0000026987-01-500011.txt : 20011009
0000026987-01-500011.hdr.sgml : 20011009
ACCESSION NUMBER: 0000026987-01-500011
CONFORMED SUBMISSION TYPE: 10-K
PUBLIC DOCUMENT COUNT: 6
CONFORMED PERIOD OF REPORT: 20010630
FILED AS OF DATE: 20010926
FILER:
COMPANY DATA:
COMPANY CONFORMED NAME: SMTEK INTERNATIONAL INC
CENTRAL INDEX KEY: 0000026987
STANDARD INDUSTRIAL CLASSIFICATION: PRINTED CIRCUIT BOARDS [3672]
IRS NUMBER: 330213512
STATE OF INCORPORATION: DE
FISCAL YEAR END: 0702
FILING VALUES:
FORM TYPE: 10-K
SEC ACT: 1934 Act
SEC FILE NUMBER: 001-08101
FILM NUMBER: 1744837
BUSINESS ADDRESS:
STREET 1: 2151 ANCHOR COURT
CITY: THOUSAND OAKS
STATE: CA
ZIP: 91320
BUSINESS PHONE: 8053762595
MAIL ADDRESS:
STREET 1: 2151 ANCHOR COURT
CITY: HOUSAND OAKS
STATE: CA
ZIP: 91320
FORMER COMPANY:
FORMER CONFORMED NAME: DATA DESIGN LABORATORIES
DATE OF NAME CHANGE: 19880817
FORMER COMPANY:
FORMER CONFORMED NAME: DATA DESIGN LABORATORIES INC
DATE OF NAME CHANGE: 19920703
FORMER COMPANY:
FORMER CONFORMED NAME: DDL ELECTRONICS INC
DATE OF NAME CHANGE: 19940119
10-K
1
report.txt
FORM 10-K
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended June 30, 2001
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
___________ ___________
Commission File Number 1-8101
___________
Exact Name of Registrant as
Specified in Its Charter: SMTEK INTERNATIONAL, INC.
______________________________
DELAWARE 33-0213512
_____________________________ _____________
State or Other Jurisdiction of I.R.S. Employer
Incorporation or Organization No. Identification
Address of Principal Executive Offices: 2151 Anchor Court
Thousand Oaks, CA 91320
_________________________
Registrant's Telephone Number: (805) 376-2595
_________________________
Securities registered pursuant to Section 12(b) of the Act:
Title of each class Name of each exchange on which registered
_________________________ ___________________________________________
Common Stock, $.01 Par Value Pacific Exchange
Securities registered pursuant to Section 12(g) of the Act: Common Stock,
$.01 Par Value
Indicate by check mark whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. Yes [X] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to
the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [ ]
The aggregate market value of the voting stock held by non-affiliates of the
registrant based on the closing price as reported by the Nasdaq Small Cap
Market on September 14, 2001 was $7,302,000. The registrant had 2,284,093
shares of Common Stock outstanding as of September 14, 2001.
DOCUMENTS INCORPORATED BY REFERENCE
We are a reporting company and file annual, quarterly and special
reports, proxy statements and other information with the Securities and
Exchange Commission (the "SEC"). You may inspect and copy these materials at
the Public Reference Room maintained by the SEC at Room 1024, 450 Fifth
Street, N.W., Washington, D.C. 20549. Please call the SEC at 1-800-SEC-0330
for more information on the Public Reference Room. You may also find our SEC
filings at the SEC website at www.sec.gov. You may also inspect reports and
other information concerning us at the offices of the Nasdaq Stock Market at
1735 K Street, N.W., Washington, D.C. 20006. We intend to furnish our
stockholders with annual reports containing audited financial statements and
such other periodic reports as we may determine to be appropriate or as may
be required by law.
Specified parts of our Annual Report to Stockholders for our fiscal year
ended June 30, 2001 are incorporated by reference into Parts I and II hereof.
Specified parts of our Proxy Statement for our 2001 Annual Meeting of
Stockholders, which Proxy Statement will be filed within 120 days after the
end of our fiscal year, are incorporated by reference into Part III hereof.
Certain documents listed above in Part IV, Item 14 of this Report, as
exhibits to this Report are incorporated by reference from other documents
previously filed with the SEC.
THIS ANNUAL REPORT ON FORM 10-K, INCLUDING EXHIBITS HERETO, CONTAINS
FORWARD-LOOKING STATEMENTS WITHIN THE MEANING OF SECTION 27A OF THE
SECURITIES ACT OF 1933, AS AMENDED, AND SECTION 21E OF THE SECURITIES
EXCHANGE ACT OF 1934, AS AMENDED. THESE FORWARD-LOOKING STATEMENT ARE
TYPICALLY IDENTIFIED BY THE WORDS "ANTICIPATES", "BELIEVES", "EXPECTS",
"INTENDS", "FORECASTS", "PLANS", "FUTURE", "STRATEGY", OR WORDS OF SIMILAR
MEANING. VARIOUS IMPORTANT FACTORS COULD CAUSE ACTUAL RESULTS TO DIFFER
MATERIALLY FROM THOSE EXPRESSED IN THE FORWARD-LOOKING STATEMENTS, INCLUDING
THOSE DESCRIBED AS "RISK FACTORS" IN THIS REPORT AND IN OTHER DOCUMENTS THE
COMPANY HAS FILED AND FILES, FROM TIME TO TIME, WITH THE SECURITIES AND
EXCHANGE COMMISSION.
PART I
Item 1. BUSINESS
GENERAL
SMTEK International, Inc. (the "Company," "we," "us" or "our"), a
Delaware corporation, is an electronics manufacturing services ("EMS")
provider to original equipment manufacturers ("OEMs") primarily in the
industrial and instrumentation, medical, telecommunications, financial
services automation and aerospace and defense industries. We provide
integrated solutions to OEMs across the entire product life cycle, from
design to manufacturing to end-of-life services, for the worldwide low-to-
medium volume, high complexity segment of the EMS industry.
We have four wholly owned subsidiaries: SMTEK, Inc. (dba SMTEK Thousand
Oaks), located in Thousand Oaks, California; Technetics, Inc. (dba SMTEK San
Diego), located in San Diego, California; Jolt Technology, Inc. (aka SMTEK
Fort Lauderdale), located in Fort Lauderdale, Florida; and SMTEK Europe
Limited, located in Craigavon, Northern Ireland.
In July 2001, our San Diego subsidiary moved its entire operations into
a 45,000 square foot facility under a ten year lease. Also in July 2001, our
Thousand Oaks subsidiary signed a ten year lease for a 115,000 square foot
facility in Moorpark, California. The Thousand Oaks subsidiary expects to
move during the second quarter of fiscal 2002.
We were incorporated in California in 1959 and were reincorporated in
Delaware in 1986. We changed our name from Data-Design Laboratories, Inc. to
DDL Electronics, Inc. in December 1993, and in October 1998 our name was
changed to SMTEK International, Inc. Our executive office is currently
located at 2151 Anchor Court, Thousand Oaks, California 91320, telephone
(805) 376-2595.
INDUSTRY OVERVIEW
EMS INDUSTRY
The EMS industry can be classified into two general segments: high-
volume/low complexity and low-to-medium volume/high complexity. We focus on
the low-to-medium volume/high complexity segment. Manufacturers in this
segment are highly fragmented and competitive. Customer bases tend to be
highly concentrated, with two or three customers typically accounting for a
significant portion of an EMS provider's total revenue.
Two principal assembly techniques are employed in the EMS industry:
surface mount technology ("SMT"), which accounts for the majority of
manufacturing; and through-hole technology. We believe that the low-to-
medium volume/high complexity EMS market is continuing to move toward SMT as
the preferred manufacturing technique, due in part to the fact that
semiconductors have continued to shrink in size, which tightens manufacturing
tolerances and necessitates the use of automation for efficient production.
Our production processes are predominantly SMT.
DESCRIPTION OF EMS PRODUCTS AND SERVICES
Production of electronic assemblies for a customer is only performed
when a firm order is received and accepted. Customer cancellations of orders
are infrequent and are usually subject to cancellation charges. More often,
a customer will delay shipment of orders based on its actual or anticipated
needs. Electronic assemblies are produced based on one of two general
methods, either "turnkey" (where we provide all materials, labor and
equipment associated with producing the customers' product) or "consigned"
(where we provide only labor and equipment for manufacturing electronic
assemblies and the customer provides the materials).
Our EMS operations provide both turnkey and consignment electronics
manufacturing services using surface mount and through-hole interconnection
technologies. We conduct our domestic business through our facilities in
Thousand Oaks, San Diego and Fort Lauderdale, and our European business
through our SMTEK Europe Limited subsidiary in Northern Ireland. Our EMS
operations do not fabricate any of the components used in these processes.
The materials procurement element of our turnkey services consists of the
planning, purchasing, expediting, warehousing and financing of the components
and materials required to assemble a board-level or system-level assembly.
Customers have increasingly required us and other EMS providers to purchase
some or all components directly from component manufacturers or distributors
and to finance the components and materials. In establishing a turnkey
relationship with an EMS provider, a customer typically incurs costs in
qualifying that EMS provider and, in some cases, its sources of component
supply, to refine product design and to develop mutually compatible
information and reporting systems. With this relationship established, we
believe that customers experience difficulty in expeditiously and effectively
reassigning a turnkey project to a new assembler or in taking on the project
themselves. At the same time, we face the obstacle of attracting new
customers away from existing EMS providers, or from the customers' in-house
assembly operations.
MARKETS AND CUSTOMERS
Our sales and the percentage of our consolidated sales to the principal
end-user markets we serve for the last three fiscal years were as follows
(dollars in thousands):
Year ended June 30,
-------------------------------------------------
Markets 2001 2000 1999
----------------------------- --------------- --------------- ---------------
Industrial controls
and instrumentation $38,482 42.2% $19,108 27.2% $ 7,222 14.1%
Medical 25,093 27.5 12,921 18.4 4,310 8.4
Telecommunications 11,186 12.3 10,027 14.3 9,689 18.9
Financial services automation 8,904 9.8 10,803 15.4 3,464 6.8
Aerospace and defense 5,693 6.2 15,718 22.4 23,418 45.8
Other 1,790 2.0 1,675 2.3 3,072 6.0
------- ----- ------- ----- ------- -----
Total $91,148 100.0% $70,252 100.0% $51,175 100.0%
======= ===== ======= ===== ======= =====
See Note 11 to the consolidated financial statements for information on
our revenues and long-lived assets by geographical area.
We market our EMS services through both direct sales personnel and
through representatives from independent manufacturers. Our marketing
strategy is to develop close relationships with, and to increase sales to,
certain existing and new major OEM customers. This includes becoming
involved at an early stage in the design of these customers' new products.
We believe this strategy is necessary to keep abreast of rapidly changing
technological needs and to develop new EMS processes, so as to enhance our
EMS capabilities and our position in the industry. As a result of this
strategy, however, fluctuations experienced by one or more of our customers
in demand for their products may have and have had adverse effects on our
sales and profitability. (See "Risk Factors that May Affect Your Decision to
Invest in Us").
BACKLOG
At June 30, 2001, 2000 and 1999, our backlog was $59.0 million, $53.4
million and $38.7 million, respectively. Backlog is comprised of orders
believed to be firm for products that have scheduled shipment dates within
the next 12 months. We expect to ship a substantial portion of the backlog
within 180 days, although the continuation of current economic conditions or
other risk factors may alter those expectations.
Some orders in the backlog may be cancelled under certain conditions.
In addition, the timing of orders from major customers may result in
significant fluctuations in our backlog and operating results from period to
period.
Accordingly, we believe that backlog may not be a reliable indicator of
future operating results.
RISK FACTORS THAT MAY AFFECT YOUR DECISION TO INVEST IN US
There are a variety of risk factors noted below and elsewhere in this
Report on Form 10-K (the "Report" or "Form 10-K) and our other filings with
the Securities and Exchange Commission (the "SEC") that may affect your
investment with us. In evaluating our business, you should carefully review
the risk factors cited below as well as all other statements, notes and
figures in this Form 10-K. Our business presents a risk due to, among other
considerations, the significant volatility of our stock, particularly on a
quarterly basis. Our business is also part of a highly dynamic and
competitive industry, which can also result in the volatility of our stock
price.
Our results of operations may be affected by the above, or with the risk
factors described below:
GENERAL INDUSTRY CONDITIONS AND COMPETITION
The markets in which the EMS industry operates are intensely
competitive. Seasonality is not a significant factor in the EMS business.
Competition is principally based primarily on price with secondary factors
including product quality, technical capability and the ability to deliver
products on schedule. Both the price of and the demand for EMS are sensitive
to economic conditions, changing technologies and other factors. The
technology used in EMS is widely available, and there are a large number of
domestic and foreign competitors. Many of these firms are larger than we are
and have significantly greater financial, marketing and other resources.
Many of our competitors have also made substantial capital expenditures
in recent years and operate technologically advanced EMS facilities.
Further, some of our customers have substantial in-house EMS capabilities.
There is a risk that, when these customers are operating at less than full
capacity, they will use their own facilities rather than contract with us.
Despite this risk, we believe we have not currently experienced a significant
loss of business to OEMs' captive assembly operations. However, there can be
no assurance that future losses in this regard will not occur.
Another factor that has increased to a material level this year is the
inability of EMS companies to have their customers take back unneeded
inventory (See the risk factor below dealing with "Components And Materials
May Continue To Be Expensive, Unavailable, Or Difficult To Timely Purchase;
Components And Materials May Also Be Difficult To Sell"). This has also
affected us in recent months and may occur more frequently if the current
economic conditions do not appreciably improve. We can provide no assurance
that we will not be forced to sell our customers' unneeded inventory that we
hold, if any, for a loss or that we will be unable to sell such inventory.
This event, if it comes to pass, may adversely affect our business, operating
results and financial condition.
WE ARE ATTEMPTING TO ADJUST TO AN ADVERSE ECONOMIC ENVIRONMENT AND MAY
NOT BE SUCCESSFUL IN MAKING THE ADJUSTMENT
At or near the end of our third quarter of fiscal 2001, some of our
existing customers began to schedule out orders. This resulted in deferral
of scheduled delivery dates. Since that time, we have had customers cancel
portions of orders. As we begin our new fiscal year, we are uncertain
whether the soft demand for goods and services, including those goods and
services our customers provide, will improve. We believe this is a result of
the general downturn in economic conditions in the economy and in particular
in the electronics industry.
In response to this, we have initiated measures, including operating
cost reductions and improved efficiencies. There can be no assurance whether
or not these measures will be effective or adequate. If the current economic
conditions continue for an extended period of time, we may experience a
material adverse effect on our operating results and our financial condition.
OUR INDUSTRY IS OFTEN DESCRIBED AS HAVING LOW PROFIT MARGINS.
THE CURRENT ECONOMIC DOWNTURN MAY RESULT IN EVEN LOWER PROFIT MARGINS
FOR OUR COMPANY AS WELL AS OUR INDUSTRY
The electronics manufacturing subcontracting industry is often described
as having low profit margins. Although it is management's belief that our
profit margins in fiscal year 2001 were slightly above the industry's
average, as the current economic conditions continue for an extended period
of time, customers have sought and may continue to seek price reductions.
Unless we successfully achieve further material cost reductions, efficiencies
and productivity gains, we may experience a material adverse effect on our
operating results and our financial condition. There can be no assurance,
however, whether such measures will be effective or adequate to compensate
for such price reductions.
OUR CUSTOMER BASE IS HIGHLY CONCENTRATED. IF WE LOSE ONE OF OUR LARGEST
CUSTOMERS, IT MAY ADVERSELY AFFECT OUR RESULTS AND FINANCIAL CONDITION
Our customer base is highly concentrated. We anticipate that a
significant portion of our sales will continue to be concentrated in a
relatively few number of customers for the foreseeable future. The loss of
one or more of these customers, or a reduction in their level of orders,
could have a material adverse effect on our business, results of operations
and financial condition. See Note 11 to the consolidated financial
statements for information on our three largest customers.
OUR OPERATING RESULTS ARE LIKELY TO MATERIALLY FLUCTUATE
Our operating results are affected by a number of factors. These
include the timing of orders from and shipments to major customers,
availability and cost of materials and components, the volume of orders
relative to our capacity, timing of expenditures in anticipation of future
sales, the gain or loss of significant customers, variations in the mix
between consignment and turnkey arrangements with customers, variations in
the demand for products in the industries we serve, quality issues and
general economic conditions. The development and introduction of new
products and technologies by our customers and our customers' competitors may
also materially and adversely affect the demand for our services, as well as
our operating results. Variations in the size and delivery schedules of
purchase orders we receive, changes in customers' delivery requirements, or
the rescheduling or cancellation of orders and commitments may result in
substantial fluctuations of revenues, backlog and profits from period to
period.
A significant portion of our expenses is relatively fixed in nature and
planned expenditures are based in part on anticipated orders. Our inability
to adjust expenditures quickly enough to compensate for a decline in net
sales may magnify the adverse impact of a decline in our results of
operations. Conversely, we may not be able to respond quickly if there is a
sudden increase in demand for our services, as we may require additional
capital expenditures and personnel to handle this additional capacity.
OUR STOCK PRICE HAS BEEN AND CONTINUES TO BE VOLATILE
The market price for our common stock could fluctuate due to various
factors. These factors include, but are not limited to:
- the stock float being relatively small and thinly traded;
- announcements by us or our competitors of new contracts, or
technological innovations;
- fluctuations in our quarterly and annual operating results; and
- acquisition-related announcements;
- general market conditions.
In addition, our stock prices, in recent years have experienced
significant price fluctuations for a variety of reasons, both internal to us
and due to external conditions.
COMPONENTS AND MATERIALS MAY CONTINUE TO BE EXPENSIVE, UNAVAILABLE, OR
DIFFICULT TO TIMELY PURCHASE; COMPONENTS AND MATERIALS MAY ALSO BE
DIFFICULT TO SELL
For our surface mount assemblies and turnkey operations, we purchase
components and material from approved suppliers. Any failure on the part of
these suppliers to deliver required components to us or any failure of such
components to meet performance requirements could impair our ability to meet
scheduled shipment dates. This in turn could delay completing our sales and
receipt of payment, which may adversely affect our business, financial
condition and results of operations. In the past, we have experienced
shortages of certain types of electronic components. While there are fewer
shortages for some component parts or materials in August 2001 compared to
August 2000, other component parts or materials are still subject to
unavailability, significant time delays and expensive pricing.
In addition, our customers may specify that we purchase parts or
materials from particular manufacturers of components for use in the assembly
process. Certain components used in a number of our customer programs are
obtained from sole source suppliers. To the extent these components are not
available on a timely basis or are in short supply because of allocations
imposed by the component manufacturer, and the customer is unwilling to
accept a substitute component, delays may occur. Such delays are experienced
in the EMS business from time to time and have caused sales and inventory
fluctuations in our business.
To the extent our customers do not absorb the costs associated with
parts or materials shortages or price increases, whether by agreement or to
maintain a business relationship with a customer, this could have a material
adverse effect on our business, financial condition and results of
operations.
In fiscal 2001, we entered into several purchasing programs with several
of our vendors. These programs were designed to reduce the lead time on
program parts, reduce the quotation process timetable, provide competitive
pricing, provide protection during periods of shortages and reduce overhead
costs. However, the programs do not necessarily avoid shortages or price
fluctuations with regard to certain important parts or materials nor do the
programs protect against all circumstances facing our customer, our supplier
or us.
IF OUR CUSTOMERS' VARY THEIR REQUIREMENTS, THIS MAY AFFECT OUR RESULTS
AND OUR FINANCIAL CONDITION
The level and timing of purchase orders placed by our customers are
affected by a number of factors, including variation in demand for the
customer's products, customer attempts to manage inventory and changes in the
customer's manufacturing strategies. Many of these factors are outside of
our control. Generally, customers may cancel, reduce or delay purchase
orders and commitments without penalty, except for payment for services
rendered, materials purchased or procured and, in certain circumstances,
charges associated with such cancellation, reduction or delay. The current
economic conditions, however, may affect our ability to recover such costs,
penalties and charges.
Significant or numerous cancellations, reductions or delays in orders by
customers, or inability by customers to pay for services provided or to pay
for components and materials purchased on such customer's behalf, have, in
the past adversely affected our business, financial condition and results of
operations. Such events or conditions could have a material adverse effect
on our business, financial condition and results of operations in the future.
OUR DEBT PROFILE MAY CHANGE AND MAY AFFECT OUR OPERATIONS AND FINANCIAL
CONDITION
At June 30, 2001, our debt-to-equity ratio was 1.25 and we were
materially in compliance with our covenants with third parties. Several
factors, including but not limited to, a prolonged economic downturn, capital
investment to increase production or acquisition of other EMS companies, may
significantly change our debt profile. Such events or conditions could have
a material adverse effect on our business, financial condition and results of
operations in the future.
MOVING OUR FACILITIES, WHILE PART OF OUR MARKETING STRATEGY FOR
EXPANSION OF BUSINESS, COULD BE DISRUPTIVE TO OUR BUSINESS, OPERATING
RESULTS AND FINANCIAL CONDITION
Since June 30, 2001, the end of our fiscal year 2001, two of our largest
subsidiaries have either moved or will move to larger facilities.
SMTEK San Diego moved into a new leased facility in Poway, California,
near the city of San Diego, on July 16, 2001. The new facility is
approximately 45,000 square feet. The former facility was located in El
Cajon, another city near San Diego. The former facility was approximately
20,000 square feet. The former facility has, at present, no tenant. We may
exercise our yearly termination right in the early fall of 2001, under the
lease, if we are unable to find a subtenant.
SMTEK Thousand Oaks is planning to move before the end of calendar year
2001 to a remodeled facility in Moorpark, California, which is near Thousand
Oaks. The new facility is approximately 115,500 square feet. The current
facility is approximately 45,000 square feet. The current facility lease is
being marketed for a subtenant. The lease does not expire until May 31,
2004. We currently expect to sublease the Thousand Oaks facility. If we are
unable to find a subtenant, we will be responsible for cost and expenses
associated with holding a vacant building in addition to amounts under the
lease agreements.
As a result of moving to these new, remodeled and larger facilities, our
subsidiaries have materially increased costs, rent and expenses surrounding
such leases. Unless subtenants are secured for the facilities we are moving
from, our subsidiaries will face multiple lease costs, rents, write off of
leasehold improvements in the former facilities and additional expenses for a
substantial period of time.
One reason for moving to the larger facilities is to increase the scope
of work our subsidiaries can perform for existing customers. Another reason
is to allow us to improve the marketing of our services to existing and
potential customers. There can be no assurances that we will increase
business activities to meet our increased capacity.
The increased costs, rent and expenses may adversely affect our
business, operating results or financial conditions regardless of, and if any
of the other risk factors occur, particularly during fiscal year 2002.
OUR NORTHERN IRELAND SUBSIDIARY HAS ECONOMIC CHALLENGES AND FACES
ADDITIONAL RISKS DIFFERENT FROM OUR DOMESTIC SUBSIDIARIES
Our subsidiary in Northern Ireland, SMTEK Europe, has largely, though
not completely, avoided the turmoil in that area over the years of its
operation. However, we are unable to provide any assurance that our
subsidiary will not be affected by the continued turmoil in that area.
Separate from the turmoil, however, our subsidiary has lost some work
during fiscal year 2001 due to customers taking work in-house. SMTEK Europe
continues to book new business, but there is a risk that new business may not
be equal in value to the lost business. Further, we are a guarantor on our
subsidiary's $3.2 million line of credit with Ulster Bank Markets. Also,
SMTEK Europe is subject to a government loan, which is subject to covenants
and conditions, including the number of employees that must be employed at
the facility. This government loan, as well as the existence of a labor
union at SMTEK Europe, may adversely affect the ability of SMTEK Europe to be
flexible in cutting labor and other costs. There may be an adverse effect on
our operating results and financial condition, as well as our business, if
SMTEK Europe does not meet its economic challenges.
OUR SERVICES, TO THE EXTENT WE PERFORM SUB-CONTRACTS RELATING TO
GOVERNMENT WORK, ARE SUBJECT TO GOVERNMENT AUDIT AND CONTROL
Our sub-contracting electronic manufacturing services include aerospace
and military work for customers who do business with the U.S. government. If
a customer complains to the government reporting the services we or our
customers perform for the government, the government may subject us or our
customer to an investigation, audit or lawsuit.
The government may enforce civil and criminal penalties if it finds that
contracts are intentionally breached or if there is intentional misconduct.
In the absence of intentional misconduct, we may have to pay contract or
other applicable and statutory damages to the government or the military
contracting customer.
As every investigation, audit or lawsuit stands on its own merits, we
can provide no assurance as to whether any investigation, audit or lawsuit,
if one occurs, will not adversely affect our business, operating results or
financial condition.
OUR ENVIRONMENTAL CLEAN-UP CONTINUES AT ANAHEIM, CALIFORNIA FACILITY
See Note 10 to the consolidated financial statements for information
regarding environmental matters.
EMPLOYEES
At August 24, 2001, we had approximately 521 employees. Given the
growth of our business and the quick response time required by our customers,
we seek to maintain labor flexibility to scale up or down our operations as
necessary to maximize efficiency. We also use skilled temporary labor. In
Europe, approximately 39 of our employees are members of a union. None of
our employees in the United States are covered by union agreements. We have
no history of labor disputes at any of our facilities. We believe that our
employee relationships are good.
ITEM 2. PROPERTIES
The following table lists our principal plants and properties:
Owned
Square or
Location Footage Leased Use
------------------------------- ------- ------ ----------------------
Thousand Oaks, California (A) 45,000 Leased Executive offices,
assembly plant
San Diego, California (B) 18,000 Leased Assembly plant/offices
Fort Lauderdale, Florida 8,400 Leased Assembly plant/offices
Craigavon, Northern Ireland (C) 67,000 Owned Assembly plant/offices
(A) We entered into a new lease in July 2001 to lease a 115,000 square foot
facility in Moorpark, California which will be used for our executive
offices and assembly plant. We expect to move during the second quarter
of 2002.
(B) We moved our entire San Diego operations into a 45,000 square foot
facility in July 2001.
(C) The Northern Ireland property is pledged as security for an installment
loan payable to the Industrial Development Board ("IDB") for Northern
Ireland, from which the property was purchased. This loan had an
outstanding balance of approximately $637,000 as of June 30, 2001.
For further discussion on our new facilities in Moorpark and San Diego,
see "Risk Factors that May Affect Your Decision to Invest in Us--Moving Our
Facilities, While Part of Our Marketing Strategy for Expansion of Business,
Could be Disruptive to Our Business, Operating Results and Financial
Condition."
ITEM 3. LEGAL PROCEEDINGS
In the ordinary course of business, we experience various types of
claims which sometimes result in litigation or other legal proceedings. We
do not anticipate that any of these claims or proceedings that are currently
pending will have a material adverse effect on us.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
There were no matters submitted to a vote of the security holders during
the three months ended June 30, 2001.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
The information set forth under the caption "Market and Dividend
Information" in the our 2001 Annual Report to Stockholders is incorporated
herein by reference and made a part hereof.
ITEM 6. SELECTED FINANCIAL DATA
The information set forth under the caption "Five-Year Financial
Summary" in our 2001 Annual Report to Stockholders is incorporated herein by
reference and made a part hereof.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The information set forth under the caption "Management's Discussion and
Analysis of Financial Condition and Results of Operations" in our 2001 Annual
Report to Stockholders is incorporated herein by reference and made a part
hereof.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
This information is set forth under the caption "Management's Discussion
and Analysis of Financial Condition and Results of Operations - Quantitative
and Qualitative Disclosures About Market Risk" in our 2001 Annual Report to
Stockholders is incorporated herein by reference and made a part hereof.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Reference is made to the financial statements later in this Report under
Item 14(a)(1).
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
This information is incorporated by reference to our proxy statement for
our 2001 Annual Meeting of Stockholders, to be filed with the SEC, on or
before 120 days following June 30, 2001, or if not filed by such date, as an
amendment to this Report to be filed on or before such date.
ITEM 11. EXECUTIVE COMPENSATION
This information is incorporated by reference to our proxy statement for
our 2001 Annual Meeting of Stockholders, to be filed with the SEC, on or
before 120 days following June 30, 2001, or if not filed by such date, as an
amendment to this Report to be filed on or before such date.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
This information is incorporated by reference to our proxy statement for
our 2001 Annual Meeting of Stockholders, to be filed with the SEC, on or
before 120 days following June 30, 2001, or if not filed by such date, as an
amendment to this Report to be filed on or before such date.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
This information is incorporated by reference to our proxy statement for
our 2001 Annual Meeting of Stockholders, to be filed with the SEC, on or
before 120 days following June 30, 2001, or if not filed by such date, as an
amendment to this Report to be filed on or before such date.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS OF FORM 8-K
2001 Annual
Report to
Stockholders
------------
(a)(1) List of Financial Statements
List of data incorporated by reference:
Report of KPMG LLP on consolidated
financial statements 13
Consolidated balance sheets as of June 30, 2001
and 2000 14
Consolidated statements of operations for the
years ended June 30, 2001, 2000 and 1999 15
Consolidated statements of cash flows for the
years ended June 30, 2001, 2000 and 1999 16
Consolidated statements of stockholders'
equity and comprehensive income for the years
ended June 30, 2001, 2000, and 1999 17
Notes to consolidated financial statements 18
(a)(2) Financial Statement Schedules
The financial statement schedules are omitted
because they are either not applicable or the
information is included in the notes to
consolidated financial statements.
Form 10-K
---------
(a)(3) List of Exhibits:
Exhibit Index 16
(b) Reports on Form 8-K:
We did not file any reports on Form 8-K during the quarter
ended June 30, 2001.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized, on September 24,
2001.
SMTEK INTERNATIONAL, INC.
/s/ Gregory L. Horton
-----------------------
Gregory L. Horton
Chief Executive Officer,
President and Chairman
of the Board of Directors
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 and on the
dates indicated.
Signature Title Date
/s/ Gregory L. Horton Chief Executive Officer, September 24, 2001
----------------------- President and Chairman -------------------
Gregory L. Horton of the Board (principal
executive officer)
/s/ Kirk A. Waldron Vice President-Finance and September 24, 2001
----------------------- Administration, Chief -------------------
Kirk A. Waldron Accounting Officer and
Treasurer (principal
financial officer)
/s/ Clay M. Biddinger Director September 10, 2001
----------------------- -------------------
Clay M. Biddinger
/s/ James P. Burgess Director September 7, 2001
----------------------- -------------------
James P. Burgess
/s/ Oscar B. Marx Director September 7, 2001
----------------------- -------------------
Oscar B. Marx III
EXHIBIT INDEX
Exhibit
Number Description
------- -----------
2.1 Agreement and Plan of Merger dated May 28, 1998 among the Company,
Jolt Technology, Inc. and the shareholders of Jolt Technology, Inc.
(incorporated by reference to Appendix A of the Company's
Definitive Proxy Statement dated June 12, 1998)
2.2 Stock Purchase Agreement dated January 24, 1999 between SMTEK
International, Inc. and the shareholders of Technetics, Inc.
(incorporated by reference to Exhibit 99-1 of the Company's
Current Report on Form 8-K filed on February 12, 1999).
2.3 Agreement dated November 12, 1999 between DDL Europe, Ltd. (a
subsidiary of the Company) and Fast Track Circuits, Ltd. for the
sale of the capital stock of Irlandus Circuits, Ltd. (incorporated
by reference to Exhibit 10.1 of the Company's Current Report on
Form 8-K filed on December 28, 1999.)
3.1 Amended and Restated Certificate of Incorporation of SMTEK
International, Inc. (incorporated by reference to Exhibit 3.1
of the Company's 1999 Annual Report on Form 10-K).
3.2 Bylaws of the Company, amended and restated effective August
23, 2000 (incorporated by reference to Exhibit 3.2 of the Company's
2000 Annual Report on Form 10-K).
4.1 Indenture dated July 15, 1988, applicable to the Company's
8-1/2% Convertible Subordinated Debentures due August 1, 2008
(incorporated by reference to Exhibit 4-c of the Company's 1988
Annual Report on Form 10-K).
4.1.1 Supplemental Indenture relating to the Company's 8-1/2%
Convertible Subordinated Debentures due August 1, 2008
(incorporated by reference to Exhibit 4-b of the Company's
1991 Annual Report on Form 10-K).
10.1 1993 Stock Incentive Plan (incorporated by reference to
Exhibit 4.7 of the Company's Registration Statement on Form
S-8, Commission file No. 33-74400).
10.2 Amended and Restated 1996 Stock Incentive Plan (incorporated by
reference to Exhibit A of the Company's Proxy Statement for the
fiscal 1999 Annual Stockholders Meeting).
10.3 Amended and Restated 1998 Non-Employee Directors Stock Plan
(incorporated by reference to Exhibit B of the Company's Proxy
Statement for the fiscal 1999 Annual Stockholders Meeting).
10.4 Standard Industrial Lease-Net dated August 1, 1984, among the
Company, Aeroscientific Corp., and Bradmore Realty Investment
Company, Ltd. (incorporated by reference to Exhibit 10-w of
the Company's 1990 Annual Report on Form 10-K).
10.4.1 Second Amendment to Lease among Bradmore Realty Investment
Company, Ltd., the Company and the Company's Aeroscientific
Corp. subsidiary, dated July 2, 1993 (incorporated by
reference to Exhibit 10-cd of Registration Statement No.
33-63618).
10.5 Grant Agreement dated August 29, 1989, between SMTEK Europe
Limited (fka DDL Electronics Limited) and the IDB for Northern
Ireland ("IDB") (incorporated by reference to Exhibit 10.29 of
the Company's Registration Statement No. 33-39115).
10.5.1 Agreement dated May 2, 1996, between SMTEK Europe Limited
and the IDB amending the Grant Agreement dated August 29,
1989 (incorporated by reference to Exhibit 10.11.1 filed with
the Company's 1996 Annual Report on Form 10-K).
10.6 Employment Agreement dated September 12, 1996 between the
Company and Richard K. Vitelle (incorporated by reference to
Exhibit 10.15 filed with the Company's 1996 Annual Report on
Form 10-K).
10.7 Employment Agreement dated January 1, 2001 between the Company
and Gregory L. Horton.
10.8 Standard Industrial/Commercial Multi-Tenant Lease - Modified Net
dated December 20, 2000 between Technetics, Inc. and Pomerado
Leasing No. 8 L.P. (including Addendum).
10.9 Standard Industrial/Commercial Tenant Lease - dated
July 20, 2001 between SMTEK Inc. and Moorpark Venture, L.P.
(including Addendum, Sublease and Attornment/Non-Disturbance
Agreement Among Parker-Hannifan, SWS Partners, MVLP and
SMTEK, Inc.).
10.10 Credit Agreement dated September 25, 2001, between the Company and
Comerica Bank.
11 Statement re Computation of Per Share Earnings (incorporated by
reference to Note 8 to the consolidated financial statements of
the 2001 Annual Report to Stockholders).
13 Annual Report to security holders.
21 Subsidiaries of the Registrant.
23 Consent of KPMG LLP.
99 Undertaking for Form S-8 Registration Statement.
DESCRIPTION OF BUSINESS
SMTEK International, Inc. (the "Company," "we," "us" or "our") is an
electronics manufacturing services ("EMS") provider to original equipment
manufacturers ("OEMs") primarily in the industrial and instrumentation,
medical, telecommunications, financial services automation and aerospace and
defense industries. We provide integrated solutions to OEMs across the
entire product life cycle, from design to manufacturing to end-of-life
services, for the worldwide low-to-medium volume, high complexity segment of
the EMS industry.
We have four wholly owned subsidiaries: SMTEK, Inc. (dba SMTEK Thousand
Oaks), located in Thousand Oaks, California; Technetics, Inc. (dba SMTEK San
Diego), located in San Diego, California; Jolt Technology, Inc. (aka SMTEK
Fort Lauderdale), located in Fort Lauderdale, Florida; and SMTEK Europe
Limited, located in Craigavon, Northern Ireland.
REVENUES
(in thousands)
2001 $91,148
2000 $70,252
1999 $51,175
1998 $44,690
1997 $41,336
OPERATING INCOME (LOSS)
(in thousands)
2001 $ 3,277
2000 $ 905
1999 $ (89)
1998 $ 857
1997 $ 397
NET INCOME (LOSS)
(in thousands)
2001 $ 1,798
2000 $ (641)
1999 $(2,495)
1998 $ 493
1997 $ (868)
PRESIDENT'S LETTER TO STOCKHOLDERS
DEAR FELLOW STOCKHOLDERS:
SMTEK is proud to report record revenue and earnings for the fiscal year
ending June 30, 2001. In an environment of significant challenge, SMTEK's
investment in infrastructure and its focus on a well-defined market strategy
have proven to be successful.
Our fiscal year spanned the last half of Calendar 2000, a record growth
year for our industry, and the first half of Calendar 2001, a record downturn
year for our industry. It was a year that started with tremendous promise;
strong bookings, strong backlog and an industry and economy with an
insatiable demand for more. SMTEK successfully ramped its business to
deliver on those needs. The year, however, came to a close with softer
market demand and an industry faced with excess capacity, inventory overhang
and pricing pressure. SMTEK is well positioned to meet these industry
challenges as we move forward in fiscal 2002.
FINANCIAL PERFORMANCE IMPROVED ON ALL FRONTS
Our fiscal year began with strong earnings in the first quarter and
progressively improved in the second and third quarters. In the fourth
quarter, well after other players in the EMS industry were impacted by the
decline in market demand, SMTEK began to face the effects of the sagging
economy. During our fourth quarter, however, SMTEK remained profitable while
simultaneously reducing inventory. We weathered the economic challenges well
through June and started the new fiscal year 2002 with a strong backlog.
Our revenues for the year ended June 30, 2001 grew 30% to $91.1 million,
up from $70.3 million in the prior year. We achieved positive cash flow from
operations in-spite of the investment required to support our 30% growth
rate.
Gross profit for the year totaled $11.1 million, up 39% from $8.0
million in fiscal 2000. Earnings before interest, taxes, depreciation, and
amortization ("EBITDA") for the year ended June 30, 2001 was $6.2 million
compared to $4.4 million in the prior year. Our backlog at the end of fiscal
2001 was $59.0 million, up from $53.4 million at the end of fiscal 2000.
Finally, net income from continuing operations for fiscal 2001 was $1.8
million, or $0.79 per basic share compared to fiscal 2000's net loss from
continuing operations of $234,000 or $0.10 per basic share.
Our balance sheet positively reflects the fiscal year's operating
results. Stockholders' equity increased over 18% to $11.2 million. Working
capital increased 110% to $13.4 million and our current ratio improved to
1.9:1 from 1.3:1 at the end of the prior year. Lastly, our debt-to-equity
ratio improved to 1.25:1 from 1.55:1 at the end of the prior year.
SMTEK'S MARKET FOCUS IS TO ACHIEVE STRONG DIFFERENTIATION FROM THE MAINSTREAM
EMS PROVIDERS
As we look forward to fiscal year 2002, SMTEK continues to focus its
business on the low-to-medium volume, high complexity segments of each market
we serve. SMTEK enjoys a diverse customer base across most of the
electronics markets including medical, aerospace, industrial instrumentation,
military, and data communications. By outsourcing, our customers improve
their operational and financial flexibility, reduce their manufacturing
costs, reduce inventory, improve return on assets, and shorten time-to-market
by accelerating product development.
Our strategy to support the complex niche segment within each market is
perhaps the reason SMTEK was less affected in fiscal 2001 by the economic
slowdown that occurred most dramatically in the telecom and data
communications markets. We do not serve the consumer goods, cell phones, and
personal computer markets.
Our technical and operational expertise allows us to produce products
requiring very high quality levels found in implantable medical products and
space applications. Our engineering heritage is well founded in product
development with specific expertise in achieving very high reliability levels
for products in life critical applications typically found in the medical and
military markets. Our expertise in high reliability is needed in industrial
instrumentation and controls for high cost products requiring low downtime.
We maintain a high level of technical competence by retaining some of
the most talented people in the industry. They drive seamless integration of
our engineering and manufacturing processes and strive for continuous
improvement in our production operations and supply chain management. We
believe we are uniquely qualified to develop, produce, and maintain complex
products positioned in the most difficult segments of each of the markets we
serve.
SMTEK offers its customers a complete solution, from circuit board and
product design to system assembly and test, as well as a commitment to on-
time delivery with the highest levels of quality. We believe the technical
strength required to support these needs in our targeted niche market
segments is not commonly found in EMS companies. This technical strength and
market focus is our strategic advantage and it creates a strong barrier to
entry for our competitors.
SMTEK IS EMBARKING ON INITIATIVES TO ENHANCE PERFORMANCE AND OPERATIONAL
EFFICIENCIES
Implementation of lean manufacturing strategies combined with cycle time
compression efforts which drive inventory reduction continues to be our
mantra for performance improvement, positive cash flow and profitability.
SMTEK has developed significant IT infrastructure utilizing the latest
ERP capabilities and internally developed reporting systems. This
sophisticated infrastructure is ported over the Internet to our subsidiaries
to mitigate the negative effects of disparate IT and ERP systems in different
locations. It provides our subsidiaries with a competitive advantage without
duplication of IT overhead costs at each location. Standardized methods,
procedures, training, performance measures, customer status reporting,
pricing, and financial reporting systems allow us to maintain a standard of
excellence in all of our facilities that is necessary for our high complexity
market focus.
SMTEK has, in addition to the above initiatives, prudently implemented
operating cost reductions and other fiscal measures to mitigate the effect of
the current economic climate. While industry analysts and experts cannot
agree on when the short-term economic situation will improve, they almost all
agree that the long-term outlook for our industry remains positive.
FACILITIES EXPANSIONS AND KEY ACQUISITIONS ARE STRATEGIC OBJECTIVES TO GAIN
MARKET SHARE
In July 2001, SMTEK's San Diego subsidiary moved into a newly built
facility that more than doubled its previous plant size and significantly
increased its production capability. We installed new production equipment,
including automated production lines which are compatible with our other
facilities. This facility and equipment enhancement coupled with an
efficient factory layout supports synchronous flow and shortens cycle times.
Additionally, our SMTEK Thousand Oaks subsidiary will move to a new
facility in nearby Moorpark, California during the middle of our fiscal year
2002. The Moorpark facility is over 116,000 square feet, which is more than
double the size of the current Thousand Oaks facility. The move will enhance
SMTEK Thousand Oaks' final product assembly capabilities and allows its
circuit card assembly operations to be entirely in-line for lean
manufacturing flow. These expansions are key strategic moves for SMTEK to
enhance market share within the regions serviced by the new facilities.
SMTEK is actively seeking acquisition opportunities that will increase
our presence and further leverage our corporate infrastructure and
capabilities.
A PERSONAL THANK YOU TO OUR STOCKHOLDERS, CUSTOMERS AND EMPLOYEES
As we position our Company for long term growth, I am proud to place my
faith in the nearly 600 SMTEK employees who helped make our fiscal year 2001
such a success. I thank each one of them for their dedication and hard work
over the years, especially in fiscal year 2001.
I would like to thank the SMTEK stockholders and customers for their
continued support and faith in our Company. While I am cautiously optimistic
as to what this year may bring, I am confident that we are positioning our
Company to meet the challenges of this dynamic marketplace as we continue on
the path of long-tern growth and prosperity.
Sincerely,
/s/ Gregory L. Horton
Gregory L. Horton
Chairman of the Board
and Chief Executive Officer
SMTEK International, Inc.
SELECTED CONSOLIDATED FINANCIAL DATA
The selected consolidated financial data for the years ended June 30,
1997 through 2001 set forth below are derived from our consolidated financial
statements and notes thereto. The consolidated balance sheets as of June 30,
2001 and 2000 and the related consolidated statements of operations,
stockholders' equity and comprehensive income (loss) and cash flows for each
of the years in the three-year period ended June 30, 2001, appear elsewhere
in this Report. The Selected Consolidated Financial Data are qualified in
their entirety by reference to, and should be read in conjunction with, the
consolidated financial statements and related notes and "Management's
Discussion and Analysis of Financial Condition and Results of Operations"
included elsewhere in this Report.
SMTEK INTERNATIONAL, INC. AND SUBSIDIARIES
FIVE-YEAR FINANCIAL SUMMARY
(In thousands except per share amounts)
Year ended June 30,
-------------------------------------------
OPERATING DATA 2001 2000 1999 1998 1997
------- ------- ------- ------- -------
Revenues $91,148 $70,252 $51,175 $44,690 $41,336
Cost of goods sold 80,060 62,260 44,605 37,392 35,657
------- ------- ------- ------- -------
Gross profit 11,088 7,992 6,570 7,298 5,679
------- ------- ------- ------- -------
Operating expenses:
Administrative and selling 7,141 5,783 5,375 4,564 4,014
Goodwill amortization 670 1,304 1,284 1,268 1,268
Acquisition expenses - - - 609 -
------- ------- ------- ------- -------
Total operating expenses 7,811 7,087 6,659 6,441 5,282
------- ------- ------- ------- -------
Operating income (loss) 3,277 905 (89) 857 397
------- ------- ------- ------- -------
Non-operating income (expense):
Interest income 26 166 96 47 75
Interest expense (1,463) (1,057) (1,700) (1,113) (1,197)
Debt issue cost amortization - - - - (937)
Other income (expense), net (84) (148) 61 (76) 91
------- ------- ------- ------- -------
Total non-operating expense (1,521) (1,039) (1,543) (1,142) (1,968)
------- ------- ------- ------- -------
Income (loss) from continuing
operations before income taxes 1,756 (134) (1,632) (285) (1,571)
Income tax provision (benefit) (42) 100 1,202 - -
------- ------- ------- ------- -------
Income (loss) from
continuing operations 1,798 (234) (2,834) (285) (1,571)
Income from discontinued
operations, net of tax - 254 339 778 703
Loss on sale of discontinued
operations, net of tax - (661) - - -
------- ------- ------- ------- -------
Net income (loss) $ 1,798 $ (641) $(2,495) $ 493 $ (868)
======= ======= ======= ======= =======
SMTEK INTERNATIONAL, INC. AND SUBSIDIARIES
FIVE-YEAR FINANCIAL SUMMARY
(In thousands except per share amounts)
(Continued)
Year ended June 30,
-------------------------------------------
OPERATING DATA 2001 2000 1999 1998 1997
(Continued) ------- ------- ------- ------- -------
Basic earnings (loss)
per share:
Income (loss) from
continuing operations $ 0.79 $ (0.10) $ (1.60) $ (0.20) $ (1.14)
Income from discontinued
operations - 0.11 0.19 0.54 0.51
Loss on sale of
discontinued operations - (0.29) - - -
------- ------- ------- ------- -------
Basic earnings (loss)
per share $ 0.79 $ (0.28) $ (1.41) $ 0.34 $ (0.63)
======= ======= ======= ======= =======
Diluted earnings (loss)
per share:
Income (loss) from
continuing operations $ 0.76 $ (0.10) $ (1.60) $ (0.20) $ (1.14)
Income from discontinued
operations - 0.11 0.19 0.54 0.51
Loss on sale of
discontinued operations - (0.29) - - -
------- ------- ------- ------- -------
Diluted earnings (loss)
per share $ 0.76 $ (0.28) $ (1.41) $ 0.34 $ (0.63)
======= ======= ======= ======= =======
Year ended June 30,
-------------------------------------------
BALANCE SHEET DATA 2001 2000 1999 1998 1997
------- ------- ------- ------- -------
Current assets $27,672 $30,429 $27,854 $21,505 $21,597
Current liabilities $14,294 $24,056 $23,042 $17,060 $18,509
Working capital $13,378 $ 6,373 $ 4,812 $ 4,445 $ 3,088
Current ratio 1.9 1.3 1.2 1.3 1.2
Total assets $35,932 $38,528 $39,499 $31,802 $33,593
Long-term debt $10,418 $ 4,997 $ 7,153 $ 7,186 $ 9,445
Stockholders' equity $11,220 $ 9,475 $ 9,304 $ 7,556 $ 5,639
Equity per share $ 4.92 $ 4.17 $ 4.10 $ 4.43 $ 3.90
Shares outstanding (000s) 2,282 2,272 2,267 1,704 1,447
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
BASIS OF PRESENTATION
We utilize a 52-53 week fiscal year ending on the Friday closest to June
30 which, for fiscal years 2001, 2000 and 1999, fell on June 29, June 30, and
July 2, respectively. In the accompanying consolidated financial statements,
the fiscal year-end for all years is shown as June 30 for clarity of
presentation. Fiscal years 2001, 2000 and 1999 each consisted of 52 weeks.
As more fully described in the accompanying consolidated financial
statements and notes thereto, we sold our printed circuit board ("PCB")
operation, Irlandus Circuits Ltd. ("Irlandus"), on November 12, 1999.
Accordingly, Irlandus is shown as a discontinued operation for all periods
presented in the accompanying consolidated statements of operations.
As more fully described in the accompanying consolidated financial
statements and notes thereto, our acquisition of Technetics, Inc. on January
29, 1999 was accounted for under the purchase method of accounting, and its
operating results have been included in the accompanying consolidated
financial statements since the date of acquisition.
The following discussion and analysis should be read in conjunction with
the consolidated financial statements and related notes included elsewhere in
this Report.
RESULTS OF OPERATIONS
The following table sets forth our comparative revenues and other
operating data as percentages of revenues:
Year Ended June 30,
----------------------------
2001 2000 1999
------ ------ ------
Revenues 100.0% 100.0% 100.0%
Cost of goods sold 87.8 88.6 87.2
----- ----- -----
Gross profit 12.2 11.4 12.8
Administrative and selling expenses 7.8 8.2 10.5
Goodwill amortization 0.8 1.9 2.5
----- ----- -----
Operating income (loss) 3.6 1.3 (0.2)
Interest income - 0.2 0.2
Interest expense (1.6) (1.5) (3.3)
Other income (expense), net (0.1) (0.2) 0.1
----- ----- -----
Income (loss) from continuing operations
before income taxes 1.9 (0.2) (3.2)
Income tax provision (benefit) (0.1) 0.1 2.3
----- ----- -----
Income (loss) from continuing operations 2.0 (0.3) (5.5)
Income (loss) from discontinued operations - (0.6) 0.7
----- ----- -----
Net income (loss) 2.0% (0.9)% (4.8)%
===== ===== =====
FISCAL 2001 VS. 2000
Consolidated revenues for fiscal 2001 were $91.1 million compared to
$70.3 million for fiscal 2000, an increase of approximately 30%. The
increase in revenues was due to an increase in business with our key
customers. Given the current downward economic trends, we may be unable to
sustain our current level of revenue growth exhibited in fiscal 2001.
Although we continue to book business, the outlook beyond our current backlog
is uncertain. Backlog at June 30, 2001 was $59.0 million compared to $53.4
million at June 30, 2000. Starting in the third quarter of fiscal 2001, our
existing customers began to defer shipments. We expect this to be temporary,
as these customers have pushed out their orders to later scheduled deliver
dates.
Consolidated gross profit for fiscal 2001 was $11.1 million (12.2% of
sales) compared to $8.0 million (11.4% of sales) for fiscal 2000. The gross
profit and gross margin improvement was attributable primarily to the revenue
growth in fiscal 2001 compared to fiscal 2000, which caused fixed costs
absorption to be spread over a larger volume of production. In addition,
certain production changes we made, and a recent decline in materials
pricing, have reduced costs. These changes have had a positive impact on our
gross profit and gross margin.
Administrative and selling expenses increased 23% to $7.1 million for
fiscal 2001 compared to $5.8 million for fiscal 2000. The increase was due
primarily to expansion of our managerial and administrative staff and an
increase in the allowance for doubtful accounts. However as a percentage of
sales, administrative and selling expenses decreased to 7.8% in fiscal 2001
from 8.2% in fiscal 2000, due mainly to our growth in revenues.
Goodwill amortization decreased to $670,000 for fiscal 2001 from $1.3
million for fiscal 2000. The reduction occurred because we had fully
amortized, as of December 31, 2000, the goodwill of $6.3 million, which arose
from our acquisition of our Thousand Oaks subsidiary in January 1996.
Total non-operating expense was $1.5 million for fiscal 2001 compared to
$1.0 million for fiscal 2000. The primary reason for this increase was due
to an increase in total interest expense. Total interest expense was $1.5
million for fiscal 2001 compared to $1.1 million for fiscal 2000. There are
two reasons for the increased interest expense. First, we had higher line of
credit borrowings due mainly to our growth, and an increased need for working
capital, principally in higher inventory levels. Second, the average
interest rates on our new equipment notes and leases entered into during the
beginning of fiscal year 2001, ranged from 7.9% to 9.4%, were higher on
average than fiscal 2000, with interest rates ranging from 6.5% to 8.4%.
We had an income tax benefit of $42,000 in fiscal 2001. This included
income tax benefits of $218,000 resulting from the reduction of the recorded
liability for a federal tax assessment related to prior year, as further
discussed in Note 6 to the accompanying consolidated financial statements.
Without this, we would have reported an income tax provision of $176,000
compared to an income tax provision of $100,000 in fiscal 2000. The income
tax provision amounts, after taking into account the nondeductibility of the
goodwill amortization, are less than the statutory income tax rates due to
the utilization of federal net operating loss carryforwards.
Income from continuing operations was $1.8 million for fiscal 2001, or
$0.76 per diluted share, compared to a loss from continuing operations in
fiscal 2000 of $234,000, or $0.10 per diluted share. The improvement was due
to increased gross profit which, was partially offset by increases in
administrative and selling expenses and interest expense.
FISCAL 2000 VS. 1999
Consolidated revenues for fiscal 2000 were $70.3 million compared to
$51.2 million for fiscal 1999. The increase in revenues of $19.1 million was
primarily due to an increase in sales of approximately $6.9 million by our
San Diego operating unit, which was acquired using the purchase method of
accounting on January 29, 1999, increased business from certain domestic
customers and new contracts obtained by our Northern Ireland EMS operating
unit.
Consolidated gross profit for fiscal 2000 was $8.0 million (11.4% of
sales) compared to $6.6 million (12.8% of sales) for fiscal 1999. The
increase in gross profit of $1.4 million was due to our increased sales for
fiscal 2000. Despite the 22% increase in gross profit, there was a decrease
in the gross profit percentage primarily due to difficulties experienced by
our Northern Ireland operating unit in ramping up its production volume and
manufacturing capacity for several new assembly contracts. Also contributing
to the decline in gross profit percentage were material procurement and
production inefficiencies caused by industry-wide shortages of certain
electronic components, as well as our accepting more turnkey business in
fiscal 2000.
Administrative and selling expenses were $5.8 million for fiscal 2000
compared to $5.4 million for fiscal 1999. The increase of $408,000 was due
primarily to the inclusion of the results of the San Diego operating unit,
which was acquired in January 1999. This increase was offset partially by
decreases in expenses in our Thousand Oaks and Northern Ireland operating
units.
Total non-operating expense was $1.0 million for fiscal 2000 compared to
$1.5 million for fiscal 1999. The primary reason for the $504,000 decrease
was the accrual of interest expense of $725,000 in fiscal 1999 related to an
income tax assessment, as more fully described below.
The provision for income taxes was $100,000 for fiscal 2000 compared to
$1.2 million for fiscal 1999. Although we do not have an ordinary federal or
foreign income tax liability on our current income due to the existence and
utilization of net operating loss carryforwards for U.S. and United Kingdom
income tax purposes, we are subject to certain state taxes and the
alternative minimum taxation regulations of the U.S. federal and California
tax codes. The income tax provision for fiscal 2000 consists of Florida
state income tax, as well as U.S. federal and California alternative minimum
income taxes. As more fully described in Note 6 to the accompanying
consolidated financial statements, in the fourth quarter of fiscal 1999 we
accrued income tax expense of $1.1 million relating to tax refunds received
in fiscal 1996 which were substantially disallowed by the Internal Revenue
Service ("IRS") in fiscal 1999. Also, in the fiscal 1999 fourth quarter, we
accrued interest expense of $725,000 relating to the fiscal 1996 income tax
refunds, which are repayable to the IRS (see also section entitled "Liquidity
and Capital Resources").
Net loss from continuing operations for fiscal 2000 was $234,000, or
$0.10 per diluted share, compared to a net loss from continuing operations
for fiscal 1999 of $2.8 million, or $1.60 per diluted share.
RECENT ACCOUNTING PRONOUNCEMENTS
See discussion in Note 1 to the accompanying consolidated financial
statements.
LIQUIDITY AND CAPITAL RESOURCES
Our primary sources of liquidity are our cash and cash equivalents,
which amounted to $224,000 at the end of fiscal 2001, and amounts available
under our bank lines of credit. During fiscal 2001, cash and cash
equivalents decreased by $308,000. This decrease resulted from purchases of
equipment of $500,000 and payments of debt of $3.0 million, offset by cash
provided by operations of $3.2 million.
Cash provided by operating activities of $3.2 million for fiscal 2001
was attributable primarily to income before depreciation and amortization of
$4.8 million and decreases of $1.2 million in accounts receivable and $2.3
million in costs and estimated earnings in excess of billings, offset by an
increase in inventories of $918,000 and a decrease in accounts payable of
$2.9 million. Substantially all of the costs and estimated earnings in
excess of billings on uncompleted contracts at June 30, 2001 are expected to
be billed and collected within 180 days of that date.
Net cash used in investing activities was $487,000 for fiscal 2001
compared to net cash provided by investing activities of $603,000 for fiscal
2000. We utilized cash of $506,000 and $2.2 million for capital expenditures
for fiscal 2001 and 2000, respectively. In addition, in fiscal 2000, we
received proceeds of $2.7 million from the sale of our discontinued
operation. Our operating units require continuing investment in plant and
equipment to remain competitive as technology evolves and to increase
production capacity to accommodate business growth and expansion. Capital
expenditures, including financed amounts by capital leases, during fiscal
years 2001, 2000 and 1999, were approximately $3.1 million, $3.4 million, and
$3.4 million, respectively. We anticipate that additional expenditures of as
much as $3.1 million may be made in fiscal 2002, primarily to expand
production capacity at our Thousand Oaks and San Diego plants. A substantial
portion of these capital expenditures is expected to be financed by equipment
leases and/or installment loans.
Net cash used in financing activities was $3.0 million for fiscal 2001
due mainly to net repayments of bank lines of credit and repayments of long
term-debt. Net cash provided by financing activities in fiscal 2000 was $2.6
million due to net proceeds from bank lines of credit, offset by repayments
of long-term debt. As further discussed in Note 5 to the accompanying
audited consolidated financial statements, we have bank lines of credit to
finance the working capital requirements of our domestic and foreign
operations. At June 30, 2001, we had approximately $4.6 million available to
borrow under our bank lines of credit.
At June 30, 2001, we had a credit facility for our domestic operating
units, which consisted of a $10 million working capital line secured by
accounts receivable, inventory and equipment. Borrowings under the credit
agreement bear interest at either the bank's prime rate or a LIBOR-base rate
of LIBOR plus 2.50%. At June 30, 2001, borrowings outstanding under this
credit facility amounted to $4.6 million and the effective weighted average
interest rate was 6.73%. The line of credit agreement contains certain
financial covenants, with which we were in compliance at June 30, 2001. Our
available borrowing capacity as of June 30, 2001 was approximately $4.2
million. This credit facility expires on October 6, 2001.
On September 24, 2001, we entered into a new credit facility to replace
the aforementioned facility. This new credit facility consists of a $16
million working capital line secured by accounts receivable, inventory and
equipment. Borrowings under the credit agreement will bear interest at
either the bank's prime rate (6.00% as of September 24, 2001) or a
eurodollar-base rate (2.64% as of September 24, 2001) plus 1.75%. The credit
facility matures September 25, 2003. Accordingly, amounts outstanding under
our credit facility have been classified as long-term. In addition, the new
credit facility provides a $3.6 million equipment term loan to finance our
capital expenditures. Each advance will have a five year term at either the
bank's prime rate, a fixed rate set at closing, or at Eurodollar plus 1.75%.
We also have a credit facility agreement with Ulster Bank Markets for
our Northern Ireland operating company. This agreement consists of an
accounts receivable revolver, with maximum borrowings equal to the lesser of
70% of eligible receivables or 2,250,000 British pounds sterling
(approximately $3,150,000 at June 30, 2001), and bears interest at the bank's
base rate (5.25% at June 30, 2001) plus 2.00%. At June 30, 2001, borrowings
outstanding under this credit facility amounted to approximately $1.5 million
and the amount available to borrow based on the advance rate against
receivables was approximately $329,000. The credit facility agreement with
Ulster Bank Markets expires on November 30, 2001. Management expects the
facility to be renewed for another year in the ordinary course of business.
At June 30, 2001, the ratio of current assets to current liabilities was
1.9 to 1.0 compared to 1.3 to 1.0 at June 30, 2000. At June 30, 2001, we had
$13.4 million of working capital. At June 30, 2001, we had long-term
borrowings of $10.4 million compared to $5.0 million at June 30, 2000. The
increase in long-term borrowings was due to $4.6 million associated with our
bank line of credit maturing in two years, as discussed above, and also due
to purchases of capital equipment, as described above.
SMTEK San Diego moved into a new leased facility in Poway, California,
near the city of San Diego, on July 16, 2001. The new facility is
approximately 45,000 square feet. The former facility was located in El
Cajon, another city near San Diego. The former facility was approximately
20,000 square feet. The former facility has, at present, no tenant. We may
exercise our yearly termination right in the early fall of 2001, under the
lease, if we are unable to find a subtenant.
SMTEK Thousand Oaks is planning to move before the end of calendar year
2001 to a remodeled facility in Moorpark, California, which is near Thousand
Oaks. The new facility is approximately 115,500 square feet. The current
facility is approximately 45,000 square feet. The current facility lease is
being marketed for a subtenant. The lease does not expire until May 31,
2004. We currently expect to sublease the Thousand Oaks facility. If we are
unable to find a subtenant, we will be responsible for cost and expenses
associated with holding a vacant building in addition to amounts under the
lease agreements.
As more fully described in Note 6 to the accompanying consolidated
financial statements, at June 30, 2001, we have a federal tax assessment
liability of approximately $1.1 million and a related accrued interest
liability of approximately $900,000, which amounts reflect the results of a
tentative settlement with the IRS Appeals Division in March 2001. Upon
finalization of the settlement, we intend to seek an installment payment plan
with the IRS.
