and non-IT systems. No significant non-IT system Year 2000 compliance issues have been identified. As related to IT systems, the Company has completed the implementation of new management information systems at three of its business units. While the implementation of these new systems does address Year 2000 concerns, Year 2000 compliance was not the predominant justification supporting such investments. These new IT systems are also expected to enhance future operations through improved operating management and efficiencies. The cost of these new systems was approximately $1.2 million, of which $1.0 million has been capitalized and will be depreciated over future periods. Of the total $1.2 million Year 2000 spending, approximately $0.9 million and $0.3 million was spent in 1998 and 1997, respectively. With the implementation of these new management information systems, the Company believes it has addressed the potential Year 2000 hardware or software problems which it has identified. As such, no further contingency plans have been formulated. The Company is continuing the process of surveying material third parties such as customers, vendors, banks and others to determine their Year 2000 readiness. While it is not possible to fully assess the actual readiness of these third parties, a majority of their responses indicate that they are or will be Year 2000 compliant. For those vendors who have not responded satisfactorily, alternative sources will be identified. Recently Issued Accounting Standards Statement of Financial Accounting Standards ("SFAS") No. 133, "Accounting for Derivative Instruments and Hedging Activities" was issued in June 1998. SFAS No. 133, as amended by SFAS No. 137, is effective for fiscal years beginning after June 15, 2000. Management does not believe that the implementation of the statement will have a material impact on the consolidated financial position or consolidated results of operations of the Company. Forward-Looking Statements This quarterly report on Form 10-Q provides certain forward-looking statements. The Company's business is subject to a 14 variety of risks and uncertainties. As a result, actual future results and developments may be materially different from those expressed or implied in any forward-looking statement. Disclosure regarding factors affecting the Company's future results and developments is contained in the Company's public filings with the Securities and Exchange Commission, including the Company's annual report on Form 10-K for the fiscal year ended December 31, 1998. Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK The Company's market risk sensitive instruments do not subject the Company to material risk exposures. PART II. OTHER INFORMATION Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS Not applicable during the quarter ended September 30, 1999. Item 5. OTHER INFORMATION Not applicable during the quarter ended September 30, 1999. Item 6. EXHIBITS AND REPORTS ON FORM 8-K a) Exhibits: Exhibit 10(1): Amendment dated as of October 14, 1999 to the Credit Agreement, dated April 25, 1996, between the Company, various banks named therein and Paribas, as Agent. Exhibit 10(2): Net lease dated August 11, 1999, by and between Speedring Systems Inc. and Joel Nosanchuk. (Supersedes Exhibit 10(6) to the Company's Form 10Q for the quarter ended March 31, 1999). Exhibit 10(3): Net lease dated August 11, 1999, by and between Speedring Systems Inc. and Joel Nosanchuk. (Supersedes Exhibit 10(6) to the Company's Form 10Q for the quarter ended March 31, 1999). Exhibit 10(4): Letter Agreement between Mark J. Bonney and the Company dated as of August 1, 1999. Exhibit 10(5): Severance Protection Agreement between the Company and Mark J. Bonney dated as of August 30, 1999. Exhibit 27 (1): Financial Data Schedule (For SEC use only). Exhibit 27 (2): Restated Financial Data Schedule (For SEC use only). b) Reports on Form 8-K None during the quarter ended September 30, 1999. SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities indicated this 8th day of November, 1999. Date: November 8, 1999 AXSYS TECHNOLOGIES, INC. By: /s/ Stephen W. Bershad ------------------------------------- Stephen W. Bershad Chairman of the Board and Chief Executive Officer By: /s/ Raymond F. Kunzmann ------------------------------------- Raymond F. Kunzmann Vice President-Finance and Chief Financial Officer 15 EX-10.(1) 2 AMENDMENT DATED AS OF OCT. 14, 1999 Exhibit 10(1) AMENDMENT AMENDMENT (this "Amendment"), dated as of October 14, 1999 among AXSYS TECHNOLOGIES, INC. (formerly, Vernitron Corporation) (the "Borrower"), the various financial institutions party to the Credit Agreement referred to below (the "Banks"), and PARIBAS (formerly, Banque Paribas), as agent (the "Agent"). All capitalized terms used herein and not otherwise defined shall have the respective meanings provided such terms in the Credit Agreement. W I T N E S S E T H: WHEREAS, the Borrower, the Banks and the Agent are parties to a Credit Agreement, dated as of April 25, 1996 (as amended, modified or supplemented through the date hereof, the "Credit Agreement"); and WHEREAS, the parties hereto wish to amend the Credit Agreement as herein provided; NOW, THEREFORE, it is agreed: 1. Section 9.09 of the Credit Agreement is hereby amended by (i) deleting the portion of the table appearing therein beginning with "September 30, 1997 and each fiscal quarter thereafter" and ending with the end of the table and (ii) inserting in lieu thereof the following: "September 30, 1997 1.20:1.00 December 31, 1997 1.20:1.00 March 31, 1998 1.20:1.00 June 30, 1998 1.20:1.00 September 30, 1998 1.20:1.00 December 31, 1998 1.20:1.00 March 31, 1998 1.20:1.00 June 30, 1999 1.20:1.00 September 30, 1999 1.20:1.00 December 31, 1999 1.00:1.00 March 31, 2000 1.20:1.00" 2. Section 9.12 of the Credit Agreement is hereby amended by (i) deleting the "December 31, 1997 and each fiscal quarter thereafter" and ending with the end of the table and (ii) inserting in lieu thereof the following: "December 31, 1997 $12,500,000 March 31, 1998 $12,500,000 June 30, 1998 $12,500,000 September 30, 1998 $12,500,000 December 31, 1998 $12,500,000 March 31, 1999 $12,500,000 June 30, 1999 $ 8,250,000 September 30, 1999 $ 7,500,000 December 31, 1999 $ 7,500,000 March 31, 2000 $12,500,000" 3. In order to induce the Banks to enter into this Amendment, the Borrower hereby represents and warrants that on the Amendment Effective Date, after giving effect to the Amendment and the transactions contemplated hereby, (i) no Default or Event of Default shall exist and (ii) all of the representations and warranties contained in the Credit Documents shall be true and correct in all material respects, with the same effect as though such representations and warranties had been made on and as of the Amendment Effective Date (it being understood that any representation or warranty made as of a specific date shall be true and correct in all material respects as of such specified date). 4. This Amendment shall become effective on the date (the "Amendment Effective Date") when (i) the Borrower and the Required Banks shall have signed a counterpart hereof (whether the same or different counterparts) and shall have delivered (including by way of facsimile) the same to the Agent and (ii) all fees, costs and expenses owing to the Banks including, without limitation, the fees of White & Case LLP, shall have been paid. 5. This Amendment is limited as specified and shall not constitute modification, acceptance, consent or waiver of any other provision of the Credit Agreement of any other Credit Document. 6. This Amendment may be executed in any number of counterparts and by the different parties hereto on separate counterparts, each of which counterparts when executed and delivered shall be an original, but all of which shall together constitute one and the same instrument. A complete set of counterparts shall be lodged with the Borrower and the Agent. 7. THIS AMENDMENT AND THE RIGHTS AND OBLIGATIONS OF THE PARTIES HEREUNDER SHALL BE CONSTRUED IN ACCORDANCE WITH AND GOVERNED BY THE LAW OF THE STATE OF NEW YORK. * * * -2- IN WITNESS WHEREOF, the parties hereto have caused their duly authorized officers to execute and deliver this Amendment as of the date first above written. AXSYS TECHNOLOGIES, INC. By: /s/ Raymond F. Kunzmann ----------------------------- Title: Vice President PRECISION AEROTECH, INC. By: /s/ Raymond F. Kunzmann ----------------------------- Title: Vice President SPEEDRING SYSTEMS, INC. By: /s/ Raymond F. Kunzmann ----------------------------- Title: Vice President TELETRAC, INC. By: /s/ Raymond F. Kunzmann ----------------------------- Title: Vice President -3- PARIBAS, Individually and as Agent By: /s/ Donald J. Ercole ----------------------------- Title: Managing Director By: /s/ Darryl M. Monasebian ----------------------------- Title: Director IBJ WHITEHALL BANK & TRUST COMPANY By: /s/ David Thalmann ----------------------------- Title: Director FLEET BANK, N.A. By: /s/ Thomas G. Carley ----------------------------- Title: Vice President PARIBAS CAPITAL FUNDING LLC By: /s/ Jeff Youle ----------------------------- Title: Managing Director -4- EX-10.(2) 3 NET LEASE NET LEASE This Lease is made as of August 11, 1999, by and between JOEL NOSANCHUK, whose address is P.O. Box 668, Bloomfield Hills, Michigan 48303-0668 ("Landlord"), and SPEEDRING SYSTEMS, INC. , a Delaware corporation, whose address is 2909 Waterview Drive, Rochester Hills, Michigan 48309 ("Tenant"), who agree as follows: A. Landlord and Tenant entered into a lease dated February 1, 1999 with respect to the subject Premises. Landlord and Tenant have agreed to terminate said lease and to substitute, therefore, the following: SECTION 1 THE PREMISES 1.01 Landlord hereby leases to Tenant the real property located in the City of Rochester Hills, County of Oakland, and State of Michigan, more particularly described in Exhibit "A" attached to, and made an integral part of, this Lease (the "Land"), together with the buildings and other improvements on the Land, (the "Improvements")(the Land and the Improvements collectively will constitute and be referred to in this Lease as the "Premises"), more commonly known as 2909 Waterview Drive. SECTION 2 CONSTRUCTION OF IMPROVEMENTS THIS SECTION HAS BEEN INTENTIONALLY DELETED SECTION 3 THE TERM 3.01 The Term will commence (the "Commencement Date") on December 1, 1999. The Term will be 38 months, from and after the Commencement Date. 3.02 Upon request by Landlord, Tenant will execute a written instrument confirming the Commencement Date and the expiration date of the Term. SECTION 4 THE BASE RENT 4.01 Tenant agrees to pay to Landlord, as minimum net rental for the original Term of this Lease, the total amount of Seven Hundred Ninety Thousand Ninety Six ($790,096.00) Dollars in monthly installments of Twenty Thousand Seven Ninety Two ($20,792.00) Dollars. 4.02 Each monthly installment of minimum net rental will be paid in advance without any setoffs or deductions, on the first day of each and every month (the "Rent Day") during the Term, at the office of the Landlord at the address first shown above, or at such other place as Landlord from time to time may designate in writing.. In the event the Commencement Date is other than the first day of a calendar month, the rental for the partial first calendar month of the Term will be prorated accordingly. 4.03 THIS SECTION INTENTIONALLY DELETED INITIALS ----------- MM / M ----------- SECTION 5 LATE CHARGES AND INTEREST 5.01 Any rent or other sums, if any, payable by Tenant to Landlord under this Lease which are not paid within ten (10) days after they are due, and any rent or other sums received and accepted by Landlord more than ten (10) days after they are due, will be subject to a late charge of five (5%) percent of the amount due. Such late charges will be due and payable as additional rent on or before the next Rent Day. 5.02 Any rent, late charges or other sums payable by Tenant to Landlord under this Lease not paid within thirty (30) days after the same are due will bear interest at a per annum rate equal to the greater of eleven (11%) percent or four percentage points above the effective prime interest rate per annum charged by Comerica Bank to its best commercial customers on the date when the rent, late charges or other sums became due, but not in excess of the maximum interest rate permitted by law. Such interest will be due and payable as additional rent on or before the next Rent Day, and will accrue from the date that such rent, late charges or other sums are payable under the provisions of this Lease until actually paid by Tenant. 5.03 Any default in the payment of rent, late charges or other sums will not be considered cured unless and until the late charges and interest due hereunder are paid by Tenant to Landlord. If Tenant defaults in paying such late charges and/or interest, Landlord will have the same remedies as on default in the payment of rent. The obligation hereunder to pay late charges and interest will exist in addition to, and not in the place of, the other default provisions of this Lease. SECTION 6 TAXES, ASSESSMENTS AND UTILITIES 6.01 Tenant agrees to pay as additional rent for the Premises all taxes and assessments, general and special, all water rates and all other governmental impositions which may be levied on the Premises or any part thereof, or on any building or improvements at any time situated thereon, during or pertaining to the Term and any extensions thereof. All such taxes, assessments, water rates and other impositions will be paid by Tenant before they become delinquent. The property taxes and assessments for the first and last years of the Term or any extension thereof, will be prorated between Landlord and Tenant so that Tenant will be responsible for any such tax or assessment attributable to the period during which Tenant has possession of the Premises. The so-called "due-date" method of proration will be used, it being presumed that taxes and assessments are payable in advance. In the event that during the Term or any extension thereof (I) the real property taxes levied or assessed against the Premises are reduced or eliminated, whether the cause is a judicial determination of unconstitutionality, a change in the nature of the taxes imposed or otherwise, and (ii) there is levied, assessed or otherwise imposed on the Landlord, in substitution for all or part of the tax thus reduced or eliminated, a tax (the "Substitute Tax") which imposes a burden upon Landlord by reason of its ownership of the Premises, then to the extent of such burden the Substitute Tax will be deemed a real estate tax for purposes of this paragraph. 6.02 Tenant agrees to pay all charges made against the Premises for gas, heat, electricity and all other utilities as and when due during the continuance of this Lease. 6.03 In the event that payment of any or all of the foregoing taxes, assessments and utilities are to be made from an escrowed fund required to be established by Landlord as Mortgagor under the terms of any first mortgage on the Premises, then Landlord will so notify Tenant. Tenant will not be required to pay directly such taxes, assessments and utilities as are paid from the escrowed fund, but will instead, as additional rent, pay to Landlord on the first day of each month of the Term an amount equal to the amount required to be paid by Landlord under the terms of such first mortgage to the escrowed fund on account of such charges. If the actual taxes, assessments and utilities, when due, exceed the total amounts from time to time paid INITIALS ----------- MM / M ----------- 2 therefor by Tenant, then Tenant will pay on demand any deficiency to Landlord. If such payments by Tenant, over the Term, exceed the amount of taxes, assessments and utilities paid therefrom, such excess will be refunded by Landlord to Tenant promptly. 6.04 Tenant also agrees to pay as additional rent for the Premises all dues and assessments levied against or in regard to the Premises by Rochester Hills Corporate Center Subdivision Association until the termination of the Term and of any extended term of this Lease. Tenant will pay all such dues and assessments before they become delinquent. Such dues and assessments which relate to specific periods of time which periods include the Commencement Date and/or the termination date of this Lease or any extension thereof, will be prorated between Landlord and Tenant so that Tenant will be responsible for any such dues and assessments attributable to the period during which Tenant has possession of the Premises. 6.05 Tenant, at its expense, may contest, by appropriate legal proceedings conducted in good faith and with due diligence, the amount or validity or application, in whole or in part, of any tax, assessment, imposition or any legal requirements applicable to the Premises or any lien, encumbrance or charge, provided that (a) in the case of an unpaid tax, assessment, imposition, lien, encumbrance or charge, the commencement of such proceedings shall suspend the collection thereof from Landlord and from the Premises, (b) neither the Lease Property nor any rent therefrom nor any part thereof or interest therein would be in any immediate danger of being sold, forfeited, attached or lost, (c) in the case of a legal requirement applicable to the Premises, Landlord would not be in any immediate danger of civil or criminal liability for failure to comply therewith pending the outcome of such proceedings, (d) in the case of an insurance requirement, the coverage required by Section 8 shall be maintained, (e) if such contest be finally resolved against Tenant, Tenant shall promptly pay the amount required to be paid, together with all interest and penalties accrued thereon, or comply with the applicable legal requirement or insurance requirement, and (f) no default shall exist hereunder: Landlord, at Tenant's expense, shall execute and deliver to Tenant such authorizations and other documents as may reasonably be required in any such contest, and, if reasonably requested by Tenant, Landlord shall join as a party therein. Tenant shall indemnify and save Landlord harmless against any cost or expense of any kind that may be imposed upon Landlord in connection with any such contest any loss resulting therefrom. 6.06 Landlord shall give prompt notice to Tenant of all taxes, assessments or impositions payable by Tenant hereunder of which Landlord at any time has knowledge, but Landlord's failure to give any such notice shall in no way diminish Tenant's obligation s hereunder. SECTION 7 USE OF PREMISES 7.01 The Premises during the continuance of this Lease will be used and occupied for office, engineering, light manufacturing, sales, distribution, and warehouse uses including, the manufacture of optical scanners and air bearings. Tenant agrees that it will not use or permit any person to use the Premises or any part thereof for any use or purposes in violation of the laws of the United States, the laws, ordinances or other regulations of the State and municipality in which the Premises are located, or of any other lawful authorities, or the Declaration of Covenants and Restrictions, dated July 9, 1987, recorded in Oakland County records (a copy of which is attached hereto as Exhibit "B"), to which Declaration this Lease is hereby expressly made subject. During the Term or any extended term, Tenant will keep the Premises and every part thereof and all buildings at any time situated thereon generally in compliance with all lawful health and policy regulations. All signs and advertising displayed in and about the Premises will be such only as to advertise the business carried on upon the Premises and Landlord will control the location, character and size thereof. No signs will be displayed except as approved in writing by Landlord, which approval shall not be unreasonably withheld or delayed and no awning will be installed or used on the exterior of the building unless approved in writing by Landlord. INITIALS ----------- MM / M ----------- 3 SECTION 8 INSURANCE (LANDLORD TO OBTAIN) THIS SECTION INTENTIONALLY DELETED INSURANCE (TENANT TO OBTAIN) 8.01 Tenant, at its sole expense, will obtain and maintain at all times until termination of this Lease and surrender of the Premises to Landlord, a primary policy of insurance covering the Premises and providing the insurance protection described in this Section 8. 8.02 The liability coverage under the primary policy will name Landlord and Landlord's mortgagee as additional insured parties, and will provide comprehensive general public liability insurance coverage against claims for or arising out of bodily injury, death or property damage, occurring in, on or about the Premises or property in, on or about the streets, sidewalks or properties adjacent to the Premises. The limits of coverage will be, if dual limits are provided, initially, not less than Two Million ($2,000,000.00) Dollars with respect to injury or death of a single person, not less than Two Million ($2,000,000.00) Dollars with respect to any one occurrence and not less than One Million ($1,000,000.00) Dollars with respect to any one occurrence of property damage, or, in the alternative, a single limit policy in the amount of Two Million ($2,000,000.00) Dollars, and thereafter in such reasonably appropriate increased amounts as may be determined by Landlord or Landlord's mortgagee; provided, however, that the amount of coverage will not be increased more frequently than at one (1) year intervals. The policy will contain cross-liability endorsements. 8.03 The primary policy will insure the Improvements, as defined in Section 1.01 hereof (but not any personal property, fixtures or equipment of Tenant), for full replacement cost against loss by fire, with standard extended risk coverage, vandalism, malicious mischief, sprinkler leakage and all other risk perils. The named insureds will be Landlord and Landlord's mortgagee, only. The initial amount of this insurance will be: Two Million ($2,000,000.00) Dollars, but such amount may be increased upon notice to Tenant on the recommendation or requirement of Landlord or Landlord's mortgagee, in order to reflect increases in the replacement cost of the Improvements. 8.04 The primary policy also will provide loss of rents coverage sufficient, as reasonably determined by Landlord, to cover the net rental and all other charges which are the obligation of Tenant under this Lease for a 12-month period from the date of any loss or casualty. 8.05 The insurance policy or policies to be provided by Tenant hereunder shall be issued by an insurance company or companies having an A.M. Best Company rating of not less than "A". Each policy procured by Tenant under this Section 8 must provide for at least thirty (30) days' written notice to Landlord of any cancellation. At Landlord's option, either certificates of insurance or the original policy or policies will be delivered by Tenant to Landlord prior to the effective date thereof, together with receipts evidencing payment of the premiums therefor. Tenant will deliver certificates of renewal for such policies to Landlord at least thirty (30) days prior to the expiration dates thereof. The insurance provided by Tenant under this Section 8 may be in the form of a blanket insurance policy covering other properties as well as the Premises; provided, however, that any such policy or policies of blanket insurance (I) must specify therein, or Tenant must furnish Landlord with a written statement from the insurers under such policy or policies specifying, the amount of the total insurance allocated to the Premises, which amounts will not be less than the amounts required by Subsections 8.02, 8.03 and 8.04 hereof, and (ii) such amounts so specified must be sufficient to prevent Landlord or Landlord's mortgagee from becoming a co-insurer within the terms of the applicable policy or policies, and provided further, however, that any such policy or policies of blanket insurance must, as to the Premises, otherwise comply as to endorsements and coverage with the other provisions of this Section 8. INITIALS ----------- MM / M ----------- 4 8.06 Except with respect to the insurance required by Subsections 8.02, neither Landlord nor Tenant may take out separate insurance concurrent in form or contributing in the event of loss with that required under this Section 8 unless Landlord and Tenant are included therein as the insured payable as provided in this Lease. Each party will notify the other immediately of the placing of any such separate insurance. 8.07 If Tenant fails to provide all or any of the insurance required by this Section 8, or subsequently fails to maintain such insurance in accordance with the requirements of this Section, Landlord may (but will not be required to) procure or renew such insurance, and any amounts paid by Landlord for such insurance will be additional rental due and payable on or before the next Rent Day, together with late charges and interest as provided in Section 5. 8.08 In the event of loss under any policy or policies provided by Tenant to Landlord under this Section 8, other than the liability policy required by Subsection 8.02, the insurance proceeds will be payable to Landlord or Landlord's mortgagee; thereafter, such proceeds, with the exception of the loss of rents insurance proceeds, will be used for the expense of repairing or rebuilding the Improvements which have been damaged or destroyed if Landlord and its mortgagee are satisfied that the amount of insurance proceeds are and will be at all times sufficient to pay for the completion of the repairs or rebuilding. 8.09 Landlord's mortgagee under any first mortgage on the Premises at any time requires, pursuant to the terms of the mortgage, that payment of insurance premiums be made from an escrowed fund, then Landlord will so notify Tenant. In such event, Tenant will not directly pay the insurance premiums, but instead such excess is refunded by the mortgagee to Landlord, whichever occurs first. SECTION 9 DAMAGE BY FIRE OR OTHER CASUALTY 9.01 It is understood and agreed that if the building is damaged or destroyed in whole or in part by fire or other casualty during the term, the Landlord shall have the right to demolish or to repair and restore the damaged building. If the Landlord elects not to repair and restore the damaged building, Landlord may cancel this Lease within 30 days after such fire or other casualty by giving Tenant notice of Landlord's intention to so do. The Lease shall terminate, 60 days after such cancellation notice to Tenant if Landlord elects to repair and restore the damaged building the rent and all other charges which are the obligation of Tenant under this Lease will abate for the period the building is untenable. Notwithstanding anything to the contrary, if in the reasonable opinion of the Landlord and/or Tenant the premises cannot be or are in fact are not restored to its prior condition within six months after the date of such casualty than either party shall have the option to terminate this Lease as to the building which was subject to such fire or other casualty; provided, however, that if Tenant shall fail to adjust its own insurance or remove its damaged property and equipment within a reasonable time and as a result thereof the repair and restoration is delayed, the aforesaid 6-month period shall be extended for an additional period equal to the delay. 9.02 If Tenant has elected, under Alternate Section 8, to carry its own insurance, and the insurance proceeds therefrom are insufficient, in Landlord's judgment, to cover the cost of repairing and restoring the Premises to good tenantable condition, Tenant will deposit with Landlord or the mortgagee of any first mortgage on the Premises the amount by which such proceeds are insufficient and Landlord thereupon will proceed with such repairs and restoration; if Tenant fails to make such a deposit, Landlord will be under no obligation to make such repairs or undertake such restoration, or to use any portion of the insurance proceeds for such restoration and repair, but Tenant will not thereby be relieved of its obligations to repair and restore the Premises to good tenantable condition. 9.03 Tenant will have the option, exercisable by written notice to Landlord upon restoration of the Premises, to extend the original Term of this Lease (or the extension of the Term during which the damage or destruction occurred, as the case may be) for a period equal to the period, if any, during which Tenant was deprived of the use of all or a significant portion of the Premises by reason of such damage or destruction. Tenant's option must be exercised within twenty (20) days following completion of the work of restoration and repair. INITIALS ----------- MM / M ----------- 5 SECTION 10 REPAIRS 10.01 Except as otherwise provided in this Section 10, Tenant agrees at its own expense to keep the Improvements, including all structural, electrical, mechanical and plumbing systems at all times in good appearance and repair except for reasonable and normal wear and tear. Tenant will also pay all other expenses in connection with the maintenance of the Premises including repair and upkeep of grounds, sidewalks, driveways and parking areas in a first class condition. 10.02 Notwithstanding any other provision of this Lease, from and after the date Tenant takes occupancy of the Premises any repairs, additions or alterations to the improvements or any of its systems (e.g., plumbing, electrical, mechanical) structural or non-structural, which are required by any law, statute, ordinance, rule, regulation or governmental authority or insurance carrier, including, without limitation, OSHA, will be the obligation of Tenant. Provided, however, that Tenant shall not be responsible for any repairs, additions or alterations to the building or any of its systems (e.g. plumbing, electrical, mechanical) structural or non-structural which are required by any law, statute, ordinance rule, regulation or governmental authority or insurance carrier, including without limitation, OSHA if a violation or noncompliance existed at the time Tenant took occupancy of the Premises, in which case Landlord shall be responsible for the repairs, additions or alterations as required. 10.03 Tenant acknowledges that he has examined the Premises prior to the making of this Lease, that he knows the condition thereof, that no representations as to the condition of the state of repairs thereof have been made by Landlord or Landlord's agent which are not expressly set forth herein, and that except as otherwise specifically set forth herein, Tenant hereby accepts the Premises in their present condition at the date of execution of this Lease. SECTION 11 PAYMENT FOR SERVICES RENDERED BY LANDLORD 11.01 If Landlord at any time: (I) does any work or performs any service in connection with the Premises, or (ii) supplies any materials to the Premises, and the cost of the services, work or materials is Tenant's responsibility under the provisions of this Lease, Landlord will invoice Tenant for the cost, payable; within thirty (30) days after delivery of the invoice. This Section will apply to any such work, services or materials, if furnished at Tenant's request or on its behalf when failure by Tenant to furnish same constitutes a default hereunder and whether furnished or caused to be furnished by Landlord or its agents, employees or contractors. All amounts payable under this Section will be additional rental, and failure by Tenant to pay them when due will be a default under this Lease and further will result in the assessment of late charges and interest under Section 5. SECTION 12 ALTERATIONS 12.01 The parties agree that Tenant will not make any alterations, additions, or improvements to the Premises without the written consent of Landlord, which consent shall not be unreasonably withheld or delayed, and if required by the terms of any mortgage on the Premises, the written consent of the mortgagee (which consent shall not be unreasonably withheld or delayed). All alterations, additions or improvements made by either of the parties hereto on the Premises after the commencement date will be the property of Landlord and will remain on and be surrendered with the Premises at the termination of this Lease, except that alterations, additions or improvements made by Tenant must be removed and the Premises restored by Tenant if so requested by Landlord. 12.02 If Landlord shall determine to repair, alter, remove, reconstruct or improve any part of the Premises, then Landlord shall do such work with reasonable dispatch and with INITIALS ----------- MM / M ----------- 6 minimal interference with Tenant's use and enjoyment of the Premises as is reasonably necessary under the circumstances. 12.03 Tenant, at its option, may add eight (8) to ten (10) additional parking spaces at 2909 Waterview Drive by removing the concrete sidewalk, altering the landscaping and adding asphalt paving between the front entranceway and the side door and these alterations will be considered permanent such that Tenant will not be required to remove or restore the Premises to its original condition at the end of the Lease. All work shall be done in a good and workmanlike manner and in conformity with all appropriate governmental requirements. SECTION 13 LIENS 13.01 After the Commencement Date, Tenant will keep the Premises free of liens of any sort and will hold Landlord harmless from any perfected liens which may be placed on the Premises except those attributable to the acts of Landlord. SECTION 14 EMINENT DOMAIN 14.01 If fifty (50%) percent or more of a building's net rentable area is condemned or taken in any manner (including without limitation any conveyance in lieu thereof) for any public or quasi-public use, the Term of this Lease as to that building shall cease and terminate as of the date title is vested in the condemning authority. If twenty-five (25%) percent or less of a building's net rentable area is so condemned or taken, the Landlord may terminate this Lease as to that building if it determines, in the reasonable exercise of its business judgment, that continued operation of the Premises under this Lease would be uneconomic. If more than twenty-five (25%) percent but less than fifty (50%) percent of a building's net rentable area is so condemned or taken, with the result that Tenant's business is significantly and adversely affected thereby, or if such a portion of the parking area is so condemned or taken that the number of parking spaces remaining are less than the number required by applicable zoning or other code for the building, then either Landlord or Tenant may terminate this Lease as of the date title is vested in the condemning authority by written notice to the other. 14.02 If this Lease is not terminated following such a condemnation or taking, Landlord, as soon as reasonably practicable after such condemnation or taking and the determination and payment of Landlord's award on account thereof, shall expend as much as may be necessary of the net amount which is awarded to Landlord and released by Landlord's mortgagee, if any, in restoring, to the extent originally constructed by Landlord (consistent, however, with zoning laws and building codes then in existence), so much of the building as was originally constructed by Landlord to an architectural unit as nearly like its condition prior to such taking as shall be practicable. Should the net amount so awarded to Landlord be insufficient to cover the cost of restoring the building, in the reasonable estimate of Landlord, Landlord may, but shall have no obligation to, supply the amount of such insufficiency and restore the building to such an architectural unit, with all reasonable diligence, or Landlord may terminate this Lease by giving notice to Tenant not later than a reasonable time after Landlord has determined the estimated net amount which may be awarded to Landlord and the estimated cost of such restoration. 14.03 If this Lease is not terminated pursuant to Section 14.01, the minimum net rental payable by Tenant shall be reduced in proportion to the reduction in net rentable area of the building by reason of the condemnation or taking. If this Lease is terminated pursuant to Section 14.01, the minimum net rental and other charges which are the obligation of Tenant hereunder shall be apportioned and prorated accordingly as of the date of termination. 14.04 The whole of any award or compensation for any portion of the Premises taken, condemned or conveyed in lieu of taking or condemnation shall be solely the property of and payable to Landlord. Nothing herein contained shall be deemed to preclude Tenant from seeking, at its own cost and expense, an award from the condemning authority for loss of its business, the value of any trade fixtures or other personal property of Tenant in the Premises, INITIALS ----------- MM / M ----------- 7 moving expenses or any other damages, provided that the award for such claim or claims shall not be in diminution of the award made to Landlord. SECTION 15 ASSIGNMENT OR SUBLETTING 15.01 Tenant agrees not to assign or in any manner transfer this Lease or any interest in this Lease without the previous written consent of Landlord, and not to sublet the Premises or any part of the Premises or allow anyone to use or to come in with, through or under it without like consent, which consent will not be unreasonably withheld. One such consent will not be deemed a consent to any subsequent assignment, subletting, occupation, or use by any other person. Tenant may, however, assign this Lease to a corporation with which it may merge or consolidate, to any parent or subsidiary of Tenant or subsidiary of Tenant's parent, or to a purchaser of substantially all of Tenant's assets if the assignee has assets and creditworthiness substantially equal to or greater than Tenant and if the assignee executes an agreement required by Landlord assuming Tenant's obligations. The acceptance of rent from an assignee, subtenant or occupant will not constitute a release of Tenant from the further performance of the obligations of Tenant contained in this Lease. Tenant acknowledges that Landlord selected Tenant in part on the basis of Tenant's proposed use and occupation of the Premises, and agrees that Landlord may withhold consent to any proposed sublease assignment if the subtenant's or assignee's business or proposed use of the Premises would be physically injurious to the Building or would detract from the reputation of the industrial park within which the premises are located. SECTION 16 INSPECTION OF PREMISES 16.01 Tenant agrees to permit Landlord and the authorized representatives of Landlord to enter the Premises at all reasonable times and upon reasonable prior notice during business hours for the purpose of inspecting the same. SECTION 17 FIXTURES AND EQUIPMENT 17.01 All fixtures and equipment paid for by Landlord and all fixtures and equipment which may be paid for and placed on the Premises by Tenant from time to time but which are so incorporated and affixed to Improvements that their removal would involve damage or structural change to Improvements, will be and remain the property of Landlord. 