Management believes that our cash resources and borrowing capacity on
its working capital lines of credit are sufficient to fund operations for at
least the next 12 months.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Our financial instruments include cash and cash equivalents, accounts
receivable, and short-term and long-term debt. At June 30, 2001, the
carrying amount of long-term debt (including the current portion thereof but
excluding the bank lines of credit) was $7.9 million and the fair value was
$7.4 million. The carrying values of our other financial instruments
approximated their fair values. The fair value of our financial instruments
is estimated based on quoted market prices for the same or similar issues.
See Note 5 to the accompanying consolidated financial statements for
maturities of long-term debt for the next five years. A change in interest
rates of one percent would result in an annual impact on interest expense of
approximately $75,000.
It is our policy not to enter into derivative financial instruments for
speculative purposes. We may, from time to time, enter into foreign currency
forward exchange contracts in an effort to protect us from adverse currency
rate fluctuations on foreign currency commitments entered into in the
ordinary course of business. These commitments are generally for terms of
less than one year. The foreign currency forward exchange contracts are
executed with banks believed to be creditworthy and are denominated in
currencies of major industrial countries. Any gain or loss incurred on
foreign currency forward exchange contracts is offset by the effects of
currency movements on the respective underlying hedged transactions. We did
not have any open foreign currency forward exchange contracts at June 30,
2001.
A portion of our operations consists of an investment in a foreign
operating unit. As a result, our financial results have been and may
continue to be affected by changes in foreign currency exchange rates.
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Stockholders
SMTEK International, Inc.:
We have audited the accompanying consolidated balance sheets of SMTEK
International, Inc. and subsidiaries as of June 30, 2001 and 2000, and the
related consolidated statements of operations, cash flows and stockholders'
equity and comprehensive income (loss) for each of the years in the three-
year period ended June 30, 2001. These consolidated financial statements are
the responsibility of the Company's management. Our responsibility is to
express an opinion on these consolidated financial statements based on our
audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States of America. Those standards require that we
plan and perform the audits to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures
in the financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of SMTEK
International, Inc. and subsidiaries as of June 30, 2001 and 2000, and the
results of their operations and their cash flows for each of the years in the
three-year period ended June 30, 2001 in conformity with accounting
principles generally accepted in the United States of America.
/s/ KPMG LLP
Los Angeles, California
August 10, 2001,
except as to the second
paragraph of Note 5,
which is as of
September 24, 2001
SMTEK INTERNATIONAL, INC. AND SUBSIDIARIES
Consolidated Balance Sheets
(In thousands except share amounts)
June 30,
----------------------
2001 2000
--------- ---------
Assets
Current assets:
Cash and cash equivalents $ 224 $ 532
Accounts receivable, less allowance
for doubtful accounts of $407 and $151 11,905 13,365
Costs and estimated earnings in excess
of billings on uncompleted contracts 7,965 10,257
Inventories, net 6,833 6,095
Prepaid expenses 745 180
-------- --------
Total current assets 27,672 30,429
-------- --------
Property, equipment and improvements, net of
accumulated depreciation and amortization 7,319 6,691
Other assets 941 1,408
-------- --------
$ 35,932 $ 38,528
======== ========
Liabilities and Stockholders' Equity
Current liabilities:
Current portion of bank lines of credit payable $ 1,468 $ 7,583
Current portion of long-term debt 2,109 2,106
Accounts payable 6,161 9,240
Other accrued liabilities 4,556 5,127
-------- --------
Total current liabilities 14,294 24,056
-------- --------
Long-term liabilities:
Long-term bank lines of credit payable 4,638 -
Long-term debt 5,780 4,997
-------- --------
Total long-term liabilities 10,418 4,997
-------- --------
Commitments and contingencies
Stockholders' equity:
Preferred stock, $1 par value; 1,000,000 shares
authorized; no shares issued or outstanding - -
Common Stock, $.01 par value; 3,750,000 shares
authorized; 2,282,339 and 2,272,012 shares issued
and outstanding in 2001 and 2000, respectively 23 23
Additional paid-in capital 37,018 36,972
Accumulated deficit (25,632) (27,430)
Accumulated other comprehensive loss (189) (90)
-------- --------
Total stockholders' equity 11,220 9,475
-------- --------
$ 35,932 $ 38,528
======== ========
See accompanying notes to consolidated financial statements.
SMTEK INTERNATIONAL, INC. AND SUBSIDIARIES
Consolidated Statements of Operations
(In thousands except per share amounts)
Year ended June 30,
------------------------------
2001 2000 1999
-------- -------- --------
Revenues $91,148 $70,252 $51,175
Cost of goods sold 80,060 62,260 44,605
------- ------- -------
Gross profit 11,088 7,992 6,570
------- ------- -------
Operating expenses:
Administrative and selling 7,141 5,783 5,375
Goodwill amortization 670 1,304 1,284
------- ------- -------
Total operating expenses 7,811 7,087 6,659
------- ------- -------
Operating income (loss) 3,277 905 (89)
------- ------- -------
Non-operating income (expense):
Interest income 26 166 96
Interest expense (1,463) (1,057) (1,700)
Other income (expense), net (84) (148) 61
------- ------- -------
Total non-operating expense (1,521) (1,039) (1,543)
------- ------- -------
Income (loss) from continuing
operations before income taxes 1,756 (134) (1,632)
Income tax provision (benefit) (42) 100 1,202
------- ------- -------
Income (loss) from continuing operations 1,798 (234) (2,834)
Income from discontinued operations,
net of tax - 254 339
Loss on sale of discontinued operations,
net of tax - (661) -
------- ------- -------
Net income (loss) $ 1,798 $ (641) $(2,495)
======= ======= =======
Basic earnings (loss) per share:
Income (loss) from continuing operations $ 0.79 $ (0.10) $ (1.60)
Income from discontinued operations - 0.11 0.19
Loss on sale of discontinued operations - (0.29) -
------- ------- -------
Net income (loss) $ 0.79 $ (0.28) $ (1.41)
======= ======= =======
Diluted earnings (loss) per share:
Income (loss) from continuing operations $ 0.76 $ (0.10) $ (1.60)
Income from discontinued operations - 0.11 0.19
Loss on sale of discontinued operations - (0.29) -
------- ------- -------
Net income (loss) $ 0.76 $ (0.28) $ (1.41)
======= ======= =======
Shares used in computing basic and
diluted earnings (loss) per share:
Basic 2,277 2,270 1,771
======= ======= =======
Diluted 2,379 2,270 1,771
======= ======= =======
See accompanying notes to consolidated financial statements.
SMTEK INTERNATIONAL, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
(In thousands)
Year ended June 30,
------------------------------
2001 2000 1999
-------- -------- --------
Cash flows from operating activities:
Net income (loss) $ 1,798 $ (641) $(2,495)
Adjustments to reconcile net income (loss) to
net cash provided by operating activities:
Depreciation and amortization 2,987 3,340 3,418
Loss on sale of discontinued operations - 661 -
(Increase) decrease in accounts receivable 1,166 (5,104) (412)
(Increase) decrease in costs and estimated
earnings in excess of billings on
uncompleted contracts 2,291 (4,019) (1,453)
Increase in inventories (918) (1,056) (3,088)
Increase (decrease) in accounts payable (2,875) (927) 3,977
Increase (decrease) in other accrued liabilities (535) 6 1,331
Other, net (703) 55 (127)
------- ------- -------
Net cash provided by (used in) operating activities 3,211 (7,685) 1,151
------- ------- -------
Cash flows from investing activities:
Capital expenditures (506) (2,241) (1,633)
Net proceeds from sale of discontinued operations - 2,689 -
Proceeds from sale of assets 19 155 158
Acquisition of subsidiary, net of cash acquired - - (113)
------- ------- -------
Net cash provided by (used in) investing activities (487) 603 (1,588)
------- ------- -------
Cash flows from financing activities:
Proceeds from (repayments of) bank lines of credit (1,309) 3,806 (481)
Repayments of long-term debt (1,741) (1,498) (2,905)
Proceeds from issuance of Common Stock, net - - 4,463
Proceeds from the exercise of stock options 22 - -
Proceeds from foreign government grants - 247 -
------- ------- -------
Net cash provided by (used in) financing activities (3,028) 2,555 1,077
------- ------- -------
Effect of exchange rate changes on cash (4) 62 (56)
------- ------- -------
Increase (decrease) in cash and cash equivalents (308) (4,465) 584
Cash and cash equivalents at beginning of year 532 4,997 4,413
------- ------- -------
Cash and cash equivalents at end of year $ 224 $ 532 $ 4,997
======= ======= =======
Supplemental cash flow information:
Interest paid $ 1,179 $ 1,076 $ 1,025
Income taxes paid $ 194 $ 823 $ 25
Non-cash investing activities:
Capital expenditures financed by lease
obligations and notes payable $ 2,591 $ 1,110 $ 1,793
Other $ 25 $ 89 $ 148
See accompanying notes to consolidated financial statements.
SMTEK INTERNATIONAL, INC. AND SUBSIDIARIES
Consolidated Statements of Stockholders' Equity and Comprehensive Income (Loss)
Years ended June 30, 2001, 2000 and 1999
(In thousands except share amounts)
Common Stock Accumulated
--------------- Additional other Total
Par paid-in Accumulated comprehensive stockholders'
Shares value capital deficit income (loss) equity
--------- ----- ---------- ----------- ------------- -------------
Balance at June 30, 1998 1,704,406 $17 $32,483 $(24,294) $(650) $ 7,556
Comprehensive loss:
Net loss - - - (2,495) - (2,495)
Foreign currency
translation adjustments - - - - (228) (228)
--------- --- ------- -------- ----- -------
Total comprehensive loss - - - (2,495) (228) (2,723)
Sale of Common Stock 562,500 6 4,457 - - 4,463
Other 549 - 8 - - 8
--------- --- ------- -------- ----- -------
Balance at June 30, 1999 2,267,455 23 36,948 (26,789) (878) 9,304
Comprehensive income:
Net loss - - - (641) - (641)
Foreign currency
translation adjustments - - - - 32 32
Reclassification of foreign
currency translation
adjustments included in
loss on sale of discontinued
operations - - - - 756 756
--------- --- ------- -------- ----- -------
Total comprehensive income - - - (641) 788 147
Other 4,557 - 24 - - 24
--------- --- ------- -------- ----- -------
Balance at June 30, 2000 2,272,012 23 36,972 (27,430) (90) 9,475
Comprehensive income:
Net income - - - 1,798 - 1,798
Foreign currency
translation adjustments - - - - (99) (99)
--------- --- ------- -------- ----- -------
Total comprehensive income - - - 1,798 (99) 1,699
Other 10,327 - 46 - - 46
--------- --- ------- -------- ----- -------
Balance at June 30, 2001 2,282,339 $23 $37,018 $(25,632) $(189) $11,220
========= === ======= ======== ===== =======
See accompanying notes to consolidated financial statements.
SMTEK INTERNATIONAL, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
DESCRIPTION OF BUSINESS
SMTEK International, Inc. (the "Company," "we," "us" or "our") is an
electronics manufacturing services ("EMS") provider to original equipment
manufacturers ("OEMs") primarily in the industrial and instrumentation,
medical, telecommunications, financial services automation and aerospace and
defense industries. We provide integrated solutions to OEMs across the
entire product life cycle, from design to manufacturing to end-of-life
services, for the worldwide low-to-medium volume, high complexity segment of
the EMS industry.
We have four wholly owned subsidiaries: SMTEK, Inc. (dba SMTEK Thousand
Oaks), located in Thousand Oaks, California; Technetics, Inc. (dba SMTEK San
Diego), located in San Diego, California; Jolt Technology, Inc. (aka SMTEK
Fort Lauderdale), located in Fort Lauderdale, Florida; and SMTEK Europe
Limited, located in Craigavon, Northern Ireland.
On November 12, 1999, we sold our printed circuit board ("PCB")
operation, Irlandus Circuits Ltd. ("Irlandus"). The results of operations of
Irlandus, which represented a separate segment of our business, are shown as
a discontinued operation for all periods presented in the accompanying
consolidated financial statements. See Note 2 for additional details of this
transaction.
As more fully described in Note 3, our acquisition of Technetics, Inc.
on January 29, 1999 was accounted for under the purchase method of
accounting, and the results of operations of this business have been included
in the consolidated financial statements since the date of acquisition.
Certain reclassifications have been made to the fiscal year 2001 and
2000 financial statements to conform with the fiscal year 2001 financial
statement presentation. Such reclassifications had no effect on our results
of operations or stockholders' equity.
ACCOUNTING PERIOD
We utilize a 52-53 week fiscal year ending on the Friday closest to June
30 which, for fiscal years 2001, 2000, and 1999, fell on June 29, June 30,
and July 2, respectively. In these consolidated financial statements, the
fiscal year-end for all years is shown as June 30 for clarity of
presentation, except where the context dictates a more specific reference to
the actual year-end date. Fiscal 2001, 2000 and 1999 consisted of 52 weeks.
CASH EQUIVALENTS
For financial reporting purposes, cash equivalents consist primarily of
money market instruments and bank certificates of deposit that have original
maturities of three months or less.
FAIR VALUE OF FINANCIAL INSTRUMENTS
As of June 30, 2001, the carrying amount of our cash and cash
equivalents, accounts receivable, accounts payable and accrued liabilities
approximate their fair value because of the short maturity of those
instruments. At June 30, 2001 and 2000, the carrying amount of long-term
debt (including the current portion thereof but excluding the bank lines of
credit) was $7.9 million and $7.1 million, respectively, and the fair value
was $7.4 million and $6.6 million, respectively. The fair value of our long-
term debt is estimated based on the quoted market prices for the same or
similar issues or on the current rates offered to us for debt of the same
remaining maturities. All financial instruments are held for purposes other
than trading.
CONCENTRATIONS OF CREDIT RISK
Financial instruments that potentially subject us to concentrations of
credit risk consist principally of money market instruments and trade
receivables. We invest our excess cash in money market instruments and
certificates of deposit with high credit quality financial institutions and,
by policy, limits the amount of credit exposure to any one issuer.
Concentrations of credit risk with respect to trade receivables exist
because our EMS operations rely heavily on a relatively small number of
customers. We perform ongoing credit evaluations of our customers and
generally do not require collateral. We maintain reserves for potential
credit losses and such losses, to date, have been within management's
expectations.
INVENTORIES
Inventories are stated at the lower of cost or net realizable value,
with cost determined principally by use of the first-in, first-out method.
Inventories consist of the following (in thousands):
June 30,
------------------
2001 2000
------ ------
Raw materials $3,929 $3,894
Work in process 2,700 2,129
Finished goods 204 72
------ ------
Total inventories $6,833 $6,095
====== ======
LONG-LIVED ASSETS
Property, equipment and improvements are stated at cost. Depreciation
and amortization are computed on the straight-line method. The principal
estimated useful lives are: buildings - 20 years; improvements - 10 to 18
years; and plant, office and other equipment - 3 to 7 years. Property,
equipment and improvements acquired by our foreign operating unit are
recorded net of capital grants received from the Industrial Development Board
("IDB") for Northern Ireland. Fixed assets consist of the following (in
thousands):
June 30,
--------------------
2001 2000
-------- --------
Buildings and improvements $ 2,827 $ 2,758
Plant equipment 13,691 12,875
Office and other equipment 2,614 2,307
Less accumulated depreciation and amortization (11,813) (11,249)
-------- --------
Total property, equipment and improvements $ 7,319 $ 6,691
======== ========
Goodwill represents the excess of acquisition cost over the fair value
of net assets of a purchased business, and is being amortized over 5 to 15
years. Goodwill of $457,000 and $1.1 million is included in "Other assets"
at June 30, 2001 and 2000, respectively.
The recoverability of long-lived assets is evaluated whenever events or
changes in circumstances indicate that the carrying amount of an asset may
not be recoverable, and if future undiscounted cash flows are believed
insufficient to recover the remaining carrying value of the asset, the
carrying value is written down to fair value in the period the impairment is
identified.
REVENUE AND COST RECOGNITION
All of our subsidiaries, except for our Thousand Oaks subsidiary,
recognize revenues and cost of sales upon shipment of products. We ship
products FOB shipping point and accordingly, title and risk of ownership pass
to the customer upon shipment.
The Thousand Oaks facility has historically generated a significant
portion of its revenue through long-term contracts with suppliers of
electronic components and products. Consequently, this operating unit uses
the percentage of completion method to recognize revenues and cost of sales.
Percentage of completion is determined on the basis of costs incurred to
total estimated costs. Contract costs include direct material and direct
labor costs and those indirect costs related to the assembly process, such as
indirect labor, supplies, tools, repairs and depreciation costs. Selling and
administrative costs are charged to expense as incurred. In the period in
which it is determined that a loss will result from the performance of a
contract, the entire amount of the estimated loss is charged to cost of goods
sold. Other changes in contract price and estimates of costs and profits at
completion are recognized prospectively. The asset "costs and estimated
earnings in excess of billings on uncompleted contracts" represents revenues
recognized in excess of amounts billed.
In December 1999, the Securities and Exchange Commission ("SEC") issued
Staff Accounting Bulletin ("SAB") No. 101, "Revenue Recognition in Financial
Statements." The objective of SAB No. 101 is to provide further guidance on
revenue recognition issues in the absence of authoritative literature
addressing a specific arrangement or a specific industry. We adopted SAB No.
101 in the fourth quarter of fiscal year 2001. The adoption of SAB No. 101
did not have a material impact on our financial position or results of
operations.
INCOME TAXES
Income taxes are accounted for under the asset and liability method.
Deferred tax assets and liabilities are recognized for the expected future
tax consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax
bases and operating loss and tax credit carryforwards. In estimating future
tax consequences, all expected future events other than enactments of changes
in tax law or statutorily imposed rates are considered. The effect on
deferred tax assets and liabilities of a change in tax rates is recognized in
income in the period that includes the enactment date. A valuation allowance
is recorded to reduce deferred tax assets to their estimated realizable
amount.
EARNINGS (LOSS) PER SHARE
Basic earnings (loss) per share is computed by dividing net income
(loss) available to common stockholders by the weighted average number of
common shares outstanding during the period. Diluted earnings (loss) per
share reflects the potential dilution that could occur if securities or other
contracts to issue Common Stock were exercised or converted into Common Stock
or resulted in the issuance of Common Stock that then shared in our earnings
(losses).
FOREIGN CURRENCY TRANSLATION
The financial statements of our foreign operating unit have been
translated into U.S. dollars from its functional currency, British pounds
sterling, in the accompanying consolidated financial statements. Balance
sheet amounts have been translated at the exchange rate on the balance sheet
date and income statement amounts have been translated at average exchange
rates in effect during the period. The net translation adjustment is
recorded as a component of stockholders' equity.
In the normal course of business, our Northern Ireland subsidiary enters
into transactions denominated in European currencies other than British
pounds sterling. As a result, we are subject to transaction and translation
exposure from fluctuations in foreign currency exchange rates. We do not
enter into speculative foreign currency transactions. At June 30, 2001 and
2000, we did not have any open foreign currency forward contracts.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities, and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
STOCK BASED COMPENSATION
Statement of Financial Accounting Standards ("SFAS") No. 123,
"Accounting for Stock-Based Compensation" allows entities to continue to
apply the provisions of Accounting Principles Board ("APB") Opinion No. 25,
"Accounting for Stock Issued to Employees," and provide pro forma net income
and pro forma earnings per share disclosures for stock-based awards as if the
fair-value-based method defined in SFAS No. 123 had been applied. In
accordance with APB Opinion No. 25 and related interpretations, compensation
expense would generally be recorded only if, on the date of grant, the
current market price of the underlying stock exceeded the exercise price. We
have elected to continue to apply the provisions of APB Opinion No. 25 and
provide the pro forma disclosure provisions of SFAS No. 123.
RECENT ACCOUNTING PRONOUNCEMENTS
In July 2001, the Financial Accounting Standards Board ("FASB") issued
SFAS No. 141, "Business Combinations." SFAS No. 141 requires that the
purchase method of accounting be used for all business combinations initiated
after June 30, 2001, as well as for all purchase method business combinations
completed after June 30, 2001. In addition, SFAS No. 141 specifies the
criteria for intangible assets acquired in a purchase method business
combination to be recognized and reported apart from goodwill.
In July 2001, the FASB issued SFAS No. 142, "Goodwill and Other
Intangible Assets." SFAS No. 142 will require that goodwill and intangible
assets with indefinite useful lives no longer be amortized, but instead
tested for impairment, at least annually, in accordance with the provisions
of SFAS No. 142. SFAS No. 142 will also require that intangible assets with
definite useful lives be amortized over their respective estimated useful
lives to their estimated residual values, and reviewed for impairment in
accordance with SFAS No. 121, "Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to Be Disposed Of." SFAS No. 142 must be
adopted in fiscal years beginning after December 15, 2001, as of the
beginning of the year. Companies with fiscal years beginning after March 15,
2001, may adopt early provided that first quarter financial statement have
not been issued. We are assessing the impact of SFAS No. 142.
NOTE 2 - DISCONTINUED OPERATIONS
On November 12, 1999, we sold Irlandus, our PCB fabrication operation in
Northern Ireland. The purchase price was negotiated on an arms length basis
between us and the purchaser, a management buy-out team. The gross sales
proceeds in the aggregate amount of 2.8 million British pounds sterling
(approximately $4.5 million) consisted of a cash dividend of 500,000 British
pounds sterling paid by Irlandus just prior to closing and cash of 2.3
million British pounds sterling paid by the purchaser at closing. After
giving consideration to disposal costs and the cash of approximately $1.5
million which stayed with the divested operation, the net cash proceeds of
this transaction amounted to approximately $2.7 million.
Irlandus was the sole operating unit comprising our PCB segment.
Accordingly, operating results for Irlandus have been presented in the
accompanying consolidated statements of operations as a discontinued
operation, and are summarized as follows (in thousands):
Year Ended June 30,
-------------------
2000 1999
------ ------
Net sales $3,383 $8,908
Operating income $ 131 $ 112
Income from discontinued operations, net of tax $ 254 $ 339
Net assets of Irlandus consisted of the following (in thousands):
November 12, 1999
(sale date)
-----------------
Current assets $ 4,099
Property, equipment and improvements 3,447
Current liabilities (2,081)
Long-term debt (1,314)
-------
Net assets $ 4,151
=======
The loss on sale of Irlandus, shown in the accompanying consolidated
statements of operations, stockholders' equity and comprehensive income
(loss) and cash flows as "Loss on sale of discontinued operations", is
comprised as follows (in thousands):
Gross sales proceeds $ 4,523
Less disposal costs (277)
-------
Net sales proceeds 4,246
Less net assets of Irlandus (4,151)
-------
Gain on sale before elimination of foreign
currency translation account balance 95
Elimination of Irlandus' foreign
currency translation account balance (756)
-------
Loss on sale of discontinued operations $ (661)
=======
Prior to the sale, Irlandus had an accumulated foreign currency
translation loss of $756,000, which was carried as a reduction of
consolidated stockholders' equity. In accordance with SFAS No. 52, "Foreign
Currency Translation," this amount has been included in the determination of
the loss on sale of discontinued operations and in accordance with SFAS No.
130, "Reporting Comprehensive Income," an equal and offsetting amount is
reported as other comprehensive income in the accompanying consolidated
statements of operations and consolidated statements of stockholders' equity
and comprehensive income (loss).
NOTE 3 - ACQUISITIONS
TECHNETICS, INC. - PURCHASE METHOD
On January 29, 1999, we acquired 100% of the outstanding stock of
Technetics, Inc. ("Technetics"), an EMS provider located in San Diego,
California. The purchase price of $319,000 was paid in cash of $275,000 and
a note of $44,000 bearing interest at 8.0% due in quarterly installments
through July 2002. In addition, acquisition costs of $48,000 were incurred.
The acquisition was accounted for using the purchase method of accounting.
In accordance with APB Opinion No. 16, the total investment made in
Technetics of $367,000 was allocated to the acquired net liabilities at their
estimated fair values at the acquisition date, which resulted in the
recognition of goodwill of $543,000. The goodwill arising from this
transaction is being amortized over 15 years. The operations of this
facility have been included in the consolidated financial statements since
the date of acquisition.
NOTE 4 - COSTS AND ESTIMATED EARNINGS IN EXCESS OF BILLINGS ON
UNCOMPLETED CONTRACTS
Costs and estimated earnings in excess of billings on uncompleted
contracts consists of revenue recognized under electronics assembly
contracts, which amounts were not billable at the balance sheet date.
Substantially all of the unbilled amount is expected to be billed and
collected within 180 days of the balance sheet date. The components of costs
and estimated earnings in excess of billings on uncompleted contracts are as
follows (in thousands):
June 30,
----------------------
2001 2000
--------- ---------
Costs incurred to date on uncompleted contracts $ 82,929 $ 56,381
Estimated earnings based on percentage
of completion 10,643 6,889
-------- --------
93,572 63,270
Less: billings to date (85,607) (53,013)
-------- --------
Total costs and estimated earnings in
excess of billings on uncompleted contracts $ 7,965 $ 10,257
======== ========
NOTE 5 - FINANCING ARRANGEMENTS
BANK CREDIT AGREEMENTS
At June 30, 2001, we had a credit facility for our domestic operating
units, which consisted of a $10 million working capital line secured by
accounts receivable, inventory and equipment. Borrowings under the credit
agreement bear interest at either the bank's prime rate or a LIBOR-base rate
of LIBOR plus 2.50%. At June 30, 2001, borrowings outstanding under this
credit facility amounted to $4.6 million and the effective weighted average
interest rate was 6.73%. The line of credit agreement contains certain
financial covenants, with which we were in compliance at June 30, 2001. Our
available borrowing capacity as of June 30, 2001 was approximately $4.2
million. This credit facility expires on October 6, 2001.
On September 24, 2001, we entered into a new credit facility to replace
the aforementioned facility. This new credit facility consists of a $16
million working capital line secured by accounts receivable, inventory and
equipment. Borrowings under the credit agreement will bear interest at
either the bank's prime rate (6.00% as of September 24, 2001) or a
eurodollar-base rate (2.64% as of September 24, 2001) plus 1.75%. The credit
facility matures September 25, 2003. Accordingly, amounts outstanding at
June 30, 2001 under our credit facility have been classified as long-term.
In addition, the new credit facility provides a $3.6 million equipment term
loan to finance our capital expenditures. Each advance will have a five year
term at either the Bank's prime rate, a fixed rate set at closing, or at
Eurodollar plus 1.75%.
We also have a credit facility agreement with Ulster Bank Markets for
our Northern Ireland operating company. This agreement consists of an
accounts receivable revolver, with maximum borrowings equal to the lesser of
70% of eligible receivables or 2,250,000 British pounds sterling
(approximately $3,150,000 at June 30, 2001), and bears interest at the bank's
base rate (5.25% at June 30, 2001) plus 2.00%. At June 30, 2001, borrowings
outstanding under this credit facility amounted to approximately $1.5 million
and the amount available to borrow based on the advance rate against
receivables was approximately $329,000. The credit facility agreement with
Ulster Bank Markets expires November 30, 2001. Management expects the
facility to be renewed for another year in the ordinary course of business.
LONG-TERM DEBT
Long-term debt, other than the bank line of credit, consists of the
following (in thousands):
June 30,
-------------------
2001 2000
------- -------
Mortgage note secured by real property at the
Northern Ireland operations, with interest at
variable rates (6.88% and 7.38% at June 30, 2001
and 2000, respectively), payable in semiannual
installments through 2009 $ 637 $ 747
Notes payable secured by equipment, interest
at 3.90% to 9.65%, payable in monthly
installments through June 2011 1,926 804
Capitalized lease obligations 2,283 2,081
8-1/2% Convertible Subordinated Debentures, due 2008,
interest payable semi-annually and convertible at
holders' option at a price of $212.50 per share at
any time prior to maturity 1,580 1,580
7% Convertible Subordinated Debentures, repaid on
May 15, 2001, interest payable semi-annually and
convertible at holders' option at a conversion price
of $40.00 per share at any time prior to maturity - 353
Obligations to former officers, employees and directors
under consulting and deferred fee agreements 989 951
Other 474 587
------- -------
7,889 7,103
Less current maturities 2,109 2,106
------- -------
Total long-term debt $ 5,780 $ 4,997
======= =======
The aggregate amounts of minimum maturities of other long-term debt for
the indicated fiscal years (other than capitalized lease obligations) are as
follows (in thousands):
Fiscal 2002 $1,331
Fiscal 2003 622
Fiscal 2004 565
Fiscal 2005 568
Fiscal 2006 307
Thereafter 2,213
------
$5,606
======
In March 1996, we entered into a settlement agreement with certain of
our former officers, key employees and directors (the "Participants") to
restructure our outstanding obligations under several consulting programs and
deferred fee arrangements, which had provided for payments to the
Participants after their retirement from us or from our Board of Directors.
Under terms of the settlement, the Participants agreed to relinquish all
future payments due them under these consulting programs and deferred fee
arrangements in return for an aggregate of 29,793 Common Stock purchase
warrants, Series G. We are obligated to pay the Participants $50.00 for each
warrant which remained unexercised on the June 1, 1998 warrant expiration
date, payable in semiannual installments over two to ten years. We have
recorded a liability for the present value of these future payments, which
amounted to $989,000 and $951,000 at June 30, 2001 and 2000, respectively.
LEASE COMMITMENTS
Future minimum lease payments at June 30, 2001 were as follows (in
thousands):
Capital Operating
leases leases
------- ---------
Fiscal 2002 $ 917 $1,128
Fiscal 2003 709 1,109
Fiscal 2004 595 1,056
Fiscal 2005 298 656
Fiscal 2006 106 591
Thereafter - 2,952
------ ------
Total 2,625 $7,492
======
Less: interest expense (342)
------
Present value of minimum lease payments $2,283
======
In July 2001, our Thousand Oaks operation entered into a ten year lease
to move into a remodeled facility in Moorpark, California before the end of
calendar year 2001. The lease terminates in March 2012 and we have an option
to purchase the building in March 2007. Monthly rent is approximately
$75,000 a month, however, from August 2001 through February 2002, the
aggregate rental expense will be approximately $158,000.
The capitalized cost of the related assets (primarily plant equipment),
which are pledged as security under the capital leases, was $3.9 million and
$3.8 million at June 30, 2001 and 2000, respectively. Accumulated
amortization on assets under capital leases amounted to $1.3 million and $1.5
million at June 30, 2001 and 2000, respectively.
Rental expense for operating leases amounted to $717,000, $756,000, and
$680,000 for fiscal 2001, 2000 and 1999, respectively.
NOTE 6 - INCOME TAXES
In connection with the filing of our federal income tax return for
fiscal year 1995, and acting on advice of our tax advisor, we filed for a
refund to carry back losses described in Section 172(f) of the Internal
Revenue Code of 1986, as amended (the "IRC"). Section 172(f) of the IRC
provides for a ten year net operating loss ("NOL") carryback for specific
losses attributable to (1) a product liability or (2) a liability arising
under a federal or state law or out of any tort if the act giving rise to
such liability occurs at least three years before the beginning of the
taxable year. As a result of these refund filings, in September and October
1995 we received federal income tax refunds totaling $1.9 million, net of
costs associated with applying for such refunds, and recognized an income tax
benefit of $1.1 million in the quarter ended December 31, 1995. The balance
of the net refunds received, $761,000, was recorded as income taxes payable,
pending resolution by the Internal Revenue Service ("IRS") of the
appropriateness and the amount of the 172(f) carryback.
Beginning in May 1997, we came under IRS audit with respect to such
refund claims. In September 1998, we received tax deficiency notices from
the IRS in which the IRS advised us that it was disallowing substantially all
of the tax refunds received by us in 1995 which had been recorded as an
income tax benefit. In January 1999, the Company and its tax advisor filed a
protest letter with the IRS to appeal the disallowance. Subsequent to filing
the protest letter, the U.S. Tax Court upheld the disallowance of refund
claims made by another taxpayer involving Section 172(f) issues similar to
those on which we had based certain of its refund claims. Accordingly, in
the fourth quarter of fiscal 1999 we recorded income tax expense, net of fee
amounts refunded to us from its tax advisor, of $1.1 million plus accrued
interest expense of $725,000. Additional interest expense at a rate of 11.0%
has been accrued since June 30, 1999.
In connection with the IRS audit, and the subsequent internal review by
us, we determined that the net refund of $761,000 which had been received in
1995, and which was recorded as income taxes payable upon receipt, needed to
be returned to the IRS. Accordingly, on July 30, 1999, we repaid this amount
to the IRS plus accrued interest of $272,000.
In March 2001, we reached a tentative settlement with the Appeals
Division of the IRS concerning the Section 172(f) issues. As a result of
negotiations with the IRS during fiscal 2001, we recognized an income tax
benefit of $218,000. After giving effect to this adjustment, our federal tax
liability associated with this assessment is approximately $1.1 million and
accrued interest thereon is approximately $900,000. Upon finalization of the
settlement, we intend to seek an installment payment plan with the IRS.
Income tax provision (benefit), all current, consists of the following
(in thousands):
Year ended June 30,
-------------------------
2001 2000 1999
----- ---- ------
Federal $(153) $ 38 $1,110
State 111 62 92
----- ---- ------
$ (42) $100 $1,202
===== ==== ======
Temporary differences between financial statement carrying amounts and
the tax bases of assets and liabilities that give rise to significant
portions of the deferred tax assets and liabilities relate to the following
(in thousands):
June 30,
---------------------
2001 2000
--------- ---------
Deferred tax assets:
Accrued employee benefits $ 593 $ 471
Reserves and allowances 797 685
Domestic NOL carryforwards 12,876 11,983
Foreign NOL carryforwards 1,092 1,017
Alternative minimum tax credits 164 104
Other 106 29
-------- --------
Total deferred tax assets 15,628 14,289
Deferred tax liabilities:
Depreciation (98) (100)
-------- --------
Net deferred tax assets before allowance 15,530 14,189
Less valuation allowance (15,530) (14,189)
-------- --------
Net deferred tax assets after allowance $ - $ -
======== ========
In assessing the realizability of net deferred tax assets, management
considers whether it is more likely than not that some portion or all of the
net deferred tax assets will be realized. The ultimate realization of net
deferred tax assets is dependent upon the generation of future domestic and
foreign taxable income of approximately $35.5 million and $3.1 million,
respectively, prior to the expiration of the NOL carryforwards. Based on the
level of historical losses, management believes that it does not have the
basis to conclude that it is more likely than not that the deferred tax
assets will be realized, and therefore, has recorded a 100% valuation
allowance to offset the net deferred tax assets. The valuation allowance was
$15.5 million and $14.2 million as of June 30, 2001 and 2000, respectively.
The net change in the total valuation allowance for the years ended June 30,
2001 and 2000 was an increase (decrease) of $1.3 million and ($4.5 million),
respectively.
The provision for income taxes for continuing operations differs from an
amount computed using the statutory federal income tax rate as follows (in
thousands):
Year ended June 30,
-----------------------------
2001 2000 1999
------- ------- -------
Federal tax benefit computed at
statutory rate $ 597 $ (46) $ (555)
State income tax, net of federal benefit 33 59 61
Amortization of goodwill 228 443 437
Expiration of unutilized NOL carryforwards - 472 -
Net change in valuation allowance 1,341 (835) 119
Reversal of fiscal 1996 income tax benefit - - 1,110
Adjustment to the deferred tax assets (191) - -
Reinstatement of NOLs utilized for subsequently
disallowed Section 172(f) claims (1,836) - -
IRS refund (218) - -
Other 4 7 30
------ ------ ------
Income tax provision (benefit) from
continuing operations $ (42) $ 100 $1,202
====== ====== ======
The provision for income tax related to discontinued operations in
fiscal 2000 was $72,000.
The provision for income tax related to discontinued operations includes
a reduction in the valuation allowance of $3.6 million and $115,000 for the
years ended June 30, 2000 and 1999, respectively.
As of June 30, 2001, we had U.S. federal NOL carryforwards of
approximately $35.5 million, expiring in 2005 through 2018, and state NOL
carryforwards of $18.0 million, expiring in 2002 through 2012. At June 30,
2001, the NOL carryforward for federal alternative minimum tax purposes was
approximately $27.0 million.
Our ability to use our NOL carryforwards to offset future taxable income
may be subject to annual limitations due to certain substantial stock
ownership changes, which have occurred in the current and prior years. We
maintain an ongoing analysis to determine if the future utilization of the
NOLs will be limited due to these ownership changes.
Pretax income (loss) from foreign continuing operations for fiscal 2001,
2000 and 1999 was ($208,000), ($627,000) and $45,000, respectively. Income
of our Northern Ireland subsidiary is sheltered by operating loss
carryforwards for United Kingdom income tax purposes (the "U.K. NOL"). The
current income tax benefit from the U.K. NOL was $0 for all three fiscal
years, and has been treated as a reduction in the provision for income taxes.
At June 30, 2001, the U.K. NOL amounted to approximately $3.1 million.
Substantially all of these NOLs from prior years of our Northern Ireland
subsidiary can be carried forward for an indefinite period of time to reduce
future taxable income.
NOTE 7 - STOCKHOLDERS' EQUITY
STOCK OPTION PLANS
We have in effect several stock-based plans under which non-qualified
and incentive stock options and restricted stock awards have been granted to
employees and directors. Subject to the discretion of the Board of Directors
(the "Board"), employee stock options generally become exercisable over a
period of two to three years as determined by the Board, and generally have a
10-year exercise term when granted.
The exercise price of all incentive stock options must be equal to or
greater than the market value of the shares on the date of grant. The
exercise price of non-statutory stock options must be at least 85% of the
market value of the Common Stock on the date of grant.
Under our Amended and Restated 1998 Non-Employee Directors Stock Plan,
each eligible director receives Company securities (Common Stock or stock
options) valued at $1,000 for attendance at each Board meeting and $500 for
attendance at each Board committee meeting. Additionally, annually beginning
in fiscal 2000, each non-employee director will receive Company securities
with a fair market value of $12,000 and beginning in fiscal 2001, each non-
employee director will be granted 5,000 stock options upon initial election
or re-election to the board of directors. In fiscal 2001 and 2000, options
to purchase a total of 43,341 and 14,855 shares, respectively, were granted
to our non-employee directors at exercise prices ranging from $3.75 to $8.20
in 2001 and $3.63 to $3.88 in 2000. Annually, each non-employee director
makes an election to receive director compensation in the form of Common
Stock or stock options. The fair value of Common Stock issued in connection
with these director compensation plans is equal to the market value of Common
Stock on the grant date. The fair value of stock options granted in
connection with these director plans is determined using the Black-Scholes
option pricing model (as discussed in more detail below) using data and
assumptions as of the grant date. The exercise price of all stock options is
equal to the market value at the date of grant. In fiscal 2001, 2000 and
1999, we recorded expense of $20,000, $18,000 and $8,000, respectively, and
issued 4,327, 4,557 and 549 shares, respectively, related to the issuance of
Common Stock for director compensation.
Activity under the employee and non-employee director stock option plans
for fiscal years 2001, 2000 and 1999 was as follows:
Weighted average exercise
Shares price per share
--------- -------------------------
Shares under option, June 30, 1998 117,394 $23.40
Granted 130,766 9.40
Expired or canceled (114,969) 23.02
--------
Shares under option, June 30, 1999 133,191 $ 9.89
Granted 209,205 3.79
Expired or canceled (38,040) 9.00
--------
Shares under option, June 30, 2000 304,356 $ 5.81
Granted 292,741 4.96
Expired or canceled (17,340) 6.48
Exercised (6,000) 3.71
--------
Shares under option, June 30, 2001 573,757 $ 5.37
======== ======
The following table summarizes information about shares under option at
June 30, 2001:
Outstanding Exercisable
--------------------------------- ---------------------
Expiration Weighted Weighted
Range of date average average
exercise Options (fiscal exercise Options exercise
prices outstanding year end) price exercisable price
-------------- ----------- ---------- -------- ----------- --------
$ 3.75 - 9.75 288,241 2011 $ 4.97 43,341 $ 4.88
$ 3.38 - 5.75 188,855 2010 $ 3.75 53,854 $ 3.78
$ 6.50 - 16.25 95,161 2009 $ 9.57 84,687 $ 9.68
$21.25 1,500 2008 $21.25 1,500 $21.25
------- -------
Total 573,757 $ 5.37 183,382 $ 6.90
======= =======
At June 30, 2001, under the employee and non-employee director stock
option plans there were 172,712 and 123,127 shares, respectively, available
for future grants.
STOCK BASED COMPENSATION
We apply the provisions of APB Opinion No. 25 and related
interpretations in accounting for our stock option plans. Accordingly, no
compensation expense has been recognized for our employee stock option plans
and awards of options to non-employee directors. Had compensation expense
for stock-based awards been determined consistent with SFAS No. 123, our
results of operations would have been reduced to the pro forma amounts
indicated below (in thousands except per share amounts):
Year ended June 30,
--------------------------------
2001 2000 1999
-------- -------- --------
Net income (loss):
As reported $1,798 $ (641) $(2,495)
Pro forma $1,515 $ (836) $(3,047)
Basic earnings (loss) per share:
As reported $ 0.79 $(0.28) $ (1.41)
Pro forma $ 0.67 $(0.37) $ (1.72)
Diluted earnings (loss) per share:
As reported $ 0.76 $(0.28) $ (1.41)
Pro forma $ 0.64 $(0.37) $ (1.72)
For purposes of this pro forma disclosure, the "fair value" of each
option and warrant is estimated on the date of grant using the Black-Scholes
option-pricing model with the following assumptions used for grants in 2001,
2000 and 1999: dividend yield of 0.0% for all years; expected volatility of
75%, 75% and 55% for 2001, 2000 and 1999, respectively; risk-free interest
rates ranging from 4.8% to 6.3% for 2001, 5.9% to 6.7% for 2000 and 4.1% to
5.7% for 1999; and expected lives of five years for all years.
The weighted average fair value of options granted during the years
ended June 30, 2001, 2000 and 1999 was $4.35, $2.53 and $4.99, respectively.
WARRANTS
On February 28, 2001, 1,500,000 Series E warrants expired unexercised.
On June 30, 2000, 22,750 Series C warrants, 2,500 Series D warrants and
15,000 Series H warrants expired unexercised.
NOTE 8 - EARNINGS (LOSS) PER SHARE
Common stock equivalents used in the determination of diluted earnings
per share include the effect, when such effect is dilutive, of our
outstanding employee stock options, the 7% Convertible Subordinated
Debentures (which are convertible into 8,075 shares of Common Stock at $40.00
per share of Common Stock), and the 8-1/2% Convertible Subordinated
Debentures (which are convertible into 7,435 shares of Common Stock at
$212.60 per share of Common Stock). The following is a summary of the
calculation of basic and diluted earnings per share (dollars in thousands,
except per share data):
Year ended
June 30, 2001
-------------
Net income $ 1,798
=========
Weighted average shares:
Basic weighted average number
of common shares outstanding 2,277,111
Diluted effect of outstanding
options to purchase 101,408
---------
Diluted weighted average number
of common shares outstanding 2,378,519
=========
Earnings per share:
Basic $ 0.79
=========
Diluted $ 0.76
=========
Options to purchase approximately 108,000 shares of Common Stock at
prices ranging from $7.47 to $21.25 were outstanding at June 30, 2001, but
were not included in the computation of diluted earnings per share for fiscal
2001 because the exercise price of these options was greater than the average
market price of the Common Stock.
During the years ended June 30, 2000 and 1999, options and warrants to
purchase 420,000 and 248,000 shares of Common Stock, respectively, at prices
ranging from $3.38 to $70.00 for fiscal 2000, and $6.50 to $70.00 for fiscal
1999 were outstanding, but were not included in the computation of diluted
earnings per share because we had a loss from continuing operations and as
such, the options would be antidilutive.
Convertible subordinated debentures aggregating $1,580,000, due in 2008
and convertible at a price of $212.60 per share at any time prior to maturity
and convertible subordinated debentures aggregating $323,000, due on May 15,
2001 and convertible at a price of $40.00 per share at any time prior to
maturity, were outstanding during fiscal years 2001, 2000 and 1999, but were
not included in the computation of diluted earnings per share because the
effect would be antidilutive.
NOTE 9 - OTHER FINANCIAL INFORMATION
VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
Following is our schedule of valuation and qualifying accounts and
reserves for fiscal years 2001, 2000 and 1999 (in thousands):
Allowance for Doubtful Accounts:
--------------------------------
June 30,
--------------------
2001 2000 1999
---- ---- ----
Balance at beginning of period $151 $156 $167
Beginning balance of acquired company - - 13
Charged to costs and expenses 302 104 71
Deductions (46) (82) (95)
Sale of subsidiary - (27) -
---- ---- ----
Balance at end of period $407 $151 $156
==== ==== ====
NOTE 10- COMMITMENTS AND CONTINGENCIES
GOVERNMENT GRANTS
Pursuant to government grant agreements with the IDB for Northern
Ireland, our Northern Ireland operating unit has been reimbursed for a
portion of qualifying capital expenditures and for certain employment and
interest costs. Approximately $211,000 of the government grants received by
this operating unit are subject to repayment in the event that it ceases
business, permanently discontinues production, or fails to pay to the IDB any
amounts due under its mortgage note payable (Note 5). Management does not
expect that we will be required to repay any grants under these provisions.
ENVIRONMENTAL MATTERS
Since the early 1990s, we continue to be involved in certain remediation
and investigative studies regarding soil and groundwater contamination at the
site of a former printed circuit board manufacturing plant in Anaheim,
California. One of our former subsidiaries, Aeroscientific Corp., leased the
Anaheim facility. Under the terms of a cost sharing agreement entered into
several years ago, the remaining remediation costs are currently being shared
on a 50-50 basis with the landlord. There is no environmental insurance
coverage for this remediation. At June 30, 2001, we had a reserve of
$431,000 for future remediation costs. Management, based in part on
consultations with outside environmental engineers and scientists, believes
that this reserve is adequate to cover its share of future remediation costs
at this site. However, the future actual remediation costs could differ
significantly from the estimates. Further, our portion could potentially
exceed the amount of our reserve. Our liability for remediation in excess of
our reserve could have a material adverse impact on our business, financial
condition and results of operations.
NOTE 11 - BUSINESS SEGMENT AND GEOGRAPHIC INFORMATION
As more fully described in Note 2, we sold our Northern Ireland
operation, which represented a separate segment of our business, and which is
shown as a discontinued operation in the consolidated statement of operations
and comprehensive income (loss). As such, we now operate in a single
business segment--the EMS industry.
Our revenues and long-lived assets, net of accumulated depreciation, by
geographic area are as follows (in thousands):
Year ended June 30,
---------------------------------
2001 2000 1999
------- ------- -------
Revenues:
United States $73,772 $50,107 $34,247
Northern Ireland 17,376 20,145 16,928
------- ------- -------
Total $91,148 $70,252 $51,175
======= ======= =======
Long-lived assets:
United States $ 5,997 $ 5,621
Northern Ireland 1,779 2,196
------- -------
Total $ 7,776 $ 7,817
======= =======
We had sales to three customers which accounted for 14.6%, 14.2% and
11.3% of revenues in fiscal 2001, sales to three customers, which accounted
for 15.5%, 13.5% and 10.2% of revenues in fiscal 2000, and sales to three
customers, which accounted for 23.8%, 11.4% and 7.5% of revenues in fiscal
1999.
NOTE 12 - QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)
The following table sets forth certain unaudited financial data for each
of the last eight quarters. This information, in management's opinion,
reflects all adjustments (consisting only of normal recurring adjustments)
necessary for a fair presentation of the information for the quarters
presented. The operating results for any quarter are not necessarily
indicative of results for any future period.
Following is a summary of the quarterly results of operations (in
thousands except per share amounts):
Quarters ended
-----------------------------------------------------
Sep 30 Dec 31 Mar 31 Jun 30 Total
-------- -------- -------- -------- -------
Fiscal 2001
-----------
Revenues $20,924 $24,148 $25,008 $21,068 $91,148
Net income $ 315 $ 419 $ 926 $ 138 $ 1,798
Basic earnings
per share $ 0.14 $ 0.18 $ 0.41 $ 0.06 $ 0.79
Diluted earnings
per share $ 0.14 $ 0.18 $ 0.38 $ 0.06 $ 0.76
Quarters ended
-----------------------------------------------------
Sep 30 Dec 31 Mar 31 Jun 30 Total
-------- -------- -------- -------- -------
Fiscal 2000
-----------
Revenues $15,211 $14,441 $19,213 $21,387 $70,252
Income (loss)
from continuing
operations $ (78) $ (82)(A) $ (235) $ 161 $ (234)
Net income (loss) $ 135 $ (702)(A) $ (235) $ 161 $ (641)
Basic and diluted
earnings (loss)
per share $ 0.06 $ (0.31) $ (0.10) $ 0.07 $ (0.28)
(A) Included in the loss from continuing operations and net loss for the
three months ended December 31, 1999 is a $350,000 benefit relating
to the favorable resolution of certain operating contingencies.
SMTEK INTERNATIONAL, INC. AND SUBSIDIARIES
MARKET AND DIVIDEND INFORMATION
Our Common Stock is traded on Nasdaq Small Cap Market (ticker symbol
"SMTI") and the Pacific Stock Exchange (ticker symbol "SMK"). The high and
low closing sales prices for the Common Stock, as reported by the Nasdaq
Small Cap Market, for the last two fiscal years are set forth in the
following table.
Fiscal 2001 Fiscal 2000
--------------- --------------
High Low High Low
------ ----- ----- -----
1st Quarter $ 4.88 $3.50 $7.38 $3.63
2nd Quarter 7.00 4.00 5.25 3.06
3rd Quarter 7.47 4.38 4.63 3.63
4th Quarter 10.11 5.01 4.38 3.00
On August 31, 2001, the closing market price of our Common Stock in the
Nasdaq Small Cap Market was $8.33 per share. There were approximately 1,200
stockholders of record at August 31, 2001. This number does not give effect
to the total number of stockholders who hold their shares in "street name" or
brokerage accounts.
Dividend payments are not anticipated in the foreseeable future.
FORM 10-K ANNUAL REPORT
A copy of the Annual Report on Form 10-K (without exhibits) may be
obtained free of charge upon written request to SMTEK International, Inc.,
2151 Anchor Court, Thousand Oaks, California 91320 attention: Secretary.
SMTEK INTERNATIONAL, INC. AND SUBSIDIARIES
DIRECTORS, EXECUTIVE OFFICERS, OPERATING UNITS
AND OTHER CORPORATE INFORMATION
DIRECTORS EXECUTIVE OFFICERS
========= ==================
Clay M. Biddinger Gregory L. Horton
Chief Executive Officer President and Chief Executive Officer
CMB Capital, LLC
Tampa, Florida Kirk A. Waldron
Vice President - Finance and
James P. Burgess Administration, Chief Financial Officer,
Vice President and Treasurer
Trilogy Marketing Inc.
Naples, Florida George R. Weatherford
Chief Operating Officer
Gregory L. Horton
Chairman of the Board, Mitchell J. Freedman
President and Chief General Counsel and Secretary
Executive Officer
SMTEK International, Inc.
Oscar B. Marx, III OPERATING UNITS
President and CEO, ===============
TMW Enterprises, Inc. SMTEK Thousand Oaks
Troy, Michigan Thousand Oaks, California
SMTEK San Diego
INDEPENDENT AUDITORS San Diego, California
====================
KPMG LLP Jolt Technology, Inc.
Los Angeles, California Fort Lauderdale, Florida
TRANSFER AGENT & REGISTRAR SMTEK Europe, Ltd.
========================== Craigavon, Northern Ireland
American Stock Transfer & United Kingdom
Trust Company
59 Maiden Lane
New York, New York 10007
2
21
EX-10
3
employ.txt
EMPLOYMENT AGREEMENT
EXHIBIT 10.7
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT (this "Agreement") is made and entered into as
of the 1st day of January, 2001, by and between SMTEK INTERNATIONAL, INC., a
Delaware corporation (the "Company"), and GREGORY L. HORTON ("Horton").
WHEREAS, the Company desires to continue employment of Horton as its
Corporate President and Chief Executive Officer, and
WHEREAS, Horton agrees to be employed by the Company pursuant to the
terms and conditions of this Agreement.
NOW, THEREFORE, in consideration of the foregoing, and for other good
and valuable consideration, the receipt and sufficiency of which is hereby
acknowledged, the parties hereto agree as follows:
AGREEMENT
I. EMPLOYMENT
1.1 POSITION. The Company hereby continues to engage and employ Horton
in the capacity of President and Chief Executive Officer. Horton shall
report directly to the Company's Board of Directors (the "Board") and shall
perform the executive duties and functions of a Corporate President and Chief
Executive Officer, subject only to such reasonable limitations of authority
set forth from time to time in the resolutions of the Board and applicable
law.
1.2 DUTIES. Horton's duties will include all of those generally
associated with the position of Corporate President and Chief Executive
Officer, subject to the reasonable direction of the Board. Such duties will
include the full-time corporate management of all of the Company's
operations, with Horton's primary duties being to focus his efforts toward
the objective of making the Company profitable, competitive as a
technologically advanced firm in its lines of business, and developing and
implementing a growth strategy for the Company through internal operations
and/or acquisition alternatives.
II. COMPENSATION AND BENEFITS
2.1 BASE SALARY. Horton's base salary shall be at the rate of Two-
Hundred and Fifty Thousand Dollars ($250,000) per year commencing January 1,
2001 and continuing through June 29, 2001, and no less than Two Hundred Fifty
Thousand Dollars ($250,000) for the fiscal year beginning June 30, 2001 and
for each fiscal year thereafter. This base salary will be reviewed at least
annually for merit and cost of living increases, at the end of each fiscal
year, by the Compensation Committee of the Board (the "Compensation
Committee"), but shall not be adjusted down without Horton's prior written
consent.
2.2 BONUS. Horton shall be eligible to receive annual bonus
compensation based in part upon reasonable increases in the Company's
revenues and profits and upon such other reasonable criteria and the
achievement of such reasonable objectives as the Company's Board may from
time to time establish. Such bonus compensation may be payable at such times
during the year and in such amounts as the same may be determined by the
Compensation Committee. Aggregate bonus compensation in any particular year
shall be based on an amount equal to the then-current base salary. The
actual bonus amount paid shall be determined by the Compensation Committee,
based on a reasonable standard for Horton's performance to stated objectives
set by the Board of Directors and based on a reasonable standard for the
Company's performance to planned revenues and earnings objectives.
2.3 OTHER BENEFITS. Horton shall be entitled to other benefits and
perquisites which are at least comparable to those which he is presently
receiving as President and Chief Executive Officer of SMTEK International,
Inc. These benefits shall be set forth on the attached Schedule A which is
attached hereto and made a part of this Employment Agreement.
2.4 EXPENSE REIMBURSEMENT. Horton shall be reimbursed for reasonable
out-of-pocket expenses in accordance with the Company's established policies
applicable to all officers.
III. TERMINATION
3.1 AT WILL. Horton and the Company acknowledge and agree that
Horton's employment with the Company is expressly "at will" both during and
after the term of this Agreement. This means that either party may terminate
Horton's employment with or without cause upon thirty (30) days' advance
written notice. Any termination of Horton's employment is, however, subject
to the terms and provisions of this Agreement as to severance pay and other
obligations.
3.2 VOLUNTARY RESIGNATION. In the event that Horton's employment with
the Company terminates as a result of his voluntary resignation, Horton shall
be entitled to no severance pay. For purposes of this Agreement, the term
"voluntary resignation" shall not include a resignation that is tendered by
Horton pursuant to a direct request of the Board. A resignation tendered by
Horton pursuant to a direct request of the Board shall, for purposes of this
Agreement, be treated as an involuntary termination, and Horton's entitlement
to severance pay and additional benefits in accordance with the provisions of
Sections 3.3(a) and 3.3(b) below shall apply unless, and only if, the Board's
request was based on Cause (as defined in Section 3.3(c) below).
3.3 INVOLUNTARY TERMINATION.
(a) SEVERANCE PAY. In the event that Horton's employment with the
Company is terminated other than for Cause, and subject to the qualification
below, Horton shall be entitled to severance pay equal to twenty (20) months
of his then-current monthly base salary, payable within thirty (30) days
following such termination.
(b) ADDITIONAL BENEFITS. In the event that Horton's employment with
the Company is terminated by the Company other than for Cause (as defined in
Section 3.3(c) below), Horton shall be entitled to continue to participate in
the Company's employee benefit programs that had been made available to
Horton pursuant to Section 2.3 above. These programs shall be continued at
no cost to Horton, except to the extent that tax laws require the inclusion
of the value of such benefits in Horton's income. The programs shall
continue for the benefit of Horton for a period of twenty months after the
date of Horton's termination, in the same manner and at the same level as
immediately prior to Horton's termination.
(c) CAUSE. For purposes of this Agreement, "Cause" shall mean (i) the
willful and deliberate refusal of Horton to comply with a lawful, written
instruction of the Board, which refusal is not remedied by Horton within a
reasonable period of time after his receipt of written notice from the
Company identifying the refusal; (ii) an act or acts of personal dishonesty
by Horton that were intended to result in substantial personal enrichment of
Horton at the expense of the Company; (iii) Horton's conviction of any felony
involving an act of moral turpitude; or (iv) Horton's material breach of any
representation or covenant contained in Section 5, 6 or 7 of this Agreement.
3.4 DEATH. In the event of Horton's death, this Agreement shall
automatically terminate and shall be of no further force and effect.
Termination of Horton's employment as a result of his death shall not result
in any obligation by the Company to pay severance pay (unless the obligation
to pay severance exists as of the date of Horton's death) or other benefits
to Horton's estate or heirs.
3.5 DISABILITY. In the event of Horton's Disability (as defined below)
during the term of this Agreement for any period of at least six (6)
consecutive months, the Company shall have the right, which may be exercised
in its sole discretion, to terminate this Agreement. In the event the
Company does elect to terminate this Agreement, Horton shall not be entitled
to any severance pay at any time but shall be entitled to normal disability
benefits in accordance with the policies established from time to time by the
Company. For purposes of this Agreement, "Disability" shall mean the
inability of Horton to perform his employment services hereunder by reason of
physical or mental illness or incapacity as determined by a physician chosen
by the Company and reasonably satisfactory to Horton or his legal
representative.
IV. TERM
The term of this Agreement shall commence on January 1st, 2001, and shall
be in effect through January 1st, 2005, unless terminated earlier or extended
in accordance with the terms and conditions specified herein. In the event,
this Agreement is not renewed or superseded by written mutual consent by the
end of its term, this Agreement shall automatically be extended month-for-
month until such time as it is renewed, superseded by written mutual consent
or terminated by written mutual consent. Such automatic extension
specifically includes the provisions of Section 3.3 (a) and 3.3 (b) herein.
V. NONDISCLOSURE OF INFORMATION AND NON-SOLICITATION OF
EMPLOYEES
5.1 NONDISCLOSURE OF CONFIDENTIAL INFORMATION. Except in the
performance of his duties hereunder, Horton shall not disclose to any person
or entity or use for his own direct or indirect benefit any Confidential
Information (as defined below) pertaining to the Company obtained by Horton
in the course of his employment with the Company. For purposes of this
Agreement, "Confidential Information" shall include the Company's products,
services, processes, suppliers, customers, customers' account executives,
financial, sales and distribution information, price lists, identity and list
of actual and potential customers, trade secrets, technical information,
business plans and strategies to the extent that such information has not
been publicly disseminated by the Company, other than through a breach
hereof.
5.2 NON-SOLICITATION. Horton agrees that, so long as he is employed by
the Company and for a period of one (1) year after termination of his
employment for any reason except involuntary termination without Cause, he
shall not (a) directly or indirectly solicit, induce or attempt to solicit or
induce any company employee to discontinue his or her employment with the
Company, (b) usurp any opportunity of the Company that Horton became aware of
during his tenure at the Company, or (c) directly or indirectly solicit or
induce or attempt to influence any person or business that is an account,
customer or client of the Company to restrict or cancel the business of any
such account, customer or client with the Company.
VI. NON-COMPETITION
So long as Horton is employed by the Company, Horton shall not, without
the prior written consent of the Company's Board, either directly or
indirectly, including without limitation through a partnership, joint
venture, corporation or other entity or as a consultant, director or
employee, engage in the business engaged in by the Company as of the date
hereof within those geographical areas in which the Company conducts active
business operations.
VII. REPRESENTATIONS AND COVENANTS OF HORTON AND COMPANY
7.1 BEST EFFORTS. In consideration of the payments to be made
hereunder, Horton agrees to devote substantially his entire business time and
attention to the performance of his duties hereunder, and to serve the
Company diligently and to the best of his abilities. Notwithstanding the
foregoing, Horton shall have the continuing right to (a) make passive
investments in the securities of any publicly-owned corporation, (b) make any
other passive investments with respect to which he is not obligated or
required to, and does not in fact, devote any substantial managerial efforts
that interfere with his fulfillment of his duties, and (c) serve as a
director or consultant for other companies or entities.
7.2 NO RESTRICTIONS. Horton represents that he is under no actual or
alleged restriction, limitation or other prohibition (whether as a result of
his prior employment or otherwise) to perform his duties as described herein.
7.3 AUTHORITY. Any individual signing this Agreement on behalf of the
Company hereby represents and warrants that he/she has full authority to do
so on behalf of the Company.
VIII. MISCELLANEOUS
8.1 NO WAIVER. The waiver by either party of a breach of any provision
of this Agreement shall not operate as or be construed as a waiver of any
subsequent breach thereof.
8.2 NOTICES. Any and all notices referred to herein shall be
sufficiently furnished if in writing, and sent by registered or certified
mail, postage prepaid, to the respective parties at the following addresses
or such other address as either party may from time to time designate in
writing:
To the Company: SMTEK International, Inc.
2151 Anchor Court
Newbury Park, California 91320
Attention: Secretary
To Horton: Mr. Gregory L. Horton
4235 Kingsview Road
Moorpark, California 93021
8.3 ENTIRE AGREEMENT AND INTERPRETATION. This Agreement supersedes any
and all prior written or oral agreements between Horton and the Company, and
contains the entire understanding of the parties hereto with respect to the
terms and conditions of Horton's employment with the Company. No provision
of this document is to be interpreted for or against any party because that
party or party's legal representative drafted it.
8.4 GOVERNING LAW. This Agreement shall be construed and enforced in
accordance with the laws and decisions of the State of Delaware.
8.5 COUNTERPARTS. This Agreement may be executed in one or more
counterparts, each of which shall be deemed to constitute an original, but
all of which shall constitute one and the same instrument.
8.6 AMENDMENT. This Agreement may not be modified, amended, altered or
supplemented except by written agreement between Horton and the Company.