17.02 All furnishings, equipment and fixtures other than those specified in Section 17.01, which are paid for and placed on the Premises by Tenant from time to time (other than those which are replacements for fixtures originally paid for by Landlord) will remain the property of Tenant. SECTION 18 SECURITY 18.01 THIS SECTION HAS BEEN INTENTIONALLY DELETED SECTION 19 NOTICE OR DEMANDS 19.01 All bills, notices, statements, communications to or demands (collectively, "notices or demands") upon Landlord or Tenant desired or required to be given under any of the provisions hereof must be in writing. Any such notices or demands from Landlord to Tenant will be deemed to have been duly and sufficiently given if a copy thereof has been mailed by INITIALS ----------- MM / M ----------- 8 United States mail in an envelope properly stamped and addressed to Tenant at the address of the Premises or Tenant's registered office in the State in which the Premises are located at such time, or at such other address as Tenant may have last furnished in writing to the Landlord for such purpose, and any such notices or demands from Tenant to Landlord will be deemed to have been duly and sufficiently given if personally delivered to Landlord or mailed by United States mail in an envelope properly stamped and addressed to Landlord at the address last furnished by written notice from Landlord to Tenant. The effective date of such notice or demand will be deemed to be the time when personally delivered or mailed as herein provided. SECTION 20 BREACH; INSOLVENCY; RE-ENTRY 20.01 If any rental payable by Tenant to Landlord remains unpaid for more than seven (7) days after written notice to Tenant of non-payment, or if Tenant violates or defaults in the performance of any of its obligations in this Lease and the violation or default continues for a period of thirty (30) days after written notice (or if such violation or default cannot reasonably be cured within such 30-day period, then such longer period as may be reasonably necessary, provided Tenant commences such cure within such 30-day period and diligently pursues such cure to completion), then Landlord may (but will not be required to) declare this Lease forfeited and the Term ended, or re-enter the Premises, or may exercise all other remedies available under Michigan law. Landlord will not be liable for damages to person or property by reason of any legitimate re-entry or forfeiture, and Landlord will be aided and assisted by Tenant, its agents, representatives and employees. Tenant, by the execution of this Lease, waives notice of re-entry by Landlord. In the event of re-entry by Landlord without declaration of forfeiture, the liability of Tenant for the rent provided herein will not be relinquished or extinguished for the balance of the Term, and any rentals prepaid may be retained by Landlord and applied against the cost of reentry, or as liquidated damages, or both. Tenant will pay, in addition to the rentals and other sums agreed to be paid hereunder, reasonable attorneys' fees, costs and expenses in any suit or action instituted by or involving Landlord to enforce the provisions of, or the collection of the rentals due Landlord under this Lease, including any proceeding under the Federal Bankruptcy Code. If Tenant is adjudged bankrupt or insolvent, files or consents to the filing of a petition in bankruptcy under Federal or State law, applies for or consents to the appointment of a receiver for all or substantially all of its assets, makes a general assignment for the benefit of its creditors, or does anything which, under the applicable provisions of the Federal Bankruptcy Code would permit a petition to be filed by or against Tenant, and such petition is not removed within sixty (60) days then Tenant shall be in default under this Lease and, to the extent from time to time permitted by applicable law, including but not limited to the Federal Bankruptcy Code, Landlord shall be entitled to exercise all remedies set forth in the preceding paragraph of this Section 20. In a reorganization under Chapter 11 of the Federal Bankruptcy Code, the debtor or trustee must assume this Lease or assign it within sixty (60) days from the filing of the proceeding, or he shall be deemed to have rejected and terminated this Lease. Tenant acknowledges that its selection to be the tenant hereunder was premised in material part on Landlord's determination of Tenant's creditworthiness and ability to perform the economic terms of this Lease, and Landlord's further determination that Tenant and the character of its occupancy and use of the Premises would be compatible with the nature of the Premises and other adjacent properties of Landlord. Therefore, if Tenant, as debtor, or its trustee elects to assume or assign this Lease, in addition to complying with all other requirements for assumption or assignment under the Federal Bankruptcy Code, then Tenant, as debtor, or its trustee or assignee, as the case may be, must also provide adequate assurance of future performance, including but not limited to a deposit, the amount of which shall be reasonably determined based on the duration of time remaining in the Term, the physical condition of the Premises at the time the proceeding was filed, and such damages as may be reasonably anticipated after reinstatement of the Lease, taking into account rental market conditions at the time of the reinstatement. In the event of an assignment, the Landlord must be reasonably assured that the financial condition of the assignee is sound, and that its use of the Premises will be compatible with the nature of the Premises and other adjacent properties of Landlord. In the event of declaration of forfeiture at or after the time of re-entry, Landlord may re-lease the Premises or any portion (s) of the Premises for a terms or terms and at a rent which may INITIALS ----------- MM / M ----------- 9 be less than or exceed the balance of the Term of and the rent reserved under this Lease. In such event Tenant will pay to Landlord as liquidated damages for Tenant's default any deficiency between the total rent reserved and the net amount, if any, of the rents collected on account of the lease or leases of the Premises which otherwise would have constituted the balance of the term of this Lease. In computing such liquidated damages, there will be added to the deficiency any expenses which Landlord may incur in connection with re-leasing, such as legal expenses, attorneys' fees, brokerage fees and expenses, advertising and for keeping the Premises in good order or for preparing the Premises for re-leasing. Any such liquidated damages will be paid in monthly installments by Tenant on the Rent Day and any suit brought to collect the deficiency for any month will not prejudice Landlord's right to collect the deficiency for any subsequent month by a similar proceeding. In lieu of the foregoing computation of liquidated damages, Landlord may elect, at its sole option, to receive liquidated damages in one payment equal to any deficiency between the total rent reserved hereunder and the fair and reasonable rental of the Premises, both discounted at ten (10%) percent per annum to present value at the time of declaration of forfeiture. Whether or not forfeiture has been declared, Landlord will not be obliged or be responsible in any way for failure to re-lease the Premises or, in the event that the Premises are re-leased, for failure to collect the rent under such re-leasing. The failure of Landlord to re-lease all or any part of the Premises will not release or affect Tenant's liability for rent or damages. SECTION 21 SURRENDER OF PREMISES ON TERMINATION 21.01 At the expiration (or earlier termination) of the Term, Tenant will surrender the Premises broom clean and in as good condition and repair as they were at the time Tenant took possession, reasonable wear and tear excepted, and promptly upon surrender will deliver all keys and building security cards for the Premises to Landlord at the place then fixed for payment of rent. All costs and expenses incurred by Landlord in connection with repairing or restoring the Premises to the condition called for herein, together with the costs, if any, of removing from the Premises any property of Tenant left therein, together with liquidated damages in an amount equal to the amount of minimum net rental plus all other charges which would have been payable by Tenant under this Lease if the term of this Lease had been extended for the period of time reasonably required for Landlord to repair or restore the Premises to the condition called for herein, shall be invoiced to Tenant and shall be payable as additional rental within thirty (30) days after receipt of notice. SECTION 22 PERFORMANCE BY LANDLORD OF THE COVENANTS OF TENANT 22.01 If Tenant fails to pay any sum of money, other than rental, required to be paid hereunder or fails to perform any act on its part to be performed hereunder, including without limitation the performance of all covenants pertaining to the condition and repair of the Premises pursuant to Section 10, above, and such failure shall continue for a period of thirty (30) days (or a reasonable period of less than thirty (30) days when life, person or property is in jeopardy) after notice thereof by Landlord, Landlord may (but shall not be required to), and without waiving or releasing Tenant from any of Tenant's obligations, make any such payment or perform any such other act. All sums so paid by Landlord and all necessary incidental costs, including without limitation the cost of repair, maintenance or restoration of the Premises if so performed by Landlord hereunder, shall be deemed additional rental and, together with interest thereon at the rate set forth in Section 5.02, from the date of payment by Landlord until the date of repayment by Tenant to Landlord, shall be payable to Landlord within thirty (30) days after receipt of invoice by Tenant. On default in such payment, Landlord shall have the same remedies as on default in payment of rent. The rights and remedies granted to Landlord under this Section 22 shall be in addition to, and not in lieu of all other remedies, if any, available to Landlord under this Lease or otherwise, and nothing herein contained shall be construed to limit such other remedies of Landlord with respect to any matters covered herein. INITIALS ----------- MM / M ----------- 10 SECTION 23 SUBORDINATION; ESTOPPEL CERTIFICATES 23.01 Tenant agrees that Landlord may choose to make this lease subordinate or paramount to any construction loans, mortgages, trust deeds and ground or underlying leases now or hereafter affecting the Premises and to any and all advances to be made thereunder, and to the interest and charges thereon, and all renewals, replacements, and extensions thereon, provided the mortgagee, lessor or trustee named in any such mortgages, trust deeds or leases agrees to recognize the lease of Tenant in the event of foreclosure if Tenant is not in default provided that no such loan, mortgage, trust deed, or lease shall materially and adversely affect any substantial right of Tenant hereunder. Tenant will execute promptly any instrument or certificate that Landlord may request to confirm such subordination, and hereby irrevocably appoints Landlord as Tenant's attorney-in-fact to execute such instrument or certificate on its behalf. 23.02 Tenant, within ten (10) days after request (at any time or times) by Landlord, will execute and deliver to Landlord, an estoppel certificate identifying the Commencement Date and expiration date of the Term and stating that this Lease is unmodified and in full force and effect, or is in full force and effect as modified, stating the modifications, and stating that Tenant does not claim that Landlord is in default in any way, or listing any such claimed defaults. The certificate also will confirm the amount of monthly Base Rent and additional rent as of the date of the certificate, the date to which the rent has been paid in advance, and the amount of any security deposit or prepaid rent. If Tenant fails to deliver the executed certificate to Landlord within the ten (10) day period, then after an additional ten (10) day notice by Landlord to Tenant, the accuracy of the proposed certificate will be deemed conclusively confirmed. 23.3 Notwithstanding anything to the contrary contained in this Lease, Landlord agrees that Tenant may pledge, hypothecate or otherwise encumber its interests in the leased property and under this Lease in connection with its or its corporate parent's existing or future secured borrowing arrangements. SECTION 24 QUIET ENJOYMENT 24.01 Landlord agrees that at all times when Tenant is not in default under the provisions and during the Term of this Lease, Tenant's quiet and peaceable enjoyment of the Premises will not be disturbed or interfered with by Landlord or any person claiming by, through, or under Landlord. SECTION 25 HOLDING OVER 25.01 If Tenant remains in possession of the Premises after the expiration date of this Lease without executing a new lease, it will be deemed to be occupying the Premises as a tenant from month to month, subject to all the provisions of this Lease to the extent that they can be applicable to a month-to-month tenancy, except that the minimum net rental for each month will be one hundred fifty (150%) percent of the regular monthly installments of minimum net rental set forth in Section 4.01, above. SECTION 26 REMEDIES NOT EXCLUSIVE; WAIVER 26.01 Each and every of the rights, remedies and benefits provided by this Lease are cumulative, and are not exclusive of any other of said rights, remedies and benefits, or of any other rights, remedies and benefits allowed by law. INITIALS ----------- MM / M ----------- 11 26.02 One or more waivers of any covenant or condition by Landlord will not be construed as a waiver of a further or subsequent breach of the same covenant or condition, and the consent or approval by Landlord to or of any act by Tenant requiring Landlord's consent or approval will not be deemed to waive or render unnecessary Landlord's consent or approval to or of any subsequent similar act by Tenant. SECTION 27 WAIVER OF SUBROGATION 27.01 Landlord and Tenant hereby waive any and all right of recovery against each other for any loss or damage caused by fire or any of the risks covered by standard fire and extended coverage, vandalism and malicious mischief insurance policies. SECTION 28 RIGHT TO SHOW PREMISES 28.01 For a period commencing one hundred eighty (180) days prior to the termination of this Lease or any extension thereof, Landlord may show the Premises and may display about the Premises signs advertising the availability of the Premises. SECTION 29 SECURITY DEPOSIT 29.01 Landlord hereby acknowledges the receipt of ($17,762.00 which has been transferred from the prior Lease respecting 2909 Waterview Drive) which shall constitute a Security Deposit. If Tenant defaults in any of the provisions of this Lease, Landlord may use, apply or retain all or any part of the Security Deposit for the payment of any minimum net rental and/or other charges which are the obligation of Tenant under this Lease in default or for any other sum which Landlord may expend by reason of Tenant's default, including any damages or deficiency in the releasing of the Premises. SECTION 30 INDEMNIFICATION 30.01 Tenant at its expense will defend, indemnify and save Landlord, its licensees, servants, agents, employees and contractors, harmless from any loss, damage, liability or expense to or for any person or property, whether based on contract, tort, negligence or otherwise, arising directly or indirectly out of or in connection with (i) the condition of the Premises, to the extent arising out of the use or misuse thereof by Tenant or any of its licensees, servants, agents, employees or contractors, (ii) the acts or omissions of Tenant, its licensees, servants, agents, employees or contractors, and (iii) any failure by Tenant to comply with any provision of this Lease; provided that nothing herein shall be construed to require Tenant to indemnify Landlord against the acts, omissions or negligence of Landlord, its licensees, servants, agents, employees or contractors. 30.02 Landlord at its expense will defend, indemnify and save Tenant, its licensees, servants, agents, employees and contractors, harmless from any loss, damage, liability or expense to or for any person or property, whether based on contract, tort, negligence or otherwise arising directly or indirectly out of or in connection with (i) any failure by Landlord to comply with any provision of this Lease and (ii) any action taken by Landlord on or concerning the Premises during the term of this Lease. SECTION 31 PREVENTING REMOTE VESTING 31.01 Notwithstanding any other provisions of this Lease, if the Term of this Lease does not commence within three (3) years from the date hereof, this Lease will be deemed terminated INITIALS ----------- MM / M ----------- 12 three (3) years from the date hereof without necessity of any notice or act by Landlord or Tenant. It is the intention of this Section to prevent this Lease from becoming unenforceable by reason of any claim that it might violate the rule against perpetuities. SECTION 32 DEFINITION OF LANDLORD; LANDLORD'S LIABILITY 32.01 The term "Landlord" as used in this Lease so far as covenants, agreements, stipulations or obligation on the part of the Landlord are concerned is limited to mean and include only the owner or owners of fee title (or of a ground leasehold interest) to the Premises at the time in question, and in the event of any transfer or transfers of the title to such fee the Landlord herein named (and in case of any subsequent transfers or conveyances the then grantor) will automatically be freed and relieved from and after the date of such transfer or conveyance of all personal liability for the performance of any covenants or obligations on the part of the Landlord contained in this Lease thereafter to be performed. If Landlord fails to perform any provision of this Lease upon Landlord's part to be performed, and if as a consequence of such default Tenant recovers a money judgment against Landlord, such judgment may be satisfied only out of the proceeds of sale received upon execution of such judgment and levied thereon against the right, title and interest of Landlord in the Premises and out of rents or other income from such property receivable by Landlord and Landlord shall not be personally liable for any deficiency. SECTION 33 ENTIRE AGREEMENT 33.01 This Lease and the Exhibits attached hereto and forming a part hereof, set forth all of the covenants, agreements, stipulations, promises, conditions and understandings between Landlord and Tenant concerning the Premises and there are no covenants, agreements, stipulations, promises, conditions or understanding, either oral or written, between them other than herein set forth. SECTION 34 GENERAL 34.01 Many references in this Lease to persons, entities and items have been generalized for ease of reading. Therefore, references to a single person, entity or item will also mean more than one person, entity or thing whenever such usage is appropriate (for example, "Tenant" may include, if appropriate, a group of persons acting as a single entity, or as tenants-in-common). Similarly, pronouns of any gender should be considered interchangeable with pronouns of other genders. 34.02 All agreements and obligations of Tenant under this Lease are joint and several in nature. Any waiver or waivers by Landlord of any of the provisions of this Lease will not constitute a waiver of any later breach of that provision, and any consent or approval given by Landlord with respect to any act, neglect or default by Tenant will not waive or make unnecessary Landlord's consent or approval with respect to any later similar act, neglect or default by Tenant. 34.03 Topical headings appearing in this Lease are for convenience only. They do not define, limit or construe the contents of any paragraphs or clauses. 34.04 This Lease can be modified or amended only by a written agreement signed by Landlord and Tenant. 34.05 All provisions of this Lease are and will be binding on the heirs, executors, administrators, personal representatives, successors and assigns of Landlord and Tenant. INITIALS ----------- MM / M ----------- 13 34.06 The laws of the State of Michigan will control in the construction and enforcement of this Lease. SECTION 35 HAZARDOUS MATERIALS 35.01 A. Tenant shall be fully responsible, at its own expense, for compliance with all laws and/or regulations governing the handling of Hazardous Materials or other substances used or stored on the Leased Premises in connection with Tenant's business conducted therein. All hazardous or potentially Hazardous Materials shall be stored in proper containers and shall be further protected against spills by secondary containment facilities. Tenant shall not, in violation of any applicable law or regulation, spill, introduce, discharge or bury any Hazardous Materials, substance or contaminant of any kind in, on, or under the Leased Premises or any portion thereof or any adjacent premises or into the ambient air. Tenant shall not permit the discharge of any Hazardous Materials into the sanitary or storm sewer or water system serving the Leased Premises or any adjacent premises or into any municipal or other governmental water system or storm and/or sanitary sewer system. Tenant shall employ all appropriate safeguards and procedures necessary or appropriate to protect such systems from contamination. Tenant shall undertake, at its expense, any necessary and/or appropriate cleanup process in connection with any breach of the foregoing covenants, and without limiting Tenant's other indemnity or insurance obligations under this Lease. Tenant shall indemnify and hold harmless Landlord from and against all liability whether direct, indirect, consequential or otherwise, arising from any incident or occurrence on or about the Leased Premises or any adjacent premises pertaining to Hazardous Materials which results from the acts or omissions of Tenant, its agents, employees or invitees, during the term hereof. The obligations of Tenant under this section shall survive the termination of this Lease. B. "Hazardous Materials" shall include, without limitation, any chemical or other material which is or may become injurious to the public health, safety or welfare, or to the environment, flammable explosives, petroleum fractions, pesticides, radioactive materials, Hazardous Materials, regulated substances, hazardous or toxic substances, contaminating pollutants or related or similar materials, including by way of example, substances or materials defined by any federal, state or local environmental law, ordinance, rule or regulation, including, without limitation, the Comprehensive Environmental Response, Compensation and Liability Act of 1980, the Hazardous Materials Transportation Act, the Resource Conservation and Recovery Act, the Federal Insecticide, Fungicide, and Rodenticide Act or the Michigan Environmental Response Act, and the regulations adopted and publications promulgated thereto, all as amended. C. Landlord agrees to indemnify and hold Tenant harmless from and against any and all actions, claims, suits, damages, judgments, costs, charges, expenses, attorney fees or liabilities arising out of or as a result of any toxic or hazardous wastes or substances that may have been deposited on or about the premises prior to occupancy of 2909 Waterview Drive by Tenant. D. Upon termination hereof, Tenant, at its own cost and expense, shall conduct an environmental audit of the property. Such audit shall be conducted pursuant to Standard Quality Control/Quality Assurance Procedures reasonably satisfactory to