8.7 ASSIGNMENT AND PARTIES IN INTEREST. This Agreement shall inure to
the benefit of and be binding upon the parties named herein and their
respective successors and assigns; provided, however, that Horton may not
assign any of his rights or obligations hereunder.
8.8 EXPENSE. In the event an action in law or in equity is required to
enforce or interpret the terms and conditions of this Agreement, the
prevailing party shall be entitled to reasonable attorneys fees and costs in
addition to any other relief to which that party may be entitled.
8.9 INTERPRETATION. No provision of this document is to be
interpreted for or against any party because that party or party's legal
representative drafted it.
8.10 SEVERABILITY. In the event that any covenant, condition or other
provision herein contained is held to be invalid, void or illegal by any
court of competent jurisdiction, the same shall be deemed severable from the
remainder of this Agreement and shall in no way affect, impair or invalidate
any other covenant, condition or other provision herein contained. If such
condition, covenant or other provision shall be deemed invalid due to its
scope or breadth, such covenant, condition or other provision shall be deemed
valid to the extent of the scope or breadth permitted by law.
8.11 WAIVER. No breach of any provision hereof can be waived unless in
writing. Waiver of any one breach of any provision hereof shall not be
deemed to be a waiver of any other breach of the same or any other provision
hereof. This Agreement may be amended only by a written agreement executed
by the parties in interest at the time of the modification.
IN WITNESS WHEREOF, the parties hereto have executed and delivered this
Agreement as of the day and year first above written.
The "Company":
SMTEK International, Inc., a Delaware Corporation
/s/ Oscar B. Marx
------------------------------------
By: Oscar B. Marx
Its: Compensation Committee Chairman
Board Of Directors
"Horton":
/s/ Gregory L. Horton
------------------------------
Gregory L. Horton
SCHEDULE A - EXECUTIVE BENEFITS AND PERQUISITES
Horton shall be entitled to other benefits and perquisites which are at least
comparable to those which he is presently receiving as President and Chief
Executive Officer of SMTEK International, Inc. The following list delineates
the benefits and perquisites to be provided for Horton:
- Vacation pay per the Company policy manual
- Pay for holiday, sick, bereavement, and paid time off, etc.
per the Company policy manual
- Health benefits per the Company policy manual
- Participation in the Company 401(k) Plan
- Reasonable expense reimbursement for Company related expenses
- Company shall pay the cost of a term life flat premium life insurance
policy for $3.5 million which is currently in place
- Long-term disability insurance with benefit equal to employee's salary
- Assurance that D&O liability insurance is maintained for the Company and
its Officers
- Employee may be allowed to participate in the Employee Stock Option Plan
- Employer shall indemnify, defend and hold harmless Employee from and
against any an all actions, claims, liabilities, demands and proceedings
asserted against Employee by reason of the fact that Employee is or was
an employee or officer of the Employer on or after the date hereof to the
fullest extent permitted under the laws of the State of Delaware
- Use of a Company provided computer and associated connections at home
- Communication devices for employee and spouse
- Participation in YPO membership and educational programs which require
spousal inclusion
- Participation in at least one YPO University program per year (typically
one week intensive training and unique networking experiences)
- Horton's aircraft is utilized routinely for Company business. The
Company shall maintain current company supported aircraft/hanger lease
($50/month), including general maintenance expenses, Company related
travel expense, chart subscriptions, insurance, taxes, and county space
rent for hanger. All large cost aircraft enhancements and repairs are
paid by Horton, personal use expenses are paid by Horton, and the
aircraft and hanger are owned by Horton.
- Fees will be paid for various professional associations and executive
education tuition from time-to-time
- Use of Company automobile and coverage for related operating expenses
with right to buy automobile at end of lease
- Occasional spousal travel expenses when traveling for business related
events that include spouse involvement
- Professional services; tax planning, estate planning, will preparation,
general legal advice, tax return preparation (currently all estate
planning items are in place)
EX-10
4
poway.txt
POWAY LEASE
Exhibit 10.8
STANDARD INDUSTRIAL/COMMERCIAL MULTI-TENANT LEASE--MODIFIED NET
AMERICAN INDUSTRIAL REAL ESTATE ASSOCIATION
[LOGO]
1. BASIC PROVISIONS ("BASIC PROVISIONS").
1.1 PARTIES: This Lease ("LEASE"), dated for reference purposes
only, December 20, 2000, is made by and between POMERADO LEASING NO. 8 L.P.,
a California limited partnership ("LESSOR") and TECHNETICS, INC., dba SMTEK
INTERNATIONAL, INC., a Delaware corporation ("LESSEE"), (collectively the
"PARTIES," or individually a "PARTY").
1.2(a) PREMISES: That certain portion of the Building, including all
improvements therein or to be provided by Lessor under the terms of this
Lease, commonly known by the street address of 13200 Danielson Street,
located in the City of Poway, County of San Diego, State of California, with
zip code 92064 as outlined on Exhibit 2 attached hereto ("PREMISES"). The
"BUILDING" is that certain building containing the Premises and generally
described as (describe briefly the nature of the Building): an approximate
45,619 sq. ft. industrial space in an approximately 97,500 square foot
industrial concrete tilt-up building. In addition to Lessee's rights to use
and occupy the Premises as hereinafter specified, Lessee shall have non-
exclusive rights to the Common Areas (as defined in Paragraph 2.7 below) as
hereinafter specified, but shall not have any rights to the roof, exterior
walls or utility raceways of the Building or to any other buildings in the
Industrial Center. The Premises, the Building, the Common Areas, the land
upon which they are located, along with all other buildings and improvements
thereon, are herein collectively referred to as the "Industrial Center."
(Also see Paragraph 2.)
1.2(b) PARKING: 150 unreserved vehicle parking spaces ("UNRESERVED
PARKING SPACES"); and -0- reserved vehicle parking spaces ("RESERVED PARKING
SPACES"). (Also see Paragraph 2.6.)
1.3 TERM: 10 (ten) years and -0- months ("ORIGINAL TERM")
commencing (see Section 4.2 of Addendum to Lease) ("COMMENCEMENT DATE") and
ending (see Addendum 4.3) ("EXPIRATION DATE"). (Also see Paragraph 3)
1.4 EARLY POSSESSION: N/A ("EARLY POSSESSION DATE"). (Also see
Paragraphs 3.2 and 3.3.)
1.5 BASE RENT: $(per Sect. 2.1 of Addendum to Lease) per month
("BASE RENT"), payable on the 1st day of each month commencing per Section
4.2 of Addendum to Lease. (Also see Paragraph 4.)
/X/ If this box is checked, this Lease provides for the Base Rent to be
adjusted per Addendum 4.4.3, attached hereto.
1.6(a) BASE RENT PAID UPON EXECUTION: $-0- as Base Rent for the period
N/A.
1.6(b) LESSEE'S SHARE OF COMMON AREA OPERATING EXPENSES: 45.86 percent
(45.86%) ("LESSEE'S SHARE") as determined by /X/ prorata square footage of
the Premises as compared to the total square footage of the Building or / /
other criteria as described in Addendum .
1.7 SECURITY DEPOSIT: $68,164.00 per Section 2.5 of Addendum
("SECURITY DEPOSIT"). (Also see Paragraph 5.)
1.8 PERMITTED USE: design, manufacture, and storage of electronic
assemblies and contract manufacturing services. ("PERMITTED USE") (Also see
Paragraph 6.)
1.9 INSURING PARTY. Lessor is the "INSURING PARTY." (Also see
Paragraph 8.)
1.10(a) REAL ESTATE BROKERS. The following real estate broker(s)
(collectively, the "BROKERS") and brokerage relationships exist in this
transaction and are consented to by the Parties (check applicable boxes):
/X/ CB Richard Ellis represents Lessor exclusively ("LESSOR'S BROKER");
/X/ ECP Commercial represents Lessee exclusively ("LESSEE'S BROKER"); or
/ / represents both Lessor and Lessee ("DUAL AGENCY").
(Also see Paragraph 15.)
1.11 GUARANTOR. The obligations of the Lessee under this Lease are
to be guaranteed by SMTEK INTERNATIONAL, INC., a Delaware corporation
("GUARANTOR"). (Also see Paragraph 37.)
1.12 ADDENDA AND EXHIBITS. Attached hereto is an Addendum or Addenda
consisting of Paragraphs 1 through 25, and Exhibits 1 through 9, all of which
constitute a part of this Lease.
2. PREMISES, PARKING AND COMMON AREAS.
2.1 LETTING. Lessor hereby leases to Lessee, and Lessee hereby
leases from Lessor, the Premises, for the term, at the rental, and upon all
of the terms, covenants and conditions set forth in this Lease. Unless
otherwise provided herein, any statement of square footage set forth in this
Lease, or that may have been used in calculating rental and/or Common Area
Operating Expenses, is an approximation which Lessor and Lessee agree is
reasonable and the rental and Lessee's Share (as defined in Paragraph 1.6(b))
based thereon is not subject to revision whether or not the actual square
footage is more or less.
2.2 CONDITION. Lessor shall deliver the Premises to Lessee clean
and free of debris on the Commencement Date and warrants to Lessee that the
existing plumbing, electrical systems, fire sprinkler system, lighting, air
conditioning and heating systems and loading doors, if any, in the Premises,
other than those constructed by Lessee, shall be in good operating condition
on the Commencement Date. If a non-compliance with said warranty exists as of
the Commencement Date, Lessor shall, except as otherwise provided in this
Lease, promptly after receipt of written notice from Lessee setting forth
with specificity the nature and extent of such non-compliance, rectify same
at Lessor's expense. If Lessee does not give Lessor written notice of a non-
compliance with this warranty within thirty (30) days after the Commencement
Date, correction of that non-compliance shall be the obligation of Lessee at
Lessee's sole cost and expense.
2.3 COMPLIANCE WITH COVENANTS, RESTRICTIONS AND BUILDING CODE.
Lessor warrants that any improvements (other than those constructed by Lessee
or at Lessee's direction) on or in the Premises which have been constructed
or installed by Lessor or with Lessor's consent or at Lessor's direction
shall comply with all applicable covenants or restrictions of record and
applicable building codes, regulations and ordinances in effect on the
Commencement Date. Lessor further warrants to Lessee that Lessor has no
knowledge of any claim having been made by any governmental agency that a
violation or violations of applicable building codes, regulations, or
ordinances exist with regard to the Premises as of the Commencement Date.
Said warranties shall not apply to any Alterations or Utility Installations
(defined in Paragraph 7.3(a)) made or to be made by Lessee. If the Premises
do not comply with said warranties, Lessor shall, except as otherwise
provided in this Lease, promptly after receipt of written notice from Lessee
given within six (6) months following the Commencement Date and setting forth
with specificity the nature and extent of such non-compliance, take such
action, at Lessor's expense, as may be reasonable or appropriate to rectify
the non-compliance. Lessor makes no warranty that the Permitted Use in
Paragraph 1.8 is permitted for the Premises under Applicable Laws (as defined
in Paragraph 2.4).
2.4 ACCEPTANCE OF PREMISES. Lessee hereby acknowledges: (a) that it
has been advised by the Broker(s) to satisfy itself with respect to the
condition of the Premises (including but not limited to electrical and fire
sprinkler systems, security, environmental aspects, seismic and earthquake
requirements, and compliance with the Americans with Disabilities Act and
applicable zoning, municipal, county, state and federal laws, ordinances and
regulations and any covenants or restrictions of record (collectively,
"APPLICABLE LAWS") and the present and future suitability of the Premises for
Lessee's intended use; (b) that Lessee has made such investigation as it
deems necessary with reference to such matters, is satisfied with reference
thereto, and assumes all responsibility therefore as the same relate to
Lessee's occupancy of the Premises and/or the terms of this Lease; and (c)
that neither Lessor, nor any of Lessor's agents, has made any oral or written
representations or warranties with respect to said matters other than as set
forth in this Lease.
2.5 LESSEE AS PRIOR OWNER/OCCUPANT. The warranties made by Lessor
in this Paragraph 2 shall be of no force or effect if immediately prior to
the date set forth in Paragraph 1.1 Lessee was the owner or occupant of the
Premises. In such event, Lessee shall, at Lessee's sole cost and expense,
correct any non-compliance of the Premises with said warranties.
2.6 VEHICLE PARKING. Lessee shall be entitled to use the number of
Unreserved Parking Spaces and Reserved Parking Spaces specified in Paragraph
1.2(b) on those portions of the Common Areas designated from time to time by
Lessor for parking. Lessee shall not use more parking spaces than said
number. Said parking spaces shall be used for parking by vehicles no larger
than full-size passenger automobiles or pick-up trucks, herein called
"PERMITTED SIZE VEHICLES." Vehicles other than Permitted Size Vehicles shall
be parked and loaded or unloaded as directed by Lessor in the Rules and
Regulations (as defined in Paragraph 40) issued by Lessor. (Also see
Paragraph 2.9.)
(a) Lessee shall not permit or allow any vehicles that belong
to or are controlled by Lessee or Lessee's employees, suppliers, shippers,
customers, contractors or invitees to be loaded, unloaded, or parked in areas
other than those designated by Lessor for such activities.
(b) If Lessee permits or allows any of the prohibited
activities described in this Paragraph 2.6, then Lessor shall have the right,
without notice, in addition to such other rights and remedies that it may
have, to remove or tow away the vehicle involved and charge the cost to
Lessee, which cost shall be immediately payable upon demand by Lessor.
(c) Lessor shall at the Commencement Date of this Lease,
provide the parking facilities required by Applicable Law.
2.7 COMMON AREAS -- DEFINITION. The term "COMMON AREAS" is defined
as all areas and facilities outside the Premises and within the exterior
boundary line of the Industrial Center and interior utility raceways within
the Premises that are provided and designated by the Lessor from time to time
for the general non-exclusive use of Lessor, Lessee and other lessees of the
Industrial Center and their respective employees, suppliers, shippers,
customers, contractors and invitees, including parking areas, loading and
unloading areas, trash areas, roadways, sidewalks, walkways, parkways,
driveways and landscaped areas.
2.8 COMMON AREAS -- LESSEE'S RIGHTS. Lessor hereby grants to
Lessee, for the benefit of Lessee and its employees, suppliers, shippers,
contractors, customers and invitees, during the term of this Lease, the non-
exclusive right to use, in common with others entitled to such use, the
Common Areas as they exist from time to time, subject to any rights, powers,
and privileges reserved by Lessor under the terms hereof or under the terms
of any rules and regulations or restrictions governing the use of the
Industrial Center. Under no circumstances shall the right herein granted to
use the Common Areas be deemed to include the right to store any property,
temporarily or permanantly, in the Common Areas. Any such storage shall be
permitted only by the prior written consent of Lessor or Lessor's designated
agent, which consent may be revoked at any time. In the event that any
unauthorized storage shall occur then Lessor shall have the right, without
notice, in addition to such other rights and remedies that it may have, to
remove the property and charge the cost to Lessee, which cost shall be
immediately payable upon demand by Lessor.
2.9 COMMON AREAS -- RULES AND REGULATIONS. Lessor or such other
person(s) as Lessor may appoint shall have the exclusive control and
management of the Common Areas and shall have the right, from time to time,
to establish, modify, amend and enforce reasonable Rules and Regulations with
respect thereto in accordance with Paragraph 40. Lessee agrees to abide by
and conform to all such Rules and Regulations, and to cause its employees,
suppliers, shippers, customers, contractors and invitees to so abide and
conform. Lessor shall not be responsible to Lessee for the non-compliance
with said rules and regulations by other lessees of the Industrial Center.
2.10 COMMON AREAS -- CHANGES. Lessor shall have the right, in
Lessor's sole discretion, from time to time:
(a) To make changes to the Common Areas, including, without
limitation, changes in the location, size, shape and number of driveways,
entrances, parking spaces, parking areas, loading and unloading areas,
ingress, egress, direction of traffic, landscaped areas, walkways and utility
raceways;
(b) To close temporarily any of the Common Areas for
maintenance purposes so long as reasonable access to the Premises remains
available;
(c) To designate other land outside the boundaries of the
Industrial Center to be a part of the Common Areas;
(d) To add additional buildings and improvements to the Common
Areas;
(e) To use the Common Areas while engaged in making additional
improvements, repairs or alterations to the Industrial Center, or any portion
thereof; and
(f) To do and perform such other acts and make such other
changes in, to or with respect to the Common Areas and Industrial Center as
Lessor may, in the exercise of sound business judgment, deem to be
appropriate.
3. TERM.
3.1 TERM. The Commencement Date, Expiration Date and Original Term
of this Lease are as specified in Paragraph 1.3.
3.2 EARLY POSSESSION. If an Early Possession Date is specified in
Paragraph 1.4 and if Lessee totally or partially occupies the Premises after
the Early Possession Date but prior to the Commencement Date, the obligation
to pay Base Rent shall be abated for the period of such early occupancy. All
other terms of this Lease, however, (including but not limited to the
obligations to pay Lessee's Share of Common Area Operating Expenses and to
carry the insurance required by Paragraph 8) shall be in effect during such
period. Any such early possession shall not affect nor advance the Expiration
Date of the Original Term.
3.3 DELAY IN POSSESSION. If for any reason Lessor cannot deliver
possession of the Premises to Lessee by the Early Possession Date, if one is
specified in Paragraph 1.4, or if no Early Possession Date is specified, by
the Commencement Date, Lessor shall not be subject to any liability therefor,
nor shall such failure affect the validity of this Lease, or the obligations
of Lessee hereunder, or extend the term hereof, but in such case, Lessee
shall not, except as otherwise provided herein, be obligated to pay rent or
perform any other obligation of Lessee under the terms of this Lease until
Lessor delivers possession of the Premises to Lessee. If possession of the
Premises is not delivered to Lessee within sixty (60) days after the
Commencement Date, Lessee may, at its option, by notice in writing to Lessor
within ten (10) days after the end of said sixty (60) day period, cancel this
Lease, in which event the parties shall be discharged from all obligations
hereunder; provided further, however, that if such written notice of Lessee
is not received by Lessor within said ten (10) day period, Lessee's right to
cancel this Lease hereunder shall terminate and be of no further force or
effect. Except as may be otherwise provided, and regardless of when the
Original Term actually commences, if possession is not tendered to Lessee
when required by this Lease and Lessee does not terminate this Lease, as
aforesaid, the period free of the obligation to pay Base Rent, if any, that
Lessee would otherwise have enjoyed shall run from the date of delivery of
possession and continue for a period equal to the period during which the
Lessee would have otherwise enjoyed under the terms hereof, but minus any
days of delay caused by the acts, changes or omissions of Lessee.
4. RENT.
4.1 BASE RENT. Lessee shall pay Base Rent and other rent or
charges, as the same may be adjusted from time to time, to Lessor in lawful
money of the United States, without offset or deduction, on or before the day
on which it is due under the terms of this Lease. Base Rent and all other
rent and charges for any period during the term hereof which is for less than
one full month shall be prorated based upon the actual number of days of the
month involved. Payment of Base Rent and other charges shall be made to
Lessor at its address stated herein or to such other persons or at such other
addresses as Lessor may from time to time designate in writing to Lessee.
4.2 COMMON AREA OPERATING EXPENSES. Lessee shall pay to Lessor
during the term hereof, in addition to the Base Rent, Lessee's Share (as
specified in Paragraph 1.6(b)) of all Common Area Operating Expenses, as
hereinafter defined, during each calendar year of the term of this Lease, in
accordance with the following provisions:
(a) "COMMON AREA OPERATING EXPENSES" are defined, for purposes
of this Lease, as all costs incurred by Lessor relating to the ownership and
operation of the Industrial Center, including, but not limited to the
following:
(i) The operation, repair and maintenance, in neat,
clean, good order and condition, of the following:
(aa) The Common Areas, including parking areas,
loading and unloading areas, trash areas, roadways, sidewalks, walkways,
parkways, driveways, landscaped areas, striping, bumpers, irrigation systems,
Common Area lighting facilities, fences and gates, elevators and roof.
(bb) Exterior signs and any tenant directories.
(cc) Fire detection and sprinkler systems.
(ii) The cost of water, gas, electricity and telephone
to service the Common Areas.
(iii) Trash disposal, property management and security
services and the costs of any environmental inspections.
(iv) Reserves set aside for maintenance and repair of
Common Areas.
(v) Real Property Taxes (as defined in Paragraph 10.2)
to be paid by Lessor for the Building and the Common Areas under Paragraph 10
hereof.
(vi) The cost of the premiums for the insurance
policies maintained by Lessor under Paragraph 8 hereof.
(vii) Any deductible portion of an insured loss
concerning the Building or the Common Areas.
(viii) Any other services to be provided by Lessor that
are stated elsewhere in this Lease to be a Common Area Operating Expense.
(b) Any Common Area Operating Expenses and Real Property
Taxes that are specifically attributable to the Building or to any other
building in the Industrial Center or to the operation, repair and maintenance
thereof, shall be allocated entirely to the Building or to such other
building. However, any Common Area Operating Expenses and Real Property Taxes
that are not specifically attributable to the Building or to any other
building or to the operation, repair and maintenance thereof, shall be
equitably allocated by Lessor to all buildings in the Industrial Center.
(c) The inclusion of the improvements, facilities and
services set forth in Subparagraph 4.2(a) shall not be deemed to impose an
obligation upon Lessor to either have said improvements or facilities or to
provide those services unless the Industrial Center already has the same,
Lessor already provides the services, or Lessor has agreed elsewhere in this
Lease to provide the same or some of them.
(d) Lessee's Share of Common Area Operating Expenses shall be
payable by Lessee within ten (10) days after a reasonably detailed statement
of actual expenses is presented to Lessee by Lessor. At Lessor's option,
however, an amount may be estimated by Lessor from time to time of Lessee's
Share of annual Common Area Operating Expenses and the same shall be payable
monthly or quarterly, as Lessor shall designate, during each 12-month period
of the Lease term, on the same day as the Base Rent is due hereunder. Lessor
shall deliver to Lessee within ninety (90) days after the expiration of each
calendar year a reasonably detailed statement showing Lessee's Share of the
actual Common Area Operating Expenses incurred during the preceding year. If
Lessee's payments under this Paragraph 4.2(d) during said preceding year
exceed Lessee's Share as indicated on said statement, Lessee shall be
credited the amount of such over-payment against Lessee's Share of Common
Area Operating Expenses next becoming due. If Lessee's payments under this
Paragraph 4.2(d) during said preceding year were less than Lessee's Share as
indicated on said statement, Lessee shall pay to Lessor the amount of the
deficiency within ten (10) days after delivery by Lessor to Lessee of said
statement.
5. SECURITY DEPOSIT. Lessee shall deposit with Lessor upon Lessee's
execution hereof the Security Deposit set forth in Paragraph 1.7 as security
for Lessee's faithful performance of Lessee's obligations under this Lease.
If Lessee fails to pay Base Rent or other rent or charges due hereunder, or
otherwise Defaults under this Lease (as defined in Paragraph 13.1), Lessor
may use, apply or retain all or any portion of said Security Deposit for the
payment of any amount due Lessor or to reimburse or compensate Lessor for any
liability, cost, expense, loss or damage (including attorneys' fees) which
Lessor may suffer or incur by reason thereof. If Lessor uses or applies all
or any portion of said Security Deposit, Lessee shall within ten (10) days
after written request therefore deposit monies with Lessor sufficient to
restore said Security Deposit to the full amount required by this Lease. Any
time the Base Rent increases during the term of this Lease, Lessee shall,
upon written request from Lessor, deposit additional monies with Lessor as an
addition to the Security Deposit so that the total amount of the Security
Deposit shall at all times bear the same proportion to the then current Base
Rent as the initial Security Deposit bears to the initial Base Rent set forth
in Paragraph 1.5. Lessor shall not be required to keep all or any part of the
Security Deposit separate from its general accounts, Lessor shall, at the
expiration or earlier termination of the term hereof and after Lessee has
vacated the Premises, return to Lessee (or, at Lessor's option, to the last
assignee, if any, of Lessee's interest herein), that portion of the Security
Deposit not used or applied by Lessor. Unless otherwise expressly agreed in
writing by Lessor, no part of the Security Deposit shall be considered to be
held in trust, to bear interest or other increment for its use, or to be
prepayment for any monies to be paid by Lessee under this Lease.
6. USE.
6.1 PERMITTED USE.
(a) Lessee shall use and occupy the Premises only for the
Permitted Use set forth in Paragraph 1.8, or any other legal use which is
reasonably comparable thereto, and for no other purpose. Lessee shall not use
or permit the use of the Premises in a manner that is unlawful, creates waste
or a nuisance, or that disturbs owners and/or occupants of, or causes damage
to the Premises or neighboring premises or properties.
(b) Lessor hereby agrees to not unreasonably withhold or
delay its consent to any written request by Lessee, Lessee's assignees or
subtenants, and by prospective assignees and subtenants of Lessee, its
assignees and subtenants, for a modification of said Permitted Use, so long
as the same will not impair the structural integrity of the improvements on
the Premises or in the Building or the mechanical or electrical systems
therein, does not conflict with uses by other lessees, is not significantly
more burdensome to the Premises or the Building and the improvements thereon,
and is otherwise permissible pursuant to this Paragraph 6. If Lessor elects
to withhold such consent, Lessor shall within five (5) business days after
such request give a written notification of same, which notice shall include
an explanation of Lessor's reasonable objections to the change in use.
6.2 HAZARDOUS SUBSTANCES.
(a) REPORTABLE USES REQUIRE CONSENT. The term "HAZARDOUS
SUBSTANCE" as used in this Lease shall mean any product, substance, chemical,
material or waste whose presence, nature, quantity and/or intensity of
existence, use, manufacture, disposal, transportation, spill, release or
effect, either by itself or in combination with other materials expected to
be on the Premises, is either: (i) potentially injurious to the public
health, safety or welfare, the environment, or the Premises; (ii) regulated
or monitored by any governmental authority; or (iii) a basis for potential
liability of Lessor to any governmental agency or third party under any
applicable statute or common law theory. Hazardous Substance shall include,
but not be limited to, hydrocarbons, petroleum, gasoline, crude oil or any
products or by-products thereof. Lessee shall not engage in any activity in
or about the Premises which constitutes a Reportable Use (as hereinafter
defined) of Hazardous Substances without the express prior written consent of
Lessor and compliance in a timely manner (at Lessee's sole cost and expense)
with all Applicable Requirements (as defined in Paragraph 6.3). "REPORTABLE
USE" shall mean (i) the installation or use of any above or below ground
storage tank, (ii) the generation, possession, storage, use, transportation,
or disposal of a Hazardous Substance that requires a permit from, or with
respect to which a report, notice, registration or business plan is required
to be filed with, any governmental authority, and (iii) the presence in, on
or about the Premises of a Hazardous Substance with respect to which any
Applicable Laws require that a notice be given to persons entering or
occupying the Premises or neighboring properties. Notwithstanding the
foregoing, Lessee may, without Lessor's prior consent, but upon notice to
Lessor and in compliance with all Applicable Requirements, use any ordinary
and customary materials reasonably required to be used by Lessee in the
normal course of the Permitted Use, so long as such use is not a Reportable
Use and does not expose the Premises or neighboring properties to any
meaningful risk of contamination or damage or expose Lessor to any liability
therefor. In addition, Lessor may (but without any obligation to do so)
condition its consent to any Reportable Use of any Hazardous Substance by
Lessee upon Lessee's giving Lessor such additional assurances as Lessor, in
its reasonable discretion, deems necessary to protect itself, the public, the
Premises and the environment against damage, contamination or injury and/or
liability therefor, including but not limited to the installation (and, at
Lessor's option, removal on or before Lease expiration or earlier
termination) of reasonably necessary protective modifications to the Premises
(such as concrete encasements) and/or the deposit of an additional Security
Deposit under Paragraph 5 hereof.
(b) DUTY TO INFORM LESSOR. If Lessee knows, or has
reasonable cause to believe, that a Hazardous Substance has come to be
located in, on, under or about the Premises or the Building, other than as
previously consented to by Lessor, Lessee shall immediately give Lessor
written notice thereof, together with a copy of any statement, report,
notice, registration, application, permit, business plan, license, claim,
action, or proceeding given to, or received from, any governmental authority
or private party concerning the presence, spill, release, discharge of, or
exposure to, such Hazardous Substance including but not limited to all such
documents as may be involved in any Reportable Use involving the Premises.
Lessee shall not cause or permit any Hazardous Substance to be spilled or
released in, on, under or about the Premises (including, without limitation,
through the plumbing or sanitary sewer system).
(c) INDEMNIFICATION. Lessee shall indemnify, protect, defend
and hold Lessor, its agents, employees, lenders and ground lessor, if any,
and the Premises, harmless from and against any and all damages, liabilities,
judgments, costs, claims, liens, expenses, penalties, loss of permits and
attorneys' and consultants' fees arising out of or involving any Hazardous
Substance brought onto the Premises by or for Lessee or by anyone under
Lessee's control. Lessee's obligations under this Paragraph 6.2(c) shall
include, but not be limited to, the effects of any contamination or injury to
person, property or the environment created or suffered by Lessee, and the
cost of investigation (including consultants' and attorneys' fees and
testing); removal, remediation, restoration and/or abatement thereof, or of
any contamination therein involved, and shall survive the expiration or
earlier termination of this Lease. No termination, cancellation or release
agreement entered into by Lessor and Lessee shall release Lessee from its
obligations under this Lease with respect to Hazardous Substances, unless
specifically so agreed by Lessor in writing at the time of such agreement.
6.3 LESSEE'S COMPLIANCE WITH REQUIREMENTS. Lessee shall, at
Lessee's sole cost and expense, fully, diligently and in a timely manner,
comply with all "APPLICABLE REQUIREMENTS," which term is used in this Lease
to mean all laws, rules, regulations, ordinances, directives, covenants,
easements and restrictions of record, permits, the requirements of any
applicable fire insurance underwriter or rating bureau, and the
recommendations of Lessor's engineers and/or consultants, relating in any
manner to the Premises (including but not limited to matters pertaining to
(i) industrial hygiene, (ii) environmental conditions on, in, under or about
the Premises, including soil and groundwater conditions, and (iii) the use,
generation, manufacture, production, installation, maintenance, removal,
transportation, storage, spill, or release of any Hazardous Substance), now
in effect or which may hereafter come into effect. Lessee shall, within five
(5) days after receipt of Lessor's written request, provide Lessor with
copies of all documents and information, including but not limited to
permits, registrations, manifests, applications, reports and certificates,
evidencing Lessee's compliance with any Applicable Requirements specified by
Lessor, and shall immediately upon receipt, notify Lessor in writing (with
copies of any documents involved) of any threatened or actual claim, notice,
citation, warning, complaint or report pertaining to or involving failure by
Lessee or the Premises to comply with any Applicable Requirements.
6.4 INSPECTION; COMPLIANCE WITH LAW. Lessor, Lessor's agents,
employees, contractors and designated representatives, and the holders of any
mortgages, deeds of trust or ground leases on the Premises ("Lenders") shall
have the right to enter the Premises at any time in the case of an emergency,
and otherwise at reasonable times, for the purpose of inspecting the
condition of the Premises and for verifying compliance by Lessee with this
Lease and all Applicable Requirements (as defined in Paragraph 6.3), and
Lessor shall be entitled to employ experts and/or consultants in connection
therewith to advise Lessor with respect to Lessee's activities, including but
not limited to Lessee's installation, operation, use, monitoring,
maintenance, or removal of any Hazardous Substance on or from the Premises.
The costs and expenses of any such inspections shall be paid by the party
requesting same, unless a Default or Breach of this Lease by Lessee or a
violation of Applicable Requirements or a contamination, caused or materially
contributed to by Lessee, is found to exist or to be imminent, or unless the
inspection is requested or ordered by a governmental authority as the result
of any such existing or imminent violation or contamination. In such case,
Lessee shall upon request reimburse Lessor or Lessor's Lender, as the case
may be, for the costs and expenses of such inspections.
7. MAINTENANCE, REPAIRS, UTILITY INSTALLATIONS, TRADE FIXTURES AND
ALTERATIONS.
7.1 LESSEE'S OBLIGATIONS.
(a) Subject to the provisions of Paragraphs 2.2 (Condition),
2.3 (Compliance with Covenants, Restrictions and Building Code), 7.2
(Lessor's Obligations), 9 (Damage or Destruction), and 14 (Condemnation),
Lessee shall, at Lessee's sole cost and expense and at all times, keep the
Premises and every part thereof in good order, condition and repair (whether
or not such portion of the Premises requiring repair, or the means of
repairing the same, are reasonably or readily accessible to Lessee, and
whether or not the need for such repairs occurs as a result of Lessee's use,
any prior use, the elements or the age of such portion of the Premises),
including, without limiting the generality of the foregoing, all equipment or
facilities specifically serving the Premises, such as plumbing, heating, air
conditioning, ventilating, electrical, lighting facilities, boilers, fired or
unfired pressure vessels, fire hose connections if within the Premises,
fixtures, interior walls, interior surfaces of exterior walls, ceilings,
floors, windows, doors, plate glass, and skylights, but excluding any items
which are the responsibility of Lessor pursuant to Paragraph 7.2 below,
Lessee, in keeping the Premises in good order, condition and repair, shall
exercise and perform good maintenance practices. Lessee's obligations shall
include restorations, replacements or renewals when necessary to keep the
Premises and all improvements thereon or a part thereof in good order,
condition and state of repair.
(b) Lessee shall, at Lessee's sole cost and expense, procure
and maintain a contract, with copies to Lessor, in customary form and
substance for and with a contractor specializing and experienced in the
inspection, maintenance and service of the heating, air conditioning and
ventilation system for the Premises. However, Lessor reserves the right, upon
notice to Lessee, to procure and maintain the contract for the heating, air
conditioning and ventilating systems, and if Lessor so elects, Lessee shall
reimburse Lessor, upon demand, for the cost thereof.
(c) If Lessee fails to perform Lessee's obligations under this
Paragraph 7.1, Lessor may enter upon the Premises after ten (10) days' prior
written notice to Lessee (except in the case of an emergency, in which case
no notice shall be required), perform such obligations on Lessee's behalf,
and put the Premises in good order, condition and repair, in accordance with
Paragraph 13.2 below.
7.2 LESSOR'S OBLIGATIONS. Subject to the provisions of Paragraphs
2.2 (Condition), 2.3 (Compliance with Covenants, Restrictions and Building
Code), 4.2 (Common Area Operating Expenses), 6 (Use), 7.1 (Lessee's
Obligations), 9 (Damage or Destruction) and 14 (Condemnation), Lessor,
subject to reimbursement pursuant to Paragraph 4.2, shall keep in good order,
condition and repair the foundations, exterior walls, structural condition of
interior bearing walls, exterior roof, fire sprinkler and/or standpipe and
hose (if located in the Common Areas) or other automatic fire extinguishing
system including fire alarm and/or smoke detection systems and equipment,
fire hydrants, parking lots, walkways, parkways, driveways, landscaping,
fences, signs and utility systems serving the Common Areas and all parts
thereof, as well as providing the services for which there is a Common Area
Operating Expense pursuant to Paragraph 4.2. Lessor shall not be obligated to
paint the exterior or interior surfaces of exterior walls nor shall Lessor be
obligated to maintain, repair or replace windows, doors or plate glass of the
Premises. Lessee expressly waives the benefit of any statute now or hereafter
in effect which would otherwise afford Lessee the right to make repairs at
Lessor's expense or to terminate this Lease because of Lessor's failure to
keep the Building, Industrial Center or Common Areas in good order, condition
and repair.
7.3 UTILITY INSTALLATIONS, TRADE FIXTURES, ALTERATIONS.
(a) DEFINITIONS; CONSENT REQUIRED. The term "UTILITY
INSTALLATIONS" is used in this Lease to refer to all air lines, power panels,
electrical distribution, security, fire protection systems, communications
systems, lighting fixtures, heating, ventilating and air conditioning
equipment, plumbing, and fencing in, on or about the Premises. The term
"TRADE FIXTURES" shall mean Lessee's machinery and equipment which can be
removed without doing material damage to the Premises. The term "ALTERATIONS"
shall mean any modification of the improvements on the Premises which are
provided by Lessor under the terms of this Lease, other than Utility
Installations or Trade Fixtures, "LESSEE-OWNED ALTERATIONS AND/OR UTILITY
INSTALLATIONS" are defined as Alterations and/or Utility Installations made
by Lessee that are not yet owned by Lessor pursuant to Paragraph 7.4(a).
Lessee shall not make nor cause to be made any Alterations or Utility
Installations in, on, under or about the Premises without Lessor's prior
written consent. Lessee may, however, make non-structural Utility
Installations to the interior of the Premises (excluding the roof) without
Lessor's consent but upon notice to Lessor, so long as they are not visible
from the outside of the Premises, do not involve puncturing, relocating or
removing the roof or any existing walls, or changing or interfering with the
fire sprinkler or fire detection systems and the cumulative cost thereof
during the term of this Lease as extended does not exceed $2,500.00.
(b) CONSENT. Any Alterations or Utility Installations that
Lessee shall desire to make and which require the consent of the Lessor shall
be presented to Lessor in written form with detailed plans. All consents
given by Lessor, whether by virtue of Paragraph 7.3(a) or by subsequent
specific consent, shall be deemed conditioned upon: (i) Lessee's acquiring
all applicable permits required by governmental authorities; (ii) the
furnishing of copies of such permits together with a copy of the plans and
specifications for the Alteration or Utility Installation to Lessor prior to
commencement of the work thereon; and (iii) the compliance by Lessee with all
conditions of said permits in a prompt and expeditious manner. Any
Alterations or Utility Installations by Lessee during the term of this Lease
shall be done in a good and workmanlike manner, with good and sufficient
materials, and be in compliance with all Applicable Requirements. Lessee
shall promptly upon completion thereof furnish Lessor with as-built plans and
specifications therefor, Lessor may, (but without obligation to do so)
condition its consent to any requested Alteration or Utility Installation
that costs $2,500.00 or more upon Lessee's providing Lessor with a lien and
completion bond in an amount equal to one and one-half times the estimated
cost of such Alteration or Utility Installation.
(c) LIEN PROTECTION. Lessee shall pay when due all claims for
labor or materials furnished or alleged to have been furnished to or for
Lessee at or for use on the Premises, which claims are or may be secured by
any mechanic's or materialmen's lien against the Premises or any interest
therein. Lessee shall give Lessor not less than ten (10) days' notice prior
to the commencement of any work in, on, or about the Premises, and Lessor
shall have the right to post notices of non-responsibility in or on the
Premises as provided by law. If Lessee shall, in good faith, contest the
validity of any such lien, claim or demand, then Lessee shall, at its sole
expense, defend and protect itself, Lessor and the Premises against the same
and shall pay and satisfy any such adverse judgment that may be rendered
thereon before the enforcement thereof against the Lessor or the Premises. If
Lessor shall require, Lessee shall furnish to Lessor a surety bond
satisfactory to Lessor in an amount equal to one and one-half times the
amount of such contested lien claim or demand, indemnifying Lessor against
liability for the same, as required by law for the holding of the Premises
free from the effect of such lien or claim. In addition, Lessor may require
Lessee to pay Lessor's attorneys' fees and costs in participating in such
action if Lessor shall decide it is to its best interest to do so.
7.4 OWNERSHIP, REMOVAL, SURRENDER, AND RESTORATION.
(a) OWNERSHIP. Subject to Lessor's right to require their
removal and to cause Lessee to become the owner thereof as hereinafter
provided in this Paragraph 7.4, all Alterations and Utility Installations
made to the Premises by Lessee shall be the property of and owned by Lessee,
but considered a part of the Premises. Lessor may, at any time and at its
option, elect in writing to Lessee to be the owner of all or any specified
part of the Lessee-Owned Alterations and Utility Installations. Unless
otherwise instructed per Subparagraph 7.4(b) hereof, all Lessee-Owned
Alterations and Utility Installations shall, at the expiration or earlier
termination of this Lease, become the property of Lessor and remain upon the
Premises and be surrendered with the Premises by Lessee.
(b) REMOVAL. Unless otherwise agreed in writing, Lessor may
require that any or all Lessee-Owned Alterations or Utility Installations be
removed by the expiration or earlier termination of this Lease,
notwithstanding that their installation may have been consented to by Lessor.
Lessor may require the removal at any time of all or part of any Alterations
or Utility Installations made without the required consent of Lessor.
(c) SURRENDER/RESTORATION. Lessee shall surrender the
Premises by the end of the last day of the Lease term or any earlier
termination date, clean and free of debris and in good operating order,
condition and state of repair, ordinary wear and tear excepted. Ordinary wear
and tear shall not include any damage or deterioration that would have been
prevented by good maintenance practice or by Lessee performing all of its
obligations under this Lease. Except as otherwise agreed or specified herein,
the Premises, as surrendered, shall include the Alterations and Utility
Installations. The obligation of Lessee shall include the repair of any
damage occasioned by the installation, maintenance or removal of Lessee's
Trade Fixtures, furnishings, equipment, and Lessee-Owned Alterations and
Utility Installations, as well as the removal of any storage tank installed
by or for Lessee, and the removal, replacement, or remediation of any soil,
material or ground water contaminated by Lessee, all as may then be required
by Applicable Requirements and/or good practice. Lessee's Trade Fixtures
shall remain the property of Lessee and shall be removed by Lessee subject to
its obligation to repair and restore the Premises per this Lease.
8. INSURANCE; INDEMNITY.
8.1 PAYMENT OF PREMIUMS. The cost of the premiums for the
insurance policies maintained by Lessor under this Paragraph 8 shall be a
Common Area Operating Expense pursuant to Paragraph 4.2 hereof. Premiums for
policy periods commencing prior to, or extending beyond, the term of this
Lease shall be prorated to coincide with the corresponding Commencement Date
or Expiration Date.
8.2 LIABILITY INSURANCE.
(a) CARRIED BY LESSEE. Lessee shall obtain and keep in force
during the term of this Lease a Commercial General Liability policy of
insurance protecting Lessee, Lessor and any Lender(s) whose names have been
provided to Lessee in writing (as additional insureds) against claims for
bodily injury, personal injury and property damage based upon, involving or
arising out of the ownership, use, occupancy or maintenance of the Premises
and all areas appurtenant thereto. Such insurance shall be on an occurrence
basis providing single limit coverage in an amount not less than $1,000,000
per occurrence with an "Additional Insured-Managers or Lessors of Premises"
endorsement and contain the "Amendment of the Pollution Exclusion"
endorsement for damage caused by heat, smoke or fumes from a hostile fire.
The policy shall not contain any intra-insured exclusions as between insured
persons or organizations, but shall include coverage for liability assumed
under this Lease as an "INSURED CONTRACT" for the performance of Lessee's
indemnity obligations under this Lease. The limits of said insurance required
by this Lease or as carried by Lessee shall not, however, limit the liability
of Lessee nor relieve Lessee of any obligation hereunder. All insurance to be
carried by Lessee shall be primary to and not contributory with any similar
insurance carried by Lessor, whose insurance shall be considered excess
insurance only.
(b) CARRIED BY LESSOR. Lessor shall also maintain liability
insurance described in Paragraph 8.2(a) above, in addition to and not in lieu
of, the insurance required to be maintained by Lessee. Lessee shall not be
named as an additional insured therein.
8.3 PROPERTY INSURANCE-BUILDING, IMPROVEMENTS AND RENTAL VALUE.
(a) BUILDING AND IMPROVEMENTS. Lessor shall obtain and keep in
force during the term of this Lease a policy or policies in the name of
Lessor, with loss payable to Lessor and to any Lender(s), insuring against
loss or damage to the Premises. Such insurance shall be for full replacement
cost, as the same shall exist from time to time, or the amount required by
any Lender(s), but in no event more than the commercially reasonable and
available insurable value thereof if, by reason of the unique nature or age
of the improvements involved, such latter amount is less than full
replacement cost. Lessee-Owned Alterations and Utility Installations, Trade
Fixtures and Lessee's personal property shall be insured by Lessee pursuant
to Paragraph 8.4. If the coverage is available and commercially appropriate,
Lessor's policy or policies shall insure against all risks of direct physical
loss or damage (except the perils of flood and/or earthquake unless required
by a Lender), including coverage for any additional costs resulting from
debris removal and reasonable amounts of coverage for the enforcement of any
ordinance or law regulating the reconstruction or replacement of any
undamaged sections of the Building required to be demolished or removed by
reason of the enforcement of any building, zoning, safety or land use laws as
the result of a covered loss, but not including plate glass insurance. Said
policy or policies shall also contain an agreed valuation provision in lieu
of any co-insurance clause, waiver of subrogation, and inflation guard
protection causing an increase in the annual property insurance coverage
amount by a factor of not less than the adjusted U.S. Department of Labor
Consumer Price Index for All Urban Consumers for the city nearest to where
the Premises are located.
(b) RENTAL VALUE. Lessor shall also obtain and keep in force
during the term of this Lease a policy or policies in the name of Lessor,
with loss payable to Lessor and any Lender(s), insuring the loss of the full
rental and other charges payable by all lessees of the Building to Lessor for
one year (including all Real Property Taxes, insurance costs, all Common Area
Operating Expenses and any scheduled rental increases). Said insurance may
provide that in the event the Lease is terminated by reason of an insured
loss, the period of indemnity for such coverage shall be extended beyond the
date of the completion of repairs or replacement of the Premises, to provide
for one full year's loss of rental revenues from the date of any such loss.
Said insurance shall contain an agreed valuation provision in lieu of any co-
insurance clause, and the amount of coverage shall be adjusted annually to
reflect the projected rental income, Real Property Taxes, insurance premium
costs and other expenses, if any, otherwise payable, for the next 12-month
period. Common Area Operating Expenses shall include any deductible amount in
the event of such loss.
(c) ADJACENT PREMISES. Lessee shall pay for any increase in
the premiums for the property insurance of the Building and for the Common
Areas or other buildings in the Industrial Center if said increase is caused
by Lessee's acts, omissions, use or occupancy of the Premises.
(d) LESSEE'S IMPROVEMENTS. Since Lessor is the Insuring
Party, Lessor shall not be required to insure Lessee-Owned Alterations and
Utility Installations unless the item in question has become the property of
Lessor under the terms of this Lease.
8.4 LESSEE'S PROPERTY INSURANCE. Subject to the requirements of
Paragraph 8.5, Lessee at its cost shall either by separate policy or, at
Lessor's option, by endorsement to a policy already carried, maintain
insurance coverage on all of Lessee's personal property, Trade Fixtures and
Lessee-Owned Alterations and Utility Installations in, on, or about the
Premises similar in coverage to that carried by Lessor as the Insuring Party
under Paragraph 8.3(a). Such insurance shall be full replacement cost
coverage with a deductible not to exceed $1,000 per occurrence. The proceeds
from any such insurance shall be used by Lessee for the replacement of
personal property and the restoration of Trade Fixtures and Lessee-Owned
Alterations and Utility Installations. Upon request from Lessor, Lessee shall
provide Lessor with written evidence that such insurance is in force.
8.5 INSURANCE POLICIES. Insurance required hereunder shall be in
companies duly licensed to transact business in the state where the Premises
are located, and maintaining during the policy term a "General Policyholders
Rating" of at lease B+, V, or such other rating as may be required by a
Lender, as set forth in the most current issue of "Best's Insurance Guide."
Lessee shall not do or permit to be done anything which shall invalidate the
insurance policies referred to in this Paragraph 8, Lessee shall cause to be
delivered to Lessor, within seven (7) days after the earlier of the Early
Possession Date or the Commencement Date, certified copies of, or
certificates evidencing the existence and amounts of, the insurance required
under Paragraph 8.2(a) and 8.4. No such policy shall be cancelable or subject
to modification except after thirty (30) days' prior written notice to
Lessor. Lessee shall at least thirty (30) days prior to the expiration of
such policies, furnish Lessor with evidence of renewals or "insurance
binders" evidencing renewal thereof, or Lessor may order such insurance and
charge the cost thereof to Lessee, which amount shall be payable by Lessee to
Lessor upon demand.
8.6 WAIVER OF SUBROGATION. Without affecting any other rights or
remedies, Lessee and Lessor each hereby release and relieve the other, and
waive their entire right to recover damages (whether in contract or in tort)
against the other, for loss or damage to their property arising out of or
incident to the perils required to be insured against under Paragraph 8. The
effect of such releases be limited by the amount of insurance carried or
required, or by any deductibles applicable thereto. Lessor and Lessee agree
to have their respective insurance companies issuing property damage
insurance waive any right to subrogation that such companies may have against
Lessor or Lessee, as the case may be, so long as the insurance is not
invalidated thereby.
8.7 INDEMNITY. Except for Lessor's willful negligence and/or breach of
express warranties, Lessee shall indemnify, protect, defend and hold harmless
the Premises, Lessor and its agents, Lessor's master or ground lessor,
partners and Lenders, from and against any and all claims, loss of rents
and/or damages, costs, liens, judgments, penalties, loss of permits,
attorneys' and consultants' fees, expenses and/or liabilities arising out of,
involving, or in connection with, the occupancy of the Premises by Lessee,
the conduct of Lessee's business, any act, omission or neglect of Lessee, its
agents, contractors, employees or invitees, and out of any Default or Breach
by Lessee in the performance in a timely manner of any obligation on Lessee's
part to be performed under this Lease. The foregoing shall include, but not
be limited to, the defense or pursuit of any claim or any action or
proceeding involved therein, and whether or not (in the case of claims made
against Lessor) litigated and/or reduced to judgment. In case any action or
proceeding be brought against Lessor by reason of any of the foregoing
matters, Lessee upon notice from Lessor shall defend the same at Lessee's
expense by counsel reasonably satisfactory to Lessor and Lessor shall
cooperate with Lessee in such defense, Lessor need not have first paid any
such claim in order to be so indemnified.
8.8 EXEMPTION OF LESSOR FROM LIABILITY. Lessor shall not be liable for
injury or damage to the person or goods, wares, merchandise or other property
of Lessee, Lessee's employees, contractors, invitees, customers, or any other
person in or about the Premises, whether such damage or injury is caused by
or results from fire, steam, electricity, gas, water or rain, or from the
breakage, leakage, obstruction or other defects of pipes, fire sprinklers,
wires, appliances, plumbing, air conditioning or lighting fixtures, or from
any other cause, whether said injury or damage results from conditions
arising upon the Premises or upon other portions of the Building of which the
Premises are a part, from other sources or places, and regardless of whether
the cause of such damage or injury or the means of repairing the same is
accessible or not. Lessor shall not be liable for any damages arising from
any act or neglect of any other lessee of Lessor nor from the failure by
Lessor to enforce the provisions of any other lease in the Industrial Center.
Notwithstanding Lessor's negligence or breach of this Lease, Lessor shall
under no circumstances be liable for injury to Lessee's business or for any
loss of income or profit therefrom.
9. DAMAGE OR DESTRUCTION.
9.1 DEFINITIONS.
(a) "PREMISES PARTIAL DAMAGE" shall mean damage or destruction to
the Premises, other than Lessee-Owned Alterations and Utility Installations,
the repair cost of which damage or destruction is less than fifty percent
(50%) of the then Replacement Cost (as defined in Paragraph 9.1(d)) of the
Premises (excluding Lessee-Owned Alterations and Utility Installations and
Trade Fixtures) immediately prior to such damage or destruction.
(b) "PREMISES TOTAL DESTRUCTION" shall mean damage or destruction
to the Premises, other than Lessee-Owned Alterations and Utility
Installations, the repair cost of which damage or destruction is fifty
percent (50%) or more of the then Replacement Cost of the Premises (excluding
Lessee-Owned Alterations and Utility Installations and Trade Fixtures)
immediately prior to such damage or destruction. In addition, damage or
destruction to the Building, other than Lessee-Owned Alterations and Utility
Installations and Trade Fixtures of any lessees of the Building, the cost of
which damage or destruction is fifty percent (50%) or more of the then
Replacement Cost (excluding Lessee-Owned Alterations and Utility
Installations and Trade Fixtures of any lessees of the Building) of the
Building shall, at the option of Lessor, be deemed to be Premises Total
Destruction.
(c) "INSURED LOSS" shall mean damage or destruction to the
Premises, other than Lessee-Owned Alterations and Utility Installations and
Trade Fixtures, which was caused by an event required to be covered by the
insurance described in Paragraph 8.3(a) irrespective of any deductible
amounts or coverage limits involved.
(d) "REPLACEMENT COST" shall mean the cost to repair or rebuild
the improvements owned by Lessor at the time of the occurrence to their
condition existing immediately prior thereto, including demolition, debris
removal and upgrading required by the operation of applicable building codes,
ordinances or laws, and without deduction for depreciation.
(e) "HAZARDOUS SUBSTANCE CONDITION" shall mean the occurrence or
discovery of a condition involving the presence of, or a contamination by, a
Hazardous Substance as defined in Paragraph 6.2(a), in, on, or under the
Premises.
9.2 PREMISES PARTIAL DAMAGE - INSURED LOSS. If Premises Partial Damage
that is an Insured Loss occurs, then Lessor shall, at Lessor's expense,
repair such damage (but not Lessee's Trade Fixtures or Lessee-Owned
Alterations and Utility Installations) as soon as reasonably possible and
this Lease shall continue in full force and effect. In the event, however,
that there is a shortage of insurance proceeds and such shortage is due to
the fact that, by reason of the unique nature of the improvements in the
Premises, full replacement cost insurance coverage was not commercially
reasonable and available, Lessor shall have no obligation to pay for the
shortage in insurance proceeds or to fully restore the unique aspects of the
Premises unless Lessee provides Lessor with the funds to cover same, or
adequate assurance thereof, within ten (10) days following receipt of written
notice of such shortage and request therefor. If Lessor receives said funds
or adequate assurance thereof within said ten (10) day period, Lessor shall
complete them as soon as reasonably possible and this Lease shall remain in
full force and effect. If Lesser does not receive such funds or assurance
within said period, Lessor may nevertheless elect by written notice to Lessee
within ten (10) days thereafter to make such restoration and repair as is
commercially reasonable with Lessor paying any shortage in proceeds, in which
case this Lease shall remain in full force and effect. If Lessor does not
receive such funds or assurance within such ten (10) day period, and if
Lessor does not so elect to restore and repair, then this Lease shall
terminate sixty (60) days following the occurrence of the damage or
destruction. Unless otherwise agreed, Lessee shall in no event have any right
to reimbursement from Lessor for any funds contributed by Lessee to repair
any such damage or destruction. Premises Partial Damage due to flood or
earthquake shall be subject to Paragraph 9.3 rather than Paragraph 9.2,
notwithstanding that there may be some insurance coverage, but the net
proceeds of any such insurance shall be made available for the repairs if
made by either Party.
9.3 PARTIAL DAMAGE - UNINSURED LOSS. If Premises Partial Damage that
is not an Insured Loss occurs, unless caused by a negligent or willful act of
Lessee (in which event Lessee shall make the repairs at Lessee's expense and
this Lease shall continue in full force and effect), Lessor may at Lessor's
option, either (i) repair such damage as soon as reasonably possible at
Lessor's expense, in which event this Lease shall continue in full force and
effect, or (ii) give written notice to Lessee within thirty (30) days after
receipt by Lessor of knowledge of the occurrence of such damage of Lessor's
desire to terminate this Lease as of the date sixty (60) days following the
date of such notice. In the event Lessor elects to give such notice of
Lessor's intention to terminate this Lease, Lessee shall have the right
within ten (10) days after the receipt of such notice to give written notice
to Lessor of Lessee's commitment to pay for the repair of such damage totally
at Lessee's expense and without reimbursement from Lessor. Lessee shall
provide Lessor with the required funds or satisfactory assurance thereof
within thirty (30) days following such commitment from Lessee. In such event
this Lease shall continue in full force and effect, and Lessor shall proceed
to make such repairs as soon as reasonably possible after the required funds
are available. If Lessee does not give such notice and provide the funds or
assurance thereof within the times specified above, this Lease shall
terminate as of the date specified in Lessor's notice of termination.
9.4 TOTAL DESTRUCTION. Notwithstanding any other provision hereof, if
Premises Total Destruction occurs (including any destruction required by any
authorized public authority), this Lease shall terminate sixty (60) days
following the date of such Premises Total Destruction, whether or not the
damage or destruction is an Insured Loss or was caused by a negligent or
willful act of Lessee. In the event, however, that the damage or destruction
was caused by Lessee, Lessor shall have the right to recover Lessor's damages
from Lessee except as released and waived in Paragraph 9.7.
9.5 DAMAGE NEAR END OF TERM. If at any time during the last six (6)
months of the term of this Lease there is damage for which the cost to repair
exceeds one month's Base Rent, whether or not an Insured Loss, Lessor may, at
Lessor's option, terminate this Lease effective sixty (60) days following the
date of occurrence of such damage by giving written notice to Lessee of
Lessor's election to do so within thirty (30) days after the date of
occurrence of such damage. Provided, however, if Lessee at that time has an
exercisable option to extend this Lease or to purchase the Premises, then
Lessee may preserve this Lease by (a) exercising such option, and (b)
providing Lessor with any shortage in insurance proceeds (or adequate
assurance thereof) needed to make the repairs on or before the earlier of (i)
the date which is ten (10) days after Lessee's receipt of Lessor's written
notice purporting to terminate this Lease, or (ii) the day prior to the date
upon which such option expires. If Lessee duly exercises such option during
such period and provides Lessor with funds (or adequate assurance thereof) to
cover any shortage in insurance proceeds, Lessor shall, at Lessor's expense
repair such damage as soon as reasonably possible and this Lease shall
continue in full force and effect. If Lessee fails to exercise such option
and provide such funds or assurance during such period, then this Lease shall
terminate as of the date set forth in the first sentence of this Paragraph
9.5.
9.6 ABATEMENT OF RENT; LESSEE'S REMEDIES.
(a) In the event of (i) Premises Partial Damage or (ii)
Hazardous Substance Condition for which Lessee is not legally responsible,
the Base Rent, Common Area Operating Expenses and other charges, if any,
payable by Lessee hereunder for the period during which such damage or
condition, its repair, remediation or restoration continues, shall be abated
in proportion to the degree to which Lessee's use of the Premises is
impaired, but not in excess of proceeds from insurance required to be carried
under Paragraph 8.3(b). Except for abatement of Base Rent, Common Area
Operating Expenses and other charges, if any, as aforesaid, all other
obligations of Lessee hereunder shall be performed by Lessee, and Lessee
shall have no claim against Lessor for any damage suffered by reason of any
such damage, destruction, repair, remediation or restoration.
(b) If Lessor shall be obligated to repair or restore the
Premises under the provisions of this Paragraph 9 and shall not commence, in
a substantial and meaningful way, the repair or restoration of the Premises
within ninety (90) days after such obligation shall accrue, Lessee may, at
any time prior to the commencement of such repair or restoration, give
written notice to Lessor and to any Lenders of which Lessee has actual notice
of Lessee's election to terminate this Lease on a date not less than sixty
(60) days following the giving of such notice. If Lessee gives such notice to
Lessor and such Lenders and such repair or restoration is not commenced
within thirty (30) days after receipt of such notice, this Lease shall
terminate as of the date specified in said notice. If Lessor or a Lender
commences the repair or restoration of the Premises within thirty (30) days
after the receipt of such notice, this Lease shall continue in full force and
effect. "Commence" as used in this Paragraph 9.6 shall mean either the
unconditional authorization of the preparation of the required plans, or the
beginning of the actual work on the Premises, whichever occurs first.
9.7 HAZARDOUS SUBSTANCE CONDITIONS. If a Hazardous Substance Condition
occurs, unless Lessee is legally responsible therefor (in which case Lessee
shall make the investigation and remediation thereof required by Applicable
Requirements and this Lease shall continue in full force and effect, but
subject to Lessor's rights under Paragraph 6.2(c) and Paragraph 13), Lessor
may at Lessor's option either (i) investigate and remediate such Hazardous
Substance Condition, if required, as soon as reasonably possible at Lessor's
expense, in which event this Lease shall continue in full force and effect,
or (ii) if the estimated cost to investigate and remediate such condition
exceeds twelve (12) times the then monthly Base Rent or $100,000 whichever is
greater, give written notice to Lessee within thirty (30) days after receipt
by Lessor of knowledge of the occurrence of such Hazardous Substance
Condition of Lessor's desire to terminate this Lease as of the date sixty
(60) days following the date of such notice. In the event Lessor elects to
give such notice of Lessor's intention to terminate this Lease, Lessee shall
have the right within ten (10) days after the receipt of such notice to give
written notice to Lessor of Lessee's commitment to pay for the excess costs
of (a) investigation and remediation of such Hazardous Substance Condition to
the extent required by Applicable Requirements, over (b) an amount equal to
twelve (12) times the then monthly Base Rent or $100,000, whichever is
greater. Lessee shall provide Lessor with the funds required of Lessee or
satisfactory assurance thereof within thirty (30) days following said
commitment by Lessee. In such event this Lease shall continue in full force
and effect, and Lessor shall proceed to make such investigation and
remediation as soon as reasonably possible after the required funds are
available. If Lessee does not give such notice and provide the required funds
or assurance thereof within the time period specified above, this Lease shall
terminate as of the date specified in Lessor's notice of termination.
9.8 TERMINATION - ADVANCE PAYMENTS. Upon termination of this Lease
pursuant to this Paragraph 9, Lessor shall return to Lessee any advance
payment made by Lessee to Lessor and so much of Lessee's Security Deposit as
has not been, or is not then required to be, used by Lessor under the terms
of this Lease.
9.9 WAIVER OF STATUTES. Lessor and Lessee agree that the terms of this
Lease shall govern the effect of any damage to or destruction of the Premises
and the Building with respect to the termination of this Lease and hereby
waive the provisions of any present or future statute to the extent it is
inconsistent herewith.
10. REAL PROPERTY TAXES.
10.1 PAYMENT OF TAXES. Lessor shall pay the Real Property Taxes, as
defined in Paragraph 10.2, applicable to the Industrial Center, and except as
otherwise provided in Paragraph 10.3, any such amounts shall be included in
the calculation of Common Area Operating Expenses in accordance with the
provisions of Paragraph 4.2.
10.2 REAL PROPERTY TAX DEFINITION. As used herein, the term "REAL
PROPERTY TAXES" shall include any form of real estate tax or assessment,
general, special, ordinary or extraordinary, and any license fee, commercial
rental tax, improvement bond or bonds, levy or tax (other than inheritance,
personal income or estate taxes) imposed upon the Industrial Center by any
authority having the direct or indirect power to tax, including any city,
state or federal government, or any school, agricultural, sanitary, fire,
street, drainage, or other improvement district thereof, levied against any
legal or equitable interest of Lessor in the Industrial Center or any portion
thereof, Lessor's right to rent or other income therefrom, and/or Lessor's
business of leasing the Premises. The term "REAL PROPERTY TAXES" shall also
include any tax, fee, levy, assessment or charge, or any increase therein,
imposed by reason of events occurring, or changes in Applicable Law taking
effect, during the term of this Lease, including but not limited to a change
in the ownership of the Industrial Center or in the improvements thereon, the
execution of this Lease, or any modification, amendment or transfer thereof,
and whether or not contemplated by the Parties. In calculating Real Property
Taxes for any calendar year, the Real Property Taxes for any real estate tax
year shall be included in the calculation of Real Property Taxes for such
calendar year based upon the number of days which such calendar year and tax
year have in common.
10.3 ADDITIONAL IMPROVEMENTS. Common Area Operating Expenses shall not
include Real Property Taxes specified in the tax assessor's records and work
sheets as being caused by additional improvements placed upon the Industrial
Center by other lessees or by Lessor for the exclusive enjoyment of such
other lessees. Notwithstanding Paragraph 10.1 hereof, Lessee shall, however,
pay to Lessor at the time Common Area Operating Expenses are payable under
Paragraph 4.2, the entirety of any increase in Real Property Taxes if
assessed solely by reason of Alterations, Trade Fixtures or Utility
Installations placed upon the Premises by Lessee or at Lessee's request.
10.4 JOINT ASSESSMENT. If the Building is not separately assessed, Real
Property Taxes allocated to the Building shall be an equitable proportion of
the Real Property Taxes for all of the land and improvements included within
the tax parcel assessed, such proportion to be determined by Lessor from the
respective valuations assigned in the assessor's work sheets or such other
information as may be reasonably available. Lessor's reasonable determination
thereof, in good faith, shall be conclusive.
10.5 LESSEE'S PROPERTY TAXES. Lessee shall pay prior to delinquency all
taxes assessed against and levied upon Lessee-Owned Alterations and Utility
Installations, Trade Fixtures, furnishings, equipment and all personal
property of Lessee contained in the Premises or stored within the Industrial
Center. When possible, Lessee shall cause its Lessee-Owned Alterations and
Utility Installations, Trade Fixtures, furnishings, equipment and all other
personal property to be assessed and billed separately from the real property
of Lessor. If any of Lessee's said property shall be assessed with Lessor's
real property, Lessee shall pay Lessor the taxes attributable to Lessee's
property within ten (10) days after receipt of a written statement setting
forth the taxes applicable to Lessee's property.
11. UTILITIES. Lessee shall pay directly for all utilities and services
supplied to the Premises, including but not limited to electricity,
telephone, security, gas and cleaning of the Premises, together with any
taxes thereon. If any such utilities or services are not separately metered
to the Premises or separately billed to the Premises, Lessee shall pay to
Lessor a reasonable proportion to be determined by Lessor of all such charges
jointly metered or billed with other premises in the Building, in the manner
and within the time periods set forth in Paragraph 4.2(d).
12. ASSIGNMENT AND SUBLETTING.
12.1 LESSOR'S CONSENT REQUIRED.
(a) Lessee shall not voluntarily or by operation of law assign,
transfer, mortgage or otherwise transfer or encumber (collectively, "assign")
or sublet all or any part of Lessee's Interest in this Lease or in the
Premises without Lessor's prior written consent given under and subject to
the terms of Paragraph 36.
(b) A change in the control of Lessee shall constitute an
assignment requiring Lessor's consent. The transfer, on a cumulative basis,
of twenty-five percent (25%) or more of the voting control of Lessee shall
constitute a change in control for this purpose.
(c) The involvement of Lessee or its assets in any transaction,
or series of transactions (by way of merger, sale, acquisition, financing,
refinancing, transfer, leveraged buy-out or otherwise), whether or not a
formal assignment or hypothecation of this Lease or Lessee's assets occurs,
which results or will result in a reduction of the Net Worth of Lessee, as
hereinafter defined, by an amount equal to or greater than twenty-five
percent (25%) of such Net Worth of Lessee as it was represented to Lessor at
the time of full execution and delivery of this Lease or at the time of the
most recent assignment to which Lessor has consented, or as it exists
immediately prior to said transaction or transactions constituting such
reduction, at whichever time said Net Worth of Lessee was or is greater,
shall be considered an assignment of this Lease by Lessee to which Lessor may
reasonably withhold its consent. "Net Worth of Lessee" for purposes of this
Lease shall be the net worth of Lessee (excluding any Guarantors) established
under generally accepted accounting principles consistently applied.
(d) An assignment or subletting of Lessee's interest in this
Lease without Lessor's specific prior written consent shall, at Lessor's
option, be a Default curable after notice per Paragraph 13.1, or a non-
curable Breach without the necessity of any notice and grace period. If
Lessor elects to treat such unconsented to assignment or subletting as a non-
curable Breach, Lessor shall have the right to either: (i) terminate this
Lease, or (ii) upon thirty (30) days' written notice ("Lessor's Notice"),
increase the monthly Base Rent for the Premises to the greater of the then
fair market rental value of the Premises, as reasonably determined by Lessor,
or one hundred ten percent (110%) of the Base Rent then in effect. Pending
determination of the new fair market rental value, if disputed by Lessee,
Lessee shall pay the amount set forth in Lessor's Notice, with any
overpayment credited against the next installment(s) of Base Rent coming due,
and any underpayment for the period retroactively to the effective date of
the adjustment being due and payable immediately upon the determination
thereof. Further, in the event of such Breach and rental adjustment, (i) the
purchase price of any option to purchase the Premises held by Lessee shall be
subject to similar adjustment to the then fair market value as reasonably
determined by Lessor (without the Lease being considered an encumbrance or
any deduction for depreciation or obsolescence, and considering the Premises
at its highest and best use and in good condition) or one hundred ten percent
(110%) of the price previously in effect, (ii) any index-oriented rental or
price adjustment formulas contained in this Lease shall be adjusted to
require that the base index be determined with reference to the index
applicable to the time of such adjustment, and (iii) any fixed rental
adjustments scheduled during the remainder of the Lease form shall be
increased in the same ratio as the new rental bears to the Base Rent in
effect immediately prior to the adjustment specified by Lessor's Notice.
(e) Lessee's remedy for any breach of this Paragraph 12.1 by
Lessor shall be limited to compensatory damages and/or injunctive relief.
12.2 TERMS AND CONDITIONS APPLICABLE TO ASSIGNMENT AND SUBLETTING.
(a) Regardless of Lessor's consent, any assignment or subletting
shall not (i) be effective without the express written assumption by such
assignee or sublessee of the obligations of Lessee under this Lease, (ii)
release Lessee of any obligations hereunder, nor (iii) alter the primary
liability of Lessee for the payment of Base Rent and other sums due Lessor
hereunder or for the performance of any other obligations to be performed by
Lessee under this Lease.
(b) Lessor may accept any rent or performance of Lessee's
obligations from any person other than Lessee pending approval or disapproval
of an assignment. Neither a delay in the approval or disapproval of such
assignment nor the acceptance of any rent for performance shall constitute a
waiver or estoppel of Lessor's right to exercise its remedies for the Default
or Breach by Lessee of any of the terms, covenants or conditions of this
Lease.
(c) The consent of Lessor to any assignment or subletting shall
not constitute a consent to any subsequent assignment or subletting by Lessee
or to any subsequent or successive assignment or subletting by the assignee
or sublessee. However, Lessor may consent to subsequent sublettings and
assignments of the sublease or any amendments or modifications thereto
without notifying Lessor or anyone else liable under this Lease or the
sublease and without obtaining their consent, and such action shall not
relieve such persons from liability under this Lease or the sublease.
(d) In the event of any Default or Breach of Lessee's obligation
under this Lease, Lessor may proceed directly against Lessee, any Guarantors
or anyone else responsible for the performance of the Lessee's obligations
under this Lease, including any sublessee, without first exhausting Lessor's
remedies against any other person or entity responsible therefor to Lessor,
or any security held by Lessor.
(e) Each request for consent to an assignment or subletting shall
be in writing, accompanied by information relevant to Lessor's determination
as to the financial and operational responsibility and appropriateness of the
proposed assignee or sublessee, including but not limited to the intended use
and/or required modification of the Premises, if any, together with a non-
refundable deposit of $1,000 or ten percent (10%) of the monthly Base Rent
applicable to the portion of the Premises which is the subject of the
proposed assignment or sublease, whichever is greater, as reasonable
consideration for Lessor's considering and processing the request for
consent, Lessee agrees to provide Lessor with such other or additional
information and/or documentation as may be reasonably requested by Lessor.
(f) Any assignee of, or sublessee under, this Lease shall, by
reason of accepting such assignment or entering into such sublease, be
deemed, for the benefit of Lessor, to have assumed and agreed to conform and
comply with each and every form, covenant, condition and obligation herein to
be observed or performed by Lessee during the term of said assignment or
sublease, other than such obligations as are contrary to or inconsistent with
provisions of an assignment or sublease to which Lessor has specifically
consented in writing.
(g) The occurrence of a transaction described in Paragraph
12.2(c) shall give Lessor the right (but not the obligation) to require that
the Security Deposit be increased by an amount equal to six (6) times the
then monthly Base Rent, and Lessor may make the actual receipt by Lessor of
the Security Deposit increase a condition to Lessor's consent to such
transaction.
(h) Lessor, as a condition to giving its consent to any
assignment or subletting, may require that the amount and adjustment schedule
of the rent payable under this Lease be adjusted to what is then the market
value and/or adjustment schedule for property similar to the Premises as then
constituted, as determined by Lessor.
12.3 Additional Terms and Conditions Applicable to Subletting. The
following terms and conditions shall apply to any subletting by Lessee of all
or any part of the Premises and shall be deemed included in all subleases
under this Lease whether or not expressly incorporated therein;
(a) Lessee hereby assigns and transfers to Lessor all of
Lessee's interest in all rentals and income arising from any sublease of all
or a portion of the Premises heretofore or hereafter made by Lessee, and
Lessor may collect such rent and income and apply same toward Lessee's
obligations under this Lease; provided, however, that until a Breach (as
defined in Paragraph 13.1) shall occur in the performance of Lessee's
obligations under this Lease, Lessee may, except as otherwise provided in
this Lease, receive, collect and enjoy the rents accruing under such
sublease. Lessor shall not, by reason of the foregoing provision or any
other assignment of such sublease to Lessor, nor by reason of the collection
of the rents from a sublessee, by deemed liable to the sublessee for any
failure of Lessee to perform and comply with any of Lessee's obligations to
such sublessee under such Sublease. Lessee hereby irrevocably authorizes and
directs any such sublessee, upon receipt of a written notice from Lessor
stating that a Breach exists in the performance of Lessee's obligations under
this Lease, to pay to Lessor the rents and other charges due and to become
due under the sublease. Sublessee shall rely upon any such statement and
request from Lessor and shall pay such rents and other charges to Lessor
without any obligation or right to inquire as to whether such Breach exists
and notwithstanding any notice from or claim from Lessee to the contrary.
Lessee shall have no right or claim against such sublessee, or, until the
Breach has been cured, against Lessor, for any such rents and other charges
so paid by said sublessee to Lessor.
(b) In the event of a Breach by Lessee in the performance of
its obligations under this Lease, Lessor, at its option and without any
obligation to do so, may require any sublessee to attorn to Lessor, in which
event Lessor shall undertake the obligations of the sublessor under such
sublease from the time of the exercise of said option to the expiration of
such sublease; provided, however, Lessor shall not be liable for any prepaid
rents or security deposit paid by such sublessee to such sublessor or for any
other prior defaults or breaches of such sublessor under such sublease.
(c) Any matter or thing requiring the consent of the sublessor
under a sublease shall also require the consent of Lessor herein.
(d) No sublessee under a sublease approved by Lessor shall
further assign or sublet all or any part of the Premises without Lessor's
prior written consent.
13. DEFAULT; BREACH; REMEDIES.
13.1 DEFAULT; BREACH. Lessor and Lessee agree that if an attorney is
consulted by Lessor in connection with a Lessee Default or Breach (as
hereinafter defined), $350.00 is a reasonable minimum sum per such occurrence
for legal services and costs in the preparation and service of a notice of
Default, and that Lessor may include the cost of such services and costs in
said notice as rent due and payable to cure said default. A "Default" by
Lessee is defined as a failure by Lessee to observe, comply with or perform
any of the forms, covenants, conditions or rules applicable to Lessee under
this Lease. A "Breach" by Lessee is defined as the occurrence of any one or
more of the following Defaults, and, where a grace period for cure after
notice is specified herein, the failure by Lessee to cure such Default prior
to the expiration of the applicable grace period, and shall entitle Lessor to
pursue the remedies set forth in Paragraphs 13.2 and/or 13.3;
(a) The vacating of the Premises without the intention to
reoccupy same, or the abandonment of the Premises.
(b) Except as expressly otherwise provided in this Lease, the
failure by Lessee to make any payment of Base Rent, Lessee's Share of Common
Area Operating Expenses, or any other monetary payment required to be made by
Lessee hereunder as and when due, the failure by Lessee to provide Lessor
with reasonable evidence of insurance or surety bond required under this
Lease, or the failure of Lessee to fulfill any obligation under this Lease
which endangers or threatens life or property, where such failure continues
for a period of three (3) days following written notice thereof by or on
behalf of Lessor to Lessee.
(c) Except as expressly otherwise provided in this Lease, the
failure by Lessee to provide Lessor with reasonable written evidence (in duly
executed original form, if applicable) of (i) compliance with Applicable
Requirements per Paragraph 6.3, (ii) the inspection, maintenance and service
contracts required under Paragraph 7.1(b), (iii) the rescission of an
unauthorized assignment or subletting per Paragraph 12.1, (iv) a Tenancy
Statement per Paragraphs 16 or 37, (v) the subordination or non-subordination
of this Lease per Paragraph 30, (vi) the guaranty of the performance of
Lessee's obligations under this Lease if required under Paragraphs 1.11 and
37, (vii) the execution of any document requested under Paragraph 42
(easements), or (viii) any other documentation or information which Lessor
may reasonably require of Lessee under the terms of this lease, where any
such failure continues for a period of ten (10) days following written notice
by or on behalf of Lessor to Lessee.
(d) A Default by Lessee as to the terms, covenants, conditions
or provisions of this Lease, or of the rules adopted under Paragraph 40
hereof that are to be observed, complied with or performed by Lessee, other
than those described in Subparagraphs 13.1(a), (b) or (c), above, where such
Default continues for a period of thirty (30) days after written notice
thereof by or on behalf of Lessor to Lessee; provided, however, that if the
nature of Lessee's Default is such that more than thirty (30) days are
reasonably required for its cure, then it shall not be deemed to be a Breach
of this Lease by Lessee if Lessee commences such cure within said thirty (30)
day period and thereafter diligently prosecutes such cure to completion.
(e) The occurrence of any of the following events: (i) the
making by Lessee of any general arrangement or assignment for the benefit of
creditors; (ii) Lessee's becoming a "debtor" as defined in 11 U.S. Code
Section 101 or any successor statute thereto (unless, in the case of a
petition filed against Lessee, the same is dismissed within sixty (60) days);
(iii) the appointment of a trustee or receiver to take possession of
substantially all of Lessee's assets located at the Premises or of Lessee's
interest in this Lease, where possession is not restored to Lessee within
thirty (30) days; or (iv) the attachment, execution or other judicial seizure
of substantially all of Lessee's assets located at the Premises or of
Lessee's interest in this Lease, where such seizure is not discharged within
thirty (30) days; provided, however, in the event that any provision of this
Subparagraph 13.1(e) is contrary to any applicable law, such provision shall
be of no force or effect, and shall not affect the validity of the remaining
provisions.
(f) The discovery by Lessor that any financial statement of
Lessee or of any Guarantor, given to Lessor by Lessee or any Guarantor, was
materially false.
(g) If the performance of Lessee's obligations under this
Lease is guaranteed; (i) the death of a Guarantor, (ii) the termination of a
Guarantor's liability with respect to this Lease other than in accordance
with the terms of such guaranty, (iii) a Guarantor's becoming insolvent or
the subject of a bankruptcy filing, (iv) a Guarantor's refusal to honor the
guaranty, or (v) a Guarantor's breach of its guaranty obligation on an
anticipatory breach basis, and Lessee's failure, within sixty (60) days
following written notice by or on behalf of Lessor to Lessee of any such
event, to provide Lessor with written alternative assurances of security,
which, when coupled with the then existing resources of Lessee, equals or
exceeds the combined financial resources of Lessee and the Guarantors that
existed at the time of execution of this Lease.
13.2 REMEDIES. If Lessee fails to perform any affirmative duty or
obligation of Lessee under this Lease, within ten (10) days after written
notice to Lessee (or in case of an emergency, without notice), Lessor may at
its option (but without obligation to do so), perform such duty or obligation
on Lessee's behalf, including but not limited to the obtaining of reasonably
required bonds, insurance policies, or governmental licenses, permits or
approvals. The costs and expenses of any such performance by Lessor shall be
due and payable by Lessee to Lessor upon invoice therefor. If any check given
to Lessor by Lessee shall not be honored by the bank upon which it is drawn,
Lessor, at its own option, may require all future payments to be made under
this Lease by Lessee to be made only by cashier's check. In the event of a
Breach of this Lease by Lessee (as defined in paragraph 13.1), with or
without further notice or demand, and without limiting Lessor in the exercise
of any right or remedy which Lessor may have by reason of such Breach, Lessor
may:
(a) Terminate Lessee's right to possession of the Premises by
any lawful means, in which case this Lease and the term hereof shall
terminate and Lessee shall immediately surrender possession of the Premises
to Lessor. In such event Lessor shall be entitled to recover from Lessee: (i)
the worth at the time of the award of the unpaid rent which had been earned
at the time of termination; (ii) the worth at the time of award of the amount
by which the unpaid rent which would have been earned after termination until
the time of award exceeds the amount of such rental loss that the Lessee
proves could have been reasonably avoided; (iii) the worth at the time of
award of the amount by which the unpaid rent for the balance of the term
after the time of award exceeds the amount of such rental loss that the
Lessee proves could be reasonably avoided; and (iv) any other amount
necessary to compensate Lessor for all the detriment proximately caused by
the Lessee's failure to perform its obligations under this Lease or which in
the ordinary course of things would be likely to result therefrom. Including
but not limited to the cost of recovering possession of the Premises,
expenses of reletting, including necessary renovation and alteration of the
Premises, reasonable attorneys' fees, and that portion of any leasing
commission paid by Lessor in connection with this Lease applicable to the
unexpired term of this Lease. The worth at the time of award of the amount
referred to in provision (iii) of the immediately preceding sentence shall be
computed by discounting such amount at the discount rate of the Federal
Reserve Bank of San Francisco or the Federal Reserve Bank District in which
the Premises are located at the time of award plus one percent (1%). Efforts
by Lessor to mitigate damages caused by Lessee's Default or Breach of this
Lease shall not waive Lessor's right to recover damages under this Paragraph
13.2. If termination of this Lease is obtained through the provisional remedy
of unlawful detainer, Lessor shall have the right to recover in such
proceeding the unpaid rent and damages as are recoverable therein, or Lessor
may reserve the right to recover all or any part thereof in a separate suit
for such rent and/or damages. If a notice and grace period required under
Subparagraph 13.1(b), (c) or (d) was not previously given, a notice to pay
rent or quit, or to perform or quit, as the case may be, given to Lessee
under any statute authorizing the forfeiture of leases for unlawful detainer
shall also constitute the applicable notice for grace period purposes
required by Subparagraph 13.1(b),(c) or (d). In such case, the applicable
grace period under the unlawful detainer statue shall run concurrently after
the one such statutory notice, and the failure of Lessee to cure the Default
within the greater of the two (2) such grace periods shall constitute both an
unlawful detainer and a Breach of this Lease entitling Lessor to the remedies
provided for in this Lease and/or by said statute.
(b) Continue, the Lease and Lessee's right to possession in
effect (in California Under California Civil Code Section 1951.4) alter
Lessee's Breach and recover the rent as it becomes due, provided Lessee has
the right to sublet or assign, subject only to reasonable limitations. Lessor
and Lessee agree that the limitations on assignment and subletting in this
Lease are reasonable. Acts of maintenance or preservation, efforts to relet
the Premises, or the appointment of a receiver to protect the Lessor's
interest under this Lease, shall not constitute a termination of the Lessee's
right to possession.
(c) Pursue any other remedy now or hereafter available to
Lessor under the laws or judicial decisions of the state wherein the Premises
are located.
(d) The expiration or termination of this Lease and/or the
termination of Lessee's right to possession shall not relieve Lessee from
liability under any indemnity provisions of this Lease as to matters
occurring or accruing during the term hereof or by reason of Lessee's
occupancy of the Premises.
13.3 INDUCEMENT RECAPTURE IN EVENT OF BREACH. Any agreement by
Lessor for free or abated rent or other charges applicable to the Premises,
or for the giving or paying by Lessor to or for Lessee of any cash or other
bonus, inducement or consideration for Lessee's entering into this Lease, all
of which concessions are hereinafter referred to as "Inducement Provisions"
shall be deemed conditioned upon Lessee's full and faithful performance of
all of the terms, covenants and conditions of this Lease to be performed or
observed by Lessee during the term hereof as the same may be extended. Upon
the occurrence of a Breach (as defined in Paragraph 13.1) of this Lease by
Lessee, any such Inducement Provision shall automatically be deemed deleted
from this Lease and of no further force or affect, and any rent, other
charge, bonus, inducement or consideration therefore abated, given or paid by
Lessor under such an Inducement Provision shall be immediately due and
payable by Lessee to Lessor, and recoverable by Lessor, as additional rent
due under this Lease, notwithstanding any subsequent cure of said Breach by
Lessee. The acceptance by Lessor of rent or the cure of the Breach which
initiated the operation of this Paragraph 13.3 shall not be deemed a waiver
by Lessor of the provisions of this Paragraph 13.3 unless specifically so
stated in writing by Lessor at the time of such acceptance.
13.4 LATE CHARGES. Lessee hereby acknowledges that late payment by
Lessee to Lessor of rent and other sums due hereunder will cause Lessor to
incur costs not contemplated by this Lease, the exact amount of which will be
extremely difficult to ascertain. Such costs include, but are not limited to,
processing and accounting charges, and late charges which may be imposed upon
Lessor by the terms of any ground lease, mortgage or deed of trust covering
the Premises. Accordingly, if any installment of rent or other sum due from
Lessee shall not be received by Lessor or Lessor's designee within ten (10)
days after such amount shall be due, then, without any requirement for notice
to Lessee, Lessee shall pay to Lessor a late charge equal to six percent (6%)
of such overdue amount. The parties hereby agree that such late charge
represents a fair and reasonable estimate of the costs Lessor will incur by
reason of late payment by Lessee. Acceptance of such late charge by Lessor
shall in no event constitute a waiver of Lessee's Default or Breach with
respect to such overdue amount, nor prevent Lessor from exercising any of the
other rights and remedies granted hereunder. In the event that a late charge
is payable hereunder, whether or not collected, for three (3) consecutive
installments of Base Rent, then notwithstanding Paragraph 4.1 or any other
provision of this Lease to the contrary, Base Rent shall, at Lessor's option,
become due and payable quarterly in advance.
13.5 BREACH BY LESSOR. Lessor shall not be deemed in breach of this
Lease unless Lessor fails within a reasonable time to perform an obligation
required to be performed by Lessor. For purposes of this Paragraph 13.5, a
reasonable time shall in no event be less than thirty (30) days after receipt
by Lessor, and by any Lendor(s) whose name and address shall have been
furnished to Lessee in writing for such purpose, of written notice specifying
wherein such obligation of Lessor has not been performed; provided, however,
that if the nature of Lessor's obligation is such that more than thirty (30)
days after such notice are reasonably required for its performance, then
Lessor shall not be in breach of this Lease if performance is commenced
within such thirty (30) day period and thereafter diligently pursued to
completion.
14. CONDEMNATION. If the Premises or any portion thereof are taken under the
power of eminent domain or sold under the threat of the exercise of said
power (all of which are herein called "condemnation"), this Lease shall
terminate as to the part so taken as of the date the condemning authority
takes title or possession, whichever first occurs. If more than ten percent
(10%) of the floor area of the Premises, or more than twenty-five percent
(25%) of the portion of the Common Areas designated for Lessee's parking, is
taken by condemnation, Lessee may, at Lessee's option, to be exercised in
writing within ten (10) days after Lessor shall have given Lessee written
notice of such taking (or in the absence of such notice, within ten (10) days
after the condemning authority shall have taken possession) terminate this
Lease as of the date the condemning authority takes such possession. If
Lessee does not terminate this Lease in accordance with the foregoing, this
Lease shall remain in full force and effect as to the portion of the Premises
remaining, except that the Base Rent shall be reduced in the same proportion
as the rentable floor area of the Premises taken bears to the total rentable
floor area of the Premises. No reduction of Base Rent shall occur if the
condemnation does not apply to any portion of the Premises. Any award for the
taking of all or any part of the Premises under the power of eminent domain
or any payment made under threat of the exercise of such power shall be the
property of Lessor, whether such award shall be made as compensation for
diminution of value of the leasehold or for the taking of the fee, or as
severance damages; provided, however, that Lessee shall be entitled to any
compensation, separately awarded to Lessee for Lessee's relocation expenses
and/or loss of Lessee's Trade Fixtures. In the event that this Lease is not
terminated by reason of such condemnation, Lessor shall to the extent of its
net severance damages received, over and above Lessee's Share of the legal
and other expenses incurred by Lessor in the condemnation matter, repair any
damage to the Premises caused by such condemnation authority. Lessee shall be
responsible for the payment of any amount in excess of such net severance
damages required to complete such repair.
15. BROKERS' FEES.
16. TENANCY AND FINANCIAL STATEMENTS.
16.1 TENANCY STATEMENT. Each Party (as "Responding Party") shall
within ten (10) days after written notice from the other Party (the
"Requesting Party") execute, acknowledge and deliver to the Requesting Party
a statement in writing in a form similar to the then most current "Tenancy
Statement" form published by the American Industrial Real Estate Association,
plus such additional information, confirmation and/or statements as may be
reasonably requested by the Requesting Party.
16.2 FINANCIAL STATEMENT. If Lessor desires to finance, refinance,
or sell the Premises or the Building, or any part thereof, Lessee and all
Guarantors shall deliver to any potential lender or purchaser designated by
Lessor such financial statements of Lessee and such Guarantors as may be
reasonably required by such lender or purchaser, including but not limited to
Lessee's financial statements for the past three (3) years. All such
financial statements shall be received by Lessor and such lender or purchaser
in confidence and shall be used only for the purposes herein set forth.
17. LESSOR'S LIABILITY. The term "Lessor" as used herein shall mean the
owner or owners at the time in question of the fee title to the Premises. In
the event of a transfer of Lessor's title or interest in the Premises or in
this Lease, Lessor shall deliver to the transferee or assignee (in cash or by
credit) any unused Security Deposit held by Lessor at the time of such
transfer or assignment. Except as provided in Paragraph 15.3, upon such
transfer or assignment and delivery of the Security Deposit, as aforesaid,
the prior Lessor shall be relieved of all liability with respect to the
obligations and/or covenants under this Lease thereafter to be performed by
the Lessor. Subject to the foregoing, the obligations and/or covenants in
this Lease to be performed by the Lessor shall be binding only upon the
Lessor as hereinabove defined.
18. SEVERABILITY. The invalidity of any provision of this Lease, as
determined by a court of competent jurisdiction, shall in no way affect the
validity of any other provision hereof.
19. INTEREST ON PAST-DUE OBLIGATIONS. Any monetary payment due Lessor
hereunder, other than late charges, not received by Lessor within ten (10)
days following the date on which it was due, shall bear interest from the
date due at the prime rate charged by the largest state chartered bank in the
state in which the Premises are located plus four percent (4%) per annum, but
not exceeding the maximum rate allowed by law, in addition to the potential
late charge provided for in Paragraph 13.4.
20. TIME OF ESSENCE. Time is of the essence with respect to the performance
of all obligations to be performed or observed by the Parties under this
Lease.
21. RENT DEFINED. All monetary obligations of Lessee to Lessor under the
terms of this Lease are deemed to be rent.
22. NO PRIOR OR OTHER AGREEMENTS; BROKER DISCLAIMER. This Lease contains all
agreements between the Parties with respect to any matter mentioned herein,
and no other prior or contemporaneous agreement or understanding shall be
effective. Lessor and Lessee each represents and warrants to the Brokers that
it has made, and is relying solely upon, its own investigation as to the
nature, quality, character and financial responsibility of the other Party to
this Lease and as to the nature, quality and character of the Premises.
Brokers have no responsibility with respect thereto or with respect to any
default or breach hereof by either Party. Each Broker shall be an intended
third party beneficiary of the provisions of this Paragraph 22.
23. NOTICES.
23.1 NOTICE REQUIREMENTS. All notices required or permitted by this
Lease shall be in writing and may be delivered in person (by hand or by
messenger or courier service) or may be sent by regular, certified or
registered mail or U.S. Postal Service Express Mail, with postage prepaid, or
by facsimile transmission during normal business hours, and shall be deemed
sufficiently given if served in a manner specified in this Paragraph 23. The
addressee noted adjacent to a Party's signature on this Lease shall be that
Party's address for delivery or mailing of notice purposes. Either Party may
by written notice to the other specify a different address for notice
purposes, except that upon Lessee's taking possession of the Premises, the
Premises shall constitute Lessee's address for the purpose of mailing or
delivering notices to Lessee. A copy of all notices required or permitted to
be given to Lessor hereunder shall be concurrently transmitted to such party
or parties at such addresses as Lessor may from time to time hereafter
designate by written notice to Lessee.
23.2 DATE OF NOTICE. Any notice sent by registered or certified
mail, return receipt requested, shall be deemed given on the date of delivery
shown on the receipt card, or if no delivery date is shown, the postmark
thereon. If sent by regular mail, the notice shall be deemed given forty-
eight (48) hours after the same is addressed as required herein and mailed
with postage prepaid. Notices delivered by United States Express Mail or
overnight courier that guarantees next day delivery shall be deemed given
twenty-four (24) hours after delivery of the same to the Unites States Postal
Service or courier. If any notice is transmitted by facsimile transmission or
similar means, the same shall be deemed served or delivered upon telephone or
facsimile confirmation of receipt of the transmission thereof, provided a
copy is also delivered via delivery or mail. If notice is received on a
Saturday or a Sunday or a legal holiday, it shall be deemed received on the
next business day.
24. WAIVERS. No waiver by Lessor of the Default or Breach of any term,
covenant or condition hereof by Lessee, shall be deemed a waiver of any other
term, covenant or condition hereof, or of any subsequent Default or Breach by
Lessee of the same or any other term, covenant or condition hereof, Lessor's
consent to, or approval of, any such act shall not be deemed to render
unnecessary the obtaining of Lessor's consent to, or approval of, any
subsequent or similar act by Lessee, or be construed as the basis of an
estoppel to enforce the provision or provisions of this Lease requiring such
consent. Regardless of Lessor's knowledge of a Default or Breach at the time
of accepting rent, the acceptance of rent by Lessor shall not be a waiver of
any Default or Breach by Lessee of any provision hereof. Any payment given
Lessor by Lessee may be accepted by Lessor on account of moneys or damages
due Lessor, notwithstanding any qualifying statements or conditions made by
Lessee in connection therewith, which such statements and/or conditions shall
be of no force or effect whatsoever unless specifically agreed to in writing
by Lessor at or before the time of deposit of such payment.
25. RECORDING. Either Lessor or Lessee shall, upon request of the other,
execute, acknowledge and deliver to the other a short form memorandum of this
Lease for recording purposes. The Party requesting recordation shall be
responsible for payment of any fees or taxes applicable thereto.
26. NO RIGHT TO HOLDOVER. Lessee has no right to obtain possession of the
Premises or any part thereof beyond the expiration or earlier termination of
this Lease. In the event that Lessee holds over in violation of this
Paragraph 26 than the Base Rent payable from and after the time of the
expiration or earlier termination of this Lease shall be increased to two
hundred percent (200%) of the Base Rent applicable during the month
immediately preceding such expiration or earlier termination. Nothing
contained herein shall be construed as a consent by Lessor to any holding
over by Lessee.
27. CUMULATIVE REMEDIES. No remedy or election hereunder shall be deemed
exclusive but shall, whenever possible, be cumulative with all other remedies
at law or in equity.
28. COVENANTS AND CONDITIONS. All provisions of this Lease to be observed or
performed by Lessee are both covenants and conditions.
29. BINDING EFFECT; CHOICE OF LAW. This Lease shall be binding upon the
Parties, their personal representatives, successors and assigns and be
governed by the laws of the State in which the Premises are located. Any
litigation between the Parties hereto concerning this Lease shall be
initiated in the county in which the Premises are located.
30. SUBORDINATION; ATTORNMENT; NON-DISTURBANCE.
30.1 SUBORDINATION. This Lease and any Option granted hereby shall be
subject and subordinate to any ground lease, mortgage, deed of trust, or
other hypothecation of security device (collectively, "SECURITY DEVICE"), now
or hereafter placed by Lessor upon the real property of which the Premises
are a part, to any and all advances made on the security thereof, and to all
renewals, modifications, consolidations, replacements and extensions thereof.
Lessee agrees that the Lenders holding any such Security Device shall have no
duty, liability or obligation to perform any of the obligations of Lessor
under this Lease, but that in the event of Lessor's default with respect to
any such obligation, Lessee will give any Lender whose name and address have
been furnished Lessee in writing for such purpose notice of Lessor's default
pursuant to Paragraph 13.5. If any Lender shall elect to have this Lease
and/or any Option granted hereby superior to the lien of its Security Device
and shall give written notice thereof to Lessee, this Lease and such Options
shall be deemed prior to such Security Device, notwithstanding the relative
dates of the documentation or recordation thereof.
30.2 ATTORNMENT. Subject to the non-disturbance provisions of Paragraph
30.3, Lessee agrees to attorn to a Lender or any other party who acquires
ownership of the Premises by reason of a foreclosure of a Security Device,
and that in the event of such foreclosure, such now owner shall not: (i) be
liable for any and act or omission of any prior lessor or with respect to
events occurring prior to acquisition of ownership, (ii) be subject to any
offsets or defenses which Lessee might have against any prior lessor, or
(iii) be bound by prepayment of more than one month's rent.
30.3 NON-DISTURBANCE. With respect to Security Devices entered into by
Lessor after the execution of this lease, Lessee's subordination of this
Lease shall be subject in receiving assurance (a "non-disturbance agreement")
from the Lender that Lessee's possession and this Lease, including any
options to extend the term hereof, will not be disturbed so long as Lessee is
not in Breach hereof and attorns to the record owner of the Premises.
30.4 SELF-EXECUTING. The agreements contained in this Paragraph 30 shall
be effective without the execution of any further documents; provided,
however, that upon written request from Lessor or a Lender in connection with
a sale, financing or refinancing of Premises, Lessee and Lessor shall execute
such further writings as may be reasonably required to separately document
any such subordination or non-subordination, attornment and/or non-
disturbance agreement as is provided for herein.
31. ATTORNEYS' FEES. If any Party or Broker brings an action or proceeding to
enforce the terms hereof or declare rights hereunder, the Prevailing Party
(as hereinafter defined) in any such proceeding, action, or appeal thereon,
shall be entitled to reasonable attorneys' fees. Such fees may be awarded in
the same suit or recovered in a separate suit, whether or not such action or
proceeding is pursued to decision or judgment. The term "Prevailing Party"
shall include, without limitation, a Party or Broker who substantially
obtains or defeats the relief sought, as the case may be, whether by
compromise, settlement, judgment, or the abandonment by the other Party or
Broker of its claim or defense. The attorneys' fee award shall not be
computed in accordance with any court fee schedule, but shall be such as to
fully reimburse all attorneys' fees reasonably incurred. Lessor shall be
entitled to attorneys' fees, costs and expenses incurred in preparation and
service of notices of Default and consultations in connection therewith,
whether or not a legal action is subsequently commenced in connection with
such Default or resulting Breach. Broker(s) shall be intended third party
beneficiaries of this Paragraph 31.
32. LESSOR'S ACCESS; SHOWING PREMISES; REPAIRS. Lessor and Lessor's agents
shall have the right to enter the Premises at any time, in the case of an
emergency, and otherwise at reasonable times for the purpose of showing the
same to prospective purchasers, lenders, or lessees, and making such
alterations, repairs, improvements or additions to the Premises or to the
Building, as Lessor may reasonably deem necessary. Lessor may at any time
place on or about the Premises or Building any ordinary "For Sale" signs and
Lessor may at any time during the last one hundred eighty (180) days of the
term hereof place on or about the Premises any ordinary "For Lease" signs.
All such activities of Lessor shall be without abatement of rent or liability
to Lessee.
33. AUCTIONS. Lessee shall not conduct, nor permit to be conducted, either
voluntarily or involuntarily, any auction upon the Premises without first
having obtained Lessor's prior written consent. Notwithstanding anything to
the contrary in this Lease, Lessor shall not be obligated to exercise any
standard of reasonableness in determining whether to grant such consent.
34. SIGNS. Lessee shall not place any sign upon the exterior of the Premises
or the Building, except that Lessee may, with Lessor's prior written consent,
install (but not on the roof) such signs as are reasonably required to
advertise Lessee's own business so long as such signs are in a location
designated by Lessor and comply with Applicable Requirements and the signage
criteria established for the Industrial Center by Lessor. The installation of
any sign on the Premises by or for Lessee shall be subject to the provisions
of Paragraph 7 (Maintenance, Repairs, Utility installations, Trade Fixtures
and Alterations). Unless otherwise expressly agreed herein, Lessor reserves
all rights to the use of the roof of the Building, and the right to install
advertising signs on the Building, including the roof, which do not
unreasonably interfere with the conduct of Lessee's business; Lessor shall be
entitled to all revenues from such advertising signs.
35. TERMINATION; MERGER. Unless specifically stated otherwise in writing by
Lessor, the voluntary or other surrender of this Lease by Lessee, the mutual
termination or cancellation hereof, or a termination hereof by Lessor for
Breach by Lessee, shall automatically terminate any sublease or lesser estate
in the Premises; provided, however, Lessor shall, in the event of any such
surrender, termination or cancellation, have the option to continue any one
or all of any existing subtenancies, Lessor's failure within ten (10) days
following any such event to make a written election to the contrary by
written notice to the holder of any such lesser interest, shall constitute
Lessor's election to have such event constitute the termination of such
interest.
36. CONSENTS.
(a) Except for Paragraph 33 hereof (Auctions) or as otherwise
provided herein, wherever in this Lease the consent of a Party is required to
an act by or for the other Party, such consent shall not be unreasonably
withheld or delayed. Lessor's actual reasonable costs and expenses (including
but not limited to architects', attorneys', engineers' and other consultants'
fees) incurred in the consideration of, or response to, a request by Lessee
for any Lessor consent pertaining to this Lease or the Premises, including
but not limited to consents to an assignment a subletting or the presence or
use of a Hazardous Substance, shall be paid by Lessee to Lessor upon receipt
of an invoice and supporting documentation therefor. In addition to the
deposit described in Paragraph 12.2(e), Lessor may, as a condition to
considering any such request by Lessee, require that Lessee deposit with
Lessor an amount of money (in addition to the Security Deposit held under
Paragraph 5) reasonably calculated by Lessor to represent the cost Lessor
will incur in considering and responding to Lessee's request. Any unused
portion of said deposit shall be refunded to Lessee without interest.
Lessor's consent to any act, assignment of this Lease or subletting of the
Premises by Lessee shall not constitute an acknowledgement that no Default or
Breach by Lessee of this Lease exists, nor shall such consent be deemed a
waiver of any then existing Default or Breach, except as may be otherwise
specifically stated in writing by Lessor at the time of such consent.
(b) All conditions to Lessor's consent authorized by this Lease are
acknowledged by Lessee as being reasonable. The failure to specify herein any
particular condition to Lessor's consent shall not preclude the impositions
by Lessor at the time of consent of such further or other conditions as are
then reasonable with reference to the particular matter for which consent is
being given.
37. GUARANTOR.
37.1 FORM OF GUARANTY. If there are to be any Guarantors of this Lease
per Paragraph 1.11, the form of the guaranty to be executed by each such
Guarantor shall be in the form most recently published by the American
Industrial Real Estate Association, and each such Guarantor shall have the
same obligations as Lessee under this lease, including but not limited to the
obligation to provide the Tenancy Statement and information required in
Paragraph 16.
37.2 ADDITIONAL OBLIGATIONS OF GUARANTOR. It shall constitute a Default
of the Lessee under this Lease if any such Guarantor fails or refuses, upon
reasonable request by Lessor to give: (a) evidence of the due execution of
the guaranty called for by this Lease including the authority of the
Guarantor (and of the party signing on Guarantor's behalf) to obligate such
Guarantor on said guaranty, and resolution of its board of directors
authorizing the making of such guaranty, together with a certificate of
incumbency showing the signatures of the persons authorized to sign on its
behalf, (b) current financial statements of Guarantor as may from time to
time be requested by Lessor, (c) a Tenancy Statement, or (d) written
confirmation that the guaranty is still in effect.
38. QUIET POSSESSION. Upon payment by Lessee of the rent for the Premises and
the performance of all of the covenants, conditions and provisions on
Lessee's part to be observed and performed under this Lease, Lessee shall
have quiet possession of the Premises for the entire term hereof subject to
all of the provisions of this Lease.
39. OPTIONS.
39.1 DEFINITION. As used in this Lease, the word "OPTION" has the
following meaning: (a) the right to extend the term of this Lease or to renew
this Lease or to extend or renew any lease that Lessee has on other property
of Lessor; (b) the right of first refusal to lease the Premises or the right
of first offer to lease the Premises or the right of first refusal to lease
other property of Lessor or the right to first offer to lease other property
of Lessor; (c) the right to purchase the Premises, or the right of first
refusal to purchase the Premises, or the right of first offer to purchase the
Premises, or the right to purchase other property of Lessor, or the right of
first refusal to purchase other property of Lessor, or the right of first
offer to purchase other property of Lessor.
39.2 OPTIONS PERSONAL TO ORIGINAL LESSEE. Each Option granted to Lessee
in this Lease is personal to the original Lessee named in Paragraph 1.1
hereof, and cannot be voluntarily or involuntarily assigned or exercised by
any person or entity other than said original Lessee while the original
Lessee is in full and actual possession of the Premises and without the
intention of thereafter assigning or subletting. The Options, if any, herein
granted to Lessee are not assignable, either as a part of an assignment of
this Lease or separately or apart therefrom, and no Option may be separated
from this Lease in any manner, by reservation or otherwise.
39.3 MULTIPLE OPTIONS. In the event that Lessee has any multiple Options
to extend or renew this Lease, a later option cannot be exercised unless the
prior Options to extend or renew this Lease have been validly exercised.
39.4 EFFECT OF DEFAULT ON OPTIONS.
(a) Lessee shall have no right to exercise an Option,
notwithstanding any provision in the grant of Option to the contrary: (i)
during the period commencing with the giving of any notice of Default under
Paragraph 13.1 and continuing until the noticed Default is cured, or (ii)
during the period of time any monetary obligation due Lessor from Lessee is
unpaid (without regard to whether notice thereof is given Lessee), or (iii)
during the time Lessee is in Breach of this Lease, or (iv) in the event that
Lessor has given to Lessee three (3) or more notices of separate Defaults
under Paragraph 13.1 during the twelve (12) month period immediately
preceding the exercise of the Option, whether or not the Defaults are cured.
(b) The period of time within which an Option may be exercised
shall not be extended or enlarged by reason of Lessee's inability to exercise
an Option because of the provisions of Paragraph 39.4(a)
(c) All rights of Lessee under the provisions of an Option shall
terminate and be of no further force or effect, notwithstanding Lessee's due
and timely exercise of the Option, if, after such exercise and during the
term of this Lease, (i) Lessee fails to pay to Lessor a monetary obligation
of Lessee for a period of thirty (30) days after such obligation becomes due
(without any necessity of Lessor to given notice thereof to Lessee), or (ii)
Lessor gives to Lessee three (3) or more notices of separate Defaults under
Paragraph 13.1 during any twelve (12) month period, whether or not the
Defaults are cured, or (iii) if Lessee commits a Breach of this Lease.
40. RULES AND REGULATIONS. Lessee agrees that it will abide by, and keep and
observe all reasonable rules and regulations ("Rules and Regulations") which
Lessor may make from time to time for the management, safety, care, and
cleanliness of the grounds, the parking and unloading of vehicles and the
preservation of good order, as well as for the convenience of other occupants
or tenants of the Building and the Industrial Center and their invitees.
41. SECURITY MEASURES. Lessee hereby acknowledges that the rental payable to
Lessor hereunder does not include the cost of guard service or other security
measures, and that Lessor shall have no obligation whatsoever to provide
same. Lessee assumes all responsibility for the protection of the Premises,
Lessee, its agents and invitees and their property from the acts of third
parties.
42. RESERVATIONS. Lessor reserves the right, from time to time, to grant,
without the consent or joinder of Lessee, such easements, rights of way,
utility raceways, and dedications that Lessor deems necessary, and to cause
the recordation of parcel maps and restrictions, so long as such easements,
rights of way, utility raceways, dedications, maps and restrictions do not
reasonably interfere with the use of the Premises by Lessee, Lessee agrees to
sign any documents reasonably requested by Lessor to effectuate any such
easement rights, dedication, map or restrictions.
43. PERFORMANCE UNDER PROTEST. If at any time a dispute shall arise as to any
amount or sum of money to be paid by one Party to the other under the
provisions hereof, the Party against whom the obligation to pay the money is
asserted shall have the right to make payment "under protest" and such
payment shall not be regarded as a voluntary payment and there shall survive
the right on the part of said Party to institute suit for recovery of such
sum. If it shall be adjudged that there was no legal obligation on the part
of said Party to pay such sum or any part thereof, said Party shall be
entitled to recover such sum or so much thereof as it was not legally
required to pay under the provisions of this Lease.
44. AUTHORITY. If either Party hereto is a corporation, trust, or general or
limited partnership, each individual executing this Lease on behalf of such
entity represents and warrants that he or she is duly authorized to execute
and deliver this Lease on its behalf. If Lessee is a corporation, trust or
partnership, Lessee shall, within thirty (30) days after request by Lessor,
deliver to Lessor evidence satisfactory to Lessor of such authority.
45. CONFLICT. Any conflict between the printed provisions of this Lease and
the typewritten or handwritten provisions shall be controlled by the
typewritten or handwritten provisions.
46. OFFER. Preparation of this Lease by either Lessor or Lessee or Lessor's
agent or Lessee's agent and submission of same to Lessee or Lessor shall not
be deemed an offer to lease. This Lease is not intended to be binding until
executed and delivered by all Parties hereto.
47. AMENDMENTS. This Lease may be modified only in writing, signed by the
parties in interest at the time of the modification. The Parties shall amend
this Lease from time to time to reflect any adjustments that are made to the
Base Rent or other rent payable under this Lease. As long as they do not
materially change Lessee's obligations hereunder, Lessee agrees to make such
reasonable non-monetary modifications to this Lease as may be reasonably
required by an institutional insurance company or pension plan Lender in
connection with the obtaining or normal financing or refinancing of the
property of which the Premises are a part.
48. MULTIPLE PARTIES. Except as otherwise expressly provided herein, if more
than one person or entity is named herein as either Lessor or Lessee, the
obligations of such multiple parties shall be the joint and several
responsibility of all persons or entities named herein as such Lessor or
Lessee.
THIS SECTION INTENTIONALLY LEFT BLANK
THIS SECTION INTENTIONALLY LEFT BLANK
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LESSOR AND LESSEE HAVE CAREFULLY READ AND REVIEWED THIS LEASE AND EACH TERM
AND PROVISION CONTAINED HEREIN, AND BY THE EXECUTION OF THIS LEASE SHOW THEIR
INFORMED AND VOLUNTARY CONSENT THERETO. THE PARTIES HEREBY AGREE THAT, AT THE
TIME THIS LEASE IS EXECUTED, THE TERMS OF THIS LEASE ARE COMMERCIALLY
REASONABLE AND EFFECTUATE THE INTENT AND PURPOSE OF LESSOR AND LESSEE WITH
RESPECT TO THE PREMISES.
IF THIS LEASE HAS BEEN FILLED IN, IT HAS BEEN PREPARED FOR YOUR
ATTORNEY'S REVIEW AND APPROVAL. FURTHER, EXPERTS SHOULD BE
CONSULTED TO EVALUATE THE CONDITION OF THE PROPERTY FOR THE
POSSIBLE PRESENCE OF ASBESTOS, UNDERGROUND STORAGE TANKS OR
HAZARDOUS SUBSTANCES. NO REPRESENTATION OR RECOMMENDATION IS MADE
BY THE AMERICAN INDUSTRIAL REAL ESTATE ASSOCIATION OR BY THE REAL
ESTATE BROKERS OR THEIR CONTRACTORS, AGENTS OR EMPLOYEES AS TO THE
LEGAL SUFFICIENCY, LEGAL EFFECT, OR TAX CONSEQUENCES OF THIS LEASE
OR THE TRANSACTION TO WHICH IT RELATES; THE PARTIES SHALL RELY
SOLELY UPON THE ADVICE OF THEIR OWN COUNSEL AS TO THE LEGAL AND TAX
CONSEQUENCES OF THIS LEASE. IF THE SUBJECT PROPERTY IS IN A STATE
OTHER THAN CALIFORNIA, AN ATTORNEY FROM THE STATE WHERE THE
PROPERTY IS LOCATED SHOULD BE CONSULTED.
The parties hereto have executed this Lease at the place and on the dates
specified above their respective signatures.
Executed at: El Cajon, California Executed at: El Cajon, CA
------------------------ -------------------------
on: 1/4/01 on: 1/4/01
--------------------------------- ----------------------------------
By LESSOR: By LESSEE:
POMERADO LEASING NO. 8 L.P., TECHNETICS, INC.,
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a California limited partnership dba SMTEK INTERNATIONAL, INC., a
Delaware corp.
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By: WHITMANN, INC., By:
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a California corporation, Name Printed: MICHAEL E. PERRY
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It's General Partner Title: PRESIDENT
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By: /s/ Jeffrey C. Hamann By: /s/ Michael E. Perry
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Name Printed: Jeffrey C. Hamann Name Printed:
------------------------------------ -------------------------------------
Title: Title:
------------------------------------ -------------------------------------
Address: 475 West Bradley Avenue Address:
El Cajon, CA 92020
------------------------------------ -------------------------------------
Telephone: (619) 440-7424 Telephone: ( )
------------------------------------ -------------------------------------
Facsimile: (619) 440-8914 Facsimile: ( )
------------------------------------ -------------------------------------
BROKER: BROKER:
Executed at: Executed at:
------------------------ -------------------------
on: on:
--------------------------------- ----------------------------------
By: By:
--------------------------------- ----------------------------------
Name Printed: Name Printed:
----------------------- ------------------------
Title: Title:
------------------------------ -------------------------------
Address: Address:
---------------------------- -----------------------------
------------------------------------ -------------------------------------
Telephone: ( ) Telephone: ( )
-------------------- ---------------------
Facsimile: ( ) Facsimile: ( )
-------------------- ---------------------
Note: These forms are often modified to meet changing requirements of law and
needs of the Industry. Always write or call to make sure you are
utilizing the most current form: AMERICAN INDUSTRIAL REAL ESTATE
ASSOCIATION, 345 So. Figueroa St., M-1, Los Angeles, CA 90071.
(213) 687-8777.
(c) 1993 by American Industrial Real Estate Association. All rights reserved.
No part of these words maybe reproduced in any form without permission in
writing.
ADDENDUM TO LEASE
This Addendum to Lease ("Addendum") is made by and between POMERADO
LEASING NO. 8 L.P., a California limited partnership ("LESSOR") and
TECHNETICS, INC. DBA SMTEK SAN DIEGO, a California corporation ("LESSEE") and
is intended to supplement that certain Standard Industrial/Commercial Multi-
Tenant Lease Modified Net between LESSOR and LESSEE dated December 20, 2000
("Lease") to which this Addendum is annexed and all references to "Lease"
shall be deemed to include this Addendum unless otherwise stated or the
context indicates otherwise. Any word or phrase defined in the Lease shall
have the same meaning when used in this Addendum. If there is any
inconsistency between this Addendum and the Lease, the terms of this Addendum
shall supersede and control. LESSOR and LESSEE agree as follows:
1. BUILDING AND PREMISES DESCRIPTION. The premises shall consist of the
real property described in EXHIBIT "1" annexed to this Addendum together with
all of the improvements described in this Addendum. The Building shall be
designed and constructed substantially in accordance with the general design
elements shown on the drawings prepared by Kenneth D. Smith and Associates,
AIA, which LESSEE hereby approves ("Approved Drawings"); a copy of the
Approved Drawings is attached as EXHIBIT "2" to this Addendum. The components
of the Building construction shall substantially conform to the
specifications attached as EXHIBIT "3" to this Addendum ("Specifications").
1.1 PLANNED SIZE AND FINAL MEASUREMENT. It is planned that the
Building will contain approximately 45,619 Rentable Square Feet, which,
except in the event of any modifications as described in section 1.2 of this
Addendum, shall be the agreed Rentable Square Footage of the Premises for
purposes of determining the Rent regardless of the actual area of the
Premises. If any such modifications are made, following Substantial
Completion of the Building and Premises, LESSOR will, in good faith, certify
the actual Rentable Square Feet of the Building and Premises to establish the
exact Rentable Square Feet for purposes of the Lease.
1.2 MODIFICATIONS. LESSEE agrees that LESSOR may make modifications
to the Building design on account of government or lender requirements and
otherwise as reasonably determined by LESSOR; provided, however any such
modifications shall not; (a) increase or decrease the Rentable Square Feet of
the Premises by more than 2%; (b) materially relocate the Premises from the
area shown in the Approved Drawings; or (c) materially change the
Specifications.
1.3 "RENTABLE SQUARE FOOTAGE" DEFINED. The term "Rentable Square
Footage" or "Rentable Square Feet" means the area of the Premises comprising
a portion of the area of the Building on the ground level and, if applicable,
mezzanine calculated as follows: (a) measurements are to the outside finished
surface of each permanent outer Building wall and surface where it intersects
the floor (or, in the case of the mezzanine, to the outside surface of the
interior outer wall); (b) in the case of roof overhangs or protrusions, the
area underlying the overhang to the roof "drip line" shall be measured and
added to the area determined under preceding clause (a); (c) in the case of
any interior common demising wall between the Premises and any other rentable
area of the Building, to the middle of any such interior demising wall; (d)
no deduction for (i) columns or projections, (ii) vertical penetrations such
as stairs, elevator shafts, flues, pipe shafts, vertical ducts, and the like,
and their enclosing walls, (iii) corridors, equipment rooms, rest rooms,
entrance ways, elevator lobbies, and the like, and their enclosing walls,
(iv) recessed entryways, doorways and windows, and (v) any other unusable
area of any nature shall be made. The term "Rentable Square Foot" shall refer
to each square foot within the Rentable Square Footage; and (e) shall
otherwise be determined in accordance with other industry standards for
industrial/commercial projects in San Diego County, California.
2. RENT. "Rent" for the Premises shall be the sum of (a) the Base Rent
described in subsection 2.1 of this Addendum, subject to adjustment as
provided in subsections 2.1 and 2.2 of this Addendum, (b) LESSEE's Share of
Common Area Operating Expenses as defined in subsection 3 of this Addendum,
and (c) any other amounts becoming payable by LESSEE under the Lease.
2.1 BASE RENT. The monthly "Base Rent" means the amount set forth in
Paragraph 1.5 of the Lease for the first Lease Year (as defined below) of the
Original Term consisting of (a) the agreed monthly rental determined by
multiplying the amount of $.53 per Rentable Square Foot by the agreed total
45,619 Rentable Square Feet of the Premises, and (b) the amount of $9,904 per
month for Allowance Amortization Charge described in subsection 2.3 of this
Addendum. If there is a variance in the Rentable Square Footage of the
Premises as determined by LESSOR under section 1.2 of this Addendum, the Base
Rent for the first Lease Year shall be adjusted based on the actual Rentable
Square Feet within the Premises multiplied times $.53 per Rentable Square
Foot.
2.2 INCREASE IN BASE RENT. The Base Rent shall be increased at the
beginning of the second Lease Year and at the beginning of each Lease Year
thereafter during the Original Term, in an amount equal to three percent (3%)
of the amount of the scheduled Base Rent for the immediately preceding Lease
Year.
2.3 TENANT IMPROVEMENT ALLOWANCE AMORTIZATION. As more particularly
provided in section 5 of this Addendum, LESSOR will provide a Tenant
Improvement Allowance in the amount of up to $969,000.000 to pay for a
portion of the Tenant Improvement Costs (as defined below) for Tenant
Improvements requested by LESSEE. The term "Allowance Amortization Charge"
means an amount to be included in the Base Rent calculated as follows: (a)
from and after the Commencement Date, determine the aggregate amount of the
Allowance expended by LESSOR for Tenant Improvements; (b) deduct $250,000
from the amount expended; (c) amortize the remaining amount of the Allowance
actually used based on an economic return equivalent to eleven percent (11%)
per annum to derive a monthly payment sufficient to pay in full the Allowance
and such economic return over a period of time equal to one hundred and
twenty (120) months beginning on the Commencement Date; and (d) the resulting
monthly payment shall equal the Allowance Amortization Charge. If the amount
of the Allowance Amortization Charge is determined after the Commencement
Date on account of a delay in finalizing the Tenant Improvement Costs, then
LESSEE shall pay LESSOR the amount accruable from the Commencement Date to
the end of the then current month, within fifteen (15) days after LESSOR'S
billing for such accrued amounts, and shall thereafter pay the monthly
Allowance Amortization Charge as a part of the monthly of Base Rent.
2.4 DUE DATE/PAYMENT. The monthly Base Rent, Allowance Amortization
Charge and the Operating Expenses shall be due and payable on the first day
of each month without notice, except that the first month's Base Rent and the
first month's Allowance Amortization Charge shall be payable as provided in
section 2.5 of this Addendum. If the Commencement Date is other than the
first day of a calendar month, the Base Rent and Allowance Amortization
Charge shall be prorated based on the number of days between the Commencement
Date and the first day of the first full calendar month thereafter and such
amount shall be due and payable by LESSEE on or before the Commencement Date.
The remaining Rent shall be payable in accordance with the other provisions
of the Lease.
2.5 SECURITY DEPOSIT/FIRST MONTH'S RENT. Concurrently with the
execution of the Lease, LESSEE shall pay the Security Deposit set forth in
Paragraph 1.7 of the Lease, which has been calculated based on two (2) months
Base Rent and Tenant Improvement Allowance Amortization Charge. So long as
LESSEE does not commit a Default, LESSOR agrees to apply one-half of such
Security Deposit to the Base Rent and Tenant Improvement Allowance
Amortization becoming due for the first full month of the Lease following the
Commencement Date, subject to adjustment as provided in section 2.5.1 of this
Addendum.
2.5.1 ADJUSTMENTS. If, as a result of an adjustment under section
2.1 or 2.3 of this Addendum, the Base Rent is different than the amount shown
in Paragraph 1.5 of the Lease or the Allowance Amortization Charge is
different than the amount shown in section 2.3 of this Addendum, then; (a)
then portion of the Security Deposit set forth in Paragraph 1.7 of the Lease
to be applied to the first month's Base Rent and Allowance Amortization
Charge shall be recalculated as follows: (i) determine the actual amount of
the Base Rent and the Allowance Amortization Charge payable for the first
full month as adjusted, which amount shall equal the Security Deposit to be
held and applied by LESSOR from and after the Commencement Date as the
Security Deposit under Paragraph 5 of the Lease; (ii) subtract such amount
from the original Security Deposit set forth in Paragraph 1.7 of the Lease;
and (iii) the resulting sum shall equal the amount of the portion of the
original Security Deposit to be applied to the first full months Base Rent
and Allowance Amortization Charge: (b)if the amount applied to the first full
months Base Rent and Allowance Amortization Charge in accordance with
preceding clause (a) is less than the first full months Base Rent and
Allowance Amortization Charge actually becoming due for the first full month,
LESSEE shall pay to LESSOR any deficiency within ten (10) days of notice from
LESSOR, or (c) if the amount applied to the first full months Base Rent and
Allowance Amortization Charge in accordance with preceding clause (a) is more
than the first full months Base Rent and Allowance Amortization Charge
actually becoming due for the first full month, LESSOR shall credit any
excess to the Base Rent and Allowance Amortization Charge payable for the
second month. Upon LESSOR's request, LESSEE and LESSOR shall execute an
amendment to the Lease setting for the exact Base Rent and Allowance
Amortization Charge, provided that failure of LESSOR and LESSEE to execute
such amendment shall not effect the validity of the Lease.
3. ADDITION PROVISIONS REGARDING COMMON AREA OPERATING EXPENSES.
Beginning on the Commencement Date, in addition to payment of the Base Rent,
LESSEE shall be responsible for payment of LESSEE's share of all Common Area
Operating Expenses as defined in Paragraph 4.2 of the Lease. LESSEE shall pay
to LESSOR monthly, as additional rent, an amount equal to 1/12 of the
projected annual Common Area Operating Expenses. Such amount shall be due and
payable concurrently with the payment of the applicable Base Rent. Prior to
the beginning of each Lease Year, LESSOR will provide LESSEE an annual
estimated Operating Budget ("Estimated Operating Budget") for each calendar
year or partial year. Subject to LESSEE's payment to LESSOR of the Operating
Expenses as provided in this Addendum, LESSOR shall make prompt payment of
the Operating Expenses. A copy of the Estimated Operating Expenses Budget for
the First Lease Year is annexed to this Addendum as EXHIBIT "4". LESSEE
acknowledges that (a) this estimate is being provided only to illustrate the
projected amounts and categories of expense and that actual results may be
different than the estimates; and (b) it is aware that amounts and categories
of expense may vary in future years as the Building ages. Without limiting
the definition of "Common Area Operating Expenses" as defined in the Lease,
LESSEE specifically acknowledges and agrees that such Common Area Operating
Expenses will include (i) reasonable reserves, as reasonably determined by
LESSOR, for repair, maintenance or replacement of the Building HVAC systems,
nonstructural roof membrane, exterior painting, paving and restriping of the
parking lot, and (ii) payment of Mollo Roos Bond installments.