Landlord. Tenant shall promptly furnish Landlord with a copy of the report of the firm conducting such audit and Tenant shall, if necessary, at its sole expense, promptly take all steps required to repair and/or restore the Premises to a lawful condition. SECTION 36 OPTION TO EXTEND LEASE TERM 36.01 Providing that Tenant has not defaulted in the terms or conditions of this Lease, Tenant shall have one (1) option to extend the Term of this Lease from and after the expiration of the original Term for a period of three (3) years. Should Tenant decide to exercise this option, same shall be deemed validly exercised only if Landlord shall have received written notice of INITIALS ----------- MM / M ----------- 14 exercise of option from Tenant in writing on or before twelve (12) months prior to the expiration of the original Term. TIME SHALL BE DEEMED TO BE OF THE ESSENCE IN CONNECTION WITH THE EXERCISE OF THIS OPTION. In the event of the exercise of this option, all terms and conditions of this Lease shall continue and remain in full force and effect during the three (3) year option term, provided, however, that the minimum net monthly rental installments during the three (3) year option term shall be Twenty Two Thousand Eight Hundred Seventy One ($22,871.00) Dollars. Tenant is also a Tenant of Landlord in the adjacent premises commonly known as 2917 Waterview Drive, under a Lease which is co-terminus with this Lease. The Lease for said adjacent premises also grants Tenant an option to extend the term of that Lease for an equal additional three (3) year period. Anything contained herein to the contrary not withstanding Tenant's right and option to extend the term hereof is conditioned upon Tenant simultaneously exercising its option to extend the term of the Lease for 2917 Waterview Drive. SECTION 37 TENANT'S OPTION TO TERMINATE LEASE 37.01 Tenant may elect to terminate this Lease effective January 31, 2002. Tenant may exercise its right to so terminate the term hereof by (i) giving Landlord notice to that effect by registered or certified mail, return receipt requested, during the month of July 2001; (ii) accompanying the notice of termination shall be a termination fee in the sum of One Hundred Twenty Four Thousand, Seven Hundred Fifty Two ($124,752.00) Dollars; (iii) performing all of Tenant's obligations hereunder through such termination date, including the surrender of the Leased Premises on or before that date. IN WITNESS WHEREOF, the Landlord and Tenant have executed this Lease as of the date set forth at the outset hereof WITNESSES: LANDLORD: /S/ Kathleen Goldstein By: /S/ Joel Nosachuk - ----------------------------------- ----------------------------- JOEL NOSANCHUK - ----------------------------------- TENANT: SPEEDRING SYSTEMS, INC., A Delaware corporation By: /S/ Mark Maiberger - ----------------------------------- ----------------------------- Its: President - ----------------------------------- ----------------------------- INITIALS ----------- MM / M ----------- 15 EXHIBIT A Lot 14 of "Rochester hills Corporate Center" Subdivision, a subdivision of the S.W. 1/4 of Section 30, Town 3 North, Range 11 East, City of Rochester Hills, Michigan. Also known as 2909 Waterview Drive. 16 EX-10.(3) 4 NET LEASE NET LEASE This Lease is made as of August 11, 1999, by and between JOEL NOSANCHUK, whose address is P.O. Box 668, Bloomfield Hills, Michigan 48303-0668 ("Landlord"), and SPEEDRING SYSTEMS, INC. , a Delaware corporation, whose address is 2909 Waterview Drive, Rochester Hills, Michigan 48309 ("Tenant"), who agree as follows: A. Landlord and Tenant entered into a lease dated February 1, 1999 with respect to the subject premises. Landlord and Tenant have agreed to terminate said lease and to substitute, therefore, the following: SECTION 1 THE PREMISES 1.01 Landlord hereby leases to Tenant the real property located in the City of Rochester Hills, County of Oakland, and State of Michigan, more particularly described in Exhibit "A" attached to, and made an integral part of, this Lease (the "Land"), together with the buildings and other improvements on the Land, (the "Improvements")(the Land and the Improvements collectively will constitute and be referred to in this Lease as the "Premises"), more commonly known as 2917 Waterview Drive. SECTION 2 CONSTRUCTION OF IMPROVEMENTS THIS SECTION HAS BEEN INTENTIONALLY DELETED SECTION 3 THE TERM 3.01 The Term will commence (the "Commencement Date") on the later of (i) February 1, 2000 or (ii) the date Tenant takes possession of the Premises. The Term will be 36 months, from and after the Commencement Date. If the Commencement Date is other than the first day of the calendar month the term will be extended to terminate at the end of the calendar month in which it would otherwise terminate under the preceding sentence. 3.02 If Landlord is unable, for any reason, to tender possession on or before the Commencement Date, Tenant may not terminate this Lease, and Landlord will have no liability for damages provided however, rent shall not be paid as provided in Section 4.01 until possession of 2917 Waterview Drive is tendered. 3.03 Tenant will inspect the Premises at 2917 Waterview Drive prior to occupancy to assure that the facilities and equipment are in good condition and Landlord will agree to repair facilities or equipment reasonably identified as substandard. Landlord shall not be required to replace the carpeting or to repaint provided the walls and floors are in good condition reasonable wear and tear excepted. 3.04 If Landlord permits Tenant to enter into possession of the Premises, prior to the Commencement Date, Tenant agrees that such occupancy will be deemed to be under all the provisions of this Lease, including but not limited to the rental established therein. 3.05 Upon request by Landlord, Tenant will execute a written instrument confirming the Commencement Date and the expiration date of the Term. INITIALS ----------- MM / M ----------- SECTION 4 THE BASE RENT 4.01 Tenant agrees to pay to Landlord, as minimum net rental for the original Term of this Lease, the total amount of Five Hundred Fifty Eight Thousand ($558,000.00) Dollars in monthly installments of Fifteen Thousand Five Hundred ($15,500.00) Dollars: 4.02 Each monthly installment of minimum net rental will be paid in advance without any setoffs or deductions, on the first day of each and every month (the "Rent Day") during the Term, at the office of the Landlord at the address first shown above, or at such other place as Landlord from time to time may designate in writing. In the event the Commencement Date is other than the first day of a calendar month, the rental for the partial first calendar month of the Term will be prorated accordingly. 4.03 THIS SECTION INTENTIONALLY DELETED SECTION 5 LATE CHARGES AND INTEREST 5.01 Any rent or other sums, if any, payable by Tenant to Landlord under this Lease which are not paid within ten (10) days after they are due, and any rent or other sums received and accepted by Landlord more than ten (10) days after they are due, will be subject to a late charge of five (5%) percent of the amount due. Such late charges will be due and payable as additional rent on or before the next Rent Day. 5.02 Any rent, late charges or other sums payable by Tenant to Landlord under this Lease not paid within thirty (30) days after the same are due will bear interest at a per annum rate equal to the greater of eleven (11%) percent or four percentage points above the effective prime interest rate per annum charged by Comerica Bank to its best commercial customers on the date when the rent, late charges or other sums became due, but not in excess of the maximum interest rate permitted by law. Such interest will be due and payable as additional rent on or before the next Rent Day, and will accrue from the date that such rent, late charges or other sums are payable under the provisions of this Lease until actually paid by Tenant. 5.03 Any default in the payment of rent, late charges or other sums will not be considered cured unless and until the late charges and interest due hereunder are paid by Tenant to Landlord. If Tenant defaults in paying such late charges and/or interest, Landlord will have the same remedies as on default in the payment of rent. The obligation hereunder to pay late charges and interest will exist in addition to, and not in the place of, the other default provisions of this Lease. SECTION 6 TAXES, ASSESSMENTS AND UTILITIES 6.01 Tenant agrees to pay as additional rent for the Premises all taxes and assessments, general and special, all water rates and all other governmental impositions which may be levied on the Premises or any part thereof, or on any building or improvements at any time situated thereon, during or pertaining to the Term and any extensions thereof. All such taxes, assessments, water rates and other impositions will be paid by Tenant before they become delinquent. The property taxes and assessments for the first and last years of the Term or any extension thereof, will be prorated between Landlord and Tenant so that Tenant will be responsible for any such tax or assessment attributable to the period during which Tenant has possession of the Premises. The so-called "due-date" method of proration will be used, it being presumed that taxes and assessments are payable in advance. In the event that during the Term or any extension INITIALS ----------- MM / M ----------- 2 thereof (I) the real property taxes levied or assessed against the Premises are reduced or eliminated, whether the cause is a judicial determination of unconstitutionality, a change in the nature of the taxes imposed or otherwise, and (ii) there is levied, assessed or otherwise imposed on the Landlord, in substitution for all or part of the tax thus reduced or eliminated, a tax (the "Substitute Tax") which imposes a burden upon Landlord by reason of its ownership of the Premises, then to the extent of such burden the Substitute Tax will be deemed a real estate tax for purposes of this paragraph. 6.02 Tenant agrees to pay all charges made against the Premises for gas, heat, electricity and all other utilities as and when due during the continuance of this Lease. 6.03 In the event that payment of any or all of the foregoing taxes, assessments and utilities are to be made from an escrowed fund required to be established by Landlord as Mortgagor under the terms of any first mortgage on the Premises, then Landlord will so notify Tenant. Tenant will not be required to pay directly such taxes, assessments and utilities as are paid from the escrowed fund, but will instead, as additional rent, pay to Landlord on the first day of each month of the Term an amount equal to the amount required to be paid by Landlord under the terms of such first mortgage to the escrowed fund on account of such charges. If the actual taxes, assessments and utilities, when due, exceed the total amounts from time to time paid therefor by Tenant, then Tenant will pay on demand any deficiency to Landlord. If such payments by Tenant, over the Term, exceed the amount of taxes; assessments and utilities paid therefrom, such excess will be refunded by Landlord to Tenant promptly. 6.04 Tenant also agrees to pay as additional rent for the Premises all dues and assessments levied against or in regard to the Premises by Rochester Hills Corporate Center Subdivision Association until the termination of the Term and of any extended term of this Lease. Tenant will pay all such dues and assessments before they become delinquent. Such dues and assessments which relate to specific periods of time which periods include the Commencement Date and/or the termination date of this Lease or any extension thereof, will be prorated between Landlord and Tenant so that Tenant will be responsible for any such dues and assessments attributable to the period during which Tenant has possession of the Premises. 6.05 Tenant, at its expense, may contest, by appropriate legal proceedings conducted in good faith and with due diligence, the amount or validity or application, in whole or in part, of any tax, assessment, imposition or any legal requirements applicable to the Premises or any lien, encumbrance or charge, provided that (a) in the case of an unpaid tax, assessment, imposition, lien, encumbrance or charge, the commencement of such proceedings shall suspend the collection thereof from Landlord and from the Premises, (b) neither the Lease Property nor any rent therefrom nor any part thereof or interest therein would be in any immediate danger of being sold, forfeited, attached or lost, (c) in the case of a legal requirement applicable to the Premises, Landlord would not be in any immediate danger of civil or criminal liability for failure to comply therewith pending the outcome of such proceedings, (d) in the case of an insurance requirement, the coverage required by Section 8 shall be maintained, (e) if such contest be finally resolved against Tenant, Tenant shall promptly pay the amount required to be paid, together with all interest and penalties accrued thereon, or comply with the applicable legal requirement or insurance requirement, and (f) no default shall exist hereunder: Landlord, at Tenant's expense, shall execute and deliver to Tenant such authorizations and other documents as may reasonably be required in any such contest, and, if reasonably requested by Tenant, Landlord shall join as a party therein. Tenant shall indemnify and save Landlord harmless against any cost or expense of any kind that may be imposed upon Landlord in connection with any such contest any loss resulting therefrom. 6.06 Landlord shall give prompt notice to Tenant of all taxes, assessments or impositions payable by Tenant hereunder of which Landlord at any time has knowledge, but Landlord's failure to give any such notice shall in no way diminish Tenant's obligations hereunder. INITIALS ----------- MM / M ----------- 3 SECTION 7 USE OF PREMISES 7.01 The Premises during the continuance of this Lease will be used and occupied for office, engineering, light manufacturing, sales, distribution, and warehouse uses including, the manufacture of optical scanners and air bearings. Tenant agrees that it will not use or permit any person to use the Premises or any part thereof for any use or purposes in violation of the laws of the United States, the laws, ordinances or other regulations of the State and municipality in which the Premises are located, or of any other lawful authorities, or the Declaration of Covenants and Restrictions, dated July 9, 1987, recorded in Oakland County records (a copy of which is attached hereto as Exhibit "B"), to which Declaration this Lease is hereby expressly made subject. During the Term or any extended term, Tenant will keep the Premises and every part thereof and all buildings at any time situated thereon generally in compliance with all lawful health and policy regulations. All signs and advertising displayed in' and about the Premises will be such only as to advertise the business carried on upon the Premises and Landlord will control the location, character and size thereof. No signs will be displayed except as approved in writing by Landlord, which approval shall not be unreasonably withheld or delayed and no awning will be installed or used on the exterior of the building unless approved in writing by Landlord. SECTION 8 INSURANCE (LANDLORD TO OBTAIN) THIS SECTION INTENTIONALLY DELETED INSURANCE (TENANT TO OBTAIN) 8.01 Tenant, at its sole expense, will obtain and maintain at all times until termination of this Lease and surrender of the Premises to Landlord, a primary policy of insurance covering the Premises and providing the insurance protection described in this Section 8. 8.02 The liability coverage under the primary policy will name Landlord and Landlord's mortgagee as additional insured parties, and will provide comprehensive general public liability insurance coverage against claims for or arising out of bodily injury, death or property damage, occurring in, on or about the Premises or property in, on or about the streets, sidewalks or properties adjacent to the Premises. The limits of coverage will be, if dual limits are provided, initially, not less than Two Million ($2,000,000.00) Dollars with respect to injury or death of a single person, not less than Two Million ($2,000,000.00) Dollars with respect to any one occurrence and not less than One Million ($1,000,000.00) Dollars with respect to any one occurrence of property damage, or, in the alternative, a single limit policy in the amount of Two Million ($2,000,000.00) Dollars, and thereafter in such reasonably appropriate increased amounts as may be determined by Landlord or Landlord's mortgagee; provided, however, that the amount of coverage will not be increased more frequently than at one (1) year intervals. The policy will contain cross-liability endorsements. 8.03 The primary policy will insure the Improvements, as defined in Section 1.01 hereof (but not any personal property, fixtures or equipment of Tenant), for full replacement cost against loss by fire, with standard extended risk coverage, vandalism, malicious mischief, sprinkler leakage and all other risk perils. The named insureds will be Landlord and Landlord's mortgagee, only. The initial amount of this insurance will be: One Million, Eight Hundred and Fifty Thousand ($1,850,000.00) 00/100 Dollars, but such amount may be increased upon notice to Tenant on the recommendation or requirement of Landlord or Landlord's mortgagee, in order to reflect increases in the replacement cost of the Improvements. INITIALS ----------- MM / M ----------- 4 8.04 The primary policy also will provide loss of rents coverage sufficient, as reasonably determined by Landlord, to cover the net rental and all other charges which are the obligation of Tenant under this Lease for a 12-month period from the date of any loss or casualty. 8.05 The insurance policy or policies to be provided by Tenant hereunder shall be issued by an insurance company or companies having an A.M. Best Company rating of not less than "A". Each policy procured by Tenant under this Section 8 must provide for at least thirty (30) days' written notice to Landlord of any cancellation. At Landlord's option, either certificates of insurance or the original policy or policies will be delivered by Tenant to Landlord prior to the effective date thereof, together with receipts evidencing payment of the premiums therefor. Tenant will deliver certificates of renewal for such policies to Landlord at least thirty (30) days prior to the expiration dates thereof. The insurance provided by Tenant under this Section 8 may be in the form of a blanket insurance policy covering other properties as well as the Premises; provided, however, that any such policy or policies of blanket insurance (I) must specify therein, or Tenant must furnish Landlord with a written statement from the insurers under such policy or policies specifying, the amount of the total insurance allocated to the Premises, which amounts will not be less than the amounts required by Subsections 8.02, 8.03 and 8.04 hereof, and (ii) such amounts so specified must be sufficient to prevent Landlord or Landlord's mortgagee from becoming a co-insurer within the terms of the applicable policy or policies, and provided further, however, that any such policy or policies of blanket insurance must, as to the Premises, otherwise comply as to endorsements and coverage with the other provisions of this Section 8. 8.06 Except with respect to the insurance required by Subsections 8.02, neither Landlord nor Tenant may take out separate insurance concurrent in form or contributing in the event of loss with that required under this Section 8 unless Landlord and Tenant are included therein as the insured payable as provided in this Lease. Each party will notify the other immediately of the placing of any such separate insurance. 8.07 If Tenant fails to provide all or any of the insurance required by this Section 8, or subsequently fails to maintain such insurance in accordance with the requirements of this Section, Landlord may (but will not be required to) procure or renew such insurance, and any amounts paid by Landlord for such insurance will be additional rental due and payable on or before the next Rent Day, together with late charges and interest as provided in Section 5. 8.08 In the event of loss under any policy or policies provided by Tenant to Landlord under this Section 8, other than the liability policy required by Subsection 8.02, the insurance proceeds will be payable to Landlord or Landlord's mortgagee; thereafter, such proceeds, with the exception of the loss of rents insurance proceeds, will be used for the expense of repairing or rebuilding the Improvements which have been damaged or destroyed if Landlord and its mortgagee are satisfied that the amount of insurance proceeds are and will be at all times sufficient to pay for the completion of the repairs or rebuilding. 