3.1 ENVIRONMENTAL INSPECTIONS. For purposes of subparagraph
4.2(a)(iii) of the Lease, the costs of any environmental inspections shall
only be included in the Common Area Operating Expenses to the extent such
inspections are required by any governmental authority or LESSOR's lender;
provided, however, that costs attributable to inspections required on account
of the acts or omissions of another tenant of the Building or Industrial
Center causing Hazardous Substance contamination at the Industrial Center or
Building shall not be included.
4. EFFECTIVE DATE/TERM/COMMENCEMENT DATE. Subject to section 4.5 of this
Addendum and notwithstanding any other provision of the Lease, this Lease
shall be effective upon execution by LESSOR and LESSEE ("Effective Date") and
shall constitute a legally binding contract for LESSOR to deliver possession
of the Premises in accordance with the requirements of this Lease and for
LESSEE to accept possession and pay the Rent beginning on the Commencement
Date. Notwithstanding that the Effective Date of this Lease is the date of
execution of this Lease, LESSEE's obligation to being payment of the Rent
payable under this Lease shall not commence until the occurrence of the
Commencement Date.
4.1 AMENDMENT. Following the Commencement Date and upon LESSOR's
request, LESSEE and LESSOR shall execute an amendment to the Lease setting
for the exact Commencement Date and the exact Expiration Date of the Original
Term, provided that failure of LESSOR and LESSEE to executive such amendment
shall not effect the validity of the Lease.
4.2. COMMENCEMENT DATE. Except as otherwise provided in subsection
5.5 of this Addendum concerning LESSEE Delays and subject to the provisions
of Paragraph 3.3 of the Lease, the Commencement Date of the Lease shall be
the date of the Substantial Completion (as defined below) of the Building
Shell and the Tenant Improvements for the Premises; provided, however, the
Commencement Date shall not be earlier than March 15, 2001 nor later than
June 15, 2001 except (a) with LESSEE's consent, in its sole discretion, (b)
on account of delays caused by LESSEE as described in subsection 5.5 of this
Addendum, or (c) for delays caused by fire, earthquake or other unavoidable
casualties or inclement weather conditions not reasonably anticipatable,
extraordinary governmental action other than usual permit and inspection
procedures, delays encountered in processing building permits and other
governmental approvals or inspections, delays encountered as a result of the
discovery of any unknown or concealed conditions affected the Premises,
delays causes by general area wide labor or material shortages or labor
disputes (such as strikes or lock-outs), or any other causes not the fault of
LESSOR or LESSOR's Contractor, subcontractors, agents or employees.
4.3 LEASE TERM/"LEASE YEAR" DEFINED. Unless otherwise provided, the
initial Term of the Lease ("Original Term") shall be a period of ten (10)
years beginning on the Commencement Date; provided, however, if the
Commencement Date occurs other than on the first day of a calendar month, the
Original Term shall be deemed extended for a period of time equal to the
number of days between the Commencement Date and the beginning of the first
full calendar month following the Commencement Date. The term "Lease Year"
means each consecutive period of twelve (12) months during the Lease Term,
provided that if the "Commencement Date" is other than the first day of a
calendar month, then the first Lease Year shall be a period of (12) months
plus the period between the Commencement Date and the first day of the first
full calendar month thereafter.
4.4 OPTION TO EXTEND TERM. The following option is subject to, and
the terms of this section are additive to, and do not modify the terms and
provisions of Paragraph 39 of the Lease.
4.4.1 GRANT. LESSOR grants to LESSEE the option to extend the
Lease for one five (5) year period beginning upon the expiration of the
Original Term ("Extension Term").
4.4.2 EXERCISE. If LESSEE desires to extend the Lease Term, such
option shall be exercised only by written notice ("Election Notice")
delivered to LESSOR no earlier than 360 days and no later than 270 days
before the expiration of the Original Term. Regardless of cause, if LESSEE
fails to timely give an Election Notice, all options rights will
automatically lapse and terminate and be of no further force or effect
without any requirement of notice or demand by LESSOR.
4.4.3 ADJUSTMENT TO BASE RENT. Except as otherwise provided in
this section, the Base Rent for the first Lease Year of the Extension Term
shall be adjusted at the beginning of the Extension Term to the "fair rental
value" of the Premises as determined in the following manner.
(a) Within thirty (30) days from LESSEE's notice, LESSOR and
LESSEE shall meet in an effort to negotiate, in good faith, the fair
rental value of the Premises as of the beginning of the Extension Term.
If LESSOR and LESSEE have not agreed upon the fair rental value of the
Premises at least one hundred twenty (120) days prior to the beginning
of the Extension Term, the fair rental value shall be determined by
appraisal, by one or more appraisers ("Appraisers(s)"). The Appraisers
shall have at least five (5) years experience in the appraisal of
commercial/industrial real property in the area in which the Premises
are located and shall be members of professional organizations such as
M.A.I. or equivalent
(b) If LESSOR and LESSEE are not able to agree upon the fair
rental value of the Premises within the prescribed time period, then
LESSOR and LESSEE shall attempt to agree in good faith upon a single
Appraiser not later than one hundred (100) days prior to the beginning
of the applicable Extension Term. If LESSOR and LESSEE are unable to
agree upon a single Appraiser within such time period, then LESSOR and
LESSEE shall each appoint one Appraiser not later than ninety (90) days
prior to the beginning of the applicable Extension Term. Within ten
(10) days thereafter, the two (2) appointed Appraisers shall appoint a
third Appraiser. If either LESSOR or LESSEE fails to appoint its
Appraiser within the prescribed time period, the single Appraiser
appointed shall determine the fair rental value of the Premises. If
both parties fail to appoint Appraisers within the prescribed time
periods, then the first Appraiser thereafter selected by a party shall
determine the fair rental value of the Premises. Each party shall bear
the cost of its own Appraiser and the parties shall share equally the
cost of the single or third Appraiser, if applicable.
(c) For the purpose of such appraisal, the term "fair rental
value" shall mean the price that a ready and willing tenant would pay,
as of the beginning of the Extension Term, as monthly rent to a ready
and willing landlord of property comparable to the Premises if such
property were exposed for lease on the open market for a reasonable
period of time and taking into account all of the purposes for which
such property may be used and taking into account all material
attributes and benefits of the Premises. Fair rental value shall take
into consideration all monetary concessions being granted in connection
with such comparable property, including without limitation, rent
abatement concessions and tenant improvements or allowances provided
therefore. If a single Appraiser is chosen, then such Appraiser shall
determine the fair rental value of the Premises. Otherwise, the fair
rental value of the Premises shall be the average of the two (2) of the
three (3) appraisals which are closest in amount, and the third
appraisal shall be disregarded. LESSOR and LESSEE shall instruct the
Appraiser(s) to complete the determination of the fair rental value not
later than forty-five (45) days prior to the beginning of the
applicable option period. If the fair rental value is not determined
prior to the beginning of the Extension Term, then LESSEE shall
continue to pay to LESSOR the Base Rent applicable to the Premises
immediately prior to such extension, until the fair rental value is
determined. When the fair rental value of the Premises is determined,
LESSOR shall deliver notice thereof to LESSEE, and if the fair rental
value is higher, LESSEE shall pay to LESSOR, within ten (10) days after
receipt of such notice, the difference between the Base Rent actually
paid by LESSEE to LESSOR and the new Base Rent determined under this
section.
(d) Notwithstanding any other provision of this Lease, in no
event shall the Base Rent for the first Lease Year of the Extension
Term be less than an amount equal to 103% of the Base Rent in effect
for the Lease Year immediately preceding the beginning of the Extension
Term ("Prior Base Rent"). If the fair rental value of the Premises
determined under this section is less than the Prior Base Rent, then
the Base Rent for the first Lease Year of an Extension Term shall equal
the Prior Base Rent.
(e) The Base Rent shall be increased at the beginning of the
second Lease Year of the Extension Term and at the beginning of each
Lease Year thereafter in an amount equal to three percent (3%) of the
Base Rent in effect for the immediately preceding Lease Year.
4.4.4 IMPLEMENTATION. Promptly upon the parties' approval of, or
the Appraisers establishment of, the fair rental value, the LESSOR and LESSEE
shall execute an amendment to this Lease setting out the starting and ending
dates and the starting Base Rent for the Extension Term.
4.4.5 AFFILIATE TRANSACTION. Notwithstanding the provisions of
Paragraph 39.2 of the Lease providing that any option rights granted are
personal to LESSEE and not assignable, LESSOR agrees that the option rights
to extend the Term of the Lease under this section 4.4 may be assigned to an
assignee of the Lease in an Affiliate Transaction (as defined below).
4.4.6 REMAINING LEASE TERMS. If LESSEE elects to extend the
Original Term, all other terms and conditions of the Lease shall remain in
effect during such extended term except: (a) no tenant improvements or
allowances shall be provided by LESSOR, and LESSEE shall be deemed to have
extended the term of the Lease and accepted the Premises "AS IS" in their
then existing conditions and without representation or warranty from LESSOR;
and (b) upon expiration of the last Extension Term, LESSEE shall have no
further right to extend the term of the Lease.
5. BUILDING SHELL AND TENANT IMPROVEMENTS. LESSOR, at its expense, shall
cause the construction of the Building Shell. The phrase "Building Shell"
means the improvements to be constructed as shown in the Approved Drawings
and Specifications, including (a) roofing, fascia, exterior walls, doors and
windows, (b) footing and concrete floors, (c) "shell" fire sprinkler system
in accordance with minimum code requirements for ESFR fire sprinklers, (d)
conduits and pipes for telephone, electricity, water, fire sprinklers and
sewage brought to "stub out" termination points in or above a perimeter wall
of the Premises, (e) a main electrical termination panel for the Building,
(f) paving and finish of parking areas, entrance areas and walkways, (g)
landscaping as reasonably determined by LESSOR and (h) site improvements
consisting of street, gutters, sidewalks, curbs, storms drains and erosion
control (construction period and permanent) as required to comply with
governmental requirements.
5.1 TENANT IMPROVEMENTS DESCRIPTION. The phrase "Tenant Improvements"
means all interior improvements for LESSEE's Premises which are not a part of
the Building Shell, including (a) partitions, walls (including any interior
demising walls between the Premises and any other rentable area of the
Building), and doors, (b) all surface finishes, including wall coverings,
paint, floor coverings, suspended ceilings and other similar items, (c) duct
work, heat pumps, vents, diffusers, terminal boxes and accessories for
completion of heating, ventilation and air conditioning systems within the
Premises, (d) electrical distribution systems (including panels, subpanels,
wires and outlets), lighting fixtures, outlets, switches and other electrical
work to be installed in the Premises, (e) plumbing lines, fixtures and
accessories, (f) all fire and life safety control systems such as fire walls
and fire alarms (including piping, wiring and accessories) to be located in
the Premises, and the fire sprinklers and lines attributable to the Tenant
Improvements and/or LESSEE's fixture, furnishing or equipment, (g) entrance
door signage and directory listings, as authorized by LESSOR, (h)
improvements required for compliance with Title 24, and (i) other
improvements shown on the "Cost Breakdown Tenant Improvement" form attached
to this Addendum as EXHIBIT "5"; provided LESSEE's trade fixtures, equipment
and Personal Property (including telephone systems, chairs, tables, furniture
and other equipment used in LESSEE'S business) shall not be considered part
of the Tenant Improvements.
5.2 DESIGN OF TENANT IMPROVEMENTS/PERMITS. LESSEE shall furnish to
LESSOR, a complete set of plans and specifications detailing all Tenant
Improvements no later than January 1, 2000 ("Tenant Improvement Plans"). In
addition, TENANT shall be responsible for procuring the necessary building
permits for construction of the Tenant Improvements no later than February 1,
2001. Unless OTHERWISE approved by LESSOR, the Tenant Improvements Plans will
be prepared by the Paul Giese, AIA or Kenneth D. Smith and Associates. If
LESSEE delays in providing the Tenant Improvement Plans or permits, such
delay shall not change the Commencement Date of the Lease, which shall be the
date the Premises would have been available for occupancy, but for any such
delay. The Tenant Improvement Plans shall be subject to LESSOR's prior
approval, which will not be unreasonably withheld; provided, however, LESSOR
shall have the absolute right of disapproval, in its sole discretion, of any
Tenant Improvements which (a) alter or otherwise affect any structural
component of the Building, (b) are visible from the exterior of the Premises,
(c) the Tenant Improvement Plans specify materials which are not readily
available or customarily and ordinarily used in similarly situated
construction work where the procurement of such materials would cause a delay
in Substantial Completion (as defined below), (d) if the Tenant Improvement
Plans do not provide for the construction of approximately 20,000 Rentable
Square Feet of Improved Office Space (as defined below) or (e) the Improved
Office Space improvements are not comparable in quality to similar
improvements at the premises of Aetrium, Inc., located at 13000 Gregg Street,
Poway. LESSOR shall have thirty (30) days after receipt of the Tenant
Improvement Plans in which to approve or disapprove the Tenant Improvement
Plans. If LESSOR does not disapprove the Tenant Improvement Plans within such
thirty (30) day period, LESSOR shall be deemed to have approved the Tenant
Improvement Plans. If LESSOR reasonably disapproves the Tenant Improvement
Plans, LESSEE, at its expenses, shall promptly cause the Tenant Improvement
Plans to be revised and resubmitted to LESSOR for its review and approval
within fifteen (15) days from notice of LESSOR's disapproval. Following
LESSOR's approval, LESSOR will have the Architect submit the Tenant
Improvement Plans for government plan checking and a building permit, if
required, provided, LESSOR shall have the right to approve any changes
required by such governmental authorities. The final Tenant Improvement Plans
shall be subject to any changes required by governmental authorities.
5.2.1 "IMPROVED OFFICE SPACE" DEFINED. The term "Improved Office
Space" means portions of the rentable area of the Premises other than those
to be used for manufacturing, warehousing, storage or shipping which are
improved with suspended ceilings, air conditioning and heating systems,
finished flooring and walls other than the perimeter walls forming the
Building Shell and which is located in the area denoted as "Office Space on
the Site Plan (EXHIBIT "2").
5.2.2 NO LESSOR LIABILITY. The rights granted LESSOR to approve
the Tenant Improvements and the Tenant Improvement Plans are solely for the
benefit of LESSOR. LESSOR shall have no obligation or liability whatsoever to
LESSEE or any other person on account of LESSOR's approvals in the event the
Tenant Improvements do not conform to Applicable Requirements or otherwise
contain defect or deficiencies. LESSEE agrees that it is solely responsible
for the compliance of designing the Tenant Improvement with all Applicable
Requirements and the provision of this Lease.
5.3 APPROVED CONTRACTOR. Hamann Construction, a licensed general
contractor, will be the general contractor for construction of the Building
Shell Improvements and Tenant Improvements. LESSOR and LESSEE hereby approve
Hamann Construction acting as the general contractor ("Contractor"). The
Contractor's agreed-upon markup (profit and overhead) for the Tenant
Improvements will be 12% of the actual costs incurred in the development and
construction of the Tenant Improvements exclusive only of the costs of the
preparation of the Tenant Improvement Plans and government permits.
5.3.1 LESSEE's REVIEW OF SUBCONTRACTORS' BIDS. LESSEE shall have
the right to review the subcontracted proposals ("Bids") for the Major Trades
(as defined below) required for construction of the Tenant Improvements. No
later than thirty (30) days prior to the commencement of construction, LESSOR
shall cause Contractor to deliver to LESSEE Bids for each Major Trade from no
less than three (3) licensed and qualified subcontractors together with a
written notice specifying the Bids which Contractor recommends for
acceptance. LESSEE shall have the right to reasonably disapprove one of the
Bids for each of the Major Trades selected by Contractor by giving LESSOR
written notice of any objection that LESSEE may have to such Bids within five
(5) days from LESSEE's receipt of the Bids from Contractor, provided,
however, LESSEE shall not have the right to disapprove more than one (1) bid
within a Major Trade and Contractor shall have the right to select any of the
remaining Bids in such Major Trade category. LESSEE's notice of disapproval
shall explain in detail the basis for the disapproval of any Bid recommended
by Contractor. Contractor shall have the right to utilize any subcontractors
submitting Bids for which LESSEE does not timely give notice of its
disapproval. The term "Major Trends" means portions of the construction work
consisting of the supply or installation of electrical, heating and air
conditioning, fire sprinkler system, framing, drywall, plumbing, painting,
floor coverings, suspended ceilings, glass, doors and ceramic tile.
5.4 PAYMENT OF TENANT IMPROVEMENT COSTS. The phrase "Tenant
Improvement Costs" means all direct and indirect costs of designing,
furnishing, constructing and installing the Tenant Improvements, including
(a) costs for design and/or architectural services of the Architect in
preparing the Tenant Improvement Plans, (b) government permit costs
applicable to the Tenant Improvements, (c) amounts payable to the Contractor
for overhead/profit, job site supervision, cleanup, trash and janitorial
services as shown in the Cost Breakdown Tenant Improvement (EXHIBIT "5"), (d)
the actual "hard costs" of construction of the Tenant Improvements, (e)
financing costs attributable to financing to pay the Tenant Improvement
Costs, including, construction period interest from the initial loan funding
until the Commencement Date, loan points, fees and other costs, such as
appraisals, environmental surveys, legal fees and other costs customarily
incurred in connection with such financing; and (f) leasing brokerage
commissions based on the portion of rentals attributable to the amortization
of the LESSOR's payment of the Allowance described in subparagraph 5.4.2 of
this Addendum over the Lease Term.
5.4.1 ESTIMATE FOR TENANT IMPROVEMENT COSTS. Prior to the
commencement of construction, LESSOR shall cause the Contractor to make a
final selection of the Bids for each Major Trade and LESSOR, shall provide
final estimates of all other Tenant Improvement Costs ("Estimated Tenant
Improvement Costs"). LESSOR shall provide LESSEE written notice of such
Estimated Tenant Improvement Costs, which notice will include copies of the
Bids for the Major Trades.
5.4.2 LESSOR'S ALLOWANCE. LESSOR agrees to pay a maximum of Nine
Hundred Sixty Nine Thousand Dollars ($969,000.00) for the Tenant Improvement
Costs ("Allowance"). The Allowance shall be applied solely to pay the cost of
the Tenant Improvements, and under no circumstances shall LESSEE be entitled
to any payment on account of any unused portion of the Allowance following
completion of the Tenant Improvements and payment of the Tenant Improvement
Costs. The amount of the Allowance actually expended for payment of Tenant
Improvement Costs shall be the amount used to determine the amount of the
Tenant Improvement Allowance Amortization Charge described in section 2.3 of
this Addendum. LESSOR shall pay its share of the Tenant Improvement Costs as
construction progresses.
5.4.3 LESSEE'S PAYMENT/INITIAL CONTRIBUTION. Except for LESSOR's
Allowance, LESSEE shall be responsible for the payment of all Tenant
Improvement Costs. The amount of LESSEE's initial contribution will be
determined based on the Estimated Tenant Improvement Costs, and LESSEE shall
pay to LESSOR, as provided in this subsection, an amount equal to the
difference between LESSOR's Allowance and the Estimated Tenant Improvement
Costs ("Initial Contribution"). LESSEE shall pay such Initial Contribution to
an institutional fund control established by LESSOR for payment of the Tenant
Improvement Costs within ten (10) days from LESSOR's notice requesting such
payment. Such funds shall be disbursed on a pro rated basis with LESSOR's
Allowance based on the percentage of completion of the Tenant Improvements,
as reasonably determined by LESSOR.
5.4.4 FINAL RECONCILIATION. Following completion of the
construction of the Tenant Improvements, LESSOR shall to deliver to LESSEE a
final accounting of the Tenant Improvement Costs. If additional amounts are
due from LESSEE on account of differences between the Estimated Tenant
Improvement Costs and the actual costs incurred, LESSEE shall reimburse
LESSOR in the amount of such difference following completion of the
construction of the Tenant Improvements and within fifteen (15) days from
receipt of a written notice and accounting from LESSOR's accounting. If such
final accounting shows that the actual Tenant Improvement Costs are less than
the Estimated Tenant Improvement Costs, then LESSEE shall be entitled to a
credit in the amount of any excess paid by LESSEE, which credit shall be
applied to the next payment of Base Rent then becoming due.
5.4.5 COSTS ATTRIBUTABLE TO CHANGES. LESSEE will be responsible
for payment of any excess Tenant Improvement Costs resulting from any changes
to the Work requested by LESSEE or necessitated by government requirements,
following LESSOR's approval of the Tenant Improvement Plans. Any such changes
shall be subject to LESSOR's approval and LESSEE shall deposit funds with
LESSOR to pay such costs within thirty (30) days following notice from LESSOR
of the Contractor's estimated cost for any change. If the actual cost of the
change is less than the estimate, LESSOR shall refund the difference to
LESSEE upon LESSEE's occupancy, and if the actual cost is more than the
estimate, LESSEE shall pay the difference within thirty (30) days of a notice
from LESSOR documenting such actual costs.
5.4.6 INSPECTION OF RECORDS. LESSEE, or its designated
representative, shall have the right during the course of performance of the
construction of the Building Shell and the Tenant Improvements and in
connection with the final reconciliation of the Tenant Improvement Costs as
provided in subsection 5.4.4 of this Addendum to a reasonable review of books
and records maintained by LESSOR and Contractor relating to such costs. Such
right of inspection is exercisable on reasonable written notice to LESSOR and
during the regular business hours of LESSOR or Contractor, whichever is
applicable.
5.5 COMPLETION OF TENANT IMPROVEMENTS. The Commencement Date of
the Lease shall not occur until Substantial Completion of construction of the
Tenant Improvements, except if Substantial Completion is delayed on account
of LESSEE's failure to timely submit the Tenant Improvement Plans and Permits
(or any revisions thereto), LESSEE's request for special materials, finishes
or installations other than those readily available and customarily and
ordinarily used in similarly situated construction work, changes to the
approved Tenant Improvement Plans, LESSEE's failure to timely pay its Initial
Contribution and any other amounts required to be paid by LESSEE in
connection with such construction or other delays caused by LESSEE ("LESSEE
Delays"). If such LESSEE Delays are encountered, the Commencement Date of
this Lease shall occur prior to Substantial Completion of the Tenant
Improvements and as of the date such Tenant Improvements would have been
substantially complete but for such delays.
5.5.1 "SUBSTANTIAL COMPLETION" DEFINED. The term "Substantial
Completion" means the date upon which LESSOR reasonably satisfies all of the
following requirements: (a) the construction of the applicable Building Shell
Improvements and Tenant Improvements are substantially completed, subject
only to minor corrective work which does not materially affect or limit
LESSEE's use of the Premises; provided, LESSOR shall complete any such minor
work within thirty (30) days following Substantial Completion; (b) LESSOR has
procured a certificate of occupancy (whether temporary or permanent) or other
applicable permit permitting LESSEE's immediate use and occupancy of the
Premises; and (c) LESSOR has given LESSEE written notice stating that such
Substantial Completion has occurred and that the Premises are available for
LESSEE's immediate possession and occupancy ("Notice of Possession"). LESSOR
shall give LESSEE at least ten (10) days written notice in advance of the
estimated date of Substantial Completion.
6. LIMITATIONS ON LESSOR'S WARRANTIES. Notwithstanding the
provisions of Paragraphs 2.2 and 2.3 of the Lease, LESSOR's warranties in
Paragraphs 2.2 and 2.3 of the Lease apply only to the improvements included
in the Building Shell and LESSOR is not making any warranty concerning the
Tenant Improvements nor the suitability of such Tenant Improvements for use
by LESSEE since LESSEE is responsible for the design of the Tenant
Improvements.
6.1 COMPLIANCE WITH APPLICABLE REQUIREMENTS. Notwithstanding the
provisions of Paragraph 2.3 of the Lease, LESSOR's warranty in Paragraph 2.3
is subject to the following limitations: (a) the warranty applies only to the
improvements included in the Building Shell, and LESSOR is not making any
warranty concerning the compliance of the design of the Tenant Improvements
with such codes, regulations, ordinances and restrictions; (b) the warranty
only applies to any condition which (i) violates building codes, regulations
or ordinances, and (ii) has a material, adverse impact on LESSEE's use of the
Premises for office, distribution and warehousing use; and (c) LESSEE, not
LESSOR, shall be responsible for any modifications or improvements required
on account of special Americans With Disabilities Act ("ADA") requirements
resulting from any unusual use or employment practices of LESSEE which are
not ordinary and customary to the use or practices of tenants generally in
similarly situated real estate projects. If LESSEE does not give LESSOR
written notice of the Premises non-compliance, as of the Commencement Date,
with the warranty within one (1) year after the Commencement Date, correction
of any non-compliance shall be the obligation of LESSEE, at LESSEE's sole
cost and expense.
6.2 SPECIAL PROVISIONS REGARDING HAZARDOUS MATERIALS. Except as
expressly provided in this subsection, LESSOR is not making any
representation, warranty or agreement concerning the absence of Hazardous
Substance contamination of the Premises and LESSEE is assuming all risk of
loss arising from the presence of any Hazardous Substance contamination,
whether existing now or in the future. Promptly following Substantial
Completion of the Premises, LESSOR shall procure a Phase I Environment Site
Assessment Report prepared by a qualified investigator ("Phase I Report"). If
the Phase I Report discloses the existence of any Hazardous Substance
contamination of the Premises, LESSOR, subject to the limitation in
subsection 6.2.1 of this Addendum, shall be responsible to conduct and pay
for any additional investigation or further inquiry concerning such Hazardous
Substances and the cost of investigation removal, remediation, restoration
and/or abatement of such Hazardous Substance contamination; provided,
however, LESSOR shall not otherwise be liable to LESSEE for any loss, damage,
cost or expense suffered or incurred as a consequence of such Hazardous
Substance contamination. If the Phase I Report does not disclose the
existence of any Hazardous Substance contamination, then LESSOR shall not
thereafter have any further responsibility or liability with respect to any
Hazardous Substance Contamination.
6.2.1 LESSOR'S TERMINATION OPTION. If a Hazardous Substance
contamination is identified in the Phase I Report, (unless LESSEE is legally
responsible therefore, in which case LESSEE shall make the investigation and
remediation thereof required by the Applicable Requirements and this Lease
shall continue in full force and effect), and if the estimated cost to
remediate such condition exceeds Two Hundred Fifty Thousand dollars
($250,000.00), as determined by LESSOR in good faith, then LESSOR shall have
the right to terminate the Lease by giving written notice to LESSEE within
ninety (90) days after receipt by LESSOR of the Phase I Report disclosing the
Hazardous Substance condition of LESSOR's desire to terminate this Lease. In
the event LESSOR elects to give a termination notice, LESSEE may, within
thirty (30) days thereafter, give written notice to LESSOR of LESSEE's
commitment to pay the amount by which the cost of the remediation of such
Hazardous Substance Condition exceeds $250,000.00. LESSEEshall provide LESSOR
with adequate funds or satisfactory assurance thereof within thirty (30) days
following such commitment. In such event, this Lease shall continue in full
force and effect, and LESSOR shall proceed to make such remediation as soon
as reasonably possible after the required funds are available. If LESSEE does
not give such notice and provide the required funds or assurance thereof
within the time provided, this Lease shall terminate as of the date specified
in LESSOR's notice of termination.
6.3 LESSOR'S ENFORCEMENT OF CONTRACTOR'S WARRANTIES. LESSOR has
obtained from Contractor the following warranties ("Contractor's
Warranties"):
"CONTRACTOR unconditionally warrants all materials and equipment
furnished under this Contract will be new, unless otherwise specified,
and that all Work will be of good quality, free from material faults and
defects and in conformance with the Contract Documents. CONTRACTOR, at
its expense, shall repair or replace any Work requiring replacement or
repair within one (1) year from completion of the Project, except with
respect to the roof maintenance only, which CONTRACTOR will repair or
replace within two (2) years as required to prevent water penetration.
In the event CONTRACTOR fails to timely perform its warranty obligation,
OWNER shall have the right to cause such repairs or replacements and
CONTRACTOR shall be liable for the reasonable costs of such repairs or
replacements."
Notwithstanding the limitation on the LESSOR's warranties under Paragraphs
2.2 and 2.3 of the Lease and under this section or the time for enforcement
of LESSOR's warranties has expired, to the extent that any warranties
provided by the Contractor in connection with the construction of the
Premises cover any of the items described in Paragraphs 2.2 or 2.3 of the
Lease or LESSOR has any claim against the Contractor on account of any defect
or deficiency in the construction of the Premises, upon the written request
of LESSEE, LESSOR shall either (a) take such commercially reasonable action
as necessary to enforce any such warranties or claims for the benefit of
LESSEE to the extent LESSEE incurs or will incur any out-of-pocket expense or
cost in the performance of its obligations under this Lease for the repair or
maintenance of the Premises on account of any items covered by the
Contractor's warranty or as a result of any such defects or deficiencies,
provided that LESSOR shall first be entitled to recover its Legal Expenses
(as defined below) prior to any reimbursement to LESSEE of any such out-of-
pocket expenses, or (b) assign to LESSEE the right to enforce any such
warranties or claims, provided any such assignment shall be effective only to
the extent LESSEE incurs or will incur any out-of-pocket expense or cost in
the performance of its obligations under this Lease for the repair or
maintenance of the Premises on account of any items covered by the
Contractor's warranty or as a result of any such defects or deficiencies, and
LESSOR shall be entitled to receive any excess recovery after deduction of
LESSEE's Legal Expenses (as defined below).
6.3.1 "LEGAL EXPENSES" DEFINED. For purposes of this section, the
term "Legal Expenses" means reasonable attorneys' fees and costs (including
any expert witness fees), including attorneys' fees and costs in connection
with the enforcement of any award or judgment or any appellate proceedings,
which Legal Expenses are incurred by LESSOR in the event LESSOR elects to
enforce warranties or claims in any legal proceedings against the Contractor,
or incurred by LESSEE, in the event LESSOR assigns the right to LESSEE to
enforce such warranties or claims directly against the Contractor.
6.3.2 LIMITATIONS. Nothing in this section shall be construed or
applied to expand the scope of LESSOR's warranties under Paragraph 2 of the
Lease or otherwise extend the time for LESSEE's enforcement of LESSOR's
warranties.
7. USE OF PREMISES. LESSEE shall be solely responsible for determining
that the Premises are suitable and feasible for LESSEE's intended use and for
determining all Applicable Requirements. LESSOR, by giving its consent to any
use, shall not be deemed to warrant that such use is permissible under the
Applicable Requirements nor shall such consent constitute a waiver of any
other condition or requirement of this Lease and under no circumstance
whatsoever shall LESSOR have any liability to LESSEE (nor shall the validity
of this Lease be effected) if it is determined that any intended use is not
permitted or is in some manner subject to restrictions or limitations.
7.1 EXCEPTION/HAZARDOUS MATERIALS. Without limiting LESSEE's
obligations under Paragraph 6 of the Lease regarding compliance with
Hazardous Substance Laws, LESSEE has completed and delivered to LESSOR, a
Hazardous Materials Questionnaire in the form as set forth in EXHIBIT "6"
annexed to the Lease, which LESSOR may use for filing with applicable
government authorities in the event that LESSOR is required to make any such
filing. Within fifteen (15) days of a written request by LESSOR, LESSEE
agrees to complete and deliver to LESSOR an updated Hazardous Materials
Questionnaire. Notwithstanding any other provisions of the Lease, LESSEE
shall not use or otherwise engage in any activity upon the Premises that
would constitute a Reportable Use as defined in Paragraph 6.2(a) of the Lease
or otherwise significantly increase the risk of and/or potential severity of
contamination of Hazardous Substances, without LESSOR's prior written consent
in its sole discretion, including, without limitation engaging in any
business primarily involving the transport, storage, processing, packaging or
manufacture of Hazardous Substances.
8. ADDITIONAL PROVISIONS REGARDING REMOVAL OF PERSONAL PROPERTY. For
all purposes of the Lease (including Paragraph 7.4 of the Lease), the Tenant
Improvements shall constitute "Alterations and Utility Installations" and,
unless LESSOR otherwise ejects, shall become the property of LESSOR and shall
not be removed by LESSEE upon expiration or earlier termination of the Lease.
The term "Personal Property" means trade fixtures, personal property,
inventory, business equipment and furnishings supplied, owned or leased by
LESSEE, including, without limitation, components of LESSEE's telephone
system, computer and computer network systems and security systems; provided,
however, cabling and conduits for such systems shall not be removed by LESSEE
and shall be surrendered with the Premises upon expiration of the Lease.
Notwithstanding any other provision, LESSEE may not remove any property,
including any Personal Property, if such removal would cause material damage
to the Premises, unless such damages can be and are repaired by LESSEE.
Furthermore, LESSEE shall repair any damage to the Premises caused by
LESSEE's removal of any such Personal Property, and shall, prior to the
expiration or earlier termination of this Lease, restore and return the
Premises to the condition they were in when first occupied by LESSEE upon the
Commencement Date, reasonable ordinary wear and tear excepted. The provisions
of Paragraph 73 of the Lease shall apply to any restoration work under this
section the same as if the restoration was an Alteration or Utility
Installation.
8.1 FAILURE TO REMOVE PERSONAL PROPERTY. If LESSEE shall fail to
remove any personal property which it is entitled to remove under this Lease
prior to termination or expiration of this Lease, then LESSOR may retain
ownership of such property or may dispose of the property under the
provisions of Section 1980 ET SEQ. of the California Civil Code, as such
provisions may be modified from time to time, or under any other applicable
provisions of California law, without further notice or liability to LESSEE.
8.2 LEASE/SECURITY INTEREST FILING. In the event LESSEE shall
lease of finance the acquisition of Personal Property utilized by LESSEE in
the operation of LESSEE's business, LESSEE warrants that any Uniform
Commercial Code financing statement executed by LESSEE will upon its face or
by exhibit clearly indicate that such financing statement is applicable only
to Personal Property of LESSEE specifically described in the financing
statement that is subject to removal on the expiration or earlier termination
of this Lease. In no event shall the address of the Building (or other
information identifying the Premises) be furnished on the financing statement
without qualifying language as to applicability of the lien only to Personal
Property of LESSEE described in the financing statement. Should any holder of
a security agreement executed by LESSEE record or place of record a financing
statement which appears to constitute a lien against any interest of LESSOR
in the Premises, LESSEE shall within ten (10) days after the filing of such
financing statement cause (i) copies of the security agreement or other
documents to which the financing statement pertains to be furnished to LESSOR
to facilitate LESSOR's being in a position to show such lien is not
applicable to any interest of LESSOR, and (ii) the holder of the security
interest to amend documents or record so as to clarify that such lien is not
applicable to any interest of LESSOR in the Premises.
9. LESSOR'S INDEMNITY OBLIGATION. Notwithstanding the exemption from
LESSOR's liability provided in Paragraph 8.8 of the Lease, LESSOR agrees to
indemnify, defend and hold harmless LESSEE from any loss, damage, cost or
expense (including reasonable attorneys' fees and legal expenses) suffered or
incurred by LESSEE as a result of any personal injury or property damage
caused by LESSOR's employees, agents or contractor while such employees,
agent or contractors are present on the Premises.
10. ADDITIONAL INSURANCE PROVISIONS. The provisions of this section
supplement the provisions of Paragraph 8 of the Lease, provided in the event
of any inconsistency, the provisions in this section shall supersede and
control.
10.1 ADJUSTMENT OF LESSEE'S LIABILITY INSURANCE. The liability
insurance to be maintained by LESSEE in accordance with Paragraph 8.2 of the
Lease shall be subject to increase no more frequently than each three (3)
Lease Years as reasonably determined by LESSOR's insurance advisor taking
into account prevailing industry practices for similar businesses.
10.2 LIMITATION ON WAIVER OF SUBROGATION. As between LESSOR and
LESSEE, the waiver and release set forth in Paragraph 8.6 of the Lease shall
only apply to the extent of the actual amount of the insurance proceeds
received.
10.3 SPECIAL DEDUCTIBLE/EARTHQUAKE INSURANCE. In the event
earthquake insurance coverage is required by LESSOR's lender, such insurance
shall be subject to reasonable deductibles. In accordance with industry
practices in the locale as reasonably determined by LESSOR's professional
insurance advisor, provided, LESSOR shall be responsible for payment of any
such deductible amounts.
11. ADDITIONAL PROVISIONS REGARDING ASSIGNMENT/SUBLEASE. This section
includes provisions that modify and/or supplement the provisions of Paragraph
12 of the Lease concerning the assignment and subleasing of the Premises.
Except as expressly set forth in subsections 11.1 to 11.3 of this Addendum,
the provisions of Paragraph 12 of the Lease shall be enforced in accordance
with their terms.
11.1 AFFILIATE TRANSACTION. Subject to compliance with Paragraph
12.2 of the Lease and the requirements of sections 11.1.1 to 11.1.4 of this
Addendum, LESSOR's consent to an Affiliate Transaction shall not be required,
and the provisions of Paragraph 12.1(d) of the Lease shall not apply to an
Affiliate Transaction so long as LESSEE is not otherwise in Default under
this Lease at the time of the proposed transaction. The term "Affiliate
Transaction" means (a) any assignment or sublease to an entity controlling,
controlled by or under common control with LESSEE; or (b) any assignment
resulting from a bona fide consolidation, merger or purchase of substantially
all of LESSEE's assets; provided, however, any such assignment or sublease
shall not release or otherwise affect LESSEE's liability for its obligations
under the Lease.
11.1.1 NOTICE AND TRANSFER DOCUMENTATION TRANSACTION. Any
Affiliate Transaction shall comply with all conditions and requirements in
this section 11.1.1. No later than ten (10) days following the consummation
of an Affiliate Transaction, any assignee or sublessee shall (a) execute and
deliver to LESSOR a copy of this Lease to confirm such assignee's or
sublessee's assumption of any and all obligations of LESSEE under this Lease,
and (b) deliver to LESSOR, Transfer Documentation as described in clauses
(a), (b) and (c) of section 11.2.2 of this Addendum.
11.1.2 ADDITIONAL REQUIREMENTS. In the case of an Affiliate
Transaction described in clause (b) of section 11.1 of this Addendum in
addition to compliance with the requirements in section 11.1.1 of this
Addendum, such assignee or sublessee, shall: deliver to LESSOR the additional
Transfer Documentation as described in clause (d) of section 11.2.2 of this
Addendum evidencing satisfaction of the Financial Standard (as defined below)
to qualify as an Affiliate Transaction. The term "Financial Standard" means:
(a) immediately prior to and after the sale and transfer of assets or stock
to such the assignee or sublessee, such assignee or sublessee has a net
worth, determined in accordance with generally accepted accounting
principles, which exceeds $5,000,000.00; and (b) for the fiscal year
immediately preceding the sale and transfer of such assets or stock such
assignee or sublessee has realized a net profit, determined by generally
accepted accounting principles consistently applied, of not less than
$1,000,000.00. If the proposed assignee or sublessee does not satisfy such
Financial Standard than such transaction shall not constitute an Affiliate
Transaction and shall require LESSOR's consent in accordance with section
11.2 of this Addendum.
11.1.3 NO CHANGE IN HAZARDOUS SUBSTANCE USE. In order to
qualify as an Affiliate Transaction, the assignee's or sublessee's use of the
Premises shall not increase the risk of contamination of any Hazardous
Substance from the risk presented by LESSEE's use of the Premises as
determined by a qualified environmental consultant designated by LESSOR.
11.1.4 NON-COMPLIANCE/DEFAULT. If a purported Affiliate
Transaction does not comply with all requirements and conditions for a
qualified Affiliate Transaction, such transaction shall require LESSOR's
consent in accordance with the procedures in section 11.2 of this Addendum
and the occurrence of such transaction without such consent shall constitute
a Default under this Lease.
11.2 NON-AFFILIATE TRANSACTIONS. The provisions in this section
are in addition to the provisions of Paragraph 12 of the Lease, provided such
provisions do not apply to an Affiliate Transaction except as stated in
section 11.1 of this Addendum.
11.2.1 PRESUMPTION OF REASONABLENESS. To the extent that the
Lease provides for LESSOR's reasonable consent to an assignment or sublease
of the Lease, LESSEE acknowledges and agrees that LESSOR shall be
conclusively deemed to have reasonably withheld such consent If (a) a
proposed assignee does not comply with the Financial Standards described in
section 11.1 of this Addendum as of the date of the proposed assignment or
sublease, or (b) the assignee's or sublessee's use of the Premises would
increase the risk of contamination of any Hazardous Substance from the risk
presented by LESSEE's use of the Premises as determined by a qualified
environmental consultant designated by LESSOR. LESSEE shall be responsible
for the fees of such consultant. Nothing in this section shall be construed
or applied to restrict LESSOR from withholding its consent for other
reasonable grounds, and this provision is included solely to provide LESSOR
the benefit of the conclusive presumption with respect to one or both of the
above described conditions.
11.2.2 "TRANSFER DOCUMENTATION" DEFINED. The term "Transfer
Documentation" means and includes the following documentation, which shall be
certified in writing as true, correct and complete by the LESSEE and any
assignee or sublessee: (a) the name, address, telephone number and
responsible representative of the assignee or sublessee; (b) written reports,
government filings and other relevant documentation, if any, describing the
extent of the use of Hazardous Substances in assignee's or sublessee's
general business operations and, if different, the use of the Premises
proposed by assignee or sublessee; (c) all written contracts and agreements,
including lease assignments, signed between LESSEE (or any of its affiliates)
and the assignee or sublessee relating to or in any way concerning the
assignment or subletting or any contemporaneous transaction, which in the
case of a purported Affiliate Transaction, such contracts and agreements must
evidence that the assignment or sublease conform to all requirements of an
Affiliate Transaction; and (d) audited financial statements prepared by a
certified public accountant or equivalent, for the last three (3) years of
assignee's operation, including balance sheet, income statements and any
other statement prepared in the ordinary course of assignee's or sublessee's
operations.
11.2.3 TIME FOR CONSENT. LESSOR shall give LESSEE written
notice of its consent or refusal to consent to a proposed assignment no later
than forty five (45) days following receipt from LESSEE of the last of the
Transfer Documentation and LESSEE's payment under Paragraph 12.2(e) of the
Lease ("LESSOR's Notice"). If LESSOR does not timely give LESSOR's Notice,
LESSOR shall be deemed to have given its consent to the assignment as
disclosed in the Transfer Documentation.
11.2.4 RIGHT OF FIRST REFUSAL. In the event LESSEE desires
to assign this Lease or enter into a Major Sublease of the Premises other
than in an Affiliate Transaction, LESSOR shall have a period equal to the
period for LESSOR to consent or not consent under section 11.2.3 of this
Addendum ("Election Period") to notify LESSEE of LESSOR's election to
terminate this Lease as to the entire Premises, in which event Tenant shall
be released from all further obligations under the Lease and LESSOR shall be
free to enter into a new lease with the proposed assignee or sublessee;
provided, however, in the case of a Major Sublease, such termination shall
only apply with respect to the portion of the Premises subject to such
sublease and this Lease shall remain in full effect with respect to the
remaining portion of the Premises. The provisions of this section apply
regardless of whether or not LESSOR agrees to consent to such transfer. The
term "Major Sublease" means a sublease (a) for 25% or more of the Rentable
Square Footage of the Premises then used by LESSEE taking into account any
prior sublease(s) for a term of (a) three (3) years or more, or (b) if the
remaining Term of the Lease is less than five (5) years, then substantially
all of the remaining Term of the Lease. If LESSOR does not give LESSEE notice
of its election to exercise its right to terminate all or a portion of the
Lease as provided in this provision on or before expiration of the Election
Period, then LESSOR's rights under this section shall expire with respect to
the proposed transaction and the provisions of section 11.2.5 below shall
apply.
11.2.5 RENT ADJUSTMENT. If LESSEE subleases the Premises
(regardless of whether such sublease is consented to by LESSOR) and, if
applicable, LESSOR does not elect to terminate the Lease in accordance with
section 11.2.4 of this Addendum, the Rent due under this Lease shall be
automatically increased as follows: (a) in the case of a Major Sublease, in
an amount equal to fifty percent (50%) of the Net Profit (as defined below)
received by LESSEE from such sublessee; or (b) in the case of a sublease
other than a Major Sublease, in an amount equal to twenty five percent (25%)
of the Net Profit (as defined below) received by LESSEE from such sublessee.
"Net Profit" shall mean the excess in Base Rent or other consideration
received by LESSEE for the portion of the Premises sublet, over the Base Rent
and other Rent payable by LESSEE to LESSOR for such portion of the Premises,
after deducting reasonable brokerage commissions actually paid by LESSEE for
such. Such amounts shall be due and payable within fifteen (15) days from
LESSEE's receipt. In the event of subletting of only a portion of the
Premises, in calculating whether the rent received by LESSEE exceeds the Rent
payable under this Lease, the Rent payable under the Lease shall be prorated
according to the Rentable Square Feet subject to the sublease. In the case of
a permitted assignment LESSOR's only right is to elect to terminate the Lease
in accordance with section 11.2.4 above, and if LESSOR does not elect to
terminate the Lease, no adjustment in Rent shall be made under this section
on account of such assignment. In no event shall the Rent due under the Lease
be reduced as a result of the operation of this section.
11.2.6 NONCOMPLIANCE WITH CONSENT REQUIREMENT. In the case
of an assignment or sublease which requires LESSOR's consent but for which
LESSEE did not obtain LESSOR's consent in addition to all other rights and
remedies, LESSOR may elect, by giving LESSEE written notice, to adjust the
Rental payable under this Lease to an amount equal to the then fair rental
value of the Premises.
11.2.7 LESSEE'S ACKNOWLEDGEMENTS. LESSEE acknowledges and
agrees that LESSEE is entering into this Lease to acquire the right to occupy
and possess the Premises for the operation of its business and not for the
purpose of or with a view to realizing a speculative economic return from an
increase in the value of the Premises by subleasing or assignment. LESSEE
agrees that, except as expressly provided, any such increase in value shall
belong to and constitute the property of LESSOR and, thus, the provisions of
section 11.2.4 providing for LESSOR's right to terminate the Lease and the
provisions of section 11.2.5 providing for the adjustment of Rent in certain
circumstances are fair, just and equitable and a part of the negotiated
bargain between LESSOR and LESSEE.
11.3 NO RELEASE OF LIABILITY. Notwithstanding any subletting or
assignment, LESSEE shall remain fully and primarily liable for the payment of
all Rent and other sums due, or to become due hereunder, and for the full
performance of all other terms, conditions, and covenants to be kept and
performed by LESSEE, except as provided in section 11.2.4 above. The
acceptance of rent or any other sum due hereunder, or the acceptance of
performance of any other term, covenant, or condition hereof, from any other
person or entity shall not be deemed to be a waiver of any of the provisions
of this Lease or a consent to any subletting or assignment of the Premises.
To the extent that LESSEE may contend that it is a surety or guarantor of the
obligations of the assignee or sublessee in contravention of the provisions
of this section, LESSEE freely, voluntarily and unconditionally waivers and
releases any and all defenses of a surety or guarantor, including without
limitation, rights, defenses or benefits which might otherwise be available
to any surety guarantor under California Civil Code Sections 2787 through
2855, inclusive, 2899 and 3433, and California Code of Civil Procedure
Sections 580a, 580b, 580d and 726, and any successor sections to such
sections of the Civil Code and Code of Civil Procedure.
11.4 SUBLEASE. In addition to the provisions of Paragraph 12.3
of the Lease, any sublease of the Premises shall be subject and subordinate
to the provisions of this Lease, shall not extend beyond the term of this
Lease. LESSOR's consent to any sublease shall not be deemed a waiver of the
requirement that LESSEE obtain LESSOR's consent for any further subletting by
any sublessee of LESSEE. In addition to any other provisions, LESSOR's
consent under this Lease shall be required with respect to any manner that
LESSEE specifies to a sublease as requiring LESSEE's consent.
12. NO RESTRICTION ON LESSOR'S REMEDIES. In the event that LESSEE
commits a Breach of the Lease by failing or refusing to take possession of
the Premises and commencing payment of the Rent, nothing in the Lease is
intended to nor shall it be applied to restrict any rights or remedies that
LESSOR may have on account of such Breach, including, without limitation,
LESSOR's entitlement to recover consequential and incidental damages from
LESSEE on account of such breach. LESSEE acknowledges that it is aware that,
based upon LESSEE's inducement in entering into this Lease, LESSOR is making
a substantial investment of its own funds and creditworthiness to develop the
Building, and, in the event of such Default by LESSEE, LESSOR will suffer
substantial damages and losses, including lost profits and loss of use of its
invested funds and credits and potential loss of its creditworthiness and
business reputation.
13. ADDITIONAL PROVISIONS REGARDING INDUCEMENT RECAPTURE.
Notwithstanding the provisions of Paragraph 13.3 of the Lease, neither the
Tenant Improvement Allowance or the Tenant Improvements provided by LESSOR
shall be deemed a part of the "Inducement Provisions" since the Tenant
Improvement Allowance Amortization Charge separately payable by LESSEE
already includes such amounts.
14. ADDITIONAL PROVISIONS REGARDING TENANCY STATEMENT. In addition to
the information required under Paragraph 16 of the Lease, LESSOR may also
require that LESSEE certify to the absence of any violations of any Hazardous
Substance Laws and require that LESSEE provide and certify to an updated
Hazardous Materials Questionnaire. In addition, in lieu of the form of the
Estoppel Certificate described in Paragraph 16 of the Lease, LESSOR shall
have the right, at its election, to require LESSEE to deliver an Estoppel
Certificate in the form of the Estoppel Certificate annexed to this Addendum
as EXHIBIT "7" and LESSEE agrees to execute and deliver to LESSOR from time
to time as requested by LESSOR.
15. PROHIBITION AGAINST RECOGNITION. LESSEE shall not record nor accept
to record this Lease or any memorandum referencing its option rights.
16. ADDITIONAL PROVISIONS REGARDING SUBORDINATION/NON-DISTURBANCE.
Without limiting the generality of LESSEE's obligations under Paragraph 30 of
the Lease, LESSEE approves the form of the Subordination, Nondisturbance and
Attornment Agreement annexed to the Lease as EXHIBIT "8" for use in
connection with any of LESSOR's financing of the Building which may, if
elected by LESSOR, be used in lieu of the form described in Paragraph 30 of
the Lease. LESSEE agrees to execute, acknowledge and deliver to LESSOR from
time to time as requested by LESSOR, such documents in favor of LESSOR's
lender(s) within ten (10) days of LESSOR's request and the failure to timely
provide such documentation shall constitute a non-curable Default under this
Lease.
17. SIGNAGE. LESSEE shall be entitled to one sign displaying its name
on the exterior facade of the building immediately in from of the entrance to
the premises subject to LESSOR's approval of the design, method of
installation and construction. LESSEE shall include such proposed signage
plans as a part of the Tenant Improvement Plans to be submitted for LESSOR's
approval. All installation and maintenance signage costs will be born by the
LESSEE. LESSEE shall be responsible for all its expense, causing all signage
to be permitted by the City of [ineligible] and conform to the Covenants
Conditions and Restrictions for the Pomerade Business Park and any other
Applicable Requirements.
18. CORPORATE RESOLUTION. Within ten (10) days of Lease execution,
LESSEE shall provide LESSOR with a certified copy of a Corporate Resolution
authorizing the person(s) designated below to execute this Lease on the
behalf of LESSEE and thereupon become a binding contractual obligation of
LESSEE.
19. RIGHT OF FIRST OFFER. After the expiration of the first Lease Year
and during the remaining Original Term or any Extended Term, LESSEE shall
have a Right of First Offer to lease the remaining space in the building
(Remaining Space) strictly in accordance with the terms and conditions of
subsections 19.1 to 19.6 of this Addendum.
19.1 OFFER NOTICE. If LESSOR desires to lease the Remaining Space
to a third party ("Third Party Lease"), LESSOR agrees to provide LESSEE with
a written notice ("Offer Notice") of LESSOR's interest to lease the Remaining
Space before entering into any binding agreement to lease the Remaining Space
to a third party. The Offer Notice shall set forth all of the material terms
("Offer Terms") of the proposed lease offering, including the proposed rent
payable by the tenant and commencement date.
19.2 ACCEPTANCE OF OFFER TERMS. LESSEE shall have five (5) days
after the deliver of the Offer Notice described above to elect to lease the
Remaining Space by (a) giving written notice to LESSOR of such election, and
(b) executing and delivering to LESSOR within such ten (10) day period
written acceptance of the Offer Terms. If LESSEE does not elect to lease the
LESSOR in accordance with the Lease.
25. RESTRICTIVE COVENANT. Subject to the limitations provided
in sections 25.1 to 25.4 below, LESSOR agrees to include in any lease of
other space in the Building of which the Premises are a part, the following
provision restricting the use of such other space:
"Notwithstanding any other provision of this Lease, LESSEE shall not
use, nor permit any Sublessee to use, the Premises for the purpose
of conducting a Primary Business consisting of an electronics
manufacturing services business specializing in box-build or
sub-assemblies for original equipment manufacturers primarily using
or distributing their products in the United States ("EMS"). The
term "Primary Business" means that during any calendar year more
than fifty percent (50%) of LESSEE's revenues are derived from
engaging in the restricted EMS business.
LESSEE acknowledges and agrees that LESSOR has included this
provision in this Lease in fulfillment of certain requirements in
LESSOR's lease with Technetics, Inc., DBA Smtek San Diego ("Smtek")
and this provision is expressly intended for the benefit of and
shall be enforceable by Smtek through injunction relief or other
equitable remedies in the event of LESSEE's violation of these
provisions."
25.1 NO LESSOR ENFORCEMENT OBLIGATION. LESSOR shall not be
responsible for undertaking any legal action to enforce such restrictive
covenant against such other tenant nor shall LESSOR be obligated to terminate
the lease of such other tenant or otherwise declare such lease in default or
breach on account of the failure of such other tenant to abide by such
restrictive covenant. LESSEE shall be solely responsible for the enforcement
of such restrictive covenant and LESSOR is not making any representation,
warranty or other covenant that such restrictive covenant is, or will be,
under any circumstances enforceable by LESSEE.
25.2 NO LIABILITY/NO TERMINATION. Under no circumstances
whatsoever shall LESSOR have any liability to LESSEE as a result of the
breach or default of such other tenant of such restrictive covenant and no
such breach or default shall constitute a basis for LESSEE's termination of
this Lease or any adjustment or other modification of any of the terms or
conditions of this Lease.
25.3 NON-TRANSFERABLE RIGHT. LESSEE's rights under this section
and under the restrictive covenants are solely for the benefit of Smtek, the
original LESSEE, and shall not be subject to assignment or sublease or
enforceable by any assignee or sublessee.
25.4 SUBORDINATE TO LENDER'S INTEREST. The rights of LESSEE
under this section are subordinate and inferior to any lender holding a
mortgage, deed of trust or other security interest in the Building. In the
event ownership of the Building is acquired by any such lender of LESSOR,
whether by foreclosure, deed-in-lieu of foreclosure or other similar
transactions as a result of LESSOR's default on any of its obligations to
such lender, or LESSOR's ownership is otherwise divested by any action of
such lender, then all of LESSEE's rights under this section 25 shall
immediately terminate without further notice or demand.
25.5 TERMINATION ON DEFAULT. The restrictive covenant provided
in this section shall terminate automatically and without notice or demand
from LESSOR in the event LESSEE commits a Default or Breach under this Lease.
26. NO BINDING OFFER. LESSOR'S SUBMISSION OF THIS DOCUMENT FOR
EXAMINATION, NEGOTIATION AND/OR SIGNATURE BY LESSEE DOES NOT CONSTITUTE AN
OFFER TO LEASE, NOR A RESERVATION OF, NOR AN OPTION FOR THE LEASE OF THE
PREMISES. THE DOCUMENT SHALL NOT BE BINDING AND IN EFFECT AGAINST EITHER
PARTY UNTIL AT LEAST ONE COUNTERPART OF THIS LEASE IS FULLY EXECUTED AND
DELIVERED BY LESSOR AND LESSEE.
"LESSOR"
POMERADO LEASING NO. 8 L.P.,
a California limited partnership
By: WHITMANN, INC.,
a California corporation,
Its General Partner
By: /s/ Jeffrey C. Hamann
-----------------------------------
Jeffrey C. Hamann, President
By: /s/ Daniel M. Whitaker
-----------------------------------
Daniel M. Whitaker, Secretary
"LESSEE"
Technetics, Inc. dba Smtek San Diego,
a California corporation
By: /s/ Michael E. Perry
-----------------------------------
[Signature]
Michael E. Perry
-----------------------------------
[Print Name], President
By:
-----------------------------------
[Signature]
-----------------------------------
[Print Name], Secretary
EXHIBIT 99.4
GUARANTY OF LEASE
THIS GUARANTY OF LEASE ("Guaranty") is dated as of December 20, 2000, by
POMERADO LEASING NO. 8 L.P., a California limited partnership ("LESSOR"), and
SMTEK INTERNATIONAL, INC., a Delaware corporation ("GUARANTOR"), and is made
with reference to the following facts, which are a material part of this
Guaranty:
A. LESSOR and Technetics, Inc. DBA Smtek San Diego, a California
corporation, ("TENANT"), are parties to that certain Standard
Industrial/Commercial Multi-Tenant Lease-Net dated December 20, 2000, as
amended ("Lease"), wherein, among other obligations, TENANT is renting and
occupying the Premises described in the Lease. Any words or phrases defined
in the Lease shall have the same meaning when used in this Agreement unless
otherwise expressly provided.
B. As a material and essential inducement to LESSOR's consent as
provided in the Assignment Consent and for other sufficient consideration,
GUARANTOR has offered and agreed to guaranty the payment of all obligations
and the performance of all covenants as set forth in the Lease as provided in
this Guaranty.
IT IS THEREFORE AGREED, in consideration for the representations,
warranties and covenants of the parties and for other good and valuable
consideration the receipt and sufficiency of which are hereby acknowledged,
as follows:
1. GUARANTEED OBLIGATIONS. GUARANTOR hereby unconditionally and
irrevocably guarantees to LESSOR the payment of, and promises to pay to
LESSOR, or order, upon demand after any Default or Breach under the Lease,
all indebtedness and obligations, of any nature whatsoever, of TENANT under
the Lease and any and all extensions, renewals, substitutions, replacements
and modifications thereof, and additionally promises to timely perform all
other obligations as set forth in the Lease. For purposes of reference in
this Guaranty, all of the obligations described in this section being
guaranteed by GUARANTOR are referred to as the "Guaranteed Obligations".
2. LIMIT OF GUARANTEED OBLIGATIONS. GUARANTOR's liability for the
Guaranteed Obligations will be limited to the first $969,000 accruing on
account of the Guaranteed Obligations, together with legal interest thereon
and legal expenses (i.e. reasonable attorneys' fees and other legal costs)
incurred by LESSOR in (a) obtaining possession of the Premises from LESSEE in
the event LESSOR becomes entitled to obtain such possession on account of
LESSEE's Breach of the Lease, and (b) in enforcing GUARANTOR's obligations
("Liability Limitation"). Additionally this Liability Limitation will decline
by $100,000 on each anniversary of the Commencement Date of the Lease unless
(i) there has been a Breach of the Lease or (ii) the Tenant is in Default of
the Lease at the time such reduction would otherwise be effective. If the
Tenant at any time has committed a Breach of the Lease, there will be no
further reduction in the Liability Limitation. If the Tenant has committed a
Default under the Lease, the reduction of the Liability Limitation will not
occur until the Default is fully cured and the next reduction will then occur
on the anniversary date such Default was cured. The GUARANTOR will have no
obligation for any Guaranteed Obligations accruing after the end of the
initial term of the Lease.
3. INDEPENDENT OBLIGATIONS. This Guaranty is a guaranty of payment
and not of collection. GUARANTOR's obligations under this Guaranty are
independent of those of TENANT and of the obligations of any other guarantor,
and are not conditioned or contingent upon the validity, regularity, or
enforceability of the Guaranteed Obligations or of the obligations of any
other guarantor. LESSOR may bring a separate action against GUARANTOR without
first proceeding against TENANT, any other guarantor, or any other person or
entity. LESSOR's rights under this Guaranty in respect of the Guaranteed
Obligations shall not be exhausted by any action of LESSOR until all of the
Guaranteed Obligations have been fully and indefeasibly paid.
4. WAIVER OF DEFENSES. GUARANTOR hereby waives all other rights and
defenses that are or may become available to GUARANTOR by reason of
California Civil Code Sections 2787 to 2839 inclusive. GUARANTOR waives all
rights under California Civil Code Section 2849 and any other benefit of or
right to participate in any security now or hereafter held by LESSOR. Without
limiting the generality of the preceding provision, GUARANTOR waives and
agrees not to assert or take advantage of:
(a) any right to require LESSOR to proceed against TENANT, any other
guarantor, or any other person or entity, or to pursue any other
remedy whatsoever, including, without limitation, any such right
or any other right set forth in or arising out of any of Sections
2845, 2847, 2848, 2849, and 2855 of the California Civil Code;
(b) any defense based upon any legal disability of TENANT or of any
other guarantor or any discharge or limitation of the liability
of TENANT or of any other guarantor to LESSOR, or any restraint
or stay applicable to actions against TENANT or against any other
guarantor, whether such disability, discharge, limitation,
restraint, or stay is consensual, arises by order of a court or
other governmental authority, or arises by operation of law or
any liquidation, reorganization, receivership, bankruptcy,
insolvency or debtor-relief proceeding, or from any other cause,
including, without limitation, any defense to the payment of
interest, attorneys' fees and costs, and other charges that
otherwise would accrue or become payable in respect of the
Guaranteed Obligations after the commencement of any such
proceeding;
(c) setoffs or counterclaims (except as otherwise available to
TENANT), presentment, demand, protest, notice of protest, notice
of non-payment, or other notice of any kind;
(d) any defense based upon the modification, renewal, extension, or
other alteration of the Guaranteed Obligations;
(e) any defense based upon LESSOR's delay that constitutes laches in
enforcing this Guaranty; LESSOR agrees that GUARANTOR does not
waive its right to a defense of the statute of limitations under
California law for breach of a written contract, said statute of
limitations being four (4) years after GUARANTOR's default under
this Guaranty;
(f) any defense based upon the death, incapacity, lack of authority,
or termination of existence of, or revocation of this Guaranty
by, any person or entity or persons or entities, or the
substitution of any party to this Guaranty;
(g) any defense based upon or related to GUARANTOR'S lack of
knowledge as to TENANT's financial condition; and
(h) any defense based upon the impairment of any subrogation or
reimbursement rights that GUARANTOR might have.
5. TENANT'S FINANCIAL CONDITION. GUARANTOR acknowledges that
GUARANTOR is relying upon GUARANTOR's own knowledge and is fully informed
with respect to TENANT's financial condition. GUARANTOR assumes full
responsibility for keeping fully informed of the financial condition of
TENANT and all other circumstances affecting TENANT's ability to perform its
obligations to LESSOR, and agrees that LESSOR will have no duty to report to
GUARANTOR any information that LESSOR receives about TENANT's financial
condition or any circumstances bearing on TENANT's ability to perform all or
any portion of the Guaranteed Obligations, regardless of whether LESSOR has
reason to believe that any such facts materially increase the risk beyond
that which GUARANTOR intends to assume or has reason to believe that such
facts are unknown to GUARANTOR or has a reasonable opportunity to communicate
such facts to GUARANTOR.
6. SUBROGATION AND ADDITIONAL WAIVER. Until all the covenants and
conditions in the Lease on TENANT's part to be performed and observed, are
fully performed and observed, GUARANTOR (a) shall have no right of
subrogation against TENANT by reason of any payments or acts of performance
by GUARANTOR hereunder; and (b) subordinates any liability or indebtedness of
TENANT now or hereafter held by GUARANTOR to the obligations of TENANT to
LESSOR under the Lease. GUARANTOR waives all rights and defenses arising out
of an election of remedies by LESSOR, even though that election of remedies
has destroyed or diminished GUARANTOR's rights of subrogation and
reimbursement against TENANT.
7. LIABILITY OF GUARANTOR. The liability of GUARANTOR under this
Guaranty shall in no way be affected by (a) the release or discharge of
TENANT in any creditor's receivership, bankruptcy or similar proceeding; (b)
the impairment, limitation or bankruptcy, or of any remedy for the
enforcement of TENANT's liability under the Lease resulting from the
operation of any present or future provision of the bankruptcy code or
similar statute or similar decision in any court; (c) the rejection or
disaffirmance of the Lease in any such proceedings; (d) the assignment or
transfer of the Lease by TENANT; (e) any disability of TENANT; (f) the
exercise by LESSOR of any of its rights or remedies reserved under the Lease
or by law; or (g) any termination of the Lease (except to the extent that
LESSOR otherwise specifically agrees in writing).
8. FINANCIAL STATEMENTS. If LESSOR desires to sell, finance or
refinance the property which compromises in whole or in part the Premises
which are the subject of the Lease, GUARANTOR agrees to deliver to any LESSOR
or buyer designated by LESSOR financial statements of GUARANTOR (in such form
as customarily prepared by or for GUARANTOR, including all audited statements
prepared, if any) as may be reasonably required by such LESSOR or buyer. Such
statements shall include the past three (3) years' financial statements of
GUARANTOR. And such financial statements shall be received by LESSOR in
confidence and shall be used only for the foregoing purposes.
9. ATTORNEYS FEES. In the event of any litigation between GUARANTOR
and LESSOR to enforce or interpret this Guaranty or in connection with the
Lease, the unsuccessful party to such litigation agrees to pay to the
successful party all fees, costs and expenses, including reasonable
attorneys' fees, expert witness fees and expenses.
10. BINDING EFFECT/ASSIGNMENT. This Guaranty shall be binding upon
GUARANTOR and GUARANTOR's heirs, executors, personal representatives,
successors, and assigns, and shall inure to the benefit of, and be
enforceable by, LESSOR and LESSOR's successors and assigns, including any
lender of LESSOR receiving such assignment as security. The benefit of this
Guaranty shall be assignable by LESSOR to successors and assigns and
enforceable by them, and the term "LESSOR" as used in this Guaranty includes
such successors and assigns. Any assignment of the Lease shall be deemed to
include the assignment of this Guaranty notwithstanding that this Guaranty is
not separate described in the instrument of assignment.
11. NOTICES. All notices and other communications shall be in writing
and provided to LESSOR at the address set forth in the Lease and to GUARANTOR
at the address set forth under GUARANTOR's signature, unless either party
gives the other written notice of a different address for notices and
communications.
12. SEVERABILITY. If any provision of this Guaranty shall be deemed
or held to be invalid or unenforceable for any reason, such provision shall
be adjusted, if possible, rather than voided, so as to achieve the intent of
the parties to the fullest extent possible. In any event such provision shall
be severable from, and shall not be construed to have any effect on, the
remaining provisions of this Guaranty, which shall continue in full force and
effect.
13. MULTIPLE OBLIGORS. If "GUARANTOR" refers to more than one person
or entity, then (i) the obligations of each such person or entity shall be
joint and several; (ii) all references to the "GUARANTOR" shall, unless the
context otherwise requires, refer to all such parties jointly and severally;
and (iii) each such person or entity named as GUARANTOR waives any and all
defenses based upon suretyship or guaranty or impairment of collateral. If
GUARANTOR is a partnership, the partnership and all general partners therein
shall be jointly and severally liable under this Guaranty. Where "TENANT" is
more than one person or entity, the word "TENANT" shall mean all and any one
or more of them.
14. GOVERNING LAW; JURISDICTION. This Guaranty shall be governed by
and construed in accordance with the laws of the State of California
applicable to contracts to be wholly performed within the State of
California. GUARANTOR, by execution of this Guaranty, irrevocably consents to
the jurisdiction of the Courts of the State of California and of any Federal
Court located in such State in connection with any action or proceeding
arising out of or relating to this Guaranty.
15. RIGHTS CUMULATIVE; NO WAIVER. LESSOR's options, powers, rights,
privileges, and immunities specified herein or arising hereunder are in
addition to, and not exclusive of, those otherwise created or existing now or
at any time, whether by contract, by statute, or by rule of law. LESSOR shall
not, by any act, delay, omission or otherwise, be deemed to have modified,
discharged, or waived any of the LESSOR's options, powers, or rights in
respect of this Guaranty, and no modification, discharge, or waiver of any
such option, power, or right shall be valid unless set forth in writing
signed by LESSOR or LESSOR's authorized agent, and then only to the extent
therein set forth. A waiver by LESSOR of any right or remedy hereunder on any
one occassion shall be effective only in the specific instance and for the
specific purpose for which given, and shall not be construed as a bar to any
right or remedy that LESSOR would otherwise have on any other occasion.
16. ENTIRE AGREEMENT. This Guaranty contains the entire agreement
between GUARANTOR and LESSOR with respect to its subject matter, and
supersedes all prior communications relating thereto, including, without
limitation, all oral statements or representations. No supplement to or
modification of this Guaranty shall be binding unless executed in writing by
GUARANTOR and LESSOR.
17. NO EXECUTION BY LESSOR. LESSOR, by acceptance of the delivery of
this Guaranty from GUARANTOR shall be deemed to have accepted the terms and
conditions of this Guaranty. This Guaranty does not require LESSOR to execute
this GUARANTY as a condition to its effectiveness.
18. EFFECTIVENESS. Notwithstanding any other provision hereof: (i)
this Guaranty shall not be or become effective unless and until the
Assignment shall become effective; (ii) this Guaranty shall become effective
automatically and immediately upon the effectiveness of the Assignment
without further notice; and (iii) if the Assignment does not become effective
within ninety (90) days of the date hereof this Guaranty shall automatically
be cancelled as provided in the Assignment Consent.
19. RELEASE OF GUARANTY. This Guaranty shall be subject to
termination or, if applicable, partial termination, as provided in this
section in the event that LESSOR exercises its right to terminate the Lease
pursuant to section 11.2.4 of the Addendum to the Lease in the event of a
proposed assignment or Major Sublease. In such event, GUARANTOR will be
released from any further liabilities under this Guaranty accuring from and
after the date of the Lease termination. In the case of a Major Sublease,
this Guaranty will only terminate with respect to the portion of the space
subject to the Major Sublease for which TENANT is released from liability
pursuant to the operation of section 11.2.4 of the Addendum to Lease and
shall continue in full force and effect with respect to the Lease for the
remaining portion of the Premises.
IN WITNESS WHEREOF, GUARANTOR has executed this Guaranty to be effective
as of the date first set forth above.
"GUARANTOR"
SMTEK INTERNATIONAL, INC.,
a Delaware corporation
By: /s/ GREGORY L. HORTON
--------------------------------
[Signature]
Gregory L. Horton
--------------------------------
[Print Name], President
By: /s/ MITCHELL J. FREEDMAN
--------------------------------
[Signature]
Mitchell J. Freedman
--------------------------------
[Print Name], Secretary
EXHIBITS
Exhibit "1" Legal Description
Exhibit "2" Building Shell Drawings
Exhibit "3" Specifications
Exhibit "4" Triple Net Calculations
Exhibit "5" Cost Breakdown--Tenant Improvement
Exhibit "6" Hazardous Materials Questionnaire
Exhibit "7" Estoppel Certificates
Exhibit "8" Subordination, Non-Disturbance, and Attornment Agreement
Exhibit "9" Rules and Regulations
EXHIBIT "1"
LEGAL DESCRIPTION
Losts 96/97 of City of Poway Tract No. 85-04, Unit II, in the City of Poway,
State of California, according to map thereof no. 12572, filed in the office
of the County Recorder of San Diego County, February 28, 1990, as Instrument
No. 90-107515.
EXHIBIT "3"
SPECIFICATIONS
Concrete Tilt-Up Building for Smtek
July 20, 2000
1. DESIGN, ENGINEERING, AND PERMITS:
1.1. Building has be drawn, engineered and permitted by Kenneth D. Smith
Architect & Associates, Inc.
1.2. Landscaping drawings and civil engineering are included. Title 24
calculations will be a part of the Tenant Improvement Allowance.
1.3. Building to be built in accordance with all existing city, state
and federal codes.
1.4. All Permits and Utility fees are included.
2. SITE WORK:
2.1. We include staking as required by the city of Poway.
2.2. We include grading of the building pad (to balance) and soils
testing.
2.3. We include the installation of two 30' wide standard City of Poway
drive aprons.
2.4. We include on site fire hydrants.
2.5. We include on site storm drains.
2.6. We exclude the fencing of the site either temporary or permanent.
2.7. We include landscaping to City standards with adequate soil
amendments, automatic sprinkler systems and plantings as required.
2.8. We include building numbers and handicap signs but exclude other
signage and lettering such as tenant identification signage.
2.9. We exclude streetlights, street improvements and offsite curbs and
sidewalks.
3. CONCRETE WORK:
3.1. Footings will be approximately 12'x18'. The concrete slab will
be 3 1/2 thick, 4,000 psi concrete, reinforced with [ILLEGIBLE] at
18' on center. We exclude the sealing of slab joints and smooth
dowels at control joints.
3.2. We exclude Visqueen or other waterproofing in the slab areas. With
or without Visqueen, we do not recommend storing boxes or filing
cabinets directly on the floor or the use of plastic chair mats in
offices. If LESSEE desires to install vapor sensitive floorings
such as vinyl-reinforced tiles, sheet vinyl or epoxy coatings, then
waterproofing alternative concrete mixes, and/or vapor testing must
be considered.
3.3. We exclude piles or cassions, grade beams and structural
slabs if required.
3.4. The walls will be 6 1/2' to 7 1/2' thick concrete panels 30"0'
high, formed on the ground, poured with 3,000 psi concrete and
lifted into a vertical position using a crane. There will be a
minimal amount of medium sandblast at the concrete panels to match
Kellogg.
3.5. All parking and drive areas to be non-reinforced, 2,500 psi,
broom-finished concrete on native, 5 1/2' thick in car parking
areas and 7' thick in truck traffic areas.
3.6. Sidewalks will be 3 1/2" thick.
EXHIBIT "3", PAGE 1
SPECIFICATIONS
[STAMP]
3.7. Dock area to be paved with 7" of concrete. Dock walls will be
concrete tilt-up to 36" above grade where railing would be
required. We exclude trench drains and waterproofing at dock.
3.8. Onsite curbs will be 6"x6", extruded and cemented to the top of the
concrete paving.
4. ROOF:
4.1. Roof to be panelized roof structure 27' clear, with 8" round metal
interior posts to the roof structure per plan. Minimum roof slope
will be 1/4" per foot.
4.2. Roofing to be a four-ply built-up roofing system with a two-year
guarantee.
4.3. Roof to include 92 curb mounted, 4'x8', non-ventilated Tri-Star,
acrylic skylights, 47 curb mounted 4'x 8' Tri-Star smoke hatches
and 139 14" rotary vents.
4.4. Roof to be surrounded by parapet on all sides and drain to 6"
A85 plastic roof drains.
4.5. It has been our intention to provide parapet on all sides high
enough to hide standard air conditioning equipment; however, we
exclude additional roof screening if required by the City for other
LESSEE's roof-top equipment or for the screening of any equipment
required by the City because it is visible from above.
5. MECHANICAL:
5.1. Our shell-building price includes one 4" plastic sewer line, one 1'
copper waterline in the ceiling and one backflow prevention device.
All rough and finish plumbing will be a part of the tenant
Improvement allowance.
5.2. All HVAC will be a part of the tenant improvement allowance. We
exclude natural gas.
5.3. Shell Building Fire Sprinklers are included to a density of
.45/3000. We include the fire service and fire service (but exclude
Knox boxes or other special locking mechanisms, fire extinguishers
and supervisory alarm service.
6. ELECTRICAL:
6.1. Building to be served with 4000 amps of 460/277 three-phase power
with four tenant meters and one house meter. Please be aware that
San Diego Gas and Electric Company does not always install
transformers of sufficient size to power the electrical panels
provided by the Contractor. Before installing machinery upon move-
in or making any significant increase in your power consumption in
the future, you must notify SDG&E of your usage so that they can
make any necessary equipment changes.
6.2. All subfeed conductors and branch wiring to be copper, t.h.h.n.,
600 volt.
6.3. Panel Boards to be Challenger or ITE with bolt-on switches or
circuit breakers depending upon usage.
6.4. All interior wiring and lighting will be a part of the Tenant
Improvement Allowance.
6.5. The exterior of the building will be lit with 160 volt low pressure
sodium wall packs mounted on the building. We exclude parking lot
light standards.
6.6. Power distribution and hook-up for machinery is excluded.
7. EXTERIOR FINISH:
7.1. Exterior of building will be painted with two coats of Frazee
paint. We exclude waterproofing of sandblast areas.
7.2. Soffit areas will be finished with exterior gypsum ceiling board
and skim coat. We exclude fire molding.
EXHIBIT "3", PAGE 2
SPECIFICATIONS
[STAMP]
7.3. Exterior personnel doors will be 3'x7" 1 3/4", 18 gauge, metal
doors with Schlage "L" series, lever-handled, mortise locks.
7.4. Overhead doors to be 26 gauge Porveno Roll-ups or equal.
7.5. We include 7,500 square feet of medium-performance, LOF glass
(including filling in all unused dock doors with glass). We exclude
openable windows.
8. INTERIOR FINISH
8.1. The Interior Improvements will be accomplished under the Tenant
improvement and Warehouse Improvement allowances.
8.2. Warehouse ceiling insulation is excluded and not recommended.
8.3. Our price includes no mezzanine.
9. GENERAL INFORMATION
9.1. Lessor will supply all necessary Course of Construction,
Contractor's Liability and Worker's Compensation insurance.
9.2. Security fencing and security guards are excluded.
EXHIBIT "3", PAGE 3
SPECIFICATIONS
[STAMP]
HAMANN CONSTRUCTION
EXHIBIT 5
475 W. BRADLEY AVE.
EL CAJON, CA 92020 353,700 SQ. FT. OF LAND
44,214 SQ. FT. OF SLAB
COST BREAKDOWN 1,144 SQ. FT. OF MEZZ
CONCRETE TILT-UP BUILDING 11,397 SQ. FT. OF OFFICE
DATED: NOVEMBER 7, 2000 34,500 SQ. FT. OF PRODUCTION
45,358 TOTAL SQ. / AMOUNT
JOB: Smtek International 25.13% IMPROVED
12.82% COVERAGE 11/08/00
FILE: SMTEK8D5 T.I.
ITEM # UNIT PRICE AMOUNT
------------------------------------------------------------------------------------
110 DRAWINGS FOR FIELD USE 45,358 0.03 1,361
110 LANDSCAPING DRAWINGS 44,214 0.04 0
114 ENERGY CALCULATIONS 1 1500.00 0
120 CIVIL ENGINEERING/STAKING 1 9500.00 0
130 BUILDING LAYOUT 44,214 0.02 0
200 PERMITS (ALLOWANCE) 45,358 2.00 0
310 GRADING 44,214 0.50 0
312 EROSION CONTROL 0 0.00 0
320 SOILS TESTING 1 9000.00 0
410 WATER & SEWER FEES 0 0.00 0
420 G & E HOOK-UP FEES 1 4000.00 0
430 TEMPORARY UTILITIES 44,214 0.05 2,211
510 FOOTINGS AND FOUNDATIONS 44,214 3.00 0
510 CONCRETE CURBS UNDER WALL 72 12.50 900
510 LOCKER BASES 0 0.00 Nlc
510 SHEAR WALL GRADE BEAM 24 102.50 0
511 EARTH SHIELD 44,214 0.55 24,318
512 4000 LB. CONCRETE 44,214 0.14 0
517 LIGHTWEIGHT CONCRETE 1,144 1.05 0
519 EPOXY PAINT FLR. FIN @ COATING 366 2.50 915
510 SEAL CONCRETE FLOOR @ SHOP 615 0.50 408
520 CONCRETE PANELS 26,699 5.75 0
520 CONC. COL. BOX PANELS 2,304 6.50 0
520 CONCRETE LINTEL PANELS 1,888 6.50 0
520 CONCRETE SHEAR PANELS 1,204 6.75 0
521 CONCRETE TEXTURE 0 0.00 0
522 CONCRETE COLUMNS 0 0.00 0
530 ONSITE SIDEWALKS 2,054 4.35 0
530 COMPRESSOR & HAZ. MAT SLAB 329 4.00 1,316
530 RAMP & TRASH SLABS 1,466 2.96 0
540 CONTAINMENT CURB @ HAZ. MAT. 6 12.60 76
540 ONSITE CURBS 2,480 5.94 0
550 ONSITE CONC. PAVING 5 1/2" 66,931 1.82 0
550 ONSITE CONC. PAVING 7" (premium) 49,655 0.45 0
580 SWALES 0 0.00 0
570 COMPRESSOR / HAZ. MAT PANELS 670 7.00 4,690
570 DOCK/RAMP/TRASH PANELS 708 7.00 0
570 PATIO SCREEN PANELS 152 7.00 0
570 RAMP & HANDICAP RAMP PANELS 1,403 7.00 0
580 POURED IN PLACE STAIRS 0 85.00 0
610 ON-SITE FOOTINGS 142 17.00 0
610 RETAINING WALL FOOTINGS 0 20.00 0
612 MASONRY BLOCK 0 8.75 0
614 BACKFILL RETAINING WALLS 222 12.00 0
700 FORM LUMBER 45,358 0.07 0
610 SOFFITS & OVERHANGS (HIGH) 353 8.50 0
610 SOFFITS & OVERHANGS (LOW) 486 7.50 0
612 SIDING 0 0.00 0
614 EQUIPMENT SCREENS 0 0.00 0
820 ELECTRICAL ROOM FRAMING TO 12' 31 12.50 0
820 LOW WALLS @ STAIRS 66 11.60 759
820 FURRED WALLS @ CONCRETE 226 9.50 2,147
820 CLOSURE @ OPEN STAIRWELL 37 11.50 426
820 SKYLIGHT FRAMING TO 6' 33 11.50 380
820 OFFICE FRAMING TO 9' 0 11.50 0
820 OFFICE FRAMING TO 10' 716 11.50 8,234
820 OFFICE FRAMING TO 12' 68 12.50 850
820 OFFICE FRAMING TO 14' 0 13.60 0
830 OFFICE FRAMING TO 16' 0 15.50 0
820 OFF. FRAMING TO ROOF STRUCTURE 45 17.00 765
822 MEZZANINE 1,144 6.50 0
824 STAIRWAYS 1 2800.00 0
820 DEMISING WALLS @ OFF./PROD. 590 27.00 16,930
830 DEMISING WALLS @ LEASE AREA 138 27.00 0
843 MECHANICAL PLATFORMS 28 200.00 5,800
850 CARPENTRY HARDWARE 45,358 0.04 1,814
860 DRAFT STOPS LOW 0 6.00 0
860 DRAFT STOPS HIGH 0 36.00 0
899 BOTTOM NAILERS @ TRUSSES 835 5.25 3,334
899 CRICKETS @ SKYLIGHTS 0 13.50 0
910 PANELIZED ROOF 0 3.35 0
910 2X6 SUB PURLINS 45,897 0.12 0
910 LOW ROOFS 329 4.75 1,563
910 ROOF WELDING INSPECTION 0 0.12 0
920 BUILT-UP ROOFING 329 0.85 280
922 WATERPROOFING 0 2.50 0
930 SKYLITES @ (dual glzed premium only) 54 100.00 5,400
930 SMOKE HATCHES 0 295.00 0
930 4' X 4' SKYLIGHT AT STAIRWELL 1 350.00 0
920 6' X 6' SKYLIGHT AT STAIRWELL 1 1,250.00 1,250
932 ROTARY VENTS 69 45.00 0
934 ROOF LADDERS 1 450.00 0
1010 PLUMBING 34 725.00 24,650
1330 LATH & PLASTER 0 0.00 0
1410 RUBBER TREADS @ STAIRS 0 85.00 0
1410 VINYL COMPOSITION TILE 3,920 1.10 4,312
1410 CONDUCTIVE TILE FLOOR (ALLOW) 31,148 1.10 34,263
1415 TOP-SET BASE 4,150 1.10 4,565
1420 SHEET VINYL 887 2.45 1,683
1420 COVE BASE @ PROD. RESTROOMS 186 5.25 977
1430 FRP BOARD @ PROD. RESTROOMS 744 2.40 1,786
1440 TILE @ RECEPTION AREA (ALLOW) 159 7.50 1,193
1440 CERAMIC TILE @ OFFICE R.R. (ALLOW) 1,782 7.50 13,364
1450 CARPET (ALLOWANCE) 8,363 1.95 16,308
1460 WALLPAPER (ALLOWANCE) 0 0.00 0
1470 ACOUSTIC CEILING 10,145 1.20 12,174
1510 GLASS & GLAZING (6' UPPER) 1,548 17.00 0
1510 GLASS & GLAZING (9' LOWER) 2,664 17.00 0
1510 GLASS & GLAZING (17' CURTAIN) 867 17.00 0
1530 GLASS @ OVERHEAD DOORS 900 15.00 13,500
1530 INTERIOR GLASS AND GLAZING 670 13.00 8,710
1610 MTL DRS, FRMS & HW (SHELL) 9 650.00 0
1610 MTL DRS, FRMS & HW (3' X 8' INT) 1 625.00 625
1610 ADD FOR CARD READER @ VAULT 1 350.00 350
1610 DRS, FRMS, HW 3' X 8' PRE-FINISHED 9 700.00 6,300
1610 DRS, FRMS, HW 3' X 8' W / VISION LITE 7 775.00 5,425
1610 DRS, FRMS, HW 3' X 8' W / SIDE LITE 9 992.00 8,928
1610 DRS, FRMS, HW 3' X 8' (PAINT GRD.) 0 527.00 0
1610 DRS, FRMS, HW 4' X 8' (PAINT GRD.) 2 627.00 1,254
1610 DRS, FRMS, HW 4' X 8' (PT GRD. PR.) 2 1254.00 2,808
1610 DRS, FRMS, HW 4' X 8' (PT GRD. OUT.) 2 865.00 1,730
1610 IMPACT DOORS, FRAMES 2 1900.00 3,800
1610 STRIP CURTAINS @ ESS 16' X 10' 1 1506.00 1,506
1630 INSULATED O/H DOOR 2 3000.00 6,000
1630 ADD ELEC. OPER. / SAFETY EDGE 2 1200.00 2,400
1630 OVERHEAD DOOR 12' X 14' 5 1050.00 0
1630 OVERHEAD DOOR 16' X 10' 1 1350.00 0
1710 TOILET ACCESSORIES 17 325.00 5,525
1720 TOILET PARTITIONS 15 425.00 6,375
1720 URINAL SCREENS 3 176.00 525
1730 RECEPTION CABINETS & COUNTERS 30 300.00 9,000
1730 CONFER, CABINETS & COUNTERS 0 200.00 0
1730 COPY RM. CABINETS & COUNTERS 22 200.00 4,400
1730 COFFEE RM. CABINETS & COUNTERS 8 200.00 1,600
1730 LUNCH RM. CABINETS & COUNTERS 30 200.00 6,000
1730 RESTROOM COUNTERS 31 75.00 2,325
1730 SHELVING @ STORAGE 14 150.00 2,100
1730 CAP @ STAIRS & LOW WALLS 78 30.00 2,340
1740 INSULATION 45,897 0.45 20,654
1742 PREMIUM FOR WHITE FOIL 34,116 0.15 5,117
1750 PROJECTION SCREEN (ALLOWANCE) 1 2800.00 2,800
1730 PATIO TABLES 3 1500.00 0
1750 LOCKERS 0 2500.00 Nlc
1750 FLAGPOLE 0 2500.00 Nlc
1810 CURB CUTS & DRIVE APRONS 1 3250.00 0
1816 OFFSITE CURBS & SIDEWALK 0 27.00 0
1824 OFFSITE PAVING PATCH 1 4500.00 0
1830 STORM DRAINS 500 54.50 0
1832 FRENCH DRAINS 0 7.00 0
1834 CHANNEL TO ST. W/UNDER WALK 50 32.50 0
1840 FIRE HYDRANTS & WATER 1,111 57.50 0
1850 OFFSITE ELECTRICAL 0 25000.00 0
1852 STREETLIGHTS 0 2000.00 0
1910 CITY RIGHT OF WAY 3,531 0.00 0
1914 STRIPING & BUMPERS 66,931 0.02 0
1920 LANDSCAPING GRADING 19,996 0.10 0
1930 LANDSCAPING 19,985 2.50 0
1930 LANDSCAPING SLOPE 15,864 0.50 0
1930 LANDSCAPING FUTURE EXPANSION 0 0.12 0
1950 FENCING 0 27.00 0
1952 TRASH ENCLOSURE GATES 4 400.00 0
1960 MONUMENT SIGN (ALLOWANCE) 0 2500.00 Nlc
2000 CLEAN-UP 44,214 0.10 4,421
2100 TEMPORARY EXPENSE 44,214 0.10 4,421
2200 SUPERVISION 44,214 0.40 17,686
2500 SUBLET TENANT IMPROVEMENT 0 0.00
------ ------------------------------------------------ ------ -------- -------
SUBTOTAL 865,249
5075 PROFIT & OVERHEAD 12 103,830
------ ------------------------------------------------ ------ -------- -------
TOTAL 969,079
GRAND TOTAL 969,079
PER SQUARE FOOT OF SLAB $ 21.92
PER SQUARE FOOT OF BLDG INC. MEZZANINE $ 21.37
Triple Net Calculations for Pomerado Business Park, Lots 96/97 12/06/2000
SMTEK
Leased SF 45,818
Total Bldg. SF - 99,471
Percentage of Project 45.86%
ANNUALLY MONTHLY MONTHLY
DESCRIPTION ANNUAL /SF OF BLDG /SF OF BLDG NNN
----------- ------------- ----------- ----------- ---------
Bonds $ 87,239.06 $0.6700 $0.0583 $2,569.74
LMD $ 5,692.10 $0.0062 $0.0047 $ 213.72
Property Taxes $ 54,710.49 $0.5500 $0.0458 $2,090.83
Owners Association $ 1,391.00 $0.0140 $0.0812 $ 53.16
Administrative Fee $ 18,815.89 $0.1590 $0.0133 $ 604.45
Insurance $ 4,774.51 $0.0480 $0.0040 $ 182.48
Utilities:
Electricity BY TENANT $0.0000 $0.0000 $ 0.00
Telephone $ 358.10 $0.0038 $0.0003 $ 13.69
Alarm $ 904.71 $0.0100 $0.0008 $ 38.02
Landscape Water $ 7,161.91 $0.0720 $0.0080 $ 273.71
Security BY TENANT $0.0000 $0.0000 $ 0.00
HVAC Maint. $ 1,492.07 $0.0150 $0.0013 $ 57.02
Elevator Maint. & Reserve N/A $0.0000 $0.0000 $ 0.00
Landscape $ 7,460.33 $0.0750 $0.0063 $ 205.12
Roof Maint. & Reserve $ 7,460.33 $0.0750 $0.0083 $ 285.12
Painting Reserve $ 2,257.99 $0.0227 $0.0019 $ 88.30
Paving Maint. & Reserve $ 4,973.55 $0.0500 $0.0042 $ 180.06
----------- ------- ------- ---------
TOTAL $181,662.12 $1.6285 $0.1522 $6,943.53
=========== ======= ======= =========
Per month for SMTEK $ 15,140.18 $0.1523
ASSUMPTIONS
-----------
Saleable Acreage 7,105
Net Acreage 6.639
Bonds $10,127.09 Annually
Landscape Maint. District $ 842.31 Annually
Prop Taxes 1.12% of Appraised Value $1,864,685
Owners Association $ 209.52 Annually
Monthly Rental rate $ 0.83
Monthly NNN Rent $24,178.00
Management Fee Percentage 2.50%
Management Fee $ 0.1590 Annually/sf
Insurance $ 0.0480 Annually/sf
Utilities:
Electricity BY TENANT Annually/sf
Telephone $ 0.0038 Annually/sf
Alarm $ 0.0160 Annually/sf
Landscape Water $ 0.0720 Annually/sf
Security BY TENANT Annually/sf
HVAC Maint. $ 0.0100 Annually/sf
Elevator Maint. & Reserve $ 0.0234 Annually/sf
Landscape $ 0.0750 Annually/sf
Roof Maint. & Reserve $ 0.0750 Annually/sf
Painting Reserve $ 0.0227 Annually/sf
Paving Maint. & Reserve $ 0.0500 Annually/sf
EXHIBIT "4"
1010 FLOOR SINKS 5 300.00 1,600
1010 HANDICAP SHOWER 0 2150.00 0
1010 ADD ROUGH PLUMBING 1 13310.00 13,310
1010 ADD TRENCH DRAIN @ FILTER ROOM 6 85.00 680
1011 PLUMBING TRENCHING 0 7.50 See 1010
1012 ROOF DRAINS 0 450.00 0
1020 AIR CONDITIONING 146 1250.00 182,500
1022 AIR VENTS 5 200.00 1,000
1022 MAKE-UP AIR UNITS (ALLOW) 4 950.00 3,800
1022 EXHAUST FAN @ PROD. (ALLOW) 1 1500.00 1,500
1030 FIRE SPRINKLERS 45,687 0.80 0
1030 FIRE SPRINKLERS @ OFFICE 11,781 0.70 8,247
1030 ADD FOR ESFR 0 0.35 0
1032 FIRE SERVICE (ALLOWANCE) 1 12000.00 0
1034 FIRE EXTINGUISHER CABINETS 10 105.00 1,050
1040 DOCK LEVELERS (ALLOWANCE) 0 4000.00 0
1040 EDGE OF DOCK LEVELERS (ALLOW) 0 950.00 0
1110 ELECTRICAL & PHONE SHELL 45,358 0.86 0
1110 UNDERGROUND CONDUITS 1 23481.00 23,481
1110 SUB FEED CONDUCTORS 1 37500.00 37,500
1110 SWITCHGEAR 1 37000.00 37,000
1110 ELECTRICAL & PHONE OFFICE 11,397 6.00 68,382
1110 PRODUCTION LTG/ELECTRICAL 34,500 2.00 69,000
1110 EQUIPMENT HOOK-UP 0 0.00 N/c
1110 PARKING LOT STANDARDS 0 2200.00 0
1210 STRUCTURAL STEEL LONG 15 750.00 0
1210 STRUCTURAL STEEL SHORT 13 375.00 0
1210 STRUC. STL. BEAMS @ MEZZANINE 23,540 1.05 0
1220 MISC. IRON 34,954 0.55 0
1222 BARRICADES 4 150.00 0
1224 DOCK BUMPERS 4 105.00 0
1225 LINTEL BRACES (10' O.C.) 0 100.00 0
1226 STEEL COL. PREP/INSTALL 28 80.00 0
1230 REBAR & MESH 34,954 2.10 0
1232 PICK-UP STEEL 34,954 0.10 0
1240 SHT MTL FLASHING @ LOW ROOFS 73 4.25 309
1240 SHEET METAL ROOF SCUPPERS 0 55.00 0
1250 DOCK AREA STAIRWAYS 0 1050.00 0
1250 SINGLE-RAIL HANDRAILING 80 29.00 0
1310 PAINT SHELL 35,814 0.28 0
1310 PAINT OUTDOOR MECH. ENCL.RES 5,185 0.28 1,462
1310 PAINT T.I. 80,282 0.28 16,878
1320 DRYWALL 52,042 0.65 35,389
1320 HARD LID @ ELECTRICAL ROOM 226 2.50 0
1320 HARD LIDS @ EXIT CORR. (ASSUMED) 590 1.35 0
1320 HARD LIDS @ R.R./JANITOR/STAIRS 1,244 2.50 3,110
1320 EXPANDED MESH @ VAULT 270 2.35 634
1320 COFFERED CEILING 0 4.50 0
EX-10
5
moorpark.txt
MOORPARK LEASE
EXHIBIT 10.9
[LOGO] AMERICAN INDUSTRIAL REAL ESTATE ASSOCIATION
STANDARD INDUSTRIAL/COMMERCIAL SINGLE-TENANT LEASE--NET
(DO NOT USE THIS FORM FOR MULTI-TENANT BUILDINGS)
1. BASIC PROVISIONS: ( "Basic Provisions ")
1.1 PARTIES: This Lease ( "Lease "), dated for reference purposes only
July 20, 2001, is made by and between MOORPARK VENTURE L.P., a California
limited partnership ( "Lessor ") and SMTEK, INC., a California corporation (
"Lessee "), (collectively the "Parties, " or individually a "Party ").
1.2 PREMISES: That certain real property, including all improvements
therein or to be provided by Lessor under the terms of this Lease, and
commonly known as 200 Science Drive, Moorpark, located in the County of
Ventura, State of California, and generally described as (describe briefly
the nature of the property) consisting of a free standing
Commercial/Industrial building containing an agreed 115,538 Rentable Square
Feet. ( "Premises "). (See also Paragraph 2)
1.3 TERM: (See Addendum Section 3) years and ___ months ( "Original Term
") commencing (See Addendum Section 3) ( "Commencement Date ") and ending See
Addendum Section 3 ( "Expiration Date "). (See also Paragraph 3)
1.4 EARLY POSSESSION: Not Applicable ( "Early Possession Date "). (See
also Paragraphs 3.2 and 3.3)
1.5 BASE RENT: $ See Addendum Section 1 per month ( "Base Rent "),
payable on the First day of each month commencing See Addendum Section 1 (See
also Paragraph 4)
/x/ If this box is checked, there are provisions in this Lease for the Base
Rent to be adjusted.
1.6 BASE RENT PAID UPON EXECUTION: $ See Addendum Section 1 as Base Rent
for the period See Addendum Section 1.
1.7 SECURITY DEPOSIT: $ See Addendum Section 1.5 ( "Security Deposit ").
(See also Paragraph 5)
1.8 AGREED USE: design, manufacture, and storage of electronic
assemblies and contract manufacturing services. (See also Paragraph 6)
1.9 INSURING PARTY: LESSOR is the "Insuring Party " unless otherwise
stated herein. (See also Paragraph 8)
1.10 [THIS SECTION INTENTIONALLY OMITTED]
1.11 GUARANTOR: [THIS SECTION INTENTIONALLY OMITTED]
1.12 ADDENDA AND EXHIBITS: Attached hereto is an Addendum or Addenda
consisting of Paragraphs 1 through 25 and Exhibits "1 " through "8 ", all
of which constitute a part of this Lease.
2. PREMISES. SEE ADDENDUM SECTION 3
2.1 LETTING. Lessor hereby leases to Lessee, and Lessee hereby leases
from Lessor, the Premises, for the term, at the rental, and upon all of the
terms, covenants and conditions set forth in this Lease. Unless otherwise
provided herein, any statement of size set forth in this Lease, or that may
have been used in calculating rental, is an approximation which the Parties
agree is reasonable and the rental based thereon is not subject to revision
whether or not the actual size is more or less.
2.2 CONDITION. SEE ADDENDUM SECTIONS 4 AND 5
[THIS SECTION INTENTIONALLY OMITTED]
2.3 COMPLIANCE. SEE ADDENDUM SECTIONS 4 AND 5
[THIS SECTION INTENTIONALLY OMITTED]
(a) [THIS SECTION INTENTIONALLY OMITTED]
(b) [THIS SECTION INTENTIONALLY OMITTED]
(c) [THIS SECTION INTENTIONALLY OMITTED]
2.4 ACKNOWLEDGMENTS. Lessee acknowledges that: (a) it has been advised
by Lessor to satisfy itself with respect to the condition of the Premises
(including but not limited to the electrical, HVAC and fire sprinkler
systems, security, environmental aspects, and compliance with Applicable
Requirements), and their suitability for Lessee's intended use, (b) Lessee
has made such investigation as it deems necessary with reference to such
matters and assumes all responsibility therefor as the same relate to its
occupancy of the Premises, and (c) neither Lessor, nor Lessor's agents, has
made any oral or written representations or warranties with respect to said
matters other
2.5 [THIS SECTION INTENTIONALLY OMITTED]
3. TERM.
3.1 TERM. The Commencement Date, Expiration Date and Original Term of
this Lease are as specified in Paragraph 1.3.
3.2 EARLY POSSESSION. If Lessee totally or partially occupies the
Premises prior to the Commencement Date, the obligation to pay Base Rent
shall be abated for the period of such early possession. All other terms of
this Lease (including but not limited to the obligations to pay Real Property
Taxes and insurance premiums and to maintain the Premises) shall, however, be
in effect during such period. Any such early possession shall not affect the
Expiration Date.
3.3 DELAY IN POSSESSION. Lessor agrees to use its best commercially
reasonable efforts to deliver possession of the Premises to Lessee by the
Commencement Date. If, despite said efforts, Lessor is unable to deliver
possession as agreed, Lessor shall not be subject to any liability therefor,
nor shall such failure affect the validity of this Lease. Lessee shall not,
however, be obligated to pay Rent or perform its other obligations until it
receives possession of the Premises. If possession is not delivered within
sixty (60) days after the Commencement Date, Lessee may, at its option, by
notice in writing within ten (10) days after the end of such sixty (60) day
period, cancel this Lease, in which event the Parties shall be discharged
from all obligations hereunder. If such written notice is not received by
Lessor within said ten (10) day period, Lessee's right to cancel shall
terminate. Except as otherwise provided, if possession is not tendered to
Lessee by the Start Date, and Lessee does not terminate this Lease, as
aforesaid, any period of rent abatement that Lessee would otherwise have
enjoyed shall run from the date of delivery of possession and continue for a
period equal to what Lessee would otherwise have enjoyed under the terms
hereof, but minus any days of delay caused by the acts or omissions of
Lessee. If possession of the Premises is not delivered within four (4) months
after the Commencement Date, this Lease shall terminate unless other
agreements are reached between Lessor and Lessee, in writing.
3.4 LESSEE COMPLIANCE. Lessor shall not be required to tender possession
of the Premises to Lessee until Lessee complies with its obligation to
provide evidence of insurance (Paragraph 8.5). Pending delivery of such
evidence, Lessee shall be required to perform all of its obligations under
this Lease from and after the Start Date, including the payment of Rent,
notwithstanding Lessor's election to withhold possession pending receipt of
such evidence of insurance. Further, if Lessee is required to perform any
other conditions prior to or concurrent with the Start Date, the Start Date
shall occur but Lessor may elect to withhold possession until such conditions
are satisfied.
4. RENT. SEE ADDENDUM SECTIONS 1 AND 2
4.1 RENT DEFINED. All monetary obligations of Lessee to Lessor under the
terms of this Lease (except for the Security Deposit) are deemed to be rent (
"Rent ").
4.2 PAYMENT. Lessee shall cause payment of Rent to be received by Lessor
in lawful money of the United States, without offset or deduction (except as
specifically permitted in this Lease), on or before the day on which it is
due. Rent for any period during the term hereof which is for less than one
(1) full calendar month shall be prorated based upon the actual number of
days of said month. Payment of Rent shall be made to Lessor at its address
stated herein or to such other persons or place as Lessor may from time to
time designate in writing. Acceptance of a payment which is less than the
amount then due shall not be a waiver of Lessor's rights in the balance of
such Rent, regardless of Lessor's endorsement of any check so stating.
5. SECURITY DEPOSIT. Lessee shall deposit with Lessor upon execution hereof
the Security Deposit as security for Lessee's faithful performance of its
obligations under this Lease. If Lessee fails to pay Rent, or otherwise
Defaults under this Lease, Lessor may use, apply or retain all or any portion
of said Security Deposit for the payment of any amount due Lessor or to
reimburse or compensate Lessor for any liability, expense, loss or damage
which Lessor may suffer or incur by reason thereof. If Lessor uses or applies
all or any portion of said Security Deposit, Lessee shall within ten (10)
days after written request therefor deposit monies with Lessor sufficient to
restore said Security Deposit to the full amount required by this Lease. If
the Base Rent increases during the term of this Lease, Lessee shall, upon
written request from Lessor, deposit additional moneys with Lessor so that
the total amount of the Security Deposit shall at all times bear the same
proportion to the increased Base Rent as the initial Security Deposit bore to
the initial Base Rent. Should the Agreed Use be amended to accommodate a
material change in the business of Lessee or to accommodate a sublessee or
assignee, Lessor shall have the right to increase the Security Deposit to the
extent necessary, in Lessor's reasonable judgment, to account for any
increased wear and tear that the Premises may suffer as a result thereof. If
a change in control of Lessee occurs during this Lease and following such
change the financial condition of Lessee is, in Lessor's reasonable judgment,
significantly reduced, Lessee shall deposit such additional monies with
Lessor as shall be sufficient to cause the Security Deposit to be at a
commercially reasonable level based on said change in financial condition.
Lessor shall not be required to keep the Security Deposit separate from its
general accounts. Within fourteen (14) days after the expiration or
termination of this Lease, if Lessor elects to apply the Security Deposit
only to unpaid Rent, and otherwise within thirty (30) days after the Premises
have been vacated pursuant to Paragraph 7.4(c) below, Lessor shall return
that portion of the Security Deposit not used or applied by Lessor. No part
of the Security Deposit shall be considered to be held in trust, to bear
interest or to be prepayment for any monies to be paid by Lessee under this
Lease.
6. USE. See Addendum Section 6
6.1 USE. Lessee shall use and occupy the Premises only for the
Agreed Use, or any other legal use which is reasonably comparable thereto,
and for no other purpose. Lessee shall not use or permit the use of the
Premises in a manner that is unlawful, creates damage, waste or a nuisance,
or that disturbs owners and/or occupants of, or causes damage to neighboring
properties. Lessor shall not unreasonably withhold or delay its consent to
any written request for a modification of the Agreed Use, so long as the same
will not impair the structural integrity of the improvements on the Premises
or the mechanical or electrical systems therein, is not significantly more
burdensome to the Premises. If Lessor elects to withhold consent, Lessor
shall within five (5) business days after such request give written
notification of same, which notice shall include an explanation of Lessor's
objections to the change in use.
6.2 HAZARDOUS SUBSTANCES. See Addendum Section 7
(a) REPORTABLE USES REQUIRE CONSENT. The term "Hazardous
Substance " as used in this Lease shall mean any product, substance, or waste
whose presence, use, manufacture, disposal, transportation, or release,
either by itself or in combination with other materials expected to be on the
Premises, is either; (i) potentially injurious to the public health, safety
or welfare, the environment or the Premises, (ii) regulated or monitored by
any governmental authority, or (iii) a basis for potential liability of
Lessor to any governmental agency or third party under any applicable statute
or common law theory. Hazardous Substances shall include, but not be limited
to, hydrocarbons, petroleum, gasoline, and/or crude oil or any products, by-
products or fractions thereof. Lessee shall not engage in any activity in or
on the Premises which constitutes a Reportable Use of Hazardous Substances
without the express prior written consent of Lessor and timely compliance (at
Lessee's expense) with all Applicable Requirements. "Reportable Use " shall
mean (i) the installation or use of any above or below ground storage tank,
(ii) the generation, possession, storage, use, transportation, or disposal of
a Hazardous Substance that requires a permit from, or with respect to which a
report, notice, registration or business plan is required to be filed with,
any governmental authority, and/or (iii) the presence at the Premises of a
Hazardous Substance with respect to which any Applicable Requirements
requires that a notice be given to persons entering or occupying the Premises
or neighboring properties. Notwithstanding the foregoing, Lessee may use any
ordinary and customary materials reasonably required to be used in the normal
course of the Agreed Use, so long as such use is in compliance with all
Applicable Requirements, is not a Reportable Use, and does not expose the
Premises or neighboring property to any meaningful risk of contamination or
damage or expose Lessor to any liability therefor. In addition, Lessor may
condition its consent to any Reportable Use upon receiving such additional
assurances as Lessor reasonably deems necessary to protect itself, the
public, the Premises and/or the environment against damage, contamination,
injury and/or liability, including, but not limited to, the installation (and
removal on or before Lease expiration or termination) of protective
modifications (such as concrete encasements) and/or increasing the Security
Deposit.
(b) DUTY TO INFORM LESSOR. If Lessee knows, or has
reasonable cause to believe, that a Hazardous Substance has come to be
located in, on, under or about the Premises, other than as previously
consented by Lessor, Lessee shall immediately give written notice of such
fact to Lessor, and provide Lessor with a copy of any report, notice, claim
or other documentation which it has concerning the presence of such Hazardous
Substance.
(c) LESSEE REMEDIATION. Lessee shall not cause or permit
any Hazardous Substance to be spilled or released in, on, under, or about the
Premises (including through the plumbing or sanitary sewer system) and shall
promptly, at Lessee's expense, take all investigatory and/or remedial action
reasonably recommended, whether or not formally ordered or required, for the
cleanup of any contamination of, and for the maintenance, security and/or
monitoring of the Premises or neighboring properties, that was caused or
materially contributed to by Lessee, or pertaining to or involving any
Hazardous Substance brought onto the Premises during the term of this Lease,
by or for Lessee, or any third party.
(d) LESSEE INDEMNIFICATION. Lessee shall indemnify, defend
and hold Lessor, its agents, employees, lenders and ground lessor, if any,
harmless from and against any and all loss of rents and/or damages,
liabilities, judgments, claims, expenses, penalties, and attorneys' and
consultants' fees arising out of or involving any Hazardous Substance in, on,
under or near the Premises.
Lessee's obligations shall include, but not be
limited to, the effects of any contamination or injury to person, property or
the environment created or suffered by Lessee, and the cost of investigation,
removal, remediation, restoration and/or abatement, and shall survive the
expiration or termination of this Lease. No termination, cancellation or
release agreement entered into by Lessor and Lessee shall release Lessee from
its obligations under this Lease with respect to Hazardous Substances, unless
specifically so agreed by Lessor in writing at the time of such agreement.
(e) [THIS SECTION INTENTIONALLY OMITTED]
(f) [THIS SECTION INTENTIONALLY OMITTED]
(g) [THIS SECTION INTENTIONALLY OMITTED]
6.3 LESSEE'S COMPLIANCE WITH APPLICABLE REQUIREMENTS. Except as
otherwise provided in this Lease, Lessee shall, at Lessee's sole expense,
fully, diligently and in a timely manner, materially comply with all
Applicable Requirements, the requirements of any applicable fire insurance
underwriter or rating bureau, and the recommendations of Lessor's engineers
and/or consultants which relate in any manner to the Premises, without regard
to whether said requirements are now in effect or become effective after the
Start Date. Lessee shall, within ten (10) days after receipt of Lessor's
written request, provide Lessor with copies of all permits and other
documents, and other information evidencing Lessee's compliance with any
Applicable Requirements specified by Lessor, and shall immediately upon
receipt, notify Lessor in writing (with copies of any documents involved) of
any threatened or actual claim, notice, citation, warning, complaint or
report pertaining to or involving the failure of Lessee or the Premises to
comply with any Applicable Requirements.
6.4 INSPECTIONS; COMPLIANCE. Lessor and Lessor's "Lender " (as
defined in Paragraph 30 below) and consultants shall have the right to enter
into Premises at any time, in the case of an emergency, and otherwise at
reasonable times, for the purpose of inspecting the condition of the Premises
and for verifying compliance by Lessee with this Lease. The cost of any such
inspections shall be paid by Lessor, unless a violation of Applicable
Requirements, or a contamination is found to exist or be imminent, or the
inspection is requested or ordered by a governmental authority, in such case,
Lessee shall upon request reimburse Lessor for the cost of such inspections,
so long as such inspection is reasonably related to the violation or
contamination.
7. MAINTENANCE; REPAIRS, UTILITY INSTALLATIONS; TRADE FIXTURES AND
ALTERATIONS.
7.1 LESSEE'S OBLIGATIONS.
(a) IN GENERAL. Subject to the provisions of, Section 4 of
the Addendum, 6.3 (Lessee's Compliance with Applicable Requirements), 7.2
(Lessor's Obligations), 9 (Damage or Destruction), and 14 (Condemnation),
Lessee shall, at Lessee's sole expense, keep the Premises, Utility
Installations, and Alterations in good order, condition and repair (whether
or not the portion of the Premises requiring repairs, or the means of
repairing the same, are reasonably or readily accessible to Lessee, and
whether or not the need for such repairs occurs as a result of Lessee's use,
any prior use, the elements or the age of such portion of the Premises),
including, but not limited to, all equipment or facilities, such as plumbing,
heating, ventilating, air-conditioning, electrical, lighting facilities,
boilers, pressure vessels, fire protection system, fixtures, walls (interior
and exterior), foundations, ceilings, roofs, floors, windows, doors, plate
glass, skylights, landscaping, driveways, parking lots, fences, retaining
walls, signs, sidewalks and parkways located in, on, or adjacent to the
Premises. Lessee, in keeping the Premises in good order, condition and
repair, shall exercise and perform good maintenance practices, specifically
including the procurement and maintenance of the service contracts required
by Paragraph 7.1(b) below. Lessee's obligations shall include restorations,
replacements or renewals when necessary to keep the Premises and all
improvements thereon or a part thereof in good order, condition and state of
repair. Lessee shall, during the term of this Lease, keep the exterior
appearance of the Building in a first-class condition consistent with the
exterior appearance of other similar facilities of comparable age and size in
the vicinity, including, when necessary, the exterior repainting of the
Building.
(b) SERVICE CONTRACTS. Lessee shall, at Lessee's sole
expense, procure and maintain contracts, with copies to Lessor, in customary
form and substance for, and with contractors specializing and experienced in
the maintenance of the following equipment and improvements, if any, if and
when installed on the Premises; (i) HVAC equipment, (ii) boiler, and pressure
vessels, (iii) fire extinguishing systems, including fire alarm and/or smoke
detection, (iv) landscaping and irrigation systems, (v) roof covering and
drains, (vi) driveways and parking lots, (vii) clarifiers (viii) basic
utility feed to the perimeter of the Building, and (ix) any other equipment,
if reasonably required by Lessor.
(c) REPLACEMENT. Subject to Lessee's indemnification of
Lessor as set forth in Paragraph 8.7 below, and without relieving Lessee of
liability resulting from Lessee's failure to exercise and perform good
maintenance practices, if the Basic Elements described in Paragraph 7.1(b)
cannot be repaired other than at a cost which is excess of 50% of the cost of
replacing such Basic Elements, then such Basic Elements shall be replaced by
Lessor, and the cost thereof shall be prorated between the Parties and Lessee
shall only be obligated to pay, each month during the remainder of the term
of this Lease, on the date on which Base Rent is due, an amount equal to the
product of multiplying the cost of such replacement by a fraction, the
numerator of which is one, and the denominator of which is the number of
months of the useful life of such replacement as such useful life is
specified pursuant to Federal income tax regulations or guidelines for
depreciation thereof (including interest on the unamortized balance as is
then commercially reasonable in the judgment of Lessor's accountants), with
Lessee reserving the right to prepay its obligation at any time.
7.2 LESSOR'S OBLIGATIONS. Subject to the provisions of Section 4 of
the Addendum 9 (Damage or Destruction) and 14 (Condemnation), it is intended
by the Parties hereto that Lessor have no obligation, in any manner
whatsoever, to repair and maintain the Premises, or the equipment therein,
all of which obligations are intended to be that of the Lessee. It is the
intention of the Parties that the terms of this Lease govern the respective
obligations of the Parties as to maintenance and repair of the Premises, and
they expressly waive the benefit of any statute now or hereafter in effect to
the extent it is inconsistent with the terms of this Lease.
7.3 UTILITY INSTALLATIONS; TRADE FIXTURES; ALTERATIONS.
SEE ADDENDUM SECTION 5
(a) DEFINITIONS; CONSENT REQUIRED. The term "Utility
Installations " refers to all floor and window coverings, air lines, power
panels, electrical distribution, security and fire protection systems,
communication systems, lighting fixtures, HVAC equipment, plumbing, and
fencing in or on the Premises. The term "Trade Fixtures " shall mean
Lessee's machinery and equipment that can be removed without doing material
damage to the Premises. The term "Alterations " shall mean any modification
of the improvements, other than Utility Installations or Trade Fixtures,
whether by addition or deletion. "Lessee Owned Alterations and/or Utility
Installations " are defined as Alterations and/or Utility Installations made
by Lessee that are not yet owned by Lessor pursuant to Paragraph 7.4(a),
Lessee shall not make any Alterations or Utility Installations to the
Premises without Lessor's prior written consent. Lessee may, however, make
non-structural Utility Installations to the interior of the Premises
(excluding the roof) without such consent but upon notice to Lessor, as long
as they are not visible from the outside, do not involve puncturing,
relocating or removing the roof or any existing walls, and the cumulative
cost thereof during this Lease as extended does not exceed $50,000 in the
aggregate or $10,000 in any one year.
(b) CONSENT. Any Alterations or Utility Installations that
Lessee shall desire to make and which require that consent of the Lessor
shall be presented to Lessor in written form with detailed plans. Consent
shall be deemed conditioned upon Lessee's: (i) acquiring all applicable
governmental permits, (ii) furnishing Lessor with copies of both the permits
and the plans and specifications prior to commencement of the work, and (iii)
compliance with all conditions of said permits and other Applicable
Requirements in a prompt and expeditious manner. Any Alterations or Utility
Installations shall be performed in a workmanlike manner with good and
sufficient materials. Lessee shall promptly upon completion furnish Lessor
with as-built plans and specifications. For work which costs an amount equal
to the greater or one month's Base Rent, or $10,000, Lessor may condition its
consent upon Lessee providing a lien and completion bond in an amount equal
to one and one-half times the estimated cost of such Alteration or Utility
Installation and/or upon Lessee's posting an additional Security Deposit with
Lessor.
(c) INDEMNIFICATION. Lessee shall pay, when due, all claims
for labor or materials furnished or alleged to have been furnished to or for
Lessee at or for use on the Premises, which claims are or may be secured by
any mechanic's or materialmen's lien against the Premises or any interest
therein. Lessee shall give Lessor not less than ten (10) days' notice prior
to the commencement of any work in, on or about the Premises, and Lessor
shall have the right to post notices of non-responsibility. If Lessee shall
contest the validly of any such lien, claim or demand, then Lessee shall, at
its sole expense defend and protect itself, Lessor and the Premises against
the same and shall pay and satisfy any such adverse judgment that may be
rendered thereon before the enforcement thereof. If Lessor shall require,
Lessee shall furnish a surety bond in an amount equal to one and one-half
times the amount of such contested lien, claim or demand, indemnifying Lessor
against liability for the same, if Lessor elects to participate in any such
action, Lessee shall pay Lessor's attorneys' fees and costs.
7.4 OWNERSHIP; REMOVAL; SURRENDER; AND RESTORATION.
SEE ADDENDUM SECTION 8
(a) OWNERSHIP. Subject to Lessor's right to require removal
or elect ownership as hereinafter provided, all Alterations and Utility
Installations made by Lessee shall be the property of Lessee, but considered
a part of the Premises. Lessor may, at any time, elect in writing to be the
owner of all or any specified part of the Lessee Owned Alterations and
Utility Installations. Unless otherwise instructed per Paragraph 7.4(b)
hereof, all Lessee Owned Alterations and Utility Installations shall, at the
expiration or termination of this Lease, become the property of Lessor and be
surrendered by Lessee with the Premises.
(b) REMOVAL. By delivery to Lessee of written notice from
Lessor not earlier than ninety (90) and not later than thirty (30) days prior
to the end of the term of this Lease, Lessor may require that any or all
Lessee Owned Alterations or Utility Installations be removed by the
expiration or termination of this Lease. Lessor may require the removal at
any time of all or any part of any Lessee Owned Alterations or Utility
Installations made without the required consent.
(c) SURRENDER/RESTORATION. Lessee shall surrender the
Premises by the Expiration Date or any earlier termination date, with all of
the improvements, parts and surfaces thereof broom clean and free of debris,
and in good operating order, condition and state of repair, ordinary wear and
tear excepted.
Lessee shall repair any damage occasioned by the
installation, maintenance or removal of Trade Fixtures, Lessee Owned
Alteration and/or Utility Installations, furnishings, and equipment as well
as the removal of any storage tank installed by or for Lessee, and the
removal, replacement, or remediation of any soil, material or groundwater
contaminated by Lessee. Trade Fixtures shall remain the property of Lessee
and shall be removed by Lessee. The failure by Lessee to timely vacate the
Premises pursuant to this Paragraph 7.4(c) without the express written
consent of Lessor shall constitute a holdover under the provisions of
Paragraph 2G below.
8. INSURANCE; INDEMNITY. SEE ADDENDUM SECTION 10
8.1 PAYMENT FOR INSURANCE. Lessee shall pay for all insurance
required under Paragraph 8 except to the extent of the cost attributable to
liability insurance carried by Lessor under Paragraph 8.2(b) in excess of
$2,000,000 per occurrence. Premiums for policy periods commencing prior to or
extending beyond the Lease term shall be prorated to correspond to the Lease
term. Payment shall be made by Lessee to Lessor within ten (10) days
following receipt of an invoice.
8.2 LIABILITY INSURANCE.
(a) CARRIED BY LESSEE. Lessee shall obtain and keep in force
a Commercial General Liability Policy of Insurance protecting Lessee and
Lessor against claims for bodily injury, personal injury and property damage
based upon or arising out of the ownership, use, occupancy or maintenance of
the Premises and all areas appurtenant thereto. Such insurance shall be on an
occurrence basis providing single limit coverage in an amount not less than
$2,000,000 per occurrence with an "ADDITIONAL INSURED-MANAGERS OR LESSORS OF
PREMISES ENDORSEMENT " and contain the "AMENDMENT OF THE POLLUTION EXCLUSION
ENDORSEMENT " for damage caused by heat, smoke or fumes from a hostile fire.
The Policy shall not contain any intra-insured exclusions as between insured
persons or organizations, but shall include coverage for liability assumed
under this Lease as an "insured contract " for the performance of Lessee's
indemnity obligations under this Lease. The limits of said insurance shall
not, however, limit the liability of Lessee nor relieve Lessee of any
obligation hereunder. All insurance carried by Lessee shall be primary to and
not contributory with any similar insurance carried by Lessor, whose
insurance shall be considered excess insurance only.
(b) CARRIED BY LESSOR. Lessor shall maintain liability
insurance as described in Paragraph 8.2(a), in addition to, and not in lieu
of, the insurance required to be maintained by Lessee. Lessee shall not be
named as an additional insured therein.
8.3 PROPERTY INSURANCE BUILDING, IMPROVEMENTS AND RENTAL VALUE.
(a) BUILDING AND IMPROVEMENTS. The Insuring Party shall
obtain and keep in force a policy or policies in the name of Lessor, with
loss payable to Lessor, any groundlessor, and to any Lender(s) insuring loss
or damage to the Premises. The amount of such insurance shall be equal to
the full replacement cost of the Premises, as the same shall exist from time
to time, or the amount required by any Lenders, but in no event more than the
commercially reasonable and available insurable value thereof. If Lessor is
the Insuring Party, however, Lessee Owned Alterations and Utility
Installations, Trade Fixtures, and Lessee's personal property shall be
insured by Lessee under Paragraph 8.4 rather than by Lessor. Such policy or
policies shall insure against all risks of direct physical loss or damage
(except the perils of flood and/or earthquake unless required by a Lender),
including coverage for debris removal and the enforcement of any Applicable
Requirements requiring the upgrading, demolition, reconstruction or
replacement of any portion of the Premises as the result of a covered loss.
Said policy or policies shall also contain an agreed valuation provision in
lieu of any coinsurance clause, waiver of subrogation, and inflation guard
protection causing an increase in the annual property insurance coverage
amount by a factor of not less than the adjusted U.S. Department of Labor
Consumer Price Index for All Urban Consumers for the city nearest to where
the Premises are located. If such insurance coverage has a deductible clause,
the deductible amount shall not exceed $1,000 per occurrence, and Lessee
shall be liable for such deductible amount in the event of an Insured Loss.
(b) RENTAL VALUE. The Insuring Party shall obtain and keep
in force a policy or policies in the name of Lessor with loss payable to
Lessor and any Lender, insuring the loss of the full Rent for one (1) year.
Said insurance shall provide that in the event the Lease is terminated by
reason of an insured loss, the period of indemnity for such coverage shall be
extended beyond the date of the completion of repairs or replacement of the
Premises, to provide for one full year's loss of Rent from the date of any
such loss. Said insurance shall contain an agreed valuation provision in lieu
of any coinsurance clause, and the amount of coverage shall be adjusted
annually to reflect the projected Rent otherwise payable by Lessee, for the
next twelve (12) month period. Lessee shall be liable for any deductible
amount in the event of such loss.
(c) ADJACENT PREMISES. If the Premises are part of a larger
building, or of a group of buildings owned by Lessor which are adjacent to
the Premises, the Lessee shall pay for any increase in the premiums for the
property insurance of such building or buildings if said increase is caused
by Lessee's acts, omissions, use or occupancy of the Premises.