8.09 Landlord's mortgagee under any first mortgage on the Premises at any time requires, pursuant to the terms of the mortgage, that payment of insurance premiums be made from an escrowed fund, then Landlord will so notify Tenant. In such event, Tenant will not directly pay the insurance premiums, but instead such excess is refunded by the mortgagee to Landlord, whichever occurs first. SECTION 9 DAMAGE BY FIRE OR OTHER CASUALTY 9.01 It is understood and agreed that if the building is damaged or destroyed in whole or in part by fire or other casualty during the term, the Landlord shall have the right to demolish or to repair and restore the damaged building. If the Landlord elects not to repair and restore the damaged building, Landlord may cancel this Lease within 30 days after such fire or other casualty by giving Tenant notice of Landlord's intention to so do. The Lease shall terminate, 60 days after such cancellation notice to Tenant. If Landlord elects to repair and restore the damaged building the rent and all other charges which are the obligation of Tenant under this Lease will abate for the period the building is untenable. Notwithstanding anything to the INITIALS ----------- MM / M ----------- 5 contrary, if in the reasonable opinion of the Landlord and/or Tenant the premises cannot be or are in fact are not restored to its prior condition within six months after the date of such casualty than either party shall have the option to terminate this Lease as to the building which was subject to such fire or other casualty; provided, however, that if Tenant shall fail to adjust its own insurance or remove its damaged property and equipment within a reasonable time and as a result thereof the repair and restoration is delayed, the aforesaid 6-month period shall be extended for an additional period equal to the delay. 9.02 If Tenant has elected, under Alternate Section 8, to carry its own insurance, and the insurance proceeds therefrom are insufficient, in Landlord's judgment, to cover the cost of repairing and restoring the Premises to good tenantable condition, Tenant will deposit with Landlord or the mortgagee of any first mortgage on the Premises the amount by which such proceeds are insufficient and Landlord thereupon will proceed with such repairs and restoration; if Tenant fails to make such a deposit, Landlord will be under no obligation to make such repairs or undertake such restoration, or to use any portion of the insurance proceeds for such restoration and repair, but Tenant will not thereby be relieved of its obligations to repair and restore the Premises to good tenantable condition. 9.03 Tenant will have the option, exercisable by written notice to Landlord upon restoration of the Premises, to extend the original Term of this Lease (or the extension of the Term during which the damage or destruction occurred, as the case may be) for a period equal to the period, if any, during which Tenant was deprived of the use of all or a significant portion of the Premises by reason of such damage or destruction. Tenant's option must be exercised within twenty (20) days following completion of the work of restoration and repair. SECTION 10 REPAIRS 10.01 Except as otherwise provided in this Section 10, Tenant agrees at its own expense to keep the Improvements, including all structural, electrical, mechanical and plumbing systems at all times in good appearance and repair except for reasonable and normal wear and tear. Tenant will also pay all other expenses in connection with the maintenance of the Premises including repair and upkeep of grounds, sidewalks, driveways and parking areas in a first class condition. 10.02 Notwithstanding any other provision of this Lease, from and after the date Tenant takes occupancy of the Premises any repairs, additions or alterations to the improvements or any of its systems (e.g., plumbing, electrical, mechanical) structural or non-structural, which are required by any law, statute, ordinance, rule, regulation or governmental authority or insurance carrier, including, without limitation, OSHA, will be the obligation of Tenant. Provided, however, that Tenant shall not be responsible for any repairs, additions or alterations to the building or any of its systems (e.g. plumbing, electrical, mechanical) structural or non-structural which are required by any law, statute, ordinance rule, regulation or governmental authority or insurance carrier, including without limitation, OSHA if a violation or noncompliance existed at the time Tenant took occupancy of the Premises, in which case Landlord shall be responsible for the repairs, additions or alterations as required. 10.03 Tenant acknowledges that he has examined the Premises prior to the making of this Lease, that he knows the condition thereof, that no representations as to the condition of the state of repairs thereof have been made by Landlord or Landlord's agent which are not expressly set forth herein, and that except as otherwise specifically set forth herein, Tenant hereby accepts the Premises in their present condition at the date of execution of this Lease. Anything contained herein to the contrary notwithstanding, the Premises at 2917 Waterview Drive shall be in good order and repair upon the date occupancy is delivered to Tenant. Tenant will inspect the Premises at 2917 Waterview Drive prior to occupancy to assure that the facilities and equipment are in good condition and Landlord will agree to repair facilities or equipment reasonably identified as substandard. Landlord shall not be required to replace carpeting or repaint provided the walls and floors are in good condition, reasonable wear and tear excepted. INITIALS ----------- MM / M ----------- 6 SECTION 11 PAYMENT FOR SERVICES RENDERED BY LANDLORD 11.01 If Landlord at any time: (I) does any work or performs any service in connection with the Premises, or (ii) supplies any materials to the Premises, and the cost of the services, work or materials is Tenant's responsibility under the provisions of this Lease, Landlord will invoice Tenant for the cost, payable within thirty (30) days after delivery of the invoice. This Section will apply to any such work, services or materials, if furnished at Tenant's request or on its behalf when failure by Tenant to furnish same constitutes a default hereunder and whether furnished or caused to be furnished by Landlord or its agents, employees or contractors. All amounts payable under this Section will be additional rental, and failure by Tenant to pay them when due will be a default under this Lease and further will result in the assessment of late charges and interest under Section 5. SECTION 12 ALTERATIONS 12.01 The parties agree that Tenant will not make any alterations, additions, or improvements to the Premises without the written consent of Landlord, which consent shall not be unreasonably withheld or delayed, and if required by the terms of any mortgage on the Premises, the written consent of the mortgagee (which consent shall not be unreasonably withheld or delayed). All alterations, additions or improvements made by either of the parties hereto on the Premises after the commencement date will be the property of Landlord and will remain on and be surrendered with the Premises at the termination of this Lease, except that alterations, additions or improvements made by Tenant must be removed and the Premises restored by Tenant if so requested by Landlord. 12.02 If Landlord shall determine to repair, alter, remove, reconstruct or improve any part of the Premises, then Landlord shall do such work with reasonable dispatch and with minimal interference with Tenant's use and enjoyment of the Premises as is reasonably necessary under the circumstances. SECTION 13 LIENS 13.01 After the Commencement Date, Tenant will keep the Premises free of liens of any sort and will hold Landlord harmless from any perfected liens which may be placed on the Premises except those attributable to the acts of Landlord. SECTION 14 EMINENT DOMAIN 14.01 If fifty (50%) percent or more of a building's net rentable area is condemned or taken in any manner (including without limitation any conveyance in lieu thereof) for any public or quasi-public use, the Term of this Lease as to that building shall cease and terminate as of the date title is vested in the condemning authority. If twenty-five (25%) percent or less of a building's net rentable area is so condemned or taken, the Landlord may terminate this Lease as to that building if it determines, in the reasonable exercise of its business judgment, that continued operation of the Premises under this Lease would be uneconomic. If more than twenty-five (25%) percent but less than fifty (50%) percent of a building's net rentable area is so condemned or taken, with the result that Tenant's business is significantly and adversely affected thereby, or if such a portion of the parking area is so condemned or taken that the number of parking spaces remaining are less than the number required by applicable zoning or other code for the building, then either Landlord or Tenant may terminate this Lease as of the date title is vested in the condemning authority by written notice to the other. INITIALS ----------- MM / M ----------- 7 14.02 If this Lease is not terminated following such a condemnation or taking, Landlord, as soon as reasonably practicable after such condemnation or taking and the determination and payment of Landlord's award on account thereof, shall expend as much as may be necessary of the net amount which is awarded to Landlord and released by Landlord's mortgagee, if any, in restoring, to the extent originally constructed by Landlord (consistent, however, with zoning laws and building codes then in existence), so much of the building as was originally constructed by Landlord to an architectural unit as nearly like its condition prior to such taking as shall be practicable. Should the net amount so awarded to Landlord be insufficient to cover the cost of restoring the building, in the reasonable estimate of Landlord, Landlord may, but shall have no obligation to, supply the amount of such insufficiency and restore the building to such an architectural unit, with all reasonable diligence, or Landlord may terminate this Lease by giving notice to Tenant not later than a reasonable time after Landlord has determined the estimated net amount which may be awarded to Landlord and the estimated cost of such restoration. 14.03 If this Lease is not terminated pursuant to Section 14.01, the minimum net rental payable by Tenant shall be reduced in proportion to the reduction in net rentable area of the building by reason of the condemnation or taking. If this Lease is terminated pursuant to Section 14.01, the minimum net rental and other charges which are the obligation of Tenant hereunder shall be apportioned and prorated accordingly as of the date of termination. 14.04 The whole of any award or compensation for any portion of the Premises taken, condemned or conveyed in lieu of taking or condemnation shall be solely the property of and payable to Landlord. Nothing herein contained shall be deemed to preclude Tenant from seeking, at its own cost and expense, an award from the condemning authority for loss of its business, the value of any trade fixtures or other personal property of Tenant in the Premises, moving expenses or any other damages, provided that the award for such claim or claims shall not be in diminution of the award made to Landlord. SECTION 15 ASSIGNMENT OR SUBLETTING 15.01 Tenant agrees not to assign or in any manner transfer this Lease or any interest in this Lease without the previous written consent of Landlord, and not to sublet the Premises or any part of the Premises or allow anyone to use or to come in with, through or under it without like consent, which consent will not be unreasonably withheld. One such consent will not be deemed a consent to any subsequent assignment, subletting, occupation, or use by any other person. Tenant may, however, assign this Lease to a corporation with which it may merge or consolidate, to any parent or subsidiary of Tenant or subsidiary of Tenant's parent, or to a purchaser of substantially all of Tenant's assets if the assignee has assets and creditworthiness substantially equal to or greater than Tenant and if the assignee executes an agreement required by Landlord assuming Tenant's obligations. The acceptance of rent from an assignee, subtenant or occupant will not constitute a release of Tenant from the further performance of the obligations of Tenant contained in this Lease. Tenant acknowledges that Landlord selected Tenant in part on the basis of Tenant's proposed use and occupation of the Premises, and agrees that Landlord may withhold consent to any proposed sublease or assignment if the subtenant's or assignee's business or proposed use of the Premises would be physically injurious to the Building or would detract from the reputation of the industrial park within which the premises are located. SECTION 16 INSPECTION OF PREMISES 16.01 Tenant agrees to permit Landlord and the authorized representatives of Landlord to enter the Premises at all reasonable times and upon reasonable prior notice during business hours for the purpose of inspecting the same. INITIALS ----------- MM / M ----------- 8 SECTION 17 FIXTURES AND EQUIPMENT 17.01 All fixtures and equipment paid for by Landlord and all fixtures and equipment which may be paid for and placed on the Premises by Tenant from time to time but which are so incorporated and affixed to Improvements that their removal would involve damage or structural change to Improvements, will be and remain the property of Landlord. 17.02 All furnishings, equipment and fixtures other than those specified in Section 17.01, which are paid for and placed on the Premises by Tenant from time to time (other than those which are replacements for fixtures originally paid for by Landlord) will remain the property of Tenant. SECTION 18 SECURITY 18.01 THIS SECTION HAS BEEN INTENTIONALLY DELETED SECTION 19 NOTICE OR DEMANDS 19.01 All bills, notices, statements, communications to or demands (collectively, "notices or demands") upon Landlord or Tenant desired or required to be given under any of the provisions hereof must be in writing. Any such notices or demands from Landlord to Tenant will be deemed to have been duly and sufficiently given if a copy thereof has been mailed by United States mail in an envelope properly stamped and addressed to Tenant at the address of the Premises or Tenant's registered office in the State in which the Premises are located at such time, or at such other address as Tenant may have last furnished in writing to the Landlord for such purpose, and any such notices or demands from Tenant to Landlord will be deemed to have been duly and sufficiently given if personally delivered to Landlord or mailed by United States mail in an envelope properly stamped and addressed to Landlord at the address last furnished by written notice from Landlord to Tenant. The effective date of such notice or demand will be deemed to be the time when personally delivered or mailed as herein provided. SECTION 20 BREACH; INSOLVENCY; RE-ENTRY 20.01 If any rental payable by Tenant to Landlord remains unpaid for more than seven (7) days after written notice to Tenant of non-payment, or if Tenant violates or defaults in the performance of any of its obligations in this Lease and the violation or default continues for a period of thirty (30) days after written notice (or if such violation or default cannot reasonably be cured within such 30-day period, then such longer period as may be reasonably necessary, provided Tenant commences such cure within such 30-day period and diligently pursues such cure to completion), then Landlord may (but will not be required to) declare this Lease forfeited and the Term ended, or re-enter the Premises, or may exercise all other remedies available under Michigan law. Landlord will not be liable for damages to person or property by reason of any legitimate re-entry or forfeiture, and Landlord will be aided and assisted by Tenant, its agents, representatives and employees. Tenant, by the execution of this Lease, waives notice of re-entry by Landlord. In the event of re-entry by Landlord without declaration of forfeiture, the liability of Tenant for the rent provided herein will not be relinquished or extinguished for the balance of the Term, and any rentals prepaid may be retained by Landlord and applied against the cost of re-entry, or as liquidated damages, or both. Tenant will pay, in addition to the rentals and other sums agreed to be paid hereunder, reasonable attorneys' fees, costs and expenses in any suit or action instituted by or involving Landlord to enforce the provisions of, or the collection of the rentals due Landlord under this Lease, including any proceeding under the Federal Bankruptcy Code. INITIALS ----------- MM / M ----------- 9 If Tenant is adjudged bankrupt or insolvent, files or consents to the filing of a petition in bankruptcy under Federal or State law, applies for or consents to the appointment of a receiver for all or substantially all of its assets, makes a general assignment for the benefit of its creditors, or does anything which, under the applicable provisions of the Federal Bankruptcy Code would permit a petition to be filed by or against Tenant, and such petition is not removed within sixty (60) days then Tenant shall be in default under this Lease and, to the extent from time to time permitted by applicable law, including but not limited to the Federal Bankruptcy Code, Landlord shall be entitled to exercise all remedies set forth in the preceding paragraph of this Section 20. In a reorganization under Chapter 11 of the Federal Bankruptcy Code, the debtor or trustee must assume this Lease or assign it within sixty (60) days from the filing of the proceeding, or he shall be deemed to have rejected and terminated this Lease. Tenant acknowledges that its selection to be the tenant hereunder was premised in material part on Landlord's determination of Tenant's creditworthiness and ability to perform the economic terms of this Lease, and Landlord's further determination that Tenant and the character of its occupancy and use of the Premises would be compatible with the nature of the Premises and other adjacent properties of Landlord. Therefore, if Tenant, as debtor, or its trustee elects to assume or assign this Lease, in addition to complying with all other requirements for assumption or assignment under the Federal Bankruptcy Code, then Tenant, as debtor, or its trustee or assignee, as the case may be, must also provide adequate assurance of future performance, including but not limited to a deposit, the amount of which shall be reasonably determined based on the duration of time remaining in the Term, the physical condition of the Premises at the time the proceeding was filed, and such damages as may be reasonably anticipated after reinstatement of the Lease, taking into account rental market conditions at the time of the reinstatement. In the event of an assignment, the Landlord must be reasonably assured that the financial condition of the assignee is sound, and that its use of the Premises will be compatible with the nature of the Premises and other adjacent properties of Landlord. In the event of declaration of forfeiture at or after the time of re-entry, Landlord may re-lease the Premises or any portion (s) of the Premises for a term or terms and at a rent which may be less than or exceed the balance of the Term of and the rent reserved under this Lease. In such event Tenant will pay to Landlord as liquidated damages for Tenant's default any deficiency between the total rent reserved and the net amount, if any, of the rents collected on account of the lease or leases of the Premises which otherwise would have constituted the balance of the term of this Lease. In computing such liquidated damages, there will be added to the deficiency any expenses which Landlord may incur in connection with re-leasing, such as legal expenses, attorneys' fees, brokerage fees and expenses, advertising and for keeping the Premises in good order or for preparing the Premises for re-leasing. Any such liquidated damages will be paid in monthly installments by Tenant on the Rent Day and any suit brought to collect the deficiency for any month will not prejudice Landlord's right to collect the deficiency for any subsequent month by a similar proceeding. In lieu of the foregoing computation of liquidated damages, Landlord may elect, at its sole option, to receive liquidated damages in one payment equal to any deficiency between the total rent reserved hereunder and the fair and reasonable rental of the Premises, both discounted at ten (10%) percent per annum to present value at the time of declaration of forfeiture. Whether or not forfeiture has been declared, Landlord will not be obliged or be responsible in any way for failure to re-lease the Premises or, in the event that the Premises are re-leased, for failure to collect the