8.4 LESSEE'S PROPERTY/BUSINESS INTERRUPTION INSURANCE.
(a) PROPERTY DAMAGE. Lessee shall obtain and maintain
insurance coverage on all of Lessee's personal property, Trade Fixtures, and
Lessee Owned Alterations and Utility Installations. Such insurance shall be
full replacement cost coverage with a deductible of not to exceed $1,000 per
occurrence. The proceeds from any such insurance shall be used by Lessee for
the replacement of personal property, Trade Fixtures and Lessee Owned
Alterations and Utility Installations. Lessee shall provide Lessor with
written evidence that such insurance is in force.
(b) BUSINESS INTERRUPTION. Lessee shall obtain and maintain
loss of income and extra expense insurance in amounts as will reimburse
Lessee for direct or indirect loss of earnings attributable to all perils
commonly insured against by prudent lessees in the business of Lessee or
attributable to prevention of access to the Premises as a result of such
perils.
(c) NO REPRESENTATION OF ADEQUATE COVERAGE. Lessor makes no
representation that the limits or forms of coverage of insurance specified
herein are adequate to cover Lessee's property, business operations or
obligations under this Lease.
8.5 INSURANCE POLICIES. Insurance required herein shall be by
companies duly licensed or admitted to transact business in the state where
the Premises are located, and maintaining during the policy term a "General
Policyholders Rating " of at least B+, V, as set forth in the most current
issue of "Best's Insurance Guide ", or such other rating as may be required
by a Lender. Lessee shall not do or permit to be done anything which
invalidates the required insurance policies. Lessee shall, prior to the Start
Date, deliver to Lessor certified copies of policies of such insurance or
certificates evidencing the existence and amounts of the required insurance.
No such policy shall be cancelable or subject to modification except after
thirty (30) days prior written notice to Lessor. Lessee shall, at least
thirty (30) days prior to the expiration of such policies, furnish Lessor
with evidence of renewals or "insurance binders " evidencing renewal
thereof, or Lessor may order such insurance and charge the cost thereof to
Lessee, which amount shall be payable by Lessee to Lessor upon demand. Such
policies shall be for a term of at least one year, or the length of the
remaining term of this Lease, whichever is less. If either Party shall fail
to procure and maintain the insurance required to be carried by it, the other
Party may, but shall not be required to, procure and maintain the same.
8.6 WAIVER OF SUBROGATION. Without affecting any other rights
or remedies, Lessee and Lessor each hereby release and relieve the other, and
waive their entire right to recover damages against the other, for loss of or
damage to its property arising out of or incident to the perils required to
be insured against herein to the extent of insurance proceeds actually
collected.
The Parties agree to have their respective property damage
insurance carriers waive any right to subrogation that such companies may
have against Lessor or Lessee, as the case may be, so long as the insurance
is not invalidated thereby.
8.7 INDEMNITY. Except for Lessor's gross negligence or willful
misconduct, Lessee shall indemnify, protect, defend and hold harmless the
Premises, Lessor and its agents, Lessor's master or ground lessor, partners
and Lenders, from and against any and all claims, loss of rents and/or
damages, liens, judgments, penalties, attorneys' and consultants' fees,
expenses and/or liabilities arising out of, involving, or in connection with,
the use and/or occupancy of the Premises by Lessee. If any action or
proceeding is brought against Lessor by reason of any of the foregoing
matters, Lessee shall upon notice defend the same at Lessee's expense by
counsel reasonably satisfactory to Lessor and Lessor shall cooperate with
Lessee in such defense. Lessor need not have first paid any such claim in
order to be defended or indemnified.
8.8 EXEMPTION OF LESSOR FROM LIABILITY. Lessor shall not be
liable for injury or damage to the person or goods, wares, merchandise or
other property of Lessee, Lessee's employees, contractors, invitees,
customers, or any other person in or about the Premises, whether such damage
or injury is caused by or results from fire, steam, electricity, gas, water
or rain, or from the breakage, leakage, obstruction or other defects of
pipes, fire sprinklers, wires, appliances, plumbing, HVAC or lighting
fixtures, or from any other cause, whether the said injury damage results
from conditions arising upon the Premises or upon other portions of the
Building of which the Premises are a part, or from other sources or places.
Lessor shall not be liable for any damages arising from any act or neglect of
any other tenant of Lessor. Notwithstanding Lessor's negligence or breach of
this Lease, Lessor shall under no circumstances be liable for injury to
Lessee's business or for any loss of income or profit therefrom.
9. DAMAGE OR DESTRUCTION.
9.1 DEFINITIONS.
(a) "PREMISES PARTIAL DAMAGE " shall mean damage or
destruction to the improvements on the Premises, other than Lessee Owned
Alterations and Utility Installations, which can reasonably be repaired in
six (6) months or loss from the date of the damage or destruction. Lessor
shall notify Lessee in writing within thirty (30) days from the date of the
damage or destruction as to whether or not the damage is Partial or Total.
(b) "PREMISES TOTAL DESTRUCTION " shall mean damage or
destruction to the Premises, other than Lessee Owned Alterations and Utility
Installations and Trade Fixtures, which cannot reasonably be repaired in six
(6) months or less from the date of the damage or destruction. Lessor shall
notify Lessee in writing within thirty (30) days from the date of the damage
or destruction as to whether or not the damage is Partial or Total.
(c) "INSURED LOSS " shall mean damage or destruction to
improvements on the Premises, other than Lessee Owned Alterations and Utility
Installations and Trade Fixtures, which was caused by an event required to be
covered by the insurance described in Paragraph 8.3(a), irrespective of any
deductible amounts or coverage limits involved.
(d) "REPLACEMENT COST " shall mean the cost to repair or
rebuild the improvements owned by Lessor at the time of the occurrence to
their condition existing immediately prior thereto, including demolition,
debris removal and upgrading required by the operation of Applicable
Requirements, and without deduction for depreciation.
(e) [THIS SECTION INTENTIONALLY OMITTED]
9.2 PARTIAL DAMAGE - INSURED LOSS. If a Premises Partial Damage
that is an Insured Loss occurs, then Lessor shall, at Lessor's expense,
repair such damage (but not Lessee's Trade Fixtures or Lessee Owned
Alterations and Utility Installations) as soon as reasonably possible and
this Lease shall continue in full force and effect; provided, however, that
Lessee shall, at Lessor's election, make the repair of any damage or
destruction the total cost to repair of which is $10,000 or less, and, in
such event, Lessor shall make any applicable insurance proceeds available to
Lessee on a reasonable basis for that purpose. Notwithstanding the foregoing,
if the required insurance was not in force or the insurance proceeds are not
sufficient to effect such repair, the Insuring Party shall promptly
contribute the shortage in proceeds (except as to the deductible which is
Lessee's responsibility) as and when required to complete said repairs. In
the event, however, such shortage was due to the fact that, by reason of the
unique nature of the improvements, full replacement cost insurance coverage
was not commercially reasonable and available, Lessor shall have no
obligation to pay for the shortage in insurance proceeds or to fully restore
the unique aspects of the Premises unless Lessee provides Lessor with the
funds to cover same, or adequate assurance thereof, within ten (10) days
following receipt of written notice of such shortage and request therefor. If
Lessor receives said funds or adequate assurance thereof within said ten (10)
day period, the party responsible for making the repairs shall complete them
as soon as reasonably possible and this Lease shall remain in full force and
effect. If such funds or assurance are not received, Lessor may nevertheless
elect by written notice to Lessee within ten (10) days thereafter to: (i)
make such restoration and repair as is commercially reasonable with Lessor
paying any shortage in proceeds, in which case this Lease shall remain in
full force and effect, or have this Lease terminate thirty (30) days
thereafter. Lessee shall not be entitled to reimbursement of any funds
contributed by Lessee to repair any such damage or destruction.
9.3 PARTIAL DAMAGE - UNINSURED LOSS. If a Premises Partial
Damage that is not an Insured Loss occurs, unless caused by a negligent or
willful act of Lessee (in which event Lessee shall make the repairs at
Lessee's expense), Lessor may either: (i) repair such damage as soon as
reasonably possible at Lessor's expense, in which event this Lease shall
continue in full force and effect, or (ii) terminate this Lease by giving
written notice to Lessee within thirty (30) days after receipt by Lessor of
knowledge of the occurrence of such damage. Such termination shall be
effective sixty (60) days following the date of such notice. In the event
Lessor elects to terminate this Lease, Lessee shall have the right within ten
(10) days after receipt of the termination notice to give written notice to
Lessor of Lessee's commitment to pay for the repair of such damage without
reimbursement from Lessor. Lessee shall provide Lessor with said funds or
satisfactory assurance thereof within thirty (30) days after making such
commitment. In such event this Lease shall continue in full force and effect,
and Lessor shall proceed to make such repairs as soon as reasonably possible
after the required funds are available. If Lessee does not make the required
commitment, this Lease shall terminate as of the date specified in the
termination notice.
9.4 TOTAL DESTRUCTION. Notwithstanding any other provision
hereof, if a Premises Total Destruction occurs, this Lease shall terminate
sixty (60) days following such Destruction. If the damage or destruction was
caused by the gross negligence or willful misconduct of Lessee, Lessor shall
have the right to recover Lessor's damages from Lessee, except as provided in
Paragraph 8.6.
9.5 DAMAGE NEAR END OF TERM. If at any time during the last six
(6) months of this Lease there is damage for which the cost to repair exceeds
one (1) month's Base Rent, whether or not an Insured Loss, Lessor may
terminate this Lease effective sixty (60) days following the date of
occurrence of such damage by giving a written termination notice to Lessee
within thirty (30) days after the date of occurrence of such damage.
Notwithstanding the foregoing, if Lessee at that time has an exercisable
option to extend this Lease or to purchase the Premises, then Lessee may
preserve this Lease by, (a) exercising such option and (b) providing Lessor
with any shortage in insurance proceeds (or adequate assurance thereof)
needed to make the repairs on or before the earlier of (i) the date which is
ten days after Lessee's receipt of Lessor's written notice purporting to
terminate this Lease, or (ii) the day prior to the date upon which such
option expires. If Lessee duly exercises such option during such period and
provides Lessor with funds (or adequate assurance thereof) to cover any
shortage in insurance proceeds, Lessor shall, at Lessor's commercially
reasonable expense, repair such damage as soon as reasonably possible and
this Lease shall continue in full force and effect. If Lessee fails to
exercise such option and provide such funds or assurance during such period,
then this Lease shall terminate on the date specified in the termination
notice and Lessee's option shall be extinguished.
9.6 ABATEMENT OF RENT; LESSEE'S REMEDIES.
(a) ABATEMENT. In the event of Premises Partial Damage or
Premises Total Destruction the Rent payable by Lessee for the period required
for the repair, remediation or restoration of such damage shall be abated in
proportion to the degree to which Lessee's use of the Premises is impaired,
but not to exceed the proceeds received from the Rental Value insurance. All
other obligations of Lessee hereunder shall be performed by Lessee and Lessor
shall have no liability for any such damage, destruction, remediation, repair
or restoration except as provided herein.
(b) REMEDIES. If Lessor shall be obligated to repair or
restore the Premises and does not commence, in a substantial and meaningful
way, such repair or restoration within ninety (90) days after such obligation
shall accrue, Lessee may, at any time prior to the commencement of such
repair or restoration, give written notice, to Lessor and to any Lenders of
which Lessee has actual notice, of Lessee's election to terminate this Lease
on a date not less than sixty (60) days following the giving of such notice.
If Lessee gives such notice and such repair or restoration is not commenced
within thirty (30) days thereafter, this Lease shall terminate as of the date
specified in said notice. If the repair or restoration is commenced within
said thirty (30) days, this Lease shall continue in full force and effect.
"COMMENCE " shall mean either the unconditional authorization of the
preparation of the required plans, or the beginning of the actual work on the
Premises, whichever first occurs.
9.7 TERMINATION - ADVANCE PAYMENTS. Upon termination of this
Lease pursuant to Paragraph 9, an equitable adjustment shall be made
concerning advance Base Rent and any other advance payments made by Lessee to
Lessor. Lessor shall, in addition, return to Lessee so much of Lessee's
Security Deposit as has not been, or is not then required to be, used by
Lessor.
9.8 WAIVE STATUTES. Lessor and Lessee agree that the terms of
this Lease shall govern the effect of any damage to or destruction of the
Premises with respect to the termination of this Lease and hereby waive the
provisions of any present or future statute to the extent inconsistent
herewith.
10. REAL PROPERTY TAXES.
10.1 DEFINITION OF "REAL PROPERTY TAXES. " As used herein, the
term "REAL PROPERTY TAXES " shall include any form of assessment; real
estate, general, special, ordinary or extraordinary, or rental levy or tax
(other than inheritance, personal income or estate taxes); improvement bond;
and/or license fee imposed upon or levied against any legal or equitable
interest of Lessor in the Premises, Lessor's right to other income therefrom,
and/or Lessor's business of leasing, by any authority having the direct or
indirect power to tax and where the funds are generated with reference to the
Building address and where the proceeds so generated are to be applied by the
city, county or other local taxing authority of a jurisdiction within which
the Premises are located. The term "REAL PROPERTY TAXES " shall also include
any tax, fee, levy, assessment or charge, or any increase therein, imposed by
reason of events occurring during the term of this Lease, including but not
limited to, a change in the ownership of the Premises.
10.2 (a) PAYMENT OF TAXES. Lessee shall pay the Real Property
Taxes applicable to the Premises during the term of this Lease. Subject to
Paragraph 10.2(b), all such payments shall be made at least ten (10) days
prior to any delinquency date. Lessee shall promptly furnish Lessor with
satisfactory evidence that such taxes have been paid. If any such taxes shall
cover any period of time prior to or after the expiration or termination of
this Lease, Lessee's share of such taxes shall be prorated to cover only that
portion of the tax bill applicable to the period that this Lease is in
effect, and Lessor shall reimburse Lessee for any overpayment. If Lessee
shall fail to pay any required Real Property Taxes, Lessor shall have the
right to pay the same, and Lessee shall reimburse Lessor therefor upon
demand.
(b) ADVANCE PAYMENT. In the event Lessee incurs a late
charge on any Rent payment, Lessor may, at Lessor's option, estimate the
current Real Property Taxes, and require that such taxes be paid in advance
to Lessor by Lessee, either: (i) in a lump sum amount equal to the
installment due, at least twenty (20) days prior to the applicable
delinquency date, or (ii) monthly in advance with the payment of the Base
Rent. If Lessor elects to require payment monthly in advance, the monthly
payment shall be an amount equal to the amount of the estimated installment
of taxes divided by the number of months remaining before the month in which
said installment becomes delinquent. When the actual amount of the applicable
tax bill is known, the amount of such equal monthly advance payments shall be
adjusted as required to provide the funds needed to pay the applicable tax
bill is known, the amount of such equal monthly advance payments shall be
adjusted as required to provide the funds needed to pay the applicable taxes.
If the amount collected by Lessor is insufficient to pay such Real Property
Taxes when due, Lessee shall pay Lessor, upon demand, such additional sums as
are necessary to pay such obligations. All moneys paid to Lessor under this
Paragraph may be intermingled with other moneys of Lessor and shall not bear
interest. In the event of a Breach by Lessee in the performance of its
obligations under this Lease, then any balance of funds paid to Lessor under
the provisions of this Paragraph may at the option of Lessor, be treated as
an additional Security Deposit.
10.3 JOINT ASSESSMENT. If the Premises are not separately assessed,
Lessee's liability shall be an equitable proportion of the Real Property
Taxes for all of the land and improvements included within the tax parcel
assessed, such proportion to be conclusively determined by Lessor from the
respective valuations assigned in the assessor's work shoels or such other
information as may be reasonably available.
10.4 PERSONAL PROPERTY TAXES. Lessee shall pay, prior to delinquency,
all taxes assessed against and levied upon Lessee Owned Alterations, Utility
Installations, Trade Fixtures, furnishings, equipment and all personal
property of Lessee. When possible, Lessee shall cause such property to be
assessed and billed separately from the real property of Lessor. If any of
Lessee's said personal property shall be assessed with Lessor's real
property, Lessee shall pay Lessor the taxes attributable to Lessee's property
within ten (10) days after receipt of a written statement.
11. UTILITIES. Lessee shall pay for all water, gas, heat, light, power,
telephone, trash disposal and other utilities and services supplied to the
Premises, together with any taxes thereon. If any such services are not
separately metered to Lessee, Lessee shall pay a reasonable proportion, to be
determined by Lessor, of all charges jointly metered.
12. ASSIGNMENT AND SUBLETTING. See Addendum Section 11
12.1 LESSOR'S CONSENT REQUIRED.
(a) Lessee shall not voluntarily or by operation of law assign,
transfer, mortgage or encumber (collectively, "assign or assignment ") or
sublet all or any part of Lessee's interest in this Lease or in the Premises
without Lessor's prior written consent.
(b) A change in the control of Lessee shall constitute an
assignment requiring consent. The transfer, on a cumulative basis, of twenty-
five percent (25%) or more of the voting control of Lessee shall constitute a
change in control for this purpose.
(c) The involvement of Lessee or its assets in any transaction, or
series of transactions (by way of merger, sale, acquisition, financing,
transfer, leveraged buy-out or otherwise), whether or not a formal assignment
or hypothecation of this Lease or Lessee's assets occurs, which results or
will result in a reduction of the Net Worth of Lessee by an amount greater
than twenty-five percent (25%) of such Net Worth as it was represented at the
time of the execution of this Lease or at the time of the most recent
assignment to which Lessor has consented, or as it exists immediately prior
to said transaction or transactions constituting such reduction, whichever
was or is greater, shall be considered an assignment of this Lease to which
Lessor may withhold its consent. "NET WORTH OF LESSEE " shall mean the net
worth of Lessee (excluding any guarantors) established under generally
accepted accounting principles.
(d) An assignment or subletting without consent shall, at Lessor's
option, be a Default curable after notice per Paragraph 13.1(c), or a
noncurable Breach without the necessity of any notice and grace period. If
Lessor elects to treat such unapproved assignment or subletting as a
noncurable Breach, Lessor may either: (i) terminate this Lease, or (ii) upon
thirty (30) days written notice, increase the monthly Base Rent to one
hundred ten percent (110%) of the Base Rent then in effect. Further, in the
event of such Breach and rental adjustment; (i) the purchase price of any
option to purchase the Premises held by Lessee shall be subject to similar
adjustment to one hundred ten percent (110%) of the price previously in
effect, and (ii) all fixed and non-fixed rental adjustments scheduled during
the remainder of the Lease term shall be increased to One Hundred Ten Percent
(110%) of the scheduled adjusted rent.
(e) Lessee's remedy for any breach of Paragraph 12.1 by Lessor
shall be limited to compensatory damages and/or injunctive relief.
12.2 TERMS AND CONDITIONS APPLICABLE TO ASSIGNMENT AND SUBLETTING.
(a) Regardless of Lessor's consent, any assignment or subletting
shall not: (i) be effective without the express written assumption by such
assignee or sublessee of the obligations of Lessee under this Lease, (ii)
release Lessee of any obligations hereunder, or (iii) alter the primary
liability of Lessee for the payment of Rent or for the performance of any
other obligations to be performed by Lessee.
(b) Lessor may accept Rent or performance of Lessee's obligations
from any person other than Lessee pending approval or disapproval of an
assignment. Neither a delay in the approval or disapproval of such assignment
nor the acceptance of Rent or performance shall constitute a waiver or
estoppel of Lessor's right to exercise its remedies for Lessee's Default or
Breach.
(c) Lessor's consent to any assignment or subletting shall not
constitute a consent to any subsequent assignment or subletting.
(d) In the event of any Default or Breach by Lessee, Lessor may
proceed directly against Lessee, any Guarantors or anyone else responsible
for the performance of Lessee's obligations under this Lease, including any
assignee or sublessee, without first exhausting Lessor's remedies against any
other person or entity responsible therefore to Lessor, or any security held
by Lessor.
(e) Each request for consent to an assignment or subletting shall
be in writing, accompanied by information relevant to Lessor's determination
as to the financial and operational responsibility and appropriateness of the
proposed assignee or sublessee, including but not limited to the intended use
and/or required modification of the Premises, if any, together with a fee of
$1,000 or ten percent (10%) of the current monthly Base Rent applicable to
the portion of the Premises which is the subject of the proposed assignment
or sublease, whichever is greater, as consideration for Lessor's considering
and processing said request. Lessee agrees to provide Lessor with such other
or additional information and/or documentation as may be reasonably
requested.
(f) Any assignee of, or sublessee under, this Lease shall, by
reason of accepting such assignment or entering into such sublease, be deemed
to have assumed and agreed to conform and comply with each and every form,
covenant, condition and obligation herein to be observed or performed by
Lessee during the term of said assignment or sublease, other than such
obligations as are contrary to or inconsistent with provisions of an
assignment or sublease to which Lessor has specifically consented to in
writing.
12.3 ADDITIONAL TERMS AND CONDITIONS APPLICABLE TO SUBLETTING. The
following forms and conditions shall apply to any subletting by Lessee of all
or any part of the Premises and shall be deemed included in all subleases
under this Lease whether or not expressly incorporated therein:
(a) Lessee hereby assigns and transfers to Lessor all of Lessee's
interest in all Rent payable on any sublease, and Lessor may collect such
Rent and apply same toward Lessee's obligations under this Lease; provided,
however, that until a Breach shall occur in the performance of Lessee's
obligations, Lessee may collect said Rent. Lessor shall not, by reason of the
foregoing or any assignment of such sublease, nor by reason of the collection
of Rent, be deemed liable to the sublessee for any failure of Lessee to
perform and comply with any of Lessee's obligations to such sublessee. Lessee
hereby irrevocably authorizes and directs any such sublessee, upon receipt of
a written notice from Lessor stating that a Breach exists in the performance
of Lessee's obligations under this Lease, to pay to Lessor all Rent due to
become due under the sublease. Sublessee shall rely upon any such notice from
Lessor and shall pay all Rents to Lessor without any obligation or right to
inquire as to whether such Breach exists, notwithstanding any claim from
Lessee to the contrary.
(b) In the event of a Breach by Lessee, Lessor may, at its option,
require sublessee to attorn to Lessor, in which event Lessor shall undertake
the obligations of the sublessor under such sublease from the time of the
exercise of said option to the expiration of such sublease; provided,
however, Lessor shall not be liable for any prepaid rents or security deposit
paid by such sublessee to such sublessor or for any prior Defaults or
Breaches of such sublessor.
(c) Any matter requiring the consent of the sublessor under a
sublease shall also require the consent of Lessor.
(d) No sublessee shall further assign or sublet all or any part of
the Premises without Lessor's prior written consent.
(e) [THIS SECTION INTENTIONALLY OMITTED]
13. DEFAULT; BREACH; REMEDIES. See Addendum Section 12
13.1 DEFAULT; BREACH. A "Default " is defined as a failure by the
Lessee to comply with or perform any of the terms, covenants, conditions or
rules under this Lease. A "Breach " is defined as the occurrence of one or
more of the following Defaults, and the failure of Lessee to cure such
Default within any applicable grace period:
(a) The abandonment of the Premises; or the vacating of the
Premises without providing a commercially reasonable level of security, or
where the coverage of the property insurance described in Paragraph 8.3 is
jeopardized as a result thereof, or without providing reasonable assurances
to minimize potential vandalism.
(b) The failure of Lessee to make any payment of Rent or any
Security Deposit required to be made by Lessee hereunder, whether to Lessor
or to a third party, when due, to provide reasonable evidence of insurance or
surety bond, or to fulfill any obligation under this Lease which endangers or
threatens life or property, where such failure continues for a period of
three (3) business days following written notice to Lessee.
(c) The failure by Lessee to provide (i) reasonable written
evidence of compliance with Applicable Requirements, (ii) the service
contracts, (iii) the rescission of an unauthorized assignment or subletting,
(iv) a Tenancy Statement, (v) a requested subordination, (vi) evidence
concerning any guaranty and/or Guarantor, (vii) any document requested under
Paragraph 42 (easements), or (viii) any other documentation or information
which Lessor may reasonably require of Lessee under the terms of this Lease,
where any such failure continues for a period of ten (10) days following
written notice to Lessee.
(d) A Default by Lessee as to the terms, covenants, conditions or
provisions of this Lease, or of the rules adopted under Paragraph 40 hereof,
other than those described in subparagraphs 13.1(a), (b) or (c), above, where
such Default continues for a period of thirty (30) days after written notice;
provided, however, that if the nature of Lessee's Default is such that more
than thirty (30) days are reasonably required for its cure, then it shall not
be deemed to be a Breach if Lessee commences such cure within said thirty
(30) day period and thereafter diligently prosecutes such cure to completion.
(e) The occurrence of any of the following events: (i) the making
of any general arrangement or assignment for the benefit of creditors; (ii)
becoming a "debtor " as defined in 11 U.S.C. Section 101 or any successor
statute thereto (unless, in the case of a petition filed against Lessee, the
same is dismissed within sixty (60) days); (iii) the appointment of a trustee
or receiver to take possession of substantially all of Lessee's assets
located at the Premises or of Lessee's interest in this Lease, where
possession is not restored to Lessee within thirty (30) days; or (iv) the
attachment, execution or other judicial seizure of substantially all of
Lessee's assets located at the Premises or of Lessee's interest in this
Lease, where such seizure is not discharged within thirty (30) days;
provided, however, in the event that any provision of this subparagraph (e)
is contrary to any applicable law, such provision shall be of no force or
effect, and not affect the validity at the remaining provisions.
(f) The discovery that any financial statement of Lessee or of any
Guarantor given to Lessor was materially false.
(g) If the performance of Lessee's obligations under this Lease is
guaranteed: (i) the death of a Guarantor, (ii) the termination of a
Guarantor's liability with respect to this Lease other than in accordance
with the terms of such guaranty, (iii) a Guarantor's becoming insolvent or
the subject of a bankruptcy filing, (iv) a Guarantor's refusal to honor the
guaranty, or (v) a Guarantor's breach of its guaranty obligation on an
anticipatory basis, and Lessee's failure, within sixty (60) days following
written notice of any such event, to provide written alternative assurance or
security, which, when coupled with the then existing resources of Lessee,
equals or exceeds the combined financial resources of Lessee and the
Guarantors that existed at the time of execution of this Lease.
13.2 REMEDIES. If Lessee fails to perform any of its affirmative
duties or obligations, within ten (10) days after written notice (or in case
of an emergency, without notice). Lessor may, at its option, perform such
duty or obligation on Lessee's behalf, including but not limited to the
obtaining of reasonably required bonds, insurance policies, or governmental
licenses, permits or approvals. The costs and expenses of any such
performance by Lessor shall be due and payable by Lessee upon receipt of
invoice therefor. If any check given to Lessor by Lessee shall not be honored
by the bank upon which it is drawn, Lessor, at its option, may require all
future payments to be made by Lessee to be by cashier's check. In the event
of a Breach, Lessor may, with or without further notice or demand, and
without limiting Lessor in the exercise of any right or remedy which Lessor
may have by reason of such Breach:
(a) Terminate Lessee's right to possession of the Premises by any
lawful means, in which case this Lease shall terminate and Lessee shall
immediately surrender possession to Lessor. In such event Lessor shall be
entitled to recover from Lessee: (i) the unpaid Rent which had been earned at
the time of termination; (ii) the worth at the time of award of the amount by
which the unpaid rent which would have been earned after termination until
the time of award exceeds the amount of such rental loss that the Lessee
proves could have been reasonably avoided; (iii) the worth at the time of
award of the amount by which the unpaid rent for the balance of the term
after the time of award exceeds the amount of such rental loss that the
Lessee proves could be reasonably avoided; and (iv) any other amount
necessary to compensate Lessor for all the detriment proximately caused by
the Lessee's failure to perform its obligations under this Lease or which in
the ordinary course of things would be likely to result therefrom, including
but not limited to the cost of recovering possession of the Premises,
expenses of reletting, including necessary renovation and alteration of the
Premises, reasonable attorneys' fees, and that portion of any leasing
commission paid by Lessor in connection with this Lease applicable to the
unexpired term of this Lease. The worth at the time of award of the amount
referred to in provision (iii) of the immediately preceding sentence shall be
computed by discounting such amount at the discount rate of the Federal
Reserve Bank of the District within which the Premises are located at the
time of award plus one percent (1%). Efforts by Lessor to mitigate damages
caused by Lessee's Breach of this Lease shall not waive Lessor's right to
recover damages under Paragraph 12. If termination of this Lease is obtained
through the provisional remedy of unlawful detainer, Lessor shall have the
right to recover in such proceeding any unpaid Rent and damages as are
recoverable therein, or Lessor may reserve the right to recover all or any
part thereof in a separate suit. If a notice and grace period required under
Paragraph 13.1 was not previously given, a notice to pay rent or quit, or to
perform or quit given to Lessee under the unlawful detainer statute shall
also constitute the notice required by Paragraph 13.1. In such case, the
applicable grace period required by Paragraph 13.1 and the unlawful detainer
statute shall run concurrently, and the failure of Lessee to cure the Default
within the greater of the two such grace periods shall constitute both an
unlawful detainer and a Breach of this Lease entitling Lessor to the remedies
provided for in this Lease and/or by said statute.
(b) Continue the Lease and Lessee's right to possession and recover
the Rent as it becomes due, in which event Lessee may sublet or assign,
subject only to reasonable limitations. Acts of maintenance, efforts to
relet, and/or the appointment of a receiver to protect the Lessor's
interests, shall not constitute a termination of the Lessee's right to
possession.
(c) Pursue any other remedy now or hereafter available under the
laws or judicial decisions of the state wherein the Premises are located. The
expiration or termination of this Lease and/or the termination of Lessee's
right to possession shall not relieve Lessee from liability under any
indemnity provisions of this Lease as to matters occurring or accruing during
the term hereof or by reason of Lessee's occupancy of the Premises.
13.3 INDUCEMENT RECAPTURE. Any agreement for free or abated rent or
other charges, or for the giving or paying by Lessor to or for Lessee of any
cash or other bonus, inducement or consideration for Lessee's entering into
this Lease, all of which concessions are hereinafter referred to as
"INDUCEMENT PROVISIONS, " shall be deemed conditioned upon Lessee's full and
faithful performance of all of the terms, covenants and conditions of this
Lease. Upon Breach of this Lease by Lessee, any such Inducement Provision
shall automatically be deemed deleted from this Lease and of no further force
or effect, and any rent, other charge, bonus, inducement or consideration
theretofore abated, given or paid by Lessor under such an Inducement
Provision shall be immediately due and payable by Lessee to Lessor,
notwithstanding any subsequent cure of said Breach by Lessee. The acceptance
by Lessor of rent or the cure of the Breach which initiated the operation of
this paragraph shall not be deemed a waiver by Lessor of the provisions of
this paragraph unless specifically so stated in writing by Lessor at the time
of such acceptance. SEE ADDENDUM SECTION 13.
13.4 LATE CHARGES. Lessee hereby acknowledges that late payment by
Lessee of Rent will cause Lessor to incur costs not contemplated by this
Lease, the exact amount of which will be extremely difficult to ascertain.
Such costs include, but are not limited to, processing and accounting
charges, and late charges which may be imposed upon Lessor by any Lender.
Accordingly, if any Rent shall not be received by Lessor within five (5) days
after such amount shall be due, then, without any requirement for notice to
Lessee, Lessee shall pay to Lessor a one-time late charge equal to ten
percent (10%) of each such overdue amount. The parties hereby agree that such
late charge represents a fair and reasonable estimate of the costs Lessor
will incur by reason of such late payment. Acceptance of such late charge by
Lessor shall in no event constitute a waiver of Lessee's Default or Breach
with respect to such overdue amount, nor prevent the exercise of any of the
other rights and remedies granted hereunder. In the event that a late charge
is payable hereunder, whether or not collected, for three (3) consecutive
installments of Base Rent, then notwithstanding any provision of this Lease
to the contrary, Base Rent shall, at Lessor's option, become due and payable
quarterly in advance.
13.5 INTEREST. Any monetary payment due Lessor hereunder, other than
late charges, not received by Lessor, when due as to scheduled payments (such
as Base Rent) or within thirty (30) days following the date on which it was
due for non-scheduled payment, shall bear interest from the date when due, as
to scheduled payments, or the thirty-first (31st) day after it was due as to
non-scheduled payments. The interest ( "Interest ") charged shall be equal to
the prime rate reported in the Wall Street Journal as published closest prior
to the date when due plus four percent (4%), but shall not exceed the maximum
rate allowed by law. Interest is payable in addition to the potential late
charge provided for in Paragraph 13.4.
13.6 BREACH BY LESSOR.
(a) NOTICE OF BREACH. Lessor shall not be deemed in breach
of this Lease unless Lessor fails within a reasonable time to perform an
obligation required to be performed by Lessor. For purposes of this
Paragraph, a reasonable time shall in no event be less than thirty (30) days
after receipt by Lessor, and any Lender whose name and address shall have
been furnished Lessee in writing for such purpose, of written notice
specifying wherein such obligation of Lessor has not been performed;
provided, however, that if the nature of Lessor's obligation is such that
more than thirty (30) days are reasonably required for its performance, then
Lessor shall not be in breach if performance is commenced within such thirty
(30) day period and thereafter diligently pursued to completion.
(b) PERFORMANCE BY LESSEE ON BEHALF OF LESSOR. In the event
that neither Lessor nor Lender cures said breach within thirty (30) days
after receipt of said notice, or if having commenced said cure they do not
diligently pursue it to completion, then Lessee may elect to cure said breach
at Lessee's expense and offset from Rent an amount equal to the greater of
one month's Base Rent or the Security Deposit, and to pay an excess of such
expense under protest, reserving Lessee's right to reimbursement from Lessor.
Lessee shall document the cost of said cure and supply said documentation to
Lessor.
14. CONDEMNATION. If the Premises or any portion thereof are taken under
the power of eminent domain or sold under the threat of the exercise of said
power (collectively "CONDEMNATION "), this Lease shall terminate as to the
part taken as of the date the condemning authority takes title or possession,
whichever first occurs. If more than ten percent (10%) of any building
portion of the premises, or more than twenty-five percent (25%) of the land
area portion of the premises not occupied by any building, is taken by
Condemnation, Lessee may, at Lessee's option, to be exercised in writing
within ten (10) days after Lessor shall have given Lessee written notice of
such taking (or in the absence of such notice, within ten (10) days after the
condemning authority shall have taken possession) terminate this Lease as of
the date the condemning authority takes such possession. If Lessee does not
terminate this Lease in accordance with the foregoing, this Lease shall
remain in full force and effect as to the portion of the Premises remaining,
except that the Base Rent shall be reduced in proportion to the reduction in
utility of the Premises caused by such Condemnation. Condemnation awards
and/or payments shall be the property of Lessor, whether such award shall be
made as compensation for diminution in value of the leasehold, the value of
the part taken, or for severance damages; provided, however, that Lessee
shall be entitled to any compensation for Lessee's relocation expenses, loss
of business goodwill and/or Trade Fixtures, without regard to whether or not
this Lease is terminated pursuant to the provisions of this Paragraph. All
Alterations and Utility Installations made to the Premises by Lessee, for
purposes of Condemnation only, shall be considered the property of the Lessee
and Lessee shall be entitled to any and all compensation which is payable
therefor. In the event that this Lease is not terminated by reason of the
Condemnation, Lessor shall repair any damage to the Premises caused by such
Condemnation.
15. BROKERS' FEE.
15.1 [THIS SECTION INTENTIONALLY OMITTED]
15.2 [THIS SECTION INTENTIONALLY OMITTED]
15.3 REPRESENTATIONS AND INDEMNITIES OF BROKER RELATIONSHIPS. Lessee
and Lessor each represent and warrant to the other that it has had no
dealings with any person, firm, broker or finder (other than the Brokers, if
any) in connection with this Lease, and that no one other than said named
Brokers is entitled to any commission or finder's fee in connection herewith.
Lessee and Lessor do each hereby agree to indemnify, protect, defend and hold
the other harmless from and against liability for compensation or charges
which may be claimed by any such unnamed broker, finder or other similar
party by reason of any dealings or actions of the indemnifying Party,
including any costs, expenses, attorneys' fees reasonably incurred with
respect thereto.
16. ESTOPPEL CERTIFICATES. SEE ADDENDUM SECTION 14.
(a) Each Party (as "RESPONDING PARTY ") shall within ten
(10) days after written notice from the other Party (the "REQUESTING PARTY
") execute, acknowledge and deliver to the Requesting Party a statement in
writing in form similar to the then most current "ESTOPPEL CERTIFICATE "
form published by the American Industrial Real Estate Association, plus such
additional information, confirmation and/or statements as may be reasonably
requested by the Requesting Party.
(b) If the Responding Party shall fail to execute or
deliver the Estoppel Certificate within such ten day period, the Requesting
Party may execute an Estoppel Certificate stating that: (i) the Lease is in
full force and effect without modification except as may be represented by
the Requesting Party, (ii) there are no uncured defaults in the Requesting
Party's performance, and (iii) if Lessor is the Requesting Party, not more
than one month's rent has been paid in advance. Prospective purchasers and
encumbrancers may rely upon the Requesting Party's Estoppel Certificate, and
the Responding Party shall be estopped from denying the truth of the facts
contained in said Certificate.
(c) If Lessor desires to finance, refinance, or sell the
Premises, or any part thereof, Lessee and all Guarantors shall deliver to any
potential lender or purchaser designated by Lessor such financial statements
as may be reasonably required by such lender or purchaser, including but not
limited to Lessee's financial statements for the past three (3) years. All
such financial statements shall be received by Lessor and such lender or
purchaser in confidence and shall be used only for the purposes herein set
forth.
17. DEFINITION OF LESSOR. The term "LESSOR " as used herein shall mean
the owner or owners at the time in question of the fee title to the Premises,
or, if this is a sublease, of the Lessee's interest in the prior lease. In
the event of a transfer of Lessor's title or interest in the Premises or this
Lease, Lessor shall deliver to the transferee or assignee (in cash or by
credit) any unused Security Deposit held by Lessor. Except as provided in
Paragraph 15, upon such transfer or assignment and delivery of the Security
Deposit, as aforesaid, the prior Lessor shall be relieved of all liability
with respect to the obligations and/or covenants under this Lease thereafter
to be performed by the Lessor. Subject to the foregoing, the obligations
and/or covenants in this Lease to be performed by the Lessor shall be binding
only upon the Lessor as hereinabove defined. Notwithstanding the above, and
subject to the provisions of Paragraph 20 below, the original Lessor under
this Lease, and all subsequent holders of the Lessor's interest in this Lease
shall remain liable and responsible with regard to the potential duties and
liabilities of Lessor pertaining to Hazardous Substances as outlined in
Paragraph 6 above.
18. SEVERABILITY. The invalidity of any provision of this Lease, as
determined by a court of competent jurisdiction, shall in no way affect the
validity of any other provision hereof.
19. DAYS. Unless otherwise specifically indicated to the contrary, the
word "days " as used in this Lease shall mean and refer to calendar days.
20. LIMITATION ON LIABILITY. Subject to the provisions of Paragraph 17
above, the obligations of Lessor under this Lease shall not constitute
personal obligations of Lessor, the individual partners of Lessor or its or
their individual partners, directors, officers or shareholders, and Lessee
shall look to the Premises, and to no other assets of Lessor, for the
satisfaction of any liability of Lessor with respect to this Lease, and shall
not seek recourse against the individual partners of Lessor, or its or their
individual partners, directors, officers or shareholders, or any of their
personal assets for such satisfaction.
21. TIME OF ESSENCE. Time is of the essence with respect to the
performance of all obligations to be performed or observed by the Parties
under this Lease.
22. NO PRIOR OR OTHER AGREEMENTS; BROKER DISCLAIMER. This Lease contains
all agreements between the Parties with respect to any matter mentioned
herein, and no other prior or contemporaneous agreement or understanding
shall be effective. Lessor and Lessee each represents and warrants to the
Brokers that it has made, and is relying solely upon, its own investigation
as to the nature, quality, character and financial responsibility of the
other Party to this Lease and as to the nature, quality and character of the
Premises. Brokers have no responsibility with respect thereto or with respect
to any default or breach hereof by either party. The liability (including
court costs and Attorneys' fees), of any Broker with respect to negotiation,
execution, delivery or performance by either Lessor or Lessee under this
Lease or any amendment or modification hereto shall be limited to an amount
up to the fee received by such Broker pursuant to this Lease; provided,
however, that the foregoing limitation on each Broker's liability shall not
be applicable to any gross negligence or willful misconduct of such Broker.
23. NOTICES.
23.1 NOTICE REQUIREMENTS. All notices required or permitted by this
Lease shall be in writing and may be delivered in person (by hand or by
courier) or may be sent by regular, certified or registered mail or U.S.
Postal Service Express Mail, with postage prepaid, or by facsimile
transmission, and shall be deemed sufficiently given if served in a manner
specified in this Paragraph 23. The addresses noted adjacent to a Party's
signature on this Lease shall be that Party's address for delivery or mailing
of notices. Either Party may by written notice to the other specify a
different address for notice, except that upon Lessee's taking possession of
the Premises, the Premises shall constitute Lessee's address for notice. A
copy of all notices to Lessor shall be concurrently transmitted to such party
or parties at such addresses as Lessor may from time to time hereafter
designate in writing.
23.2 DATE OF NOTICE. Any notice sent by registered or certified
mail, return receipt requested, shall be deemed given on the date of delivery
shown on the receipt card, or if no delivery date is shown, the postmark
thereon. If sent by regular mail the notice shall be deemed given forty-eight
(48) hours after the same is addressed as required herein and mailed with
postage prepaid. Notices delivered by United States Express Mail or overnight
courier that guarantee next day delivery shall be deemed given twenty-four
(24) hours after delivery of the same to the Postal Service or courier.
Notices transmitted by facsimile transmission or similar means shall be
deemed delivered upon telephone confirmation of receipt, provided a copy is
also delivered via delivery or mail. If notice is received on a Saturday,
Sunday, or legal holiday, it shall be deemed received on the next business
day.
24. WAIVERS. No waiver by Lessor of the Default or Breach of any term,
covenant or condition hereof by Lessee, shall be deemed a waiver of any other
term, covenant or condition hereof, or of any subsequent Default or Breach by
Lessee of the same or of any other term, covenant or condition hereof.
Lessor's consent to, or approval of, any net shall not be deemed to render
unnecessary the obtaining of Lessor's consent to, or approval of, any
subsequent or similar act by Lessee, or be construed as the basis of an
estoppel to enforce the provision or provisions of this Lease requiring such
consent. The acceptance of Rent by Lessor shall not be a waiver of any
Default or Breach by Lessee. Any payment by Lessee may be accepted by Lessor
on account of moneys or damages due Lessor, notwithstanding any qualifying
statements or conditions made by Lessee in connection therewith, which such
statements and/or conditions shall be of no force or effect whatsoever unless
specifically agreed to in writing by Lessor at or before the time of deposit
of such payment.
25. RECORDING. SEE ADDENDUM SECTION 15
26. NO RIGHT TO HOLDOVER. Lessee has no right to retain possession of
the Premises or any part thereof beyond the expiration or termination of this
Lease. In the event that Lessee holds over, then the Base Rent shall be
increased to one hundred fifty percent (150%) of the Base Rent applicable
during the month immediately preceding the expiration or termination. Nothing
contained herein shall be construed as consent by Lessor to any holding over
by Lessee.
27. CUMULATIVE REMEDIES. No remedy or election hereunder shall be deemed
exclusive but shall, wherever possible, be cumulative with all other remedies
at law or in equity.
28. COVENANTS AND CONDITIONS; CONSTRUCTION OF AGREEMENT. All provisions
of this Lease to be observed or performed by Lessee are both covenants and
conditions. In construing this Lease, all headings and titles are for the
convenience of the parties only and shall not be considered a part of this
Lease. Whenever required by the context, the singular shall include the
plural and vice versa. This Lease shall not be construed as if prepared by
one of the parties, but rather according to its fair meaning as a whole, as
if both parties had prepared it.
29. BINDING EFFECT; CHOICE OF LAW. This Lease shall be binding upon the
parties, their personal representatives, successors and assigns and be
governed by the laws of the State in which the Premises are located. Any
litigation between the Parties hereto concerning this Lease shall be
initiated in the county in which the Premises are located.
30. SUBORDINATION; ATTORNMENT; NON-DISTURBANCE. SEE ADDENDUM SECTION 16.
30.1 SUBORDINATION. This Lease and any Option granted hereby shall
be subject and subordinate to any ground lease, mortgage, deed of trust, o
other hypothecation or security device (collectively, "SECURITY DEVICE "),
now or hereafter placed upon the Premises, to any and all advances made on
the security thereof, and to all renewals, modifications, and extensions
thereof. Lessee agrees that the holders of any such Security Devices (in this
Lease together referred to as "Lessor's Lender ") shall have no liability or
obligation to perform any of the obligations of Lessor under this Lease. Any
Lender may elect to have this Lease and/or any Option granted hereby superior
to the lien of its Security Device by giving written notice thereof to
Lessee, whereupon this Lease and such Options shall be deemed prior to such
Security Device, notwithstanding the relative dates of the documentation or
recordation thereof.
30.2 ATTORNMENT. Subject to the non-disturbance provisions of
Paragraph 30.3, Lessee agrees to attorn to a Lender or any other party who
acquires ownership of the Premises by reason of a foreclosure of a Security
Device, and that in the event of such foreclosure, such new owner shall not:
(i) be liable for any act or omission of any prior lessor or with respect to
events occurring prior to acquisition of ownership; (ii) be subject to any
offsets or defenses which Lessee might have against any prior lessor, or
(iii) be bound by prepayment of more than one (1) month's rent.
30.3 NON-DISTURBANCE. With respect to Security Devices entered into by
Lessor after the execution of this Lease, Lessee's subordination of this
Lease shall be subject to receiving a commercially reasonable non-disturbance
agreement (a "Non-Disturbance Agreement ") from the Lender which Non-
Disturbance Agreement provides that Lessee's possession of the Premises, and
this Lease, including any options to extend the term hereof, will not be
disturbed so long as Lessee is not in Breach hereof and attorns to the record
owner of the Premises. Further, within sixty (60) days after the execution of
this Lease, Lessor shall use its commercially reasonable efforts to obtain a
Non-Disturbance Agreement from the holder of any pre-existing Security Device
which is secured by the Premises. In the event that Lessor is unable to
provide the Non-Disturbance Agreement within said sixty (60) days, then
Lessee may, at Lessee's option, directly contact Lessor's lender and attempt
to negotiate for the execution and delivery of a Non-Disturbance Agreement.
30.4 SELF-EXECUTING. The agreements contained in this Paragraph 30 shall
be effective without the execution of any further documents; provided,
however, that, upon written request from Lessor or a Lender in connection
with a sale, financing or refinancing of the Premises, Lessee and Lessor
shall execute such further writings as may be reasonably required to
separately document any subordination, attornment and/or Non-Disturbance
Agreement provided for herein.
31. ATTORNEYS' FEES. If any Party or Broker brings an action or proceeding
involving the Premises to enforce the terms hereof or to declare rights
hereunder, the Prevailing Party (as hereafter defined) in any such
proceeding, action, or appeal thereon, shall be entitled to reasonable
attorneys' fees. Such fees may be awarded in the same suit or recovered in a
separate suit, whether or not such action or proceeding is pursued to
decision or judgment. The term, "PREVAILING PARTY " shall include, without
limitation, a Party or Broker who substantially obtains or defeats the relief
sought, as the case may be, whether by compromise, settlement, judgment, or
the abandonment by the other Party or Broker of its claim or defense. Th
attorneys' fees award shall not be computed in accordance with any court fee
schedule, but shall be such as to fully reimburse all attorneys' fees
reasonably incurred. In addition, Lessor shall be entitled to attorneys'
fees, costs and expenses incurred in the preparation and service of notices
of Default and consultations in connection therewith, whether or not a legal
action is subsequently commenced in connection with such Default or resulting
Breach.
32. LESSOR'S ACCESS; SHOWING PREMISES; REPAIRS. Lessor and Lessor's agents
shall have the right to enter the Premises at any time, in the case of an
emergency, and otherwise at reasonable times for the purpose of showing the
same to prospective purchasers, lenders, or lessees, and making such
alterations, repairs, improvements or additions to the Premises as Lessor may
deem necessary. All such activities shall be without abatement of rent or
liability to Lessee. Lessor may at any time place on the Premises any
ordinary "For Sale " signs and Lessor may during the last six (6) months of
the term hereof place on the Premises any ordinary "For Lease " signs.
Lessee may at any time place on or about the Premises any ordinary "For
Sublease " sign.
33. AUCTIONS. Lessee shall not conduct, nor permit to be conducted, any
auction upon the Premises without Lessor's prior written consent. Lessor
shall not be obligated to exercise any standard of reasonableness in
determining whether to permit an auction.
34. SIGNS. Except for ordinary "For Sublease " signs, Lessee shall not place
any sign upon the Premises without Lessor's prior written consent. All signs
must comply with all Applicable Requirements. SEE ADDENDUM SECTION 17
35. TERMINATION; MERGER. Unless specifically stated otherwise in writing by
Lessor, the voluntary or other surrender of this Lease by Lessee, the mutual
termination or cancellation hereof, or a termination hereof by Lessor for
Breach by Lessee, shall automatically terminate any sublease or lesser estate
in the Premises; provided, however, that Lessor may elect to continue any one
or all existing subtenancies. Lessor's failure within ten (10) days following
any such event to elect to the contrary by written notice to the holder of
any such lessor interest, shall constitute Lessor's election to have such
event constitute the termination of such event.
36. CONSENTS. Except as otherwise provided herein, wherever in this Lease the
consent of a Party is required to an act by or for the other Party, such
consent shall not be unreasonably withheld or delayed. Lessor's actual
reasonable costs and expenses (including but not limited to architects',
attorneys', engineers' and other consultants' fees) incurred in the
consideration of, or response to, a request by Lessee for any Lessor consent,
including but not limited to consents to an assignment, a subletting or the
presence or use of a Hazardous Substance, shall be paid by Lessee upon
receipt of an invoice and supporting documentation therefor. Lessor's consent
to any act, assignment or subletting shall not constitute an acknowledgment
that no Default or Breach by Lessee of this Lease exists, nor shall such
consent be deemed a waiver of any then existing Default or Breach, except as
may be otherwise specifically stated in writing by Lessor at the time of such
consent. The failure to specify herein any particular condition to Lessor's
consent shall not preclude the imposition by Lessor at the time of consent of
such further or other conditions as are then reasonable with reference to th
particular matter for which consent is being given. In the event that either
Party disagrees with any determination made by the other hereunder and
reasonably requests the reasons for such determination, the determining party
shall furnish its reasons in writing and in reasonable detail within ten (10)
business days following such request.
37. GUARANTOR
[THIS SECTION INTENTIONALLY OMITTED]
38. OUTLET POSSESSION. Subject to payment by Lessee of the Rent and
performance of all of the covenants, conditions and provisions on Lessee's
part to be observed and performed under this Lease, Lessee shall have quiet
possession and quiet enjoyment of the Premises during the term hereof.
39. OPTIONS. SEE ADDENDUM SECTION 3.4
39.1 DEFINITION. "Option " shall mean: (a) the right to extend the term
of or renew this Lease or to extend or renew any lease that Lessee has on
other property of Lessor; (b) the right of first refusal or first offer to
lease either the Premises or other property of Lessor; (c) the right to
purchase or the right of first refusal to purchase the Premises or other
property of Lessor.
39.2 OPTIONS PERSONAL TO ORIGINAL LESSEE. Each Option granted to Lessee
in this Lease is personal to the original Lessee, and cannot be assigned or
exercised by anyone other than said original Lessee and only while the
original Lessee is in full possession of the Premises and, if requested by
Lessor, with Lessee certifying that Lessee has no intention of thereafter
assigning or subletting.
39.3 MULTIPLE OPTIONS. In the event that Lessee has any multiple Options
to extend or renew this Lease, a later Option cannot be exercised unless the
prior Options have been validly exercised.
39.4 EFFECT OF DEFAULT ON OPTIONS.
(a) Lessee shall have no right to exercise an Option: (i) during the
period commencing with the giving of any notice of Default and continuing
until said Default is cured, (ii) during the period of time any Rent is
unpaid (without regard to whether notice thereof is given Lessee), (iii)
during the time Lessee is in Breach of this Lease, or (iv) in the event that
Lessee has been given three (3) or more notices of separate Default, whether
or not the Defaults are cured, during the twelve (12) month period
immediately preceding the exercise of the Option.
(b) The period of time within which an Option may be exercised shall
not be extended or enlarged by reason of Lessee's inability to exercise an
Option because of the provisions of Paragraph 39.4(a).
(c) An Option shall terminate and be of no further force or effect,
notwithstanding Lessee's due and timely exercise of the Option, if, after
such exercise and prior to the commencement of the extended term, (i) Lessee
fails to pay Rent for a period of thirty (30) days after such Rent becomes
due (without any necessity of Lessor to give notice thereof), (ii) Lessor
gives to Lessee three (3) or more notices of separate Default during an
twelve (12) month period, whether or not the Defaults are cured, or (iii) if
Lessee commits a Breach of this Lease.
40. MULTIPLE BUILDINGS. If the Premises are a part of a group of buildings
controlled by Lessor, Lessee agrees that it will observe all reasonable rules
and regulations which Lessor may make from time to time for the management,
safety, and care of said properties, including the care and cleanliness of
the grounds and including the parking, loading and unloading of vehicles, and
that Lessee will pay its fair share of common expenses incurred in connection
therewith.
41. SECURITY MEASURES. Lessee hereby acknowledges that the rental payable to
Lessor hereunder does not include the cost of guard service or other security
measures, and that Lessor shall have no obligation whatsoever to provide
same. Lessee assumes all responsibility for the protection of the Premises,
Lessee, its agents and invitees and their property from the acts of third
parties.
42. RESERVATIONS. Lessor reserves to itself the right, from time to time, to
grant, without the consent or joinder of Lessee, such easements, rights and
dedications that Lessor deems necessary, and to cause the recordation of
parcel maps and restrictions, so long as such easements, rights, dedications,
maps and restrictions do not unreasonably interfere with the use of the
Premises by Lessee. Lessee agrees to sign any documents reasonably requested
by Lessor to effectuate any such easement rights, dedication, map or
restrictions.
43. PERFORMANCE UNDER PROTEST. If at any time a dispute shall arise as to any
amount or sum of money to be paid by one Party to the other under the
provisions hereof, the Party against whom the obligation to pay the money is
asserted shall have the right to make payment "under protest " and such
payment shall not be regarded as a voluntary payment and there shall survive
the right on the part of said Party to institute suit for recovery of such
sum. If it shall be adjugded that there was no legal obligation on the part
of said Party to pay such sum or any part thereof, said Party shall be
entitled to recover such sum or so much thereof as it was not legally
required to pay.
44. AUTHORITY. If either party hereto is a corporation, trust, limited
liability company, partnership, or similar entity, each individual executing
this Lease on behalf of such entity represents and warrants that he or she is
duly authorized to execute and deliver this Lease on its behalf. Each party
shall, within thirty (30) days after request, deliver to the other party
satisfactory evidence of such authority. SEE ADDENDUM SECTION 18
45. CONFLICT. Any conflict between the printed provisions of this Lease and
the typewritten or handwritten provisions shall be controlled by the
typewritten or handwritten provisions.
46. OFFER. Preparation of this Lease by either Party or their agent and
submission of same to the other Party shall not be deemed an offer to lease
to the other Party. This Lease is not intended to be binding until executed
and delivered by all Parties hereto.
47. AMENDMENTS. This Lease may be modified only in writing, signed by the
Parties in Interest at the time of the modification. As long as they do not
materially change Lessee's obligations hereunder. Lessee agrees to make such
reasonable non-monetary modifications to this Lease as may be reasonably
required by a Lender in connection with the obtaining of normal financing or
refinancing of the Premises.
48. MULTIPLE PARTIES. If more than one person or entity is named herein as
either Lessor or Lessee, such multiple Parties shall have joint and several
responsibility to comply with the terms of this Lease.
49. MEDIATION AND ARBITRATION OF DISPUTES. An Addendum requiring the
Mediation and/or the Arbitration of all disputes between the Parties and/or
Brokers arising out of this Lease / / is /x/ is not attached to this Lease.
SEE ADDENDUM SECTIONS 19 TO 24 FOR ADDITIONAL TERMS
LESSOR AND LESSEE HAVE CAREFULLY READ AND REVIEWED THIS LEASE AND EACH TERM
AND PROVISION CONTAINED HEREIN, AND BY THE EXECUTION OF THIS LEASE SHOW THEIR
INFORMED AND VOLUNTARY CONSENT THERETO. THE PARTIES HEREBY AGREE THAT, AT THE
TIME THIS LEASE IS EXECUTED, THE TERMS OF THIS LEASE ARE COMMERCIALLY
REASONABLE AND EFFECTUATE THE INTENT AND PURPOSE OF LESSOR AND LESSEE WITH
RESPECT TO THE PREMISES.
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ATTENTION: NO REPRESENTATION OR RECOMMENDATION IS MADE BY THE AMERICAN
INDUSTRIAL REAL ESTATE ASSOCIATION OR BY ANY BROKER AS TO THE LEGAL
SUFFICIENCY, LEGAL EFFECT, OR TAX CONSEQUENCES OF THIS LEASE OR THE
TRANSACTION TO WHICH IT RELATES. THE PARTIES ARE URGED TO :
1. SEEK ADVICE OF COUNSEL AS TO THE LEGAL AND TAX CONSEQUENCES OF THIS LEASE.
2. RETAIN APPROPRIATE CONSULTANTS TO REVIEW AND INVESTIGATE THE CONDITION OF
THE PREMISES, SAID INVESTIGATION SHOULD INCLUDE BUT NOT BE LIMITED TO: THE
POSSIBLE PRESENCE OF HAZARDOUS SUBSTANCES, THE ZONING OF THE PREMISES, THE
STRUCTURAL INTEGRITY, THE CONDITION OF THE ROOF AND OPERATING SYSTEMS, AND
THE SUITABILITY OF THE PREMISES FOR LESSEE'S INTENDED USE.
WARNING: IF THE PREMISES IS LOCATED IN A STATE OTHER THAN CALIFORNIA, CERTAIN
PROVISIONS OF THE LEASE MAY NEED TO BE REVISED TO COMPLY WITH THE LAWS OF THE
STATE IN WHICH THE PREMISES IS LOCATED.
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The parties hereto have executed this Lease at the place and on the dates
specified above their respective signatures.
Executed at: Executed at:
------------------------- ---------------------
on: on:
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By LESSOR: By LESSEE:
Moorpark, Venture L.P., Smtek, Inc.,
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a California limited partnership a California corporation
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By: Managing GP, Inc. Its General Partner
By: /s/ Jeffrey C. Hamann By:
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Name Printed: Jeffrey C. Hamann Name Printed:
------------------------ --------------------
Title: President Title: President
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By: By:
---------------------------------- ------------------------------
Name Printed: Name Printed:
------------------------ --------------------
Title: Title: Secretary
------------------------------- ---------------------------
Address: 475 West Bradley Ave Address: 2151 Anchor Court
----------------------------- -------------------------
El Cajon, CA 92020 Thousand Oaks, CA 91320
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Telephone: (619) 440-7424 Telephone: (805) 376-2595
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Facsimile: (619) 440-8914 Facsimile: (805) 376-9015
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Federal ID No. Federal ID No.
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NOTE: These forms are often modified to meet changing requirements of law and
industry needs. Always write or call to make sure you are utilizing the
most current form: AMERICAN INDUSTRIAL REAL ESTATE ASSOCIATION, 700 So.
Flower Street, Suite 600, Los Angeles, California 90017. (213) 687-
8777, Fax No. (213) 687-8616
ADDENDUM TO LEASE
This Addendum to Lease ( "Addendum ") is made by and between MOORPARK
VENTURE L.P., a California limited partnership ( "LESSOR ") and SMTEK, INC.,
a California corporation ( "LESSEE ") and is intended to supplement that
certain Standard Industrial/Commercial Single-Tenant Lease-Net between LESSOR
and LESSEE dated July 20, 2001 ( "Lease ") to which this Addendum is annexed
and all references to "Lease " shall be deemed to include this Addendum
unless otherwise stated or the context indicates otherwise. Any word or
phrases defined in the Lease shall have the same meaning when used in this
Addendum. If there is any inconsistency between this Addendum and the Lease,
the terms of this Addendum shall supersede and control. LESSOR and LESSEE
agree as follows:
1. RENT. "Rent " for the Premises shall be the sum of (a) the Base
Rent described in subsection 1.1 of this Addendum, subject to adjustment as
provided in subsection 1.2 of this Addendum, (b) the Allowance Amortization
Charge described in subsection 1.3 of this Addendum, (c) the Operating
Expenses as defined in subsection 3 of this Addendum, and (d) any other
amounts becoming payable by LESSEE under the Lease.
1.1 BASE RENT. The monthly "Base Rent " for the first Lease Year
(as defined below) of the Original Term shall be the amount of Seventy One
Thousand Five Hundred Eighteen Dollars ($71,518.00), which is equals $ .655
per Rentable Square Foot within the Premises.
1.2 INCREASE IN BASE RENT. The Base Rent shall be increased at the
beginning of the second Lease Year and at the beginning of each Lease Year
thereafter during the Original Term, in an amount of One Thousand Seven
Hundred Eighty Eight Dollars ($1, 788.00) monthly over the amount of the
scheduled increased Base Rent for the immediately preceding Lease Year.