rent under such re-leasing. The failure of Landlord to re-lease all or any part of the Premises will not release or affect Tenant's liability for rent or damages. INITIALS ----------- MM / M ----------- 10 SECTION 21 SURRENDER OF PREMISES ON TERMINATION 21.01 At the expiration (or earlier termination) of the Term, Tenant will surrender the Premises broom clean and in as good condition and repair as they were at the time Tenant took possession, reasonable wear and tear excepted, and promptly upon surrender will deliver all keys and building security cards for the Premises to Landlord at the place then fixed for payment of rent. All costs and expenses incurred by Landlord in connection with repairing or restoring the Premises to the condition called for herein, together with the costs, if any, of removing from the Premises any property of Tenant left therein, together with liquidated damages in an amount equal to the amount of minimum net rental plus all other charges which would have been payable by Tenant under this Lease if the term of this Lease had been extended for the period of time reasonably required for Landlord to repair or restore the Premises to the condition called for herein, shall be invoiced to Tenant and shall be payable as additional rental within thirty (30) days after receipt of notice. SECTION 22 PERFORMANCE BY LANDLORD OF THE COVENANTS OF TENANT 22.01 If Tenant fails to pay any sum of money, other than rental, required to be paid hereunder or fails to perform any act on its part to be performed hereunder, including without limitation the performance of all covenants pertaining to the condition and repair of the Premises pursuant to Section 10, above, and such failure shall continue for a period of thirty (30) days (or a reasonable period of less than thirty (30) days when life, person or property is in jeopardy) after notice thereof by Landlord, Landlord may (but shall not be required to), and without waiving or releasing Tenant from any of Tenant's obligations, make any such payment or perform any such other act. All sums so paid by Landlord and all necessary incidental costs, including without limitation the cost of repair, maintenance or restoration of the Premises if so performed by Landlord hereunder, shall be deemed additional rental and, together with interest thereon at the rate set forth in Section 5.02, from the date of payment by Landlord until the date of repayment by Tenant to Landlord, shall be payable to Landlord within thirty (30) days after receipt of invoice by Tenant. On default in such payment, Landlord shall have the same remedies as on default in payment of rent. The rights and remedies granted to Landlord under this Section 22 shall be in addition to, and not in lieu of all other remedies, if any, available to Landlord under this Lease or otherwise, and nothing herein contained shall be construed to limit such other remedies of Landlord with respect to any matters covered herein. SECTION 23 SUBORDINATION; ESTOPPEL CERTIFICATES 23.01 Tenant agrees that Landlord may choose to make this lease subordinate or paramount to any construction loans, mortgages, trust deeds and ground or underlying leases now or hereafter affecting the Premises and to any and all advances to be made thereunder, and to the interest and charges thereon, and all renewals, replacements, and extensions thereon, provided the mortgagee, lessor or trustee named in any such mortgages, trust deeds or leases agrees to recognize the lease of Tenant in the event of foreclosure if Tenant is not in default provided that no such loan, mortgage, trust deed, or lease shall materially and adversely affect any substantial right of Tenant hereunder. Tenant will execute promptly any instrument or certificate that Landlord may request to confirm such subordination, and hereby irrevocably appoints Landlord as Tenant's attorney-in-fact to execute such instrument or certificate on its behalf. 23.02 Tenant, within ten (10) days after request (at any time or times) by Landlord, will execute and deliver to Landlord, an estoppel certificate identifying the Commencement Date and expiration date of the Term and stating that this Lease is unmodified and in fill force and effect, or is in full force and effect as modified, stating the modifications, and stating that Tenant does not claim that Landlord is in default in any way, or listing any such claimed defaults. The certificate also will confirm the amount of monthly Base Rent and additional rent as of the date INITIALS ----------- MM / M ----------- 11 of the certificate, the date to which the rent has been paid in advance, and the amount of any security deposit or prepaid rent. If Tenant fails to deliver the executed certificate to Landlord within the ten (10) day period, then after an additional ten (10) day notice by Landlord to Tenant, the accuracy of the proposed certificate will be deemed conclusively confirmed. 23.3 Notwithstanding anything to the contrary contained in this Lease, Landlord agrees that Tenant may pledge, hypothecate or otherwise encumber its interests in the leased property and under this Lease in connection with its or its corporate parent's existing or future secured borrowing arrangements. SECTION 24 QUIET ENJOYMENT 24.01 Landlord agrees that at all times when Tenant is not in default under the provisions and during the Term of this Lease, Tenant's quiet and peaceable enjoyment of the Premises will not be disturbed or interfered with by Landlord or any person claiming by, through, or under Landlord. SECTION 25 HOLDING OVER 25.01 If Tenant remains in possession of the Premises after the expiration date of this Lease without executing a new lease, it will be deemed to be occupying the Premises as a tenant from month to month, subject to all the provisions of this Lease to the extent that they can be applicable to a month-to-month tenancy, except that the minimum net rental for each month will be one hundred fifty (150%) percent of the regular monthly installments of minimum net rental set forth in Section 4.01, above. SECTION 26 REMEDIES NOT EXCLUSIVE; WAIVER 26.01 Each and every of the rights, remedies and benefits provided by this Lease are cumulative, and are not exclusive of any other of said rights, remedies and benefits, or of any other rights, remedies and benefits allowed by law. 26.02 One or more waivers of any covenant or condition by Landlord will not be construed as a waiver of a further or subsequent breach of the same covenant or condition, and the consent or approval by Landlord to or of any act by Tenant requiring Landlord's consent or approval will not be deemed to waive or render unnecessary Landlord's consent or approval to or of any subsequent similar act by Tenant. SECTION 27 WAIVER OF SUBROGATION 27.01 Landlord and Tenant hereby waive any and all right of recovery against each other for any loss or damage caused by fire or any of the risks covered by standard fire and extended coverage, vandalism and malicious mischief insurance policies. SECTION 28 RIGHT TO SHOW PREMISES 28.01 For a period commencing one hundred eighty (180) days prior to the termination of this Lease or any extension thereof, Landlord may show the Premises and may display about the Premises signs advertising the availability of the Premises. INITIALS ----------- MM / M ----------- 12 SECTION 29 SECURITY DEPOSIT 29.01 Tenant shall pay Landlord a security deposit in the sum of Fifteen Thousand Five Hundred ($15,500.00) Dollars on or before November 1, 1999. If Tenant defaults in any of the provisions of this Lease, Landlord may use, apply or retain all or any part of the Security Deposit for the payment of any minimum net rental and/or other charges which are the obligation of Tenant under this Lease in default or for any other sum which Landlord may expend by reason of Tenant's default, including any damages or deficiency in the releasing of the Premises. SECTION 30 INDEMNIFICATION 30.01 Tenant at its expense will defend, indemnify and save Landlord, its licenses, servants, agents, employees and contractors, harmless from any loss, damage, liability or expense to or for any person or property, whether based on contract, tort, negligence or otherwise, arising directly or indirectly out of or in connection with (i) the condition of the Premises, to the extent arising out of the use or misuse thereof by Tenant or any of its licensees, servants, agents, employees or contractors, (ii) the acts or omissions of Tenant, its licensees, servants, agents, employees or contractors, and (iii) any failure by Tenant to comply with any provision of this Lease; provided that nothing herein shall be construed to require Tenant to indemnify Landlord against the acts, omissions or negligence of Landlord, its licensees, servants, agents, employees or contractors. 30.02 Landlord at its expense will defend, indemnify and save Tenant, its licencees, servants, agents, employees and contractors, harmless from any loss, damage, liability or expense to or for any person or property, whether based on contract, tort, negligence or otherwise arising directly or indirectly out of or in connection with (i) any failure by Landlord to comply with any provision of this Lease and (ii) any action taken by Landlord on or concerning the Premises during the term of this Lease. SECTION 31 PREVENTING REMOTE VESTING 31.01 Notwithstanding any other provisions of this Lease, if the Term of this Lease does not commence within three (3) years from the date hereof, this Lease will be deemed terminated three (3) years from the date hereof without necessity of any notice or act by Landlord or Tenant. It is the intention of this Section to prevent this Lease from becoming unenforceable by reason of any claim that it might violate the rule against perpetuities. SECTION 32 DEFINITION OF LANDLORD; LANDLORD'S LIABILITY 32.01 The term "Landlord" as used in this Lease so far as covenants, agreements, stipulations or obligation on the part of the Landlord are concerned is limited to mean and include only the owner or owners of fee title (or of a ground leasehold interest) to the Premises at the time in question, and in the event of any transfer or transfers of the title to such fee the Landlord herein named (and in case of any subsequent transfers or conveyances the then grantor) will automatically be freed and relieved from and after the date of such transfer or conveyance of all personal liability for the performance of any covenants or obligations on the part of the Landlord contained in this Lease thereafter to be performed. If Landlord fails to perform any provision of this Lease upon Landlord's part to be performed, and if as a consequence of such default Tenant recovers a money judgment against Landlord, such judgment may be satisfied only out of the proceeds of sale received upon execution of such judgment and levied thereon against the right, title and interest of Landlord in INITIALS ----------- MM / M ----------- 13 the Premises and out of rents or other income from such property receivable by Landlord and Landlord shall not be personally liable for any deficiency. SECTION 33 ENTIRE AGREEMENT 33.01 This Lease and the Exhibits attached hereto and forming a part hereof, set forth all of the covenants, agreements, stipulations, promises, conditions and understandings between Landlord and Tenant concerning the Premises and there are no covenants, agreements, stipulations, promises, conditions or understanding, either oral or written, between them other than herein set forth. SECTION 34 GENERAL 34.01 Many references in this Lease to persons, entities and items have been generalized for ease of reading. Therefore, references to a single person, entity or item will also mean more than one person, entity or thing whenever such usage is appropriate (for example, "Tenant" may include, if appropriate, a group of persons acting as a single entity, or as tenants-in-common). Similarly, pronouns of any gender should be considered interchangeable with pronouns of other genders. 34.02 All agreements and obligations of Tenant under this Lease are joint and several in nature. Any waiver or waivers by Landlord of any of the provisions of this Lease will not constitute a waiver of any later breach of that provision, and any consent or approval given by Landlord with respect to any act, neglect or default by Tenant will not waive or make unnecessary Landlord's consent or approval with respect to any later similar act, neglect or default by Tenant. 34.03 Topical headings appearing in this Lease are for convenience only. They do not define, limit or construe the contents of any paragraphs or clauses. 34.04 This Lease can be modified or amended only by a written agreement signed by Landlord and Tenant. 34.05 All provisions of this Lease are and will be binding on the heirs, executors, administrators, personal representatives, successors and assigns of Landlord and Tenant. 34.06 The laws of the State of Michigan will control in the construction and enforcement of this Lease. SECTION 35 HAZARDOUS MATERIALS 35.01 A. Tenant shall be fully responsible, at its own expense, for compliance with all laws and/or regulations governing the handling of Hazardous Materials or other substances used or stored on the Leased Premises in connection with Tenant's business conducted therein. All hazardous or potentially Hazardous Materials shall be stored in proper containers and shall be further protected against spills by secondary containment facilities. Tenant shall not, in violation of any applicable law or regulation, spill, introduce, discharge or bury any Hazardous Materials, substance or contaminant of any kind in, on, or under the Leased Premises or any portion thereof or any adjacent premises or into the ambient air. Tenant shall not permit the discharge of any Hazardous Materials into the sanitary or storm sewer or water system serving the Leased Premises or any adjacent premises or into any municipal or other governmental water system or storm and/or sanitary sewer system. Tenant shall employ all appropriate safeguards and procedures necessary or appropriate to protect such systems from contamination. Tenant shall undertake, at its expense, any necessary and/or appropriate cleanup process in connection with any breach of the foregoing covenants, and without limiting Tenant's other indemnity or insurance obligations under this Lease. Tenant shall indemnify and hold harmless Landlord from INITIALS ----------- MM / M ----------- 14 and against all liability whether direct, indirect, consequential or otherwise, arising from any incident or occurrence on or about the Leased Premises or any adjacent premises pertaining to Hazardous Materials which results from the acts or omissions of Tenant, its agents, employees or invitees, during the term hereof. The obligations of Tenant under this section shall survive the termination of this Lease. B. "Hazardous Materials" shall include, without limitation, any chemical or other material which is or may become injurious to the public health, safety or welfare, or to the environment, flammable explosives, petroleum fractions, pesticides, radioactive materials, Hazardous Materials, regulated substances, hazardous or toxic substances, contaminating pollutants or related or similar materials, including by way of example, substances or materials defined by any federal, state or local environmental law, ordinance, rule or regulation, including, without limitation, the Comprehensive Environmental Response, Compensation and Liability Act of 1980, the Hazardous Materials Transportation Act, the Resource Conservation and Recovery Act, the Federal Insecticide, Fungicide, and Rodenticide Act or the Michigan Environmental Response Act, and the regulations adopted and publications promulgated thereto, all as amended. C. Landlord agrees to indemnify and hold Tenant harmless from and against any and all actions, claims, suits, damages, judgments, costs, charges, expenses, attorney fees or liabilities arising out of or as a result of any toxic or hazardous wastes or substances that may have been deposited on or about the premises prior to occupancy of the Premises by Tenant. Prior to commencement of the term, Landlord shall have an updated Phase I environmental audit conducted at 2917 Waterview Drive. Landlord shall take such corrective action as shall be necessary in order to place said Premises in a lawful condition should the audit establish that such corrective action is required D. Upon termination hereof, Tenant, at its own cost and expense, shall conduct an environmental audit of the property. Such audit shall be conducted pursuant to Standard Quality Control/Quality Assurance Procedures reasonably satisfactory to Landlord. Tenant shall promptly furnish Landlord with a copy of the report of the firm conducting such audit and Tenant shall, if necessary, at its sole expense, promptly take all steps required to repair and/or restore the Premises to a lawful condition. SECTION 36 OPTION TO EXTEND LEASE TERM 36.0 1 Providing that Tenant has not defaulted in the terms or conditions of this Lease, Tenant shall have one (1) option to extend the Term of this Lease from and after the expiration of the original Term for a period of three (3) years. Should Tenant decide to exercise this option, same shall be deemed validly exercised only if Landlord shall have received written notice of exercise of option from Tenant in writing on or before twelve (12) months prior to the expiration of the original Term. TIME SHALL BE DEEMED TO BE OF THE ESSENCE IN CONNECTION WITH THE EXERCISE OF THIS OPTION. In the event of the exercise of this option, all terms and conditions of this Lease shall continue and remain in full force and effect during the three (3) year option term, provided, however, that the minimum net monthly rental installments during the three (3) year option term shall be Seventeen Thousand Fifty ($17,050.00) Dollars. Tenant is also a Tenant of Landlord in the adjacent premises commonly known as 2909 Waterview Drive, under a Lease which is co-terminus with this Lease. The Lease for said adjacent premises also grants Tenant an option to extend the term of that Lease for an equal additional three (3) year period. Anything contained herein to the contrary not withstanding Tenant's right and option to extend the term hereof is conditioned upon Tenant simultaneously exercising its option to extend the term of the Lease for 2909 Waterview Drive. INITIALS ----------- MM / M ----------- 15 SECTION 37 TENANT'S OPTION TO TERMINATE LEASE 37.01 Tenant may elect to terminate this Lease effective January 31, 2002. Tenant may exercise its right to so terminate the term hereof by (i) giving Landlord notice to that effect by registered or certified mail, return receipt requested, during the month of July 2001; (ii) accompanying the notice of termination shall be a termination fee in the sum of Ninety Three Thousand ($93,000.00) Dollars; (iii) performing all of Tenant's obligations hereunder through such termination date, including the surrender of the Leased Premises on or before that date. IN WITNESS WHEREOF, the Landlord and Tenant have executed this Lease as of the date set forth at the outset hereof. WITNESSES: LANDLORD: /s/ Kathleen Goldstein By: /s/ Joel Nosanchuk - ----------------------------- ---------------------------------- Kathleen Goldstein JOEL NOSANCHUK - ----------------------------- TENANT: SPEEDRING SYSTEMS, INC., A Delaware corporation By: /s/ Mark Maiberger - ----------------------------- ---------------------------------- Its: President - ----------------------------- ---------------------------------- INITIALS ----------- MM / M ----------- 16 EXHIBIT A A parcel of land located in the City of Rochester Hills, Oakland County, Michigan described as: Lot 15 of Rochester Hills Corporate Center Subdivision, accordingly to the plat thereof recorded in Liber 193 of Plats, Pages 32, 33, 34, and 35, Oakland County Records. Also known as 2917 Waterview Drive. 17 EX-10.(4) 5 LETTER OF ACKNOWLEDGEMENT [LETTERHEAD OF AXSYS TECHNOLOGIES] EXECUTIVE OFFICES July 29, 1999 Mr. Mark J. Bonney 49 Orchard Hill Lane Middletown, CT 06457 Dear Mark: I am pleased that you have decided to join Axsys as President and Chief Operating Officer. The terms of your employment will be as set forth on the attached Exhibit I hereto. Please indicate your agreement by executing the two copies of this letter in the space provided below and return one copy via the enclosed envelope. This is an exciting time in the development of Axsys. I look forward to working with you to retain and build the Company's position as a leader in the design and manufacture of precision measurement and positioning products and create additional value for Axsys shareholders. Yours truly, /s/ Stephen W. Bershad Stephen W. Bershad Chairman Encl./ I acknowledge and accept the terms and conditions of employment referenced above. /s/ Mark J. Bonney August 1, 1999 - ------------------ -------------- Mark J. Bonney Date EXHIBIT I Summary of Employment Terms Position; Duties: President and Chief Operating Officer of Axsys Technologies, Inc. (the "Company"). Executive will exercise such duties as customarily pertain to the office of President, and shall report to the Chairman of the Board. Compensation: $225,000 per year, paid in accordance with the Company's regular payroll practices. Executive will be eligible for annual incentive compensation targeted at 50% of Executive's annual base compensation based upon achievement of objectives to be agreed upon. Annual incentive compensation will be payable in accordance with Company's incentive compensation policies. To be adjusted equitably for partial year. Stock Options: Non-qualified options to purchase 50,000 shares of common stock at an exercise price equal to closing stock price on date of grant. Options will vest 20% on each anniversary of grant date. Will accelerate on change in control in accordance with provisions of Company's existing form of stock option agreement. Mechanics of implementation of award to be determined based on legal review. Severance Protection Agreement: Executive and the Company will enter into a Severance Protection Agreement in the form of Severance Protection Agreement to which other senior corporate executives of the Company are parties. Termination Without Cause: Executive will be entitled to continuation of base salary and welfare benefits in the event Executive is terminated by the Company without cause for a period ending on the earlier of one year after termination or Executive's commencement of full-time employment with another employer. Benefits: Executive will be entitled to benefits consistent with other senior corporate executives of the Company, including annual paid vacation of 3 weeks. Relocation: In the event that the Company shall require Executive to relocate as a condition of continued employment, the Company will reimburse Executive for reasonable out-of-pocket expenses incurred by Executive in connection with such relocation (excluding real estate commissions). Start Date: August 30, 1999 EX-10.(5) 6 SEVERANCE PROTECTION AGREEMENT SEVERANCE PROTECTION AGREEMENT THIS AGREEMENT made as of the 30th day of August, 1999, by and between Axsys Technologies, Inc. (the "Company") and Mark J. Bonney (the "Executive"). WHEREAS, the Board of Directors of the Company (the "Board") recognizes that the possibility of a Change in Control (as hereinafter defined) exists and that the threat or the occurrence of a Change in Control can result in significant distraction of the Company's key management personnel because of the uncertainties inherent in such a situation; WHEREAS, the Board has determined that it is essential and in the best interests of the Company and its stockholders for the Company to retain the services of the Executive in the event of a threat or occurrence of a Change in Control and to ensure the Executive's continued dedication and efforts in such event without undue concern for the Executive's personal financial and employment security; and WHEREAS, in order to induce the Executive to remain in the employ of the Company and/or one of its Affiliates (the entity or entities employing the Executive, the "Employing Affiliate"), particularly in the event of a threat or the occurrence of a Change in Control, the Company desires to enter into this Agreement with the Executive to provide the Executive with certain benefits in the event the Executive's employment is terminated as a result of, or in connection with, a Change in Control. NOW, THEREFORE, in consideration of the respective agreements of the parties contained herein, it is agreed as follows: 1. Term of Agreement. This Agreement shall commence as of August 30, 1999, and shall continue in effect until August 30, 2001 (the "Term"); provided, however, that on August 30, 2000, and on each August 30 thereafter, the Term shall automatically be extended for one year unless either the Executive or the Company shall have given written notice to the other at least ninety days prior thereto that the Term shall not be so extended; provided, further, however, that following the occurrence of a Change in Control, the Term shall not expire prior to the expiration of twenty-four months after such occurrence. 2. Termination of Employment. If, during the Term, the Executive's employment with the Company or an Employing Affiliate shall be terminated within twenty-four months following a Change in Control, the Executive shall be entitled to the following compensation and benefits: (a) If the Executive's employment with the Company or an Employing Affiliate shall be terminated (1) by the Company for Cause or Disability, (2) by reason of the Executive's death, or (3) by the Executive other than for Good Reason or pursuant to a Window Period Termination, the Company shall pay to the Executive the Accrued Compensation. (b) If the Executive's employment with the Company or an Employing Affiliate shall be terminated for any reason other than as specified in Section 2(a), or if the Executive terminates his employment with or without Good Reason during the one month period commencing six months following a Change in Control (a "Window Period Termination"), the Executive shall be entitled to the following: (1) the Company shall pay the Executive the Accrued Compensation; (2) the Company shall pay the Executive as severance pay an amount equal to 2.99 times the Executive's Base Amount; and (3) for twelve months following the Termination Date (the "Continuation Period"), the Company shall continue on behalf of the Executive and his dependents and beneficiaries the life insurance, disability, medical, dental, prescription drug and hospitalization coverages and benefits provided to the Executive immediately prior to a Change in Control (the "Benefits Continuation"), or, if greater, the coverages and benefits provided at any time thereafter; provided, however, that within five days following the Termination Date, the Executive may elect to receive from the Company in cash, in lieu of the Benefits Continuation, the value of the Benefits Continuation. The coverages and benefits (including deductibles and costs to the Executive) provided in this Section 2(b)(3) during the Continuation Period shall be no less favorable to the Executive and his dependents and beneficiaries than the most favorable of such coverages and benefits referred to above. The Company's obligation hereunder with respect to the foregoing coverages and benefits shall be reduced to the extent that the Executive obtains any such coverages and benefits pursuant to a subsequent employer's benefit plans, in which case the Company 2 may reduce any of the coverages or benefits it is required to provide the Executive hereunder so long as the aggregate coverages and benefits (including deductibles and costs to the Executive) of the combined benefit plans are no less favorable to the Executive than the coverages and benefits required to be provided hereunder. This Section 2(b)(3) shall not be interpreted so as to limit any benefits to which the Executive, his dependents or beneficiaries may be entitled under any of the Company's employee benefit plans, programs or practices following the Executive's termination of employment, including but not limited to retiree medical and life insurance benefits. (c) The cash amounts provided for in Sections 2(a) and 2(b) shall be paid in a single lump sum cash payment within ten days after the Termination Date (or earlier, if required by applicable law). (d) The severance pay and benefits provided for in this Section 2 shall be in lieu of any other severance pay to which the Executive may be entitled under any severance or employment agreement with the Company or any other plan, agreement or arrangement of the Company or any other Affiliate of the Company. The Executive's entitlement to any compensation or benefits other than as provided herein shall be determined in accordance with the employee benefit plans of the Company and any of its Affiliates and other applicable agreements, programs and practices as in effect from time to time. (e) If the Executive's employment is terminated by the Company or an Employing Affiliate without Cause prior to the date of a Change in Control but the Executive reasonably demonstrates that such termination (1) was at the request of a third party who has indicated an intention or taken steps reasonably calculated to effect a Change in Control (a "Third Party") and who effectuates a Change in Control or (2) otherwise arose in connection with, or in anticipation of, a Change in Control which has been threatened or proposed and which actually occurs, such termination shall be deemed to have occurred after a Change in Control, it being agreed that any such action taken following shareholder approval of a transaction which if consummated would constitute a Change in Control, shall be deemed to be in anticipation of a Change in Control provided such transaction is actually consummated. 3. Effect of Section 280G of the Internal Revenue Code. (a) Notwithstanding anything contained in this Agreement to the contrary, to the extent that the payments and benefits provided under this 3 Agreement and benefits provided to, or for the benefit of, the Executive under any other Company plan or agreement (such payments or benefits collectively referred to herein as the "Payments") would be subject to the excise tax (the "Excise Tax") imposed under Section 280G of the Internal Revenue Code of 1986, as amended (the "Code"), the Payments shall be reduced (but not below zero) if and to the extent necessary so that no Payment to be made or benefit to be provided to the Executive shall be subject to the Excise Tax (such reduced amount is hereinafter referred to as the "Limited Payment Amount"). Unless the Executive shall have given prior written notice specifying a different order to the Company to effectuate the foregoing, the Company shall reduce or eliminate the Payments by first reducing or eliminating the portion of the Payments which are not payable in cash and then by reducing or eliminating cash payments, in each case in reverse order beginning with payments or benefits which are to be paid the farthest in time from the Determination (as hereinafter defined). Any notice given by the Executive pursuant to the preceding sentence shall take precedence over the provisions of any other plan, arrangement or agreement governing the Executive's rights and entitlements to any benefits or compensation. (b) The determination of whether the Payments shall be reduced to the Limited Payment Amount pursuant to this Agreement and the amount of such Limited Payment Amount shall be made, at the Company's expense, by an accounting firm selected by the Company and reasonably acceptable to the Executive which is one of the five largest accounting firms in the United States (the "Accounting Firm"). The Accounting Firm shall provide its determination (the "Determination"), together with detailed supporting calculations and documentation to the Company and the Executive within ten days of the Termination Date, if applicable, or such other time as requested by the Company or by the Executive (provided the Executive reasonably believes that any of the Payments may be subject to the Excise Tax) and if the Accounting Firm determines that no Excise Tax is payable by the Executive with respect to the Payments, it shall furnish the Executive with an opinion reasonably acceptable to the Executive that no Excise Tax will be imposed with respect to any such Payments. The Determination shall be binding, final and conclusive upon the Company and the Executive. 4. Notice of Termination. Following a Change in Control, any intended termination of the Executive's employment by the Company or an Employing Affiliate shall be communicated by a Notice of Termination from the Company to the Executive, and any intended termination of the Executive's 4 employment by the Executive for Good Reason shall be communicated by a Notice of Termination from the Executive to the Company. 5. Fees and Expenses. The Company shall pay, as incurred, all legal fees and related expenses (including the costs of experts, evidence and counsel) that the Executive may reasonably incur following a Change in Control as a result of or in connection with (a) the Executive's contesting, defending or disputing the basis for the termination of the Executive's employment, (b) the Executive's hearing before the Board of Directors of the Company as contemplated in Section 16.4 or (c) the Executive's seeking to obtain or enforce any right or benefit provided by this Agreement or by any other plan or arrangement maintained by the Company or one of its Affiliates under which the Executive is or may be entitled to receive benefits. 6. Unauthorized Disclosure. (a) The Executive agrees and understands that during the Executive's employment with the Company or an Employing Affiliate, the Executive has been and will be exposed to and receive information relating to the affairs of the Company considered by the Company to be confidential and in the nature of trade secrets (including but not limited to procedures, memoranda, notes, records and customer lists, whether such information has been or is made, developed or compiled by the Executive or otherwise has been or is made available to him) (any and all such information, the "Confidential Information"). The Executive agrees that, during the Term and thereafter, he shall keep such Confidential Information confidential and will not disclose such Confidential Information, either directly or indirectly, to any third person or entity without the prior written consent of the Company; provided, however, that (i) the Executive shall have no such obligation to the extent such Confidential Information is or becomes publicly known other than as a result of the Executive's breach of his obligations hereunder or is received by the Executive following the Termination Date and (ii) the Executive may, after giving prior notice to the Company to the extent practicable under the circumstances, disclose such Confidential Information to the extent required by applicable laws or governmental regulations or judicial or regulatory process. (b) The Executive agrees that all Confidential Information is and will remain the property of the Company. The Executive further agrees that, during the Term and thereafter, he shall hold in the strictest confidence all Confidential Information, and shall not, directly or indirectly, duplicate, sell, use, lease, commercialize, disclose or otherwise divulge to any person or entity any 5 portion of the Confidential Information or use any Confidential Information for his own benefit or profit or allow any person or entity, other than the Company and its authorized employees, to use or otherwise gain access to any Confidential Information. (c) All memoranda, notes, records, customer lists and other documents made or compiled by the Executive or otherwise made available to him concerning the business of the Company or its subsidiaries or Affiliates shall be the Company's property and shall be delivered to the Company upon the termination of the Executive's employment with the Company or an Employing Affiliate or at any other time upon request by the Company, and the Executive shall retain no copies of those documents. The Executive shall never at any time have or claim any right, title or interest in any material, invention or matter of any sort created, prepared or used in connection with the business of the Company or its subsidiaries or Affiliates. 7. Non-competition. (a) By and in consideration of the Company's entering into this Agreement and the payments to be made and benefits to be provided by the Company hereunder and further in consideration of the Executive's exposure to the proprietary information of the Company, the Executive agrees that the Executive will not, during the Term, and thereafter during the Non-competition Term (as hereinafter defined), directly or indirectly, own, manage, operate, join, control, be employed by, or participate in the ownership, management, operation or control of, or be connected in any manner with, including but not limited to holding any position as a shareholder, director, officer, consultant, independent contractor, employee, partner, or investor in, any Restricted Enterprise (as defined below); provided, however, that in no event shall ownership of less than one percent of the outstanding equity securities of any issuer whose securities are registered under the Securities Exchange Act of 1934, as amended (the "Exchange Act"), standing alone, be prohibited by this Section 7. For purposes of this paragraph, the term "Restricted Enterprise" shall mean any person, corporation, partnership or other entity that competes, directly or indirectly, with any business or activity conducted or proposed to be conducted by the Company or any of its subsidiaries or Affiliates as of the date of the Executive's termination of employment. Following termination of employment, upon request of the Company, the Executive shall notify the Company of the Executive's then current employment status. For purposes of this Agreement, the "Non-competition Term" shall mean the period beginning on the Termination Date and ending on 6 the first anniversary of such date. Any material breach of the terms of this paragraph shall be considered Cause under Section 16.4. (b) The Executive agrees that any breach of the terms of this Section 7 would result in irreparable injury and damage to the Company and/or its subsidiaries or Affiliates for which the Company and/or its subsidiaries or Affiliates would have no adequate remedy at law; the Executive therefore also agrees that in the event of said breach or any threat of breach, the Company and/or its subsidiaries or Affiliates, as applicable, shall be entitled to an immediate injunction and restraining order to prevent such breach and/or threatened breach and/or continued breach by the Executive and/or any and all persons and/or entities acting for and/or with the Executive, without having to prove damages, in addition to any other remedies to which the Company and/or its subsidiaries or Affiliates may be entitled at law or in equity. The terms of this paragraph shall not prevent the Company and/or its subsidiaries or Affiliates from pursuing any other available remedies for any breach or threatened breach hereof, including but not limited to the recovery of damages from the Executive. The Executive and the Company further agree that the provisions of the covenants contained in this Section 7 are reasonable and necessary to protect the businesses of the Company and its subsidiaries or Affiliates because of the Executive's access to Confidential Information and his material participation in the operation of such businesses. Should a court or arbitrator determine, however, that any provision of the covenants contained in this Section 7 is not reasonable or valid, either in period of time, geographical area, or otherwise, the parties hereto agree that such covenants should be interpreted and enforced to the maximum extent which such court or arbitrator deems reasonable or valid. The existence of any claim or cause of action by the Executive against the Company and/or its subsidiaries or Affiliates, whether predicated on this Agreement or otherwise, shall not constitute a defense to the enforcement by the Company of the covenants contained in this Section 7. 8. Notice. For the purposes of this Agreement, notices and all other communications provided for in this Agreement (including any Notice of Termination) shall be in writing, shall be signed by the Executive if to the Company or by a duly authorized officer of the Company if to the Executive, and shall be deemed to have been duly given when personally delivered or sent by certified mail, return receipt requested, postage prepaid, addressed to the respective addresses last given by each party to the other, provided that all notices to the Company shall be directed to the attention of the Board with a copy 7 to the Secretary of the Company. All notices and communications shall be deemed to have been received on the date of delivery thereof or on the third business day after the mailing thereof (whichever is earlier), except that notice of change of address shall be effective only upon receipt. 9. Non-Exclusivity of Rights. Nothing in this Agreement shall prevent or limit the Executive's continuing or future participation in any benefit, bonus, incentive or other plan or program provided by the Company or any other Affiliate of the Company for which the Executive may qualify, nor shall anything herein limit or reduce such rights as the Executive may have under any other agreements with the Company or any other Affiliate of the Company. Amounts which are vested benefits or which the Executive is otherwise entitled to receive under any plan or program of the Company or any other Affiliate of the Company shall be payable in accordance with such plan or program, except as explicitly modified by this Agreement. 10. (a) Full Settlement. The Company's obligation to make the payments provided for in this Agreement and otherwise to perform its obligations hereunder shall not be affected by any circumstances, including but not limited to any set-off counterclaim, defense, recoupment, or other claim, right or action which the Company may have against the Executive or others. (b) No Mitigation. The Executive shall not be required to mitigate the amount of any payment provided for in this Agreement by seeking other employment or otherwise and no such payment shall be offset or reduced by the amount of any compensation or benefits provided to the Executive in any subsequent employment except as provided in Section 2(b)(3). 11. Miscellaneous. No provision of this Agreement may be modified, waived or discharged unless such waiver, modification or discharge is agreed to in writing and signed by the Executive and the Company. No waiver by any party hereto at any time of any breach by any other party hereto of, or compliance with, any condition or provision of this Agreement to be performed by such other party shall be deemed a waiver of similar or dissimilar provisions or conditions at the same or at any prior or subsequent time. No agreements or representations, oral or otherwise, express or implied, with respect to the subject matter hereof have been made by any party which are not expressly set forth in this Agreement. 8 12. Successors; Binding Agreement. (a) This Agreement shall be binding upon and shall inure to the benefit of the Company and its Successors and Assigns. The Company shall require its Successors and Assigns 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 or assignment had taken place. (b) Neither this Agreement nor any right or interest hereunder shall be assignable or transferable by the Executive, his beneficiaries or legal representatives, except by will or by the laws of descent and distribution. This Agreement shall inure to the benefit of and be enforceable by the Executive's legal personal representative. 13. Governing Law. This Agreement shall be governed by and construed and enforced in accordance with the laws of the State of Delaware without giving effect to the conflict of laws principles thereof. Any action brought by any party to this Agreement shall be brought and maintained in a court of competent jurisdiction in the State of Delaware. 14. Severability. The provisions of this Agreement shall be deemed severable and the invalidity or unenforceability of any provision shall not affect the validity or enforceability of the other provisions hereof. 15. Entire Agreement. This Agreement constitutes the entire agreement between the parties hereto, and supersedes all prior agreements, if any, understandings and arrangements, oral or written, between the parties hereto, with respect to the subject matter hereof. 16. Definitions. 16.1. Accrued Compensation. For purposes of this Agreement, "Accrued Compensation" shall mean all amounts of compensation for services rendered to the Company or an Employing Affiliate that have been earned or accrued through the Termination Date but that have not been paid as of the Termination Date, including (a) base salary, (b) reimbursement for reasonable and necessary business expenses incurred by the Executive on behalf of the Company or an Employing Affiliate during the period ending on the Termination Date and (c) vacation pay; provided, however, that Accrued Compensation shall 9 not include any amounts described in clause (a) that have been deferred pursuant to any salary reduction or deferred compensation elections made by the Executive. 16.2. Affiliate. For purposes of this Agreement, "Affiliate" means, with respect to any Person, any entity, directly or indirectly, controlled by, controlling or under common control with such Person. 16.3. Base Amount. For purposes of this Agreement, "Base Amount" shall mean, with respect to a Change in Control, the Executive's "base amount" as determined under Section 280G of the Code and the regulations proposed thereunder. 16.4. Cause. For purposes of this Agreement, a termination of employment is for "Cause" if the Executive (a) has been convicted of a felony (including a plea of nolo contendere); (b) intentionally and continually failed substantially to perform his reasonably assigned duties with the Company or an Employing Affiliate (other than a failure resulting from the Executive's incapacity due to physical or mental illness or from the assignment to the Executive of duties that would constitute Good Reason) which failure continued for a period of at least thirty days after a written notice of demand for substantial performance, signed by a duly authorized officer of the Company, has been delivered to the Executive specifying the manner in which the Executive has failed substantially to perform such duties; or (c) intentionally engaged in illegal conduct or willful misconduct which is demonstrably and materially injurious to the Company or an Employing Affiliate. For purposes of this Agreement, no act, or failure to act, on the Executive's part shall be considered "intentional" unless the Executive has acted, or failed to act, with a lack of good faith and with a lack of reasonable belief that the Executive's action or failure to act was in the best interest of the Company or an Employing Affiliate. Any act, or failure to act, based upon authority given pursuant to a resolution duly adopted by the Board or upon the instructions of the Company's Chairman of the Board, Chief Executive Officer or a senior officer of the Company or based upon the advice of counsel for the Company shall be conclusively presumed to be done, or omitted to be done, by the Executive in 10 good faith and in the best interests of the Company or an Employing Affiliate. The termination of employment of the Executive shall not be deemed to be for Cause pursuant to subparagraph (b) or (c) above unless and until there shall have been delivered to the Executive a copy of a resolution duly adopted by the affirmative vote of not less than three-fourths of the entire membership of the Board at a meeting of the Board called and held for such purpose (after reasonable notice is provided to the Executive and the Executive is given an opportunity, together with counsel, to be heard before the Board) finding that, in the good faith opinion of the Board, the Executive is guilty of the conduct described in subparagraph (b) or (c) above, and specifying the particulars thereof in detail. Notwithstanding anything contained in this Agreement to the contrary, no failure to perform by the Executive after a Notice of Termination is given to the Company by the Executive shall constitute Cause for purposes of this Agreement. 16.5. Change in Control. A "Change in Control" shall mean the occurrence during the Term of: (a) An acquisition (other than directly from the Company) of any common stock of the Company ("Common Stock") or other voting securities of the Company entitled to vote generally for the election of directors (the "Voting Securities") by any "Person" (as the term "person" is used for purposes of Section 13(d) or 14(d) of the Exchange Act), immediately after which such Person has "Beneficial Ownership" (within the meaning of Rule 13d-3 promulgated under the Exchange Act) of fifty percent or more of the then outstanding shares of Common Stock or the combined voting power of the Company's then outstanding Voting Securities; provided, however, in determining whether a Change in Control has occurred, Common Stock or Voting Securities which are acquired in a Non-Control Acquisition (as hereinafter defined) shall not constitute an acquisition which would cause a Change in Control. A "Non-Control Acquisition" shall mean an acquisition by (i) an employee benefit plan (or a trust forming a part thereof) maintained by (A) the Company or (B) any corporation or other Person of which a majority of its voting power or its voting equity securities or equity interest is owned, directly or indirectly, by the Company (a "Subsidiary"), (ii) the Company or its Subsidiaries, (iii) any Person in connection with a Non-Control Transaction (as hereinafter defined) or (iv) an Affiliate; (b) The individuals who, as of February 11, 1999, are members of the Board (the "Incumbent Board"), cease for any reason to 11 constitute at least a majority of the members of the Board; provided, however, that if the election, or nomination for election by the Company's shareholders, of any new director was approved by a vote of at least two-thirds of the Incumbent Board, such new director shall, for purposes of this Agreement, be considered a member of the Incumbent Board; provided further, however, that no individual shall be considered a member of the Incumbent Board if such individual initially assumed office as a result of either an actual or threatened "Election Contest" (as described in Rule 14a-11 promulgated under the Exchange Act) or other actual or threatened solicitation of proxies or consents by or on behalf of a Person other than the Board (a "Proxy Contest") including by reason of any agreement intended to avoid or settle any Election Contest or Proxy Contest; or (c) The consummation of: (1) A merger, consolidation, reorganization or other business combination with or into the Company or in which securities of the Company are issued, unless such merger, consolidation, reorganization or other business combination is a "Non-Control Transaction." A "Non-Control Transaction" shall mean a merger, consolidation, reorganization or other business combination with or into the Company or in which securities of the Company are issued where: (A) the shareholders of the Company, immediately before such merger, consolidation, reorganization or other business combination own directly or indirectly immediately following such merger, consolidation, reorganization or other business combination, at least fifty percent of the combined voting power of the outstanding voting securities of the corporation resulting from such merger or consolidation, reorganization or other business combination (the "Surviving Corporation") in substantially the same proportion as their ownership of the Voting Securities immediately before such merger, consolidation, reorganization, or other business combination, (B) the individuals who were members of the Incumbent Board immediately prior to the execution of the agreement providing for such merger, consolidation, reorganization or other business combination constitute at least two-thirds of the members of the board of directors of the Surviving Corporation, or a corporation beneficially directly or indirectly owning a majority of the combined voting power of the outstanding voting securities of the Surviving Corporation, and 12 (C) no Person other than (i) the Company, (ii) any Subsidiary, (iii) any employee benefit plan (or any trust forming a part thereof) that, immediately prior to such merger, consolidation, reorganization or other business combination was maintained by the Company, the Surviving Corporation, or any Subsidiary, or (iv) any Person who, immediately prior to such merger, consolidation, reorganization or other business combination had Beneficial Ownership of fifty percent or more of the then outstanding Voting Securities or common stock of the Company, has Beneficial Ownership of fifty percent or more of the combined voting power of the Surviving Corporation's then outstanding voting securities or its common stock. (2) A complete liquidation or dissolution of the Company; or (3) The sale or other disposition of all or substantially all of the assets of the Company to any Person (other than (i) any such sale or disposition that results in at least fifty percent of the Company's assets being owned by a Subsidiary or Subsidiaries or (ii) a distribution to the Company's stockholders of the stock of a Subsidiary or any other assets). Notwithstanding the foregoing, a Change in Control shall not be deemed to occur solely because any Person (the "Subject Person") acquired Beneficial Ownership of more than the permitted amount of the then outstanding Common Stock or Voting Securities as a result of the acquisition of Common Stock or Voting Securities by the Company which, by reducing the number of shares of Common Stock or Voting Securities then outstanding, increases the proportional number of shares Beneficially Owned by the Subject Person, provided that if a Change in Control would occur (but for the operation of this sentence) as a result of the acquisition of shares of Common Stock or Voting Securities by the Company, and after such share acquisition by the Company, the Subject Person becomes the Beneficial Owner of any additional shares of Common Stock or Voting Securities which increase the percentage of the then outstanding shares of Common Stock or Voting Securities Beneficially Owned by the Subject Person, then a Change in Control shall occur. 16.6. Company. For purposes of this Agreement, all references to the Company shall include its Successors and Assigns. 16.7. Disability. For purposes of this Agreement, "Disability" shall mean a physical or mental infirmity which impairs the Executive's ability to 13 substantially perform his duties with the Company or an Employing Affiliate for six consecutive months, and within the time period set forth in a Notice of Termination given to the Executive (which time period shall not be less than thirty days), the Executive shall not have returned to full-time performance of his duties; provided, however, that if the Company's Long Term Disability Plan, or any successor plan (the "Disability Plan"), is then in effect, the Executive shall not be deemed disabled for purposes of this Agreement unless the Executive is also eligible for long-term disability benefits under the Disability Plan (or similar benefits in the event of a successor plan). 16.8. Good Reason. (a) For purposes of this Agreement, "Good Reason" shall mean the occurrence after a Change in Control of any of the following events or conditions: (1) a material adverse change in the Executive's duties or responsibilities (including reporting responsibilities), except in connection with the termination of his employment for Disability, Cause, as a result of his death or by the Executive other than for Good Reason; (2) a reduction in the Executive's annual base salary; (3) the relocation of the offices of the Company or an Employing Affiliate at which the Executive is principally employed to a location more than 25 miles from the location of such offices immediately prior to a Change in Control, or the requirement that the Executive be based anywhere other than at such offices, except to the extent the Executive was not previously assigned to a principal location and except for required travel on the business of the Company or an Employing Affiliate to an extent substantially consistent with the Executive's business travel obligations at the time of a Change in Control; or (4) the failure by the Company or an Employing Affiliate to pay to the Executive any portion of the Executive's current compensation or to pay to the Executive any portion of an installment of deferred compensation under any deferred compensation program of the Company or an Employing Affiliate in which the Executive participated, within seven days of the date such compensation is due. 14 (b) Any event or condition described in Section 16.8(a)(1) through (4) which occurs prior to a Change in Control but which the Executive reasonably demonstrates (i) was at the request of a Third Party who effectuates a Change in Control or (ii) otherwise arose in connection with or in anticipation of a Change in Control which has been threatened or proposed and which actually occurs, shall constitute Good Reason for purposes of this Agreement notwithstanding that it occurred prior to a Change in Control, it being agreed that any such action taken following shareholder approval of a transaction which if consummated would constitute a Change in Control, shall be deemed to be in anticipation of a Change in Control provided such transaction is actually consummated. 16.9. Notice of Termination. For purposes of this Agreement, following a Change in Control, "Notice of Termination" shall mean a written notice of termination of the Executive's employment, signed by the Executive if to the Company or by a duly authorized officer of the Company if to the Executive, which indicates the specific termination provision in this Agreement, if any, relied upon and which sets forth in reasonable detail the facts and circumstances claimed to provide a basis for termination of the Executive's employment under the provision so indicated. The failure by the Executive or the Company to set forth in the Notice of Termination any fact or circumstance which contributes to a showing of Good Reason, Disability or Cause shall not serve to waive any right of the Executive or the Company, respectively, hereunder or preclude the Executive or the Company, respectively, from asserting such fact or circumstance in enforcing the Executive's or the Company's rights hereunder. 16.10.Successors and Assigns. For purposes of this Agreement, "Successors and Assigns" shall mean, with respect to the Company, a corporation or other entity acquiring all or substantially all the assets and business of the Company, as the case may be, whether by operation of law or otherwise. 16.11. Termination Date. For purposes of this Agreement, "Termination Date" shall mean (a) in the case of the Executive's death, his date of death, (b) if the Executive's employment is terminated for Disability, thirty days after Notice of Termination is given (provided that the Executive shall not have returned to the performance of his duties on a full-time basis during such thirty day period) and (c) if the Executive's employment is terminated for any other reason, the date specified in the Notice of Termination (which, in the case of a termination for Cause shall not be less than thirty days, and in the case of a 15 termination for Good Reason shall not be more than sixty days, from the date such Notice of Termination is given); provided, however, that if within thirty days after any Notice of Termination is given the party receiving such Notice of Termination in good faith notifies the other party that a dispute exists concerning the basis for the termination, the Termination Date shall be the date on which the dispute is finally determined, either by mutual written agreement of the parties, or by the final judgment, order or decree of a court of competent jurisdiction (the time for appeal therefrom having expired and no appeal having been taken). Notwithstanding the pendency of any such dispute, the Company or an Employing Affiliate shall continue to pay the Executive his base salary and continue the Executive as a participant (at or above the level provided prior to the date of such dispute) in all compensation, incentive, bonus, pension, profit sharing, medical, hospitalization, prescription drug, dental, life insurance and disability benefit plans in which he was participating when the notice giving rise to the dispute was given, until the dispute is finally resolved whether or not the dispute is resolved in favor of the Company, and the Executive shall not be obligated to repay to the Company or an Employing Affiliate any amounts paid or benefits provided pursuant to this sentence. 16 IN WITNESS WHEREOF, the Company has caused this Agreement to be executed by its duly authorized officers and the Executive has executed this Agreement as of the day and year first above written. AXSYS TECHNOLOGIES, INC. /s/ David L. Concannon ----------------------------------------- By: David L. Concannon Its: Vice President EXECUTIVE /s/ Mark J. Bonney ----------------------------------------- Mark J. Bonney ATTEST /s/ Anel M. Jimenez - -------------------------------- By: Anel M. Jimenez 17 EX-27.1 7 FDS
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE CONSOLIDATED BALANCE SHEET OF AXSYS TECHNOLOGIES, INC. AS OF SEPTEMBER 30, 1999 AND THE RELATED CONSOLIDATED STATEMENT OF OPERATIONS FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1999 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1000 9-MOS DEC-31-1999 SEP-30-1999 65 0 16,450 619 28,548 47,838 29,031 13,956 76,728 18,334 3,501 0 0 41 52,759 52,800 78,995 78,995 57,027 57,027 19,347 85 518 2,018 0 2,018 0 0 0 2,018 0.50 0.49
EX-27.2 8 FDS
5 THIS SCHEDULE CONTAINS RESTATED SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE CONSOLIDATED BALANCE SHEET OF AXSYS TECHNOLOGIES, INC. AS OF SEPTEMBER 30, 1998 AND THE RELATED CONSOLIDATED STATEMENT OF OPERATIONS FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1998 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1000 9-MOS DEC-31-1998 SEP-30-1998 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 89,922 89,922 62,950 62,950 18,652 70 761 7,489 1,063 6,426 (2,445) 0 0 3,981 0.95 0.94
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