1.3 TENANT IMPROVEMENT ALLOWANCE AMORTIZATION. In addition to
payment of the Base Rent, LESSEE shall pay monthly the Allowance Amortization
Charge calculated in accordance with this section, which is presently
estimated to equal a maximum of Four Thousand One Hundred Thirty Three
Dollars ($4,133.00) monthly. As more particularly provided in section 5 of
this Addendum, LESSOR will provide a Tenant Improvement Allowance in the
amount of up to One Million Dollars ($1,000,000.00) to pay for a portion of
the Tenant Improvement Costs (as defined below) for Tenant Improvements
requested by LESSEE. The term "Allowance Amortization Charge " means an
amount to be included in the Rent calculated as follows: (a) determine the
aggregate amount of the Allowance expended by LESSOR for Tenant Improvements;
(b) deduct Seven Hundred Thousand Dollars ($700,000.00) from the amount
expended; (c) amortize the remaining amount of the Allowance actually
expended ( "Excess Allowance ") based on an economic return equivalent to
eleven percent (11%) per annum to derive a monthly payment sufficient to pay
in full the Excess Allowance and such economic return over a period of time
equal to one hundred and twenty (120) months beginning on the Commencement
Date; and (d) the resulting monthly payment shall equal the Allowance
Amortization Charge. If the amount of the Allowance Amortization Charge is
determined after the Commencement Date on account of a delay in finalizing
the Tenant Improvement Costs, then LESSEE shall pay LESSOR the amount
accruable from the Commencement Date to the end of the then current month,
within fifteen (15) days after LESSOR's billing for such accrued amounts, and
shall thereafter pay the monthly Allowance Amortization Charge as a part of
the monthly of Base Rent. Upon LESSOR's request, LESSEE and LESSOR shall
execute an amendment to the Lease setting for the exact Allowance
Amortization Charge if less than the amount stated above, provided that
failure of LESSOR and LESSEE to execute such amendment shall not effect the
validity of the Lease. LESSEE shall not have the right to prepay the
unamortized Allowance Amortization Charge at any time. The Allowance
Amortization Charge is only payable during the Original Term, not during any
Extension Term, and it is not subject to increase upon the adjustment of the
Base Rent under section 1.2 of this Addendum.
1.4 DUE DATE/PAYMENT. The monthly Base Rent, Allowance Amortization
Charge and the Operating Expenses shall be due and payable on the first day
of each month without notice beginning on the Commencement Date (as defined
below), except that a Security Deposit equaling the first month's Base Rent
and the first month's Allowance Amortization Charge shall be payable as
provided in section 1.5 of this Addendum. If the Commencement Date is other
than the first day of a calendar month, the Base Rent and Allowance
Amortization Charge shall be prorated based on the number of days between the
Commencement Date and the first day of the first full calendar month
thereafter and such amount shall be due and payable by LESSEE on or before
the Commencement Date. The remaining Rent shall be payable in accordance
with the other provisions of the Lease. Rent for any partial month will be
prorata based on a thirty (30) day month.
1.5 SECURITY DEPOSIT/FIRST MONTH'S RENT. Concurrently with the
execution of the Lease, LESSEE shall pay the Security Deposit set forth in
Paragraph 1.7 of the Lease, which has been calculated based on two (2) months
Base Rent and Allowance Amortization Charge based on the maximum amount of
such Allowance Amortization Charge. So long as LESSEE does not commit a
Default, LESSOR agrees to apply one-half of such Security Deposit to the Base
Rent and Tenant Improvement Allowance Amortization becoming due for the first
full month of the Lease following the Commencement Date.
2. LESSEE'S PAYMENT OF OPERATING EXPENSES. Subject to section 2.1
of this Addendum, beginning on the Commencement Date, in addition to payment
of the Base Rent, LESSEE shall be responsible for payment of all "Operating
Expenses. " The term "Operating Expenses " means the following expenses and
costs of the ownership and operation of the Premises: (a) amounts payable
for maintenance contracts required to be procured pursuant to Paragraph
7.1(b) of the Lease (but not the cost of repairs or replacements separately
payable by LESSEE), (b) insurance required to be maintained by LESSOR or
LESSEE under the Lease (exclusive of any insurance maintained by LESSEE under
Paragraph 8.4 of the Lease), (c) Real Property Taxes, (d) assessments and
dues payable to any association or other governing body established pursuant
to any covenants, conditions, or restrictions affecting the Premises or any
Applicable Requirement, (e) a fire sprinkler monitoring contract, if payable,
separate from the fire sprinkler maintenance contract described in Paragraph
7.1(b) of the Lease, (f) the Administrative Fee described in subsection 2.2
of this Addendum, (g) the reasonable amount of other ordinary and necessary
expenses and costs of routine maintenance and operation of the Premises,
which are customarily incurred in the operation of similarly situated real
estate projects, and (h) reasonable reserves, as determined by LESSOR, for
replacement of the roof, exterior painting, paving and restriping of th
parking lot, and HVAC ( "Reserves "); provided, however, the term "Operating
Expenses " does not include (i) the costs of repairs, maintenance or
replacements required to be performed by LESSEE to the extent such costs
exceed the amount of any Reserves accumulated from the Operating Expenses
collections for the particular maintenance, repair or replacement item, or
(ii) any other items of expense or cost which the terms of the Lease
expressly require be paid or incurred by LESSEE, including all utility and
trash charges payable by LESSEE under Paragraph 11 of the Lease.
2.1 METHOD OF PAYMENT. LESSEE shall pay to LESSOR monthly, as
additional rent, an amount equal to 1/12 of the projected annual Operating
Expenses. Such amount shall be due and payable concurrently with the payment
of the applicable Base Rent. Prior to the Commencement Date, in the case of
the first Lease Year, and at the beginning of each Lease Year thereafter,
LESSOR will provide LESSEE an annual estimated Operating Budget ( "Estimated
Operating Budget ") for each calendar year or partial year. Subject to
LESSEE's payment to LESSOR of the Operating Expenses as provided in this
Addendum, LESSOR shall make prompt payment of the Operating Expenses included
in the Estimated Operating Budget. Any excess or deficit from the estimates
shown in the Estimated Operating Budget will be credited or billed to LESSEE
within ninety (90) days following the end of the applicable calendar year,
and LESSOR shall concurrently furnish LESSEE with a detailed statement
showing the actual Operating Expenses incurred for such year. Any deficit
will be payable as additional Rent within ten (10) days of receipt of a final
Operating Budget setting forth the actual expenditures for the applicable
year and the deficit. Any excess shall be credited against the next payments
of Operating Expenses due from LESSEE. LESSEE acknowledges that any
Estimated Operating Budget represents only LESSOR's good faith estimate of
predictable expenses and that actual expenses may vary. Promptly following
LESSEE's request, LESSOR shall furnish LESSEE with such additional
information as LESSEE may reasonably request with respect to such Operating
Expenses. LESSEE acknowledges that the Estimated Operating Expenses Budget
for the first Lease Year is annexed to this Addendum as EXHIBIT "1 " and
such budget (a) is an estimate that is being provided only to illustrate the
projected amounts and categories of expense and that actual results may be
different than the estimates; and (b) it is aware that amounts and categories
of expense may vary in future years as the Premises ages.
2.2 LESSOR'S ADMINISTRATIVE SERVICES. LESSOR shall provide certain
administrative services to monitor LESSEE's performance of LESSEE's
obligations under Paragraphs 7, 8.2, 8.3 and 10 of the Lease in consideration
for LESSEE's monthly payment of an administrative fee to LESSOR of one
percent (1%) of the Base Rent in effect from time to time ( "Administrative
Fee "). Such Administrative Fee shall be payable as a part of the Operating
Expenses payable by LESSEE. LESSOR's administrative services shall generally
consist of monitoring LESSEE's compliance with LESSEE's repair and
maintenance obligations under the Lease and arranging, on behalf of LESSEE,
appropriate insurance coverages for the Premises.
2.3 ACKNOWLEDGMENTS. Notwithstanding any other provision in this
section, LESSEE acknowledges and agrees that nothing in this section is
intended to limit any of LESSEE's obligations under the Lease, including,
without limitation, its obligations to maintain the Premises in accordance
with the requirements of Paragraph 7 of the Lease, but is intended to provide
a convenient administrative procedure for LESSEE's payment of known an
predictable expenses and make available, to the extent provided for in this
section and requested by LESSEE, LESSOR's services in coordinating and
facilitating LESSEE's performance of its maintenance, repair and insurance
obligations.
3. EFFECTIVE DATE/TERM/COMMENCEMENT DATE. Notwithstanding any
other provision of the Lease, this Lease shall be effective upon execution by
LESSOR and LESSEE ( "Effective Date ") and shall constitute a legally binding
contract for LESSOR to deliver possession of the Premises in accordance with
the requirements of this Lease and for LESSEE to pay the Rent beginning on
the Commencement Date. Notwithstanding that the Effective Date of this Lease
is the date of execution of this Lease, LESSEE's obligation to begin payment
of the Rent payable under this Lease shall not commence until the occurrence
of the Commencement Date.
3.1 PRIOR OCCUPANCY. Notwithstanding any other provision, LESSOR is
delivering possession of the Premises to LESSEE in advance of the
Commencement Date of this Lease pursuant to a separate agreement between
LESSOR and LESSEE and the terms of such separate agreement shall govern
LESSEE's occupancy in advance of the Commencement Date of this Lease.
Following the Commencement Date of this Lease, the terms and conditions of
this Lease shall constitute the sole and exclusive terms and conditions of
LESSEE's continued occupancy of the Premises and this Lease shall be applied
and interpreted without regard to any such prior agreement.
3.2 COMMENCEMENT DATE. The Commencement Date of this Lease shall be
March 1, 2002, unless LESSEE and LESSOR agree to an earlier or later
Commencement Date.
3.3 LEASE TERM/ "LEASE YEAR " DEFINED. Unless otherwise provided,
the initial Term of the Lease ( "Original Term ") shall be a period of ten
(10) years beginning on the Commencement Date and ending ten (10) consecutive
years later ( "Expiration Date "); provided, however, if the Commencement
Date occurs other than on the first day of a calendar month, the Original
Term shall be deemed extended for a period of time equal to the number of
days between the Commencement Date and the beginning of the first full
calendar month following the Commencement Date. The term "Lease Year "
means each consecutive period of twelve (12) months during the Lease Term,
provided that if the "Commencement Date " is other than the first day of a
calendar month, then the first Lease Year shall be a period of twelve (12)
months plus the period between the Commencement Date and the first day of the
first full calendar month thereafter.
3.3.1 AMENDMENT. Following the Commencement Date and upon LESSOR's
request, LESSEE and LESSOR shall execute an amendment to the Lease setting
for the exact Commencement Date and the exact Expiration Date of the Original
Term, provided that failure of LESSOR and LESSEE to execute such amendment
shall not effect the validity of the Lease.
3.4 OPTION TO EXTEND TERM. The following option is subject to, and
the terms of this section are additive to, and do not modify the terms and
provisions of Paragraph 39 of the Lease.
3.4.1 GRANT. LESSOR grants to LESSEE the option to extend the Lease
for one five (5) year period beginning upon the expiration of the Original
Term ( "Extension Term ")
3.4.2 EXERCISE. If LESSEE desires to extend the Lease Term, such option
shall be exercised only by written notice ( "Election Notice ") delivered to
LESSOR no earlier than 360 days and no later than 270 days before the
expiration of the Original Term. Regardless of cause, if LESSEE fails to
timely give an Election Notice, all option rights will automatically lapse
and terminate and be of no further force or effect without any requirement of
notice or demand by LESSOR.
3.4.3 Adjustment to Base Rent. Except as otherwise provided in this
section, the Base Rent for the first Lease Year of the Extension Term shall
be adjusted at the beginning of the Extension Term to the "fair rental value
" of the Premises as determined in the following manner:
(a) Within thirty (30) days from LESSEE's notice, LESSOR and LESSEE
shall meet in an effort to negotiate, in good faith, the fair rental value of
the Premises as of the beginning of the Extension Term. If LESSOR and
LESSEE have not agreed upon the fair rental value of the Premises at least
one hundred twenty (120) days prior to the beginning of the Extension Term ,
the fair rental value shall be determined by appraisal, by one or more
appraisers ( "Appraiser(s) "). The Appraisers shall have at least five (5)
years experience in the appraisal of commercial/industrial real property in
the area in which the Premises are located and shall be members of
professional organizations such as M.A.I. or equivalent.
(b) If LESSOR and LESSEE are not able to agree upon the fair rental
value of the Premises within the prescribed time period, then LESSOR and
LESSEE shall attempt to agree in good faith upon a single Appraiser not later
than one hundred (100) days prior to the beginning of the applicable
Extension Term. If LESSOR and LESSEE are unable to agree upon a single
Appraiser within such time period, then LESSOR and LESSEE shall each appoint
one Appraiser not later than ninety (90) days prior to the beginning of the
applicable Extension Term. Within ten (10) days thereafter, the two (2)
appointed Appraisers shall appoint a third Appraiser. If either LESSOR or
LESSEE fails to appoint its Appraiser within the prescribed time period, the
single Appraiser appointed shall determine the fair rental value of the
Premises. If both parties fail to appoint Appraisers within the prescribed
time periods, then the first Appraiser thereafter selected by a party shall
determine the fair rental value of the Premises. Each party shall bear the
cost of its own Appraiser and the parties shall share equally the cost of the
single or third Appraiser, if applicable.
(c) For the purposes of such appraisal, the term "fair rental value
" shall mean the price that a ready and willing tenant would pay, as of the
beginning of the Extension Term, as monthly rent to a ready and willing
landlord of property comparable to the Premises if such property were exposed
for lease on the open market for a reasonable period of time and taking into
account all of the purposes for which such property may be used and taking
into account all material attributes and benefits of the Premises. Fair
rental value shall take into consideration all monetary concessions being
granted in connection with such comparable property, including without
limitation, rent abatement concessions and tenant improvements or allowance
provided therefore. If a single Appraiser is chosen, then such Appraiser
shall determine the fair rental value of the Premises. Otherwise, the fair
rental value of the Premises shall be the average of the two (2) of the three
(3) appraisals which are closest in amount, and the third appraisal shall be
disregarded. LESSOR and LESSEE shall instruct the Appraiser(s) to complete
the determination of the fair rental value not later than forty-five (45)
days prior to the beginning of the applicable option period. If the fair
rental value is not determined prior to the beginning of the Extension Term,
then LESSEE shall continue to pay to LESSOR the Base Rent applicable to the
Premises immediately prior to such extension, until the fair rental value is
determined. When the fair rental value of the Premises is determined, LESSOR
shall deliver notice thereof to LESSEE, and if the fair rental value is
higher, LESSEE shall pay to LESSOR, within ten (10) days after receipt of
such notice, the difference between the Base Rent actually paid by LESSEE to
LESSOR and the new Base Rent determined under this section.
(d) Notwithstanding any other provision of this Lease, in no event
shall the Base Rent for the first Lease Year of the Extension Term be less
than an amount equal to 103% of the Base Rent in effect for the Lease Year
immediately preceding the beginning of the Extension Term ( "Prior Base Rent
"). If the fair rental value of the Premises determined under this section
is less than the Prior Base Rent, then the Base Rent for the first Lease Year
of an Extension Term shall equal the Prior Base Rent.
(e) The Base Rent shall be increased at the beginning of the second
Lease Year of the Extension Term and at the beginning of each Lease Year
thereafter in an amount equal to three percent (3%) of the Base Rent in
effect for the immediately preceding Lease Year.
3.4.4 IMPLEMENTATION. Promptly upon the parties' approval of, or the
Appraisers establishment of, the fair rental value, the LESSOR and LESSEE
shall execute an amendment to this Lease setting out the starting and ending
dates and the starting Base Rent for the Extension Term.
3.4.5 AFFILIATE TRANSACTION. Notwithstanding the provisions of
Paragraph 39.2 of the Lease providing that any option rights granted are
personal to LESSEE and not assignable, LESSOR agrees that the option rights
to extend the Term of the Lease under this section 3.4 may be assigned to an
assignee of the Lease in an Affiliate Transaction (as defined below).
3.4.6 REMAINING LEASE TERMS. If LESSEE elects to extend the Original
Term, all other terms and conditions of the Lease shall remain in effect
during such Extension Term except: (a) no tenant improvements or allowances
shall be provided by LESSOR, and LESSEE shall be deemed to have extended the
term of the Lease and accepted the Premises "AS IS " in their then existing
condition and without representation or warranty from LESSOR; (b) upon
expiration of the last Extension Term, LESSEE shall have no further right to
extend the term of the Lease; and (c) the Security Deposit shall be
increased to an amount equal to one months Base Rent determined as of the
beginning of each Extension Term.
4. CONDITION OF PREMISES. Except as provided in this section and in
sections 5 of this Addendum, LESSEE has accepted possession of the Premises
in an "AS IS " condition, without representation or warranty from LESSOR
concerning the physical condition of the Premises. LESSEE acknowledges tha
it has had the reasonable opportunity to conduct such inspections,
evaluations and other investigations of the Premises as LESSEE may desire,
including inspections by LESSEE's architects, engineers, contractors and
other professional advisers as LESSEE deems necessary, LESSEE is relying
exclusively on such inspections, evaluations and investigations in making a
decision to enter into this Lease and not on any representation or warranty
whatsoever by LESSOR and/or any agent of LESSOR. LESSEE further acknowledges
and agrees that the Premises are in good condition, acceptable to LESSEE.
LESSEE WAIVES ALL WARRANTIES, EXPRESS OR IMPLIED, REGARDING THE CONDITION AND
USE 0F THE PREMISES, INCLUDING, BUT NOT LIMITED TO ANY WARRANTY OF
MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE.
4.1 UTILITIES. Without limiting the generality of any other
provisions of this Lease requiring LESSEE to investigate and determine the
suitability of the Premises for its intended use, LESSEE specifically
acknowledges that LESSOR is not making any representation or warranty
whatsoever concerning the availability, adequacy or cost of any utility or
quasi-utility services (including the adequacy or capacity of any utility
owned or controlled equipment services the Premises) and LESSEE shall be
solely responsible for evaluating and determining the suitability of such
utility or quasi-utility services and costs of installing and maintaining
such utilities.
4.2 TENANT IMPROVEMENTS BY LESSOR. Except for the Tenant
Improvements described in section 5 below, LESSOR shall not be required to
make any improvements, alterations, modifications and/or repairs whatsoever
to the Premises in advance of LESSEE 's taking possession.
4.3 COMPLIANCE WITH APPLICABLE REQUIREMENTS. Except as provided in
section 5 of this Addendum, LESSEE shall be responsible for making any
repairs, improvements and/or alterations to the Premises required for
compliance with any Applicable Requirements; provided, however, LESSEE, not
LESSOR, shall be responsible for any modifications or improvements required
on account of special Americans With Disabilities Act ( "ADA ") requirements
resulting from any unusual use or employment practices of LESSEE which are
not ordinary and customary to the use or practices of tenants generally in
similarly situated real estate projects. "Applicable Requirements " means
and includes, without limitation, (a) all covenants, conditions and
restrictions and similar items recorded against the Premise, and (b) any
federal, state or local law, ordinance, rule, building code or regulation (
"Applicable Laws "), including, without, limitation, the American
Disabilities Act, local laws relating to the zoning or use of the Premises
and waste discharge requirements as a result of California Regional Water
Quality Control Board rules, regulations or orders.
4.4 LIMITED LESSOR WARRANTIES. The limited warranties of LESSOR in
this section only apply to the Tenant Improvements, and any other elements of
the Premises damaged by LESSOR or Contractor (as described below) in
connection with the construction of the Tenant Improvements.
4.4.1 COMPLIANCE WITH APPLICABLE REQUIREMENTS. LESSOR warrants that
the Tenant Improvements shall be in substantial compliance with Applicable
Requirements as of the Commencement Date.
4.4.2 OPERATING CONDITION. LESSOR warrants that the Building Systems,
which comprise part of the Tenant Improvements, will be in a commercially
reasonable operating condition as of the date LESSEE first occupies the
Premises pursuant to this Lease or any other agreement with LESSOR.
4.4.3 REMEDY FOR NONCOMPLIANCE WITH WARRANTY. LESSEE's sole right and
remedy on account of any noncompliance with LESSOR's warranties under
sections 4.4.1 and 4.4.2 of this Addendum shall be to require LESSOR, at its
cost and expense, to place the affected element in a condition so it is in
compliance with such warranties. LESSOR shall not otherwise have any
liability whatsoever to LESSEE for damages of any type or nature (including
consequential or incidental damages) on account of such noncompliance.
4.4.4 TIME LIMITATION FOR ENFORCEMENT. LESSEE shall have a period of
(a) in the case of any warranty in sections 4.4.2 and 4.4.3 above, one
hundred and twenty (120) days, and (b) in the case of section 4.4.1 above,
twelve (12) months, following LESSOR's delivery of a notice of Substantial
Completion of the Tenant Improvements to LESSEE ( "Substantial Completion
Notice ") to give LESSOR notice of noncompliance specifying in detail the
nature of the noncompliance ( "Warranty Claim Notice ") even though the
Tenant Improvements will be completed prior to the Commencement Date of this
Lease. If LESSEE does not timely give such a Warranty Claim Notice for any
reason, including LESSEE's failure to discover such noncompliance, all such
warranties shall be deemed expired and LESSEE shall thereafter be responsible
for correction of any noncompliance at LESSEE's sole cost and expense.
4.5 LESSOR'S ENFORCEMENT OF CONTRACTOR'S WARRANTIES. LESSOR has
obtained from Contractor the following warranties ( "Contractor's Warranties
"):
"CONTRACTOR unconditionally warrants all materials and equipment
furnished under this Contract will be new, unless otherwise specified, and
that all Work will be of good quality, free from material faults and defects
and in conformance with the Contract Documents. CONTRACTOR, at its expense,
shall repair or replace any Work requiring replacement or repair within one
(1) year from completion of the Project, except with respect to the roof
membrane only, which CONTRACTOR will repair or replace within two (2) years
as required to prevent water penetration. In the event CONTRACTOR fails to
timely perform its warranty obligation, OWNER shall have the right to cause
such repairs or replacements and CONTRACTOR shall be liable for the
reasonable costs of such repairs or replacements. "
Notwithstanding the limitation on the LESSOR's warranties under section 4.4
of this Addendum or the time for enforcement of LESSOR's warranties has
expired, to the extent that any warranties provided by the Contractor in
connection with the construction of the Premises cover any of the items
described in section 4.4 of this Addendum or LESSOR has any claim against the
Contractor on account of any defect or deficiency in the construction of the
Premises, upon the written request of LESSEE, LESSOR shall either (a) take
such commercially reasonable action as necessary to enforce any such
warranties or claims for the benefit of LESSEE to the extent LESSEE incurs or
will incur any out-of-pocket expense or cost in the performance of its
obligations under this Lease for the repair or maintenance of the Premises on
account of any items covered by the Contractor's warranty or as a result of
any such defects or deficiencies, provided that LESSOR shall first be
entitled to recover its Legal Expenses (as defined below) prior to an
reimbursement to LESSEE of any such out-of-pocket expenses, or (b) assign to
LESSEE the right to enforce any such warranties or claims, provided any such
assignment shall be effective only to the extent LESSEE incurs or will incur
any out-of-pocket expense or cost in the performance of its obligations under
this Lease for the repair or maintenance of the Premises on account of any
items covered by the Contractor's warranty or as a result of any such defects
or deficiencies, and LESSOR shall be entitled to receive any excess recovery
after deduction of LESSEE's Legal Expenses (as defined below).
4.5.1 "LEGAL EXPENSES " DEFINED. For purposes of this section, the
term "Legal Expenses " means reasonable attorneys' fees and costs (including
any expert witness fees), including attorneys' fees and costs in connection
with the enforcement of any award or judgment or any appellate proceedings,
which Legal Expenses are incurred by LESSOR in the event LESSOR elects to
enforce warranties or claims in any legal proceedings against the Contractor,
or incurred by LESSEE, in the event LESSOR assigns the right to LESSEE to
enforce such warranties or claims directly against the Contractor.
4.5.2 LIMITATIONS. Nothing in this section shall be construed or
applied to expand the scope of LESSOR's warranties under section 4.4 of this
Addendum or otherwise extend the time for LESSEE's enforcement of LESSOR's
warranties under section 4.4.4 of this Addendum.
5. TENANT IMPROVEMENTS. The phrase "Tenant Improvements " means
all improvements for LESSEE's Premises, which shall consist of those
improvements LESSEE desires to have for its operations and the Mandatory
Improvements (as described below), including (a) partitions, walls (including
any interior demising walls between the Premises and any other rentable area
of the Building), and doors, (b) all surface finishes, including wall
coverings, paint, floor coverings, suspended ceilings and other similar
items, (c) duct work, heat pumps, vents, diffusers, terminal boxes and
accessories for completion of heating, ventilation and air conditioning
systems within the Premises, (d) electrical distribution systems (including
panels, subpanels, wires and outlets), lighting fixtures, outlets, switches
and other electrical work to be installed in the Premises, (e) plumbing
lines, fixtures and accessories, (f) all fire and life safety control systems
such as fire walls and fire alarms (including piping, wiring and accessories)
to be located in the Premises, and fire sprinklers and lines attributable to
the Tenant Improvements and/or LESSEE's fixture, furnishing or equipment, (g)
entrance door signage and directory listings, as authorized by LESSOR, (h)
improvements required for compliance with Title 24, (i) improvements, repairs
and replacements consisting of the Mandatory Improvements, and (j) other
improvements shown on the "Cost Breakdown Tenant Improvement " form attached
to this Addendum as EXHIBIT "2 "; provided, LESSEE's trade fixtures,
equipment and personal property (including telephone systems, chairs, tables,
furniture and other equipment used in LESSEE's business) shall not be
considered part of the Tenant Improvements. "Mandatory Improvements " means
repairs, replacements or improvements of certain elements of the Building,
such as the roof and the Building Systems as necessary to place them in a
commercially reasonably operating condition and which are more particularly
described in the Schedule of Mandatory Improvements annexed to this Addendum
as EXHIBIT "3 ". The Mandatory Improvements are a required element of
LESSEE's Tenant Improvements and LESSEE shall not have the discretion to
delete or modify such Tenant Improvements, except with LESSOR's approval in
its sole discretion. "Building Systems " means the electrical, ventilating,
heating and air conditioning systems, fire protection (if any), plumbing and
sewage systems within and outside of the Premises which specifically services
the Premises as necessary to maintain such services to the Premises.
5.1 DESIGN OF TENANT IMPROVEMENTS/PERMITS. LESSOR shall cause the
Tenant Improvements to be constructed substantially in accordance with the
general design elements shown in that certain "Space Plan " and "TI
Specifications " provided by LESSEE, which LESSEE hereby approves ( "Approved
TI Plans "); a copy of the Approved TI Plans is attached as EXHIBIT "4 " to
this Addendum. LESSEE shall furnish to LESSOR, a complete set of plans and
specifications detailing all Tenant Improvements no later than August 5, 2001
( "Tenant Improvement Plans ") conforming to the Approved TI Plans. In
addition, LESSEE shall be responsible for procuring the necessary building
permits for construction of the Tenant Improvements no later than August 20,
2001. Unless otherwise approved by LESSOR, the Tenant Improvement Plans will
be prepared by the Paul Giese, AIA or Kenneth D. Smith and Associates. The
Tenant Improvement Plans shall be subject to LESSOR's prior approval, which
will not be unreasonably withheld; provided, however, LESSOR shall have the
absolute right of disapproval, in its sole discretion, of any Tenant
Improvements which (a) alter or otherwise affect any structural component of
the Building, (b) are visible from the exterior of the Premises, or (c) the
Tenant Improvement Plans specify materials which are not readily available or
customarily and ordinarily used in similarly situated construction work where
the procurement of such materials would cause a delay in Substantial
Completion (as defined below). LESSOR shall have thirty (30) days after
receipt of the Tenant Improvement Plans in which to approve or disapprove the
Tenant Improvement Plans. If LESSOR does not disapprove the Tenant
Improvement Plans within such thirty (30) day period, LESSOR shall be deemed
to have approved the Tenant Improvement Plans. If LESSOR reasonably
disapproves the Tenant Improvement Plans, LESSEE, at its expense, shall
promptly cause the Tenant Improvement Plans to be revised and resubmitted to
LESSOR for its review and approval within fifteen (15) days from notice of
LESSOR's disapproval. Following LESSOR's approval, LESSOR will have the
Architect submit the Tenant Improvement Plans for government plan checking
and a building permit, if required, provided, LESSOR shall have the right to
approve any changes required by such governmental authorities. The final
Tenant Improvement Plans shall be subject to any changes required by
governmental authorities.
5.1.1 NO LESSOR LIABILITY. The rights granted LESSOR to approve the
Tenant Improvements and the Tenant Improvement Plans are solely for the
benefit of LESSOR. LESSOR shall have no obligation or liability whatsoever
to LESSEE or any other person on account of LESSOR's approvals in the event
the Tenant Improvements do not conform to Applicable Requirements or
otherwise contain defect or deficiencies. LESSEE agrees that it is solely
responsible for the compliance of designing the Tenant Improvement with all
Applicable Requirements and the provisions of this Lease.
5.2 APPROVED CONTRACTOR. Hamann Construction, a licensed general
contractor, will be the general contractor for construction of the Building
Shell Improvements and Tenant Improvements. LESSOR and LESSEE hereby approve
Hamann Construction acting as the general contractor ( "Contractor "). The
Contractor's agreed-upon markup (profit and overhead) for the Tenant
Improvements will be 12% of the actual costs incurred in the development an
construction of the Tenant Improvements exclusive only of the costs of the
preparation of the Tenant Improvement Plans and government permits.
5.2.1 LESSEE'S REVIEW OF SUBCONTRACTORS' BIDS. LESSEE shall have
the right to review the subcontract proposals ( "Bids ") for the Major Trades
(as defined below) required for construction of the Tenant Improvements. No
later than thirty (30) days prior to the commencement of construction, LESSOR
shall cause Contractor to deliver to LESSEE Bids for each Major Trade from no
less than three (3) licensed and qualified subcontractors together with a
written notice specifying the Bids which Contractor recommends for
acceptance. LESSEE shall have the right to reasonably disapprove one of the
Bids for each of the Major Trades selected by Contractor by giving LESSOR
written notice of any objection that LESSEE may have to such Bids within five
(5) days from LESSEE's receipt of the Bids from Contractor; provided,
however, LESSEE shall not have the right to disapprove more than one (1) bid
within a Major Trade, and Contractor shall have the right to select any of
the remaining Bids in such Major Trade category. LESSEE's notice of
disapproval shall explain in detail the basis for the disapproval of any Bid
recommended by Contractor. Contractor shall have the right to utilize any
subcontractors submitting Bids for which LESSEE does not timely give notice
of its disapproval. The term "Major Trades " means portions of the
construction work consisting of the supply or installation of electrical,
heating and air conditioning, fire sprinkler system, framing, drywall,
plumbing, painting, floor coverings, suspended ceilings, glass, doors and
ceramic tile.
5.3 PAYMENT OF TENANT IMPROVEMENT COSTS. The phrase "Tenant
Improvement Costs " means all direct and indirect costs of designing,
furnishing, constructing and installing the Tenant Improvements, including
(a) costs for design and/or architectural services of the Architect in
preparing the Tenant Improvement Plans, (b) government permit costs
applicable to the Tenant Improvements, (c) amounts payable to the Contractor
for overhead/profit, job site supervision, cleanup, trash and janitorial
services as shown in the Cost Breakdown Tenant Improvement (EXHIBIT "2 "),
(d) the actual "hard costs " of construction of the Tenant Improvements, (e)
financing costs attributable to financing to pay the Tenant Improvement
Costs, including, construction period interest from the initial loan funding
until the Commencement Date, loan points, fees and other costs, such as
appraisals, environmental surveys, legal fees and other costs customarily
incurred in connection with such financing; and (f) leasing brokerage
commissions based on the portion of rentals attributable to the amortization
of the LESSOR's payment of the Allowance described in subparagraph 5.3.2 of
this Addendum over the Lease Term.
5.3.1 ESTIMATE FOR TENANT IMPROVEMENT COSTS. Prior to the commencement
of construction, LESSOR shall cause the Contractor to make a final selection
of the Bids for each Major Trade and LESSOR shall provide final estimates of
all other Tenant Improvement Costs ( "Estimated Tenant Improvement Costs ").
LESSOR shall provide LESSEE written notice of such Estimated Tenant
Improvement Costs, which notice will include copies of the Bids for the Major
Trades.
5.3.2 LESSOR'S ALLOWANCE. LESSOR agrees to pay a maximum of One
Million Dollars ($1,000,000.00) for the Tenant Improvement Costs ( "Allowance
"). The Allowance shall be applied solely to pay the cost of the Tenant
Improvements, and under no circumstances shall LESSEE be entitled to any
payment on account of any unused portion of the Allowance following
completion of the Tenant Improvements and payment of the Tenant Improvement
Costs. The amount of any Excess Allowance (as determined in section 1.3 of
this Addendum) actually expended for payment of Tenant Improvement Costs
shall be the amount used to determine the amount of the Tenant Improvement
Allowance Amortization
Charge described in section 1.3 of this Addendum. LESSOR shall pay its share
of the Tenant Improvement Costs as construction progresses.
5.3.3 LESSEE'S PAYMENT/INITIAL CONTRIBUTION. Except for LESSOR's
Allowance, LESSEE shall be responsible for the payment of all Tenant
Improvement Costs. The amount of LESSEE's initial contribution will be
determined based on the Estimated Tenant Improvement Costs, and LESSEE shall
pay to LESSOR, as provided in this subsection, an amount equal to the
difference between LESSOR's Allowance and the Estimated Tenant Improvement
Costs ( "Initial Contribution "). LESSEE shall pay such Initial Contribution
to an institutional fund control established by LESSOR for payment of the
Tenant Improvement Costs within ten (10) days from LESSOR's notice requesting
such payment. Such funds shall be disbursed on a pro rated basis with
LESSOR's Allowance based on the percentage of completion of the Tenant
Improvements, as reasonably determined by LESSOR.
5.3.4 FINAL RECONCILIATION. Following completion of the construction
of the Tenant Improvements, LESSOR shall to deliver to LESSEE a final
accounting of the Tenant Improvement Costs. If additional amounts are due
from LESSEE on account of differences between the Estimated Tenant
Improvement Costs and the actual costs incurred, LESSEE shall reimburse
LESSOR in the amount of such difference following completion of the
construction of the Tenant Improvements and within fifteen (15) days from
receipt of a written notice and accounting from LESSOR's accounting. If such
final accounting shows that the actual Tenant Improvement Costs are less than
the Estimated Tenant Improvement Costs, then LESSEE shall be entitled to a
credit in the amount of any excess paid by LESSEE, which credit shall be
applied to the next payment of Base Rent then becoming due.
5.3.5 COSTS ATTRIBUTABLE TO CHANGES. LESSEE will be responsible for
payment of any excess Tenant Improvement Costs resulting from any changes to
the Work requested by LESSEE or necessitated by government requirements,
following LESSOR's approval of the Tenant Improvement Plans. Any such
changes shall be subject to LESSOR's approval and LESSEE shall deposit funds
with LESSOR to pay such costs within thirty (30) days following notice from
LESSOR of the Contractor's estimated cost for any change. If the actual cost
of the change is less than the estimate, LESSOR shall refund the difference
to LESSEE upon LESSEE's occupancy, and if the actual cost is more than the
estimate, LESSEE shall pay the difference within thirty (30) days of a notice
from LESSOR documenting such actual costs.
5.3.6 INSPECTION OF RECORDS/LESSOR'S DUTY TO NOTIFY LESSEE OF COST
OVERRUN. LESSEE, or its designated representative, shall have the right
during the course of performance of the construction of the Building Shel
and the Tenant Improvements and in connection with the final reconciliation
of the Tenant Improvement Costs as provided in subsection 5.3.4 of this
Addendum to a reasonable review of books and records maintained by LESSOR and
Contractor relating to such costs. Such right of inspection is exercisable
on reasonable written notice to LESSOR and during the regular business hours
of LESSOR or Contractor, whichever is applicable. LESSOR shall cause
Contractor to notify LESSEE of any material increase in the Tenant
Improvement Costs over and above of Estimated Tenant Improvement Costs within
ten (10) days from the date Contractor has actual knowledge of the increase,
which in the cases of the Major Trades shall be the date Contractor receives
written notice of any extra claim by a subcontractor or supplier, and in the
case of an Excusable Event (as defined in section 5.4.5.1 of this Addendum,
the date Contractor first learns of the Excusable Event, and if LESSOR fails
to so timely notify LESSEE, LESSOR, not LESSEE shall be responsible for the
extra cost of any work performed earlier than ten (10) days prior to the date
of Contractor's notice under this section.
5.4 CHANGE ORDERS. LESSEE shall have the right to, from time to
time, submit to LESSOR any written requests for reasonable changes or
additions to the Tenant Improvements desired by the LESSEE in such detail as
LESSOR may reasonably require in accordance with the requirements and
procedures in this section ( "Change Order "); subject to the limitations in
subsection 5.4.6 of this Addendum. The term "Change Costs " shall mean the
net increase (after taking into account any savings from any Change Order or
prior Change Orders), if any, in the actual out-of-pocket cost, including,
without limitation, the actual construction costs attributable to a Change
Order, including Contractor's "markup ", and any costs incurred by the
LESSOR to design and engineer the Change Order) to be incurred by LESSOR to
complete the work associated with the Change Order, including, without
limitation, the costs of any demolition, removal or reconfiguration of
completed work, mobilization and de-mobilization charges of subcontractors,
overhead and profit allowance to subcontractors, restocking, pickup and
redelivery charges of suppliers, costs of government permits and/or
additional inspections caused by such change, Contractor's additional
supervision and general conditions costs and additional interest or other
financing charges attributable to the period of any Change Delay caused by
such Change Order. The term "Change Delay " means the period that
Substantial Completion of the Tenant Improvements is delayed on account of
any Change Order, which shall be calculated without regard to the
Contractor's acceleration of the work and/or other extraordinary measures to
mitigate such delay, and such delay period shall include the time reasonably
required for processing of the Change Order, for any demolition, removal or
reconfiguration of completed work, mobilization and de-mobilization of
subcontractors and Contractor's forces, ordering, restocking, pickup and
redelivery of materials from suppliers, the time required for completion of
the work actually changed by the Change Order, the time required to obtain
any additional government approvals or inspections of such changes and the
period of time that LESSEE delays making any payment due under this section
5.4 of this Addendum.
5.4.1 TENANT IMPROVEMENTS. If LESSEE desires to change the Tenant
Improvements, whether before the completion of the Final TI Plans or during
the course of construction, then LESSEE shall submit a Change Order to
LESSOR. LESSOR shall reasonably approve any such Change Order, except that
LESSOR shall have the absolute right, in its sole discretion to disapprove a
Change Order as provided in subsection 5.4.6 of this Addendum.
5.4.2 LESSOR'S RESPONSE. Within fifteen (15) days after LESSOR's
receipt of a Change Order from LESSEE, LESSOR shall determine and provide
written notice ( "Change Order Response ") to LESSEE setting forth (a)
Contractor's good faith estimate of the Change Costs (as defined above), if
any, associated with such proposed Change Order; and (b) a good faith
anticipated length of any Change Delay (as defined above), if any, in
completing the Tenant Improvements as a result of such proposed Change Order;
provided, however, if LESSOR does not approve the changes requested in the
Change Order, then in lieu of the information required under preceding
clauses (a) and (b), LESSOR's Change Order Response shall state in detail the
reasonable grounds for such disapproval pursuant to section 5.4.6 below.
5.4.3 NOTICE TO PROCEED. Within five (5) days after delivery of the
Change Order Response, LESSEE shall give to LESSOR written notice to proceed
with the Change Order ( "Notice to Proceed ") if LESSEE desires to proceed
with such Change Order. If LESSEE fails to give such Notice to Proceed to
LESSOR within such period of time, LESSEE shall be deemed to have elected not
to proceed with the Change Order. LESSEE's Notice to Proceed with the Change
Order shall constitute the agreement by LESSEE to pay to LESSOR the Change
Cost and to accept the associated Change Delay as a LESSEE Delay for all
purposes of this Lease. Following the Notice to Proceed, LESSOR shall
promptly revise the Final Plans and/or the TI Plans, as applicable, to
incorporate the Change Order and proceed to complete the Improvements in
accordance with the Change Order.
5.4.4 INTERIM WORK. LESSOR shall continue with the construction of the
work in accordance with the Final TI Plans (taking into account any prior
approved Change Orders for which a Notice to Proceed has been received)
notwithstanding LESSEE's delivery of a Change Order and pending LESSEE's
delivery of the Notice to Proceed. Any additional costs associated with the
removal, demolition or reconfiguration of such interim work shall be included
in the Change Costs and any additional time associated with the removal,
demolition or reconfiguration of such interim work shall be included in the
Change Delay.
5.4.5 PAYMENT OF CHANGE COSTS. LESSEE will be responsible for payment
of the actual Change Costs resulting from any Change Order, provided LESSOR'S
good faith estimate of Change Costs included in the Change Order Response
shall be binding on LESSOR except to the extent of (a) any Change Costs
attributable to Change Delays the duration of which was not reasonably
determinable as of the time of LESSOR's Change Order Response, and/or (b) any
Excusable Event Cost attributable to a Change Order. LESSEE shall pay the
amount of such Change Costs in the same manner and in accordance with the
same procedure as LESSEE's Initial Contribution for Tenant Improvements is
payable under section 5.3.3 of this Addendum. The actual Change Costs shall
be accounted for in the Final Accounting described in section 5.3.4 of this
Addendum, and any variance between the estimate and the actual Change Costs
(to the extent that LESSOR is not bound by the estimate stated in the Change
Order Response as provided in this section) shall be adjusted in the same
manner as LESSEE's Initial Contribution for Tenant Improvements.
5.4.5.1 "EXCUSABLE EVENT COST " DEFINED. The term "Excusable Event
Cost " means any increase in Tenant Improvement Costs which result from or
are caused by an Excusable Event " and the term "Excusable Event " means (a)
fire, earthquake or other unavoidable casualties, Acts of God, war, national
emergency or inclement weather conditions not reasonably anticipatable, (b)
extraordinary or unusual governmental action other than usual permit and
inspection procedures, (c) the discovery and/or remediation of any unknown or
concealed conditions affecting the Premises, (d) general area-wide labor or
material shortages or labor disputes (such as strikes or lockouts), (e) any
LESSEE Delay, (f) any other causes not the fault of LESSOR or the Contractor,
and/or (g) costs or expenses attributable to delays in construction resulting
from any of the causes described in preceding clauses (a) through (g);
provided, however, insurance proceeds from the typical builder's risk
insurance actually collected by LESSOR or Contractor on account of such an
Excusable Event shall be applied to reduce any amount payable by LESSEE on
account of such an Excusable Event Cost.
5.4.6 LESSOR'S APPROVAL. LESSOR's approval of all Change Orders shall
be required. LESSOR agrees not to unreasonably withhold its approval of a
Change Order; provided, however, LESSOR shall have the absolute right of
disapproval, in its sole discretion, of any Change Order affecting
improvements which (a) alter or otherwise affect any structural component of
the Building, (b) reduce the Rentable Square Feet of the Premises, (c) are
visible from the exterior of the Building, or (d) consist of Mandatory
Improvements. If LESSOR disapproves any Change Order, such disapproval shall
be set forth in the Change Order Response and if LESSOR fails to state such
disapproval within the given time frame, LESSOR shall be deemed to have
approved the Change Order. If LESSOR properly disapproves a Change Order,
then the proposed change shall not be made, provided that LESSEE shall have
the right to resubmit new Change Order in accordance with the procedures
provided in this section 5.4 to take in order to eliminate the grounds for
LESSOR's disapproval.
5.4.7 AUTHORIZED REPRESENTATIVES. The only person authorized to issue
Change Orders on behalf of LESSEE are Greg Horton, President or Kirk Waldron,
CFO. ( " Authorized Representatives "), unless such Authorized
Representatives designates any other person(s) as additional Authorized
Representative by giving LESSOR or Contractor written notice of such
authority.
5.4.8 "SUBSTANTIAL COMPLETION " DEFINED. The term "Substantial
Completion " means the date upon which LESSOR reasonably satisfies all of the
following requirements: (a) the construction of the applicable the Tenant
Improvements are substantially completed, subject only to minor corrective
work which does not materially affect or limit LESSEE's use of the Premises;
provided, LESSOR shall complete any such minor work within thirty (30) days
following Substantial Completion; (b) LESSOR has procured a certificate of
occupancy (whether temporary or permanent) or other applicable permit
permitting LESSEE's immediate use and occupancy of the Premises; and (c)
LESSOR has given LESSEE written notice stating that such Substantial
Completion has occurred and that the Premises are available for LESSEE's
immediate possession and occupancy ( "Notice of Possession "). It is
expected that Substantial Completion will occur prior to the Commencement
Date as more particularly provided in section 3.1 of this Addendum.
6. SPECIAL PROVISIONS REGARDING HAZARDOUS MATERIALS.
Notwithstanding the provisions of Paragraph 6 of the Lease, LESSOR is not
making any representation, warranty or agreement concerning the absence of
Hazardous Substance contamination of the Premises and LESSOR shall not have
any responsibility or liability with respect to any Hazardous Substance
contamination. LESSEE is assuming all risk of loss arising from the presence
of any Hazardous Substance contamination, whether existing now or in the
future.
7. USE OF PREMISES. LESSEE shall be solely responsible for
determining that the Premises are suitable and feasible for LESSEE's intended
use and for determining all Applicable Requirements. LESSOR, by giving its
consent to any use, shall not be deemed to warrant that such use is
permissible under the Applicable Requirements nor shall such consent
constitute a waiver of any other condition or requirement of this Lease and
under no circumstance whatsoever shall LESSOR have any liability to LESSEE
(nor shall the validity of this Lease be effected) if it is determined that
any intended use is not permitted or is in some manner subject to
restrictions or limitations.
7.1 EXCEPTION/HAZARDOUS MATERIALS. Without limiting LESSEE's
obligations under Paragraph 6 of the Lease regarding compliance with
Hazardous Substance Laws, LESSEE has completed and delivered to LESSOR a
Hazardous Materials Questionnaire in the form as set forth in EXHIBIT "5 "
annexed to the Lease, which LESSOR may use for filing with applicable
government authorities in the event that LESSOR is required to make any such
filing. Within fifteen (15) days of a written request by LESSOR, LESSEE
agrees to complete and deliver to LESSOR an updated Hazardous Materials
Questionnaire. Notwithstanding any other provisions of the Lease, LESSEE
shall not use or otherwise engage in any activity upon the Premises that
would constitute a Reportable Use as defined in Paragraph 6.2(a) of the Lease
or otherwise significantly increase the risk of and/or potential severity of
contamination of Hazardous Substances, without LESSOR's prior written
consent, in its sole discretion, including, without limitation, engaging in
any business primarily involving the transport, storage, processing,
packaging or manufacture of Hazardous Substances or the installation of any
underground storage tank(s).
7.2 NO INSURANCE RATED ACTIVITIES. LESSEE shall not commit any acts
on the Premises, nor use the Premises in any manner that will (a) cause the
cancellation of any fire, liability, or other insurance policy insuring now
or in the future insuring the Premises or any portion of the Premises, or (b)
cause any required deductible to exceed the amount permitted by LESSOR's
lender,.
7.3 DISPOSAL OF WASTE. LESSEE shall lawfully dispose of all sanitary
sewage and not use the sewage disposal system of the Premises (a) for the
disposal of anything except sanitary sewage, (b) in excess of the amount
reasonably contemplated by the uses permitted under the Lease, or (c) in
excess of the amount permitted by any Applicable Laws.
8. ADDITIONAL PROVISIONS REGARDING REMOVAL OF PERSONAL PROPERTY.
For all purposes of the Lease (including Paragraph 7.4 of the Lease), the
Tenant Improvements shall constitute "Alterations and Utility Installations
" and, unless LESSOR otherwise elects, shall become the property of LESSOR
and shall not be removed by LESSEE upon expiration or earlier termination of
the Lease. The term "Personal Property " means trade fixtures, personal
property, inventory, business equipment and furnishings supplied, owned or
leased by LESSEE, including, without limitation, components of LESSEE's
telephone system, computer and computer network systems and security systems;
provided, however, cabling and conduits for such systems shall not be removed
by LESSEE and shall be surrendered with the Premises upon expiration or
termination of the Lease. Notwithstanding any other provision, LESSEE may
not remove any property, including any Personal Property, if such removal
would cause material damage to the Premises, unless such damages can be and
are repaired by LESSEE. Furthermore, LESSEE shall repair any damage to the
Premises caused by LESSEE's removal of any such Personal Property, and shall,
prior to the expiration or earlier termination of this Lease, restore and
return the Premises to the condition they were in when first occupied by
LESSEE, reasonable ordinary wear and tear excepted. The provisions of
Paragraph 7.3 of the Lease shall apply to any restoration work under this
section the same as if the restoration was an Alteration or Utility
Installation.
8.1 FAILURE TO REMOVE PERSONAL PROPERTY. If LESSEE shall fail to
remove any Personal Property which it is entitled to remove under this Lease
prior to termination or expiration of this Lease, then LESSOR may retain
ownership of such property or may dispose of the property under the
provisions of Section 1980 et seq. of the California Civil Code, as such
provisions may be modified from time to time, or under any other applicable
provisions of California law, without further notice or liability to LESSEE.
Notwithstanding any other provision, upon the expiration or earlier
termination of the Lease, other than a termination on account of LESSEE's
Breach, LESSOR will give LESSEE three (3) days notice prior to the disposal
of any Personal Property left on the Premises by LESSEE so that LESSEE can
enter Premises within such three (3) day period and retrieve such Personal
Property. All Personal Property left after such three (3) day period shall
be deemed abandoned by LESSEE.
8.2 LEASE/SECURITY INTEREST FILING. In the event LESSEE shall lease
or finance the acquisition of Personal Property utilized by LESSEE in the
operation of LESSEE's business, LESSEE warrants that any Uniform Commercial
Code financing statement executed by LESSEE will upon its face or by exhibit
clearly indicate that such financing statement is applicable only to Personal
Property of LESSEE specifically described in the financing statement that is
subject to removal on the expiration or earlier termination of this Lease.
In no event shall the address of the Building (or other information
identifying the Premises) be furnished on the financing statement without
qualifying language as to applicability of the lien only to Personal Property
of LESSEE described in the financing statement. Should any holder of a
security agreement executed by LESSEE record or place of record a financing
statement which appears to constitute a lien against any interest of LESSOR
in the Premises, LESSEE shall within ten (10) days after the filing of such
financing statement cause (i) copies of the security agreement or other
documents to which the financing statement pertains to be furnished to LESSOR
to facilitate LESSOR's being in a position to show such lien is not
applicable to any interest of LESSOR, and (ii) the holder of the security
interest to amend documents of record so as to clarify that such lien is not
applicable to any interest of LESSOR in the Premises.
9. LESSOR'S INDEMNITY OBLIGATION. Notwithstanding the exemption
from LESSOR's liability provided in Paragraph 8.8 of the Lease, LESSOR agrees
to indemnify, defend and hold harmless LESSEE from any loss, damage, cost or
expense (including reasonable attorneys' fees and legal expenses) suffered or
incurred by LESSEE as a result of any personal injury or property damage
caused by LESSOR's employees, agents or contractor while such employees,
agent or contractors are present on the Premises.
10. ADDITIONAL INSURANCE PROVISIONS. The provisions of this section
supplement the provisions of Paragraph 8 of the Lease, provided in the event
of any inconsistency, the provisions in this section shall supersede and
control.
10.1 ADJUSTMENT OF LESSEE'S LIABILITY INSURANCE. The liability
insurance to be maintained by LESSEE in accordance with Paragraph 8.2 of the
Lease shall be subject to increase no more frequently than each three (3)
Lease Years as reasonably determined by LESSOR's insurance advisor taking
into account prevailing industry practices for similar businesses; provided,
however, in no event shall the amount of the required insurance exceed Five
Million Dollars ($5,000,000.00) during the Original Term of the Lease.
10.2 LIMITATION ON WAIVER OF SUBROGATION. As between LESSOR and
LESSEE, the waiver and release set forth in Paragraph 8.6 of the Lease shall
only apply to the extent of the actual amount of the insurance proceeds
received.
10.3 SPECIAL DEDUCTIBLE/EARTHQUAKE INSURANCE. In addition to the
"All Risk " insurance coverage for the Premises described Paragraph 8.3 of
the Lease, LESSEE shall maintain earthquake insurance coverage if required by
LESSOR's lender, and such insurance shall be subject to reasonable
deductibles in accordance with industry practices in the locale as reasonably
determined by LESSOR's professional insurance advisor. LESSEE shall be
responsible for payment of any premiums for such insurance and LESSOR shall
be responsible for payment of any such deductible amounts in the event of
damage or destruction of the Premises from earthquake; provided, LESSEE,
shall be responsible for any deductibles on any of the other property
insurance.
11. ADDITIONAL PROVISIONS REGARDING ASSIGNMENT/SUBLEASE. This
section includes provisions that modify and/or supplement the provisions of
Paragraph 12 of the Lease concerning the assignment and subletting of the
Premises. Except as expressly set forth in subsections 11.1 to 11.3 of this
Addendum, the provisions of Paragraph 12 of the Lease shall be enforced in
accordance with their terms.
11.1 AFFILIATE TRANSACTION. Subject to compliance with Paragraph 12.2
of the Lease and the requirements of sections 11.1.1 to 11.1.4 of this
Addendum, LESSOR's consent to an Affiliate Transaction shall not be required,
and the provisions of Paragraph 12.1(d) of the Lease shall not apply to an
Affiliate Transaction so long as LESSEE is not otherwise in Default under
this Lease at the time of the proposed transaction. The term "Affiliate
Transaction " means (a) any assignment or sublease to an entity controlling,
controlled by or under common control with LESSEE; or (b) any assignment
resulting from a bona fide consolidation, merger or purchase of substantially
all of LESSEE's assets; provided, however, any such assignment or sublease
shall not release or otherwise affect LESSEE's liability for its obligations
under the Lease.
11.1.1 NOTICE AND TRANSFER DOCUMENTATION TRANSACTION. Any Affiliate
Transaction shall comply with all conditions and requirements in this section
11.1.1. No later than ten (10) days following the consummation of an
Affiliate Transaction, any assignee or sublessee shall (a) execute and
deliver to LESSOR a copy of this Lease to confirm such assignees or
sublessee's assumption of any and all obligations of LESSEE under this Lease,
and (b) deliver to LESSOR, Transfer Documentation as described in clauses
(a), (b) and (c) of section 11.2.2 of this Addendum.
11.1.2 ADDITIONAL REQUIREMENTS. In the case of an Affiliate Transaction
described in clause (b) of section 11.1 of this Addendum, in addition to
compliance with the requirements in section 11.1.1 of this Addendum, such
assignee or sublessee, shall: deliver to LESSOR the additional Transfer
Documentation as described in clause (d) of section 11.2.2 of this Addendum
evidencing satisfaction of the Financial Standard (as defined below) to
qualify as an Affiliate Transaction. The term "Financial Standard " means:
(i) immediately prior to and after the sale and transfer of assets or stock
to such the assignee or sublessee, such assignee or sublessee has a net
worth, determined in accordance with generally accepted accounting
principles, which exceeds $5,000,000.00; and (ii) for the fiscal year
immediately preceding the sale and transfer of such assets or stock such
assignee or sublessee has realized a net profit, determined by generally
accepted accounting principles consistently applied, of not less then
$1,000,000.00 If the proposed assignee or sublessee does not satisfy such
Financial Standard than such transaction shall not constitute an Affiliate
Transaction and shall require LESSOR's consent in accordance with section
11.2 of this Addendum.
11.1.3 NO CHANGE IN HAZARDOUS SUBSTANCE USE. In order to qualify as an
Affiliate Transaction, the assignee's or sublessee's use of the Premises
shall not materially increase the risk of contamination of any Hazardous
Substance from the risk presented by LESSEE's use of the Premises as
determined by a qualified environmental consultant designated by LESSOR.
11.1.4 NON-COMPLIANCE/DEFAULT. If a purported Affiliate Transaction
does not comply with all requirements and conditions for a qualified
Affiliate Transaction, such transaction shall require LESSOR's consent in
accordance with the procedures in section 11.2 of this Addendum and the
occurrence of such transaction without such consent shall constitute a
Default under this Lease.
11.2 NON-AFFILIATE TRANSACTIONS. The provisions in this section are
in addition to the provisions of Paragraph 12 of the Lease, provided such
provisions do no apply to an Affiliate Transaction except as stated in
section 11.1 of this Addendum.
11.2.1 PRESUMPTION OF REASONABLENESS. To the extent that the Lease
provides for LESSOR's reasonable consent to an assignment or sublease of the
Lease, LESSEE acknowledges and agrees that LESSOR shall be conclusively
deemed to have reasonably withheld such consent if (a) a proposed assignee
does not comply with the Financial Standards described in section 11.1 of
this Addendum as of the date of the proposed assignment or sublease, or (b)
the assignee's or sublessee's use of the Premises would materially increase
the risk of contamination of any Hazardous Substance from the risk presented
by LESSEE's use of the Premises as determined by a qualified environmental
consultant designated by LESSOR. LESSEE shall be responsible for the fees of
such consultant. Nothing in this section shall be construed or applied to
restrict LESSOR from withholding its consent for other reasonable grounds,
and this provision is included solely to provide LESSOR the benefit of the
conclusive presumption with respect to one or both of the above described
conditions.
11.2.2 "TRANSFER DOCUMENTATION " DEFINED. The term "Transfer
Documentation " means and includes the following documentation, which shall
be certified in writing as true, correct and complete by the LESSEE and any
assignee or sublessee: (a) the name, address, telephone number and
responsible representative of the assignee or sublease; (b) written reports,
government filings and other relevant documentation, if any, describing the
extent of the use of Hazardous Substances in assignee's or sublessee's
general business operations, and, if different, the use of the Premises
proposed by assignee or sublessee; (c) all written contracts and agreements,
including lease assignments, signed between LESSEE (or any of its affiliates)
and the assignee or sublessee relating to or in any way concerning the
assignment or subletting or any contemporaneous transaction, which, in the
case of a purported Affiliate Transaction, such contracts and agreements must
evidence that the assignment or sublease conform to all requirements of an
Affiliate Transaction; and (d) audited financial statements, prepared by a
certified public accountant or equivalent, for the last three (3) years of
assignee's operation, including balance sheet, income statements and any
other statements prepared in the ordinary course of assignee's or sublessee's
operations.
11.2.3 TIME FOR CONSENT. LESSOR shall give LESSEE written notice of its
consent or refusal to consent to a proposed assignment no later than forty
five (45) days following receipt from LESSEE of the last of the Transfer
Documentation and LESSEE's payment under Paragraph 12.2(e) of the Lease (
"LESSOR's Notice "). If LESSOR does not timely give LESSOR's Notice, LESSOR
shall be deemed to have given its consent to the assignment as disclosed in
the Transfer Documentation.
11.2.4 RIGHT OF FIRST REFUSAL. In the event LESSEE desires to assign
this Lease or enter into a Major Sublease of the Premises other than in an
Affiliate Transaction, LESSOR shall have a period equal to the period for
LESSOR to consent or not consent under section 11.2.3 of this Addendum (
"Election Period ") to notify LESSEE of LESSOR's election to terminate this
Lease as to the entire Premises, in which event Tenant shall be released from
all further obligations under the Lease and LESSOR shall be free to enter
into a new lease with the proposed assignee or sublessee; provided, however,
in the case of a Major Sublease, such termination shall only apply with
respect to the portion of the Premises subject to such sublease and this
Lease shall remain in full effect with respect to the remaining portion o
the Premises. The provisions of this section apply regardless of whether or
not LESSOR agrees to consent to such transfer. The term "Major Sublease "
means a sublease (a) for 25% or more of the Rentable Square Footage of the
Premises then used by LESSEE taking into account any prior sublease(s) for a
term of (a) three (3) years or more, or (b) if the remaining Term of the
Lease is less than five (5) years, then substantially all of the remaining
Term of the Lease. If LESSOR does not give LESSEE notice of its election to
exercise its right to terminate all or a portion of the Lease as provided in
this provision on or before expiration of the Election Period, then LESSOR's
rights under this section shall expire with respect to the proposed
transaction and the provisions of section 11.2.5 below shall apply.
11.2.5 RENT ADJUSTMENT. If LESSEE subleases the Premises (regardless
of whether such sublease is consented to by LESSOR) and, if applicable,
LESSOR does not elect to terminate the Lease in accordance with section
11.2.4 of this Addendum, the Rent due under this Lease shall be automatically
increased as follows: (a) in the case of a Major Sublease, in an amount equal
to fifty percent (50%) of the Net Profit (as defined below) received by
LESSEE from such sublessee; or (b) in the case of a sublease other than a
Major Sublease, in an amount equal to twenty five percent (25%) of the Net
Profit (as defined below) received by LESSEE from such sublessee. "Net
Profit " shall mean the excess in Base Rent or other consideration received
by LESSEE ( "Excess Rent ") for the portion of the Premises sublet, over the
Base Rent and other Rent payable by LESSEE to LESSOR for such portion of the
Premises, after deducting: (i) reasonable brokerage commissions actually paid
by LESSEE for such, and (ii) the actual out-of-pocket costs incurred by
LESSEE to pay for new tenant improvements required by the subtenant, each
deducted from the Excess Rent at a rate determined by (aa) dividing the total
amount expended by LESSEE for such commissions and new tenant improvements,
(bb) by the number of months of the term of the Sublease, and (cc) the
resulting quotient shall equal the amount deducted monthly from the Excess
Rent to determine the amount of the monthly Net Profit. Such amounts shall
be due and payable within fifteen (15) days from LESSEE's receipt. In the
event of subletting of only a portion of the Premises, in calculating whether
the rent received by LESSEE exceeds the Rent payable under this Lease, the
Rent payable under the Lease shall be prorated according to the Rentable
Square Feet subject to the sublease. In the case of a permitted assignment,
LESSOR's only right is to elect to terminate the Lease in accordance with
section 11.2.4 above, and if LESSOR does not elect to terminate the Lease,
no adjustment in Rent shall be made under this section on account of such
assignment. In no event shall the Rent due under the Lease be reduced as a
result of the operation of this section.
11.3 NO RELEASE OF LIABILITY. Notwithstanding any subletting or
assignment, LESSEE shall remain fully and primarily liable for the payment of
all Rent and other sums due, or to become due hereunder, and for the full
performance of all other terms, conditions, and covenants to be kept and
performed by LESSEE, except as provided in section 11.2.4 above. The
acceptance of rent or any other sum due hereunder, or the acceptance of
performance of any other term, covenant, or condition hereof, from any other
person or entity shall not be deemed to be a waiver of any of the provisions
of this Lease or a consent to any subletting or assignment of the Premises.
To the extent that LESSEE may contend that its is a surety or guarantor of
the obligations of the assignee or sublessee in contravention of the
provisions of this section, LESSEE freely, voluntarily and unconditionally
waivers and release any and all defenses of a surety or guarantor, including,
without limitation, rights, defenses or benefits which might otherwise be
available to any surety guarantor under California Civil Code sections 2787
through 2855, inclusive, 2899 and 3433, and California Code of Civil
Procedure sections 580a, 580b, 580d and 726, and any successor or replacement
sections.
11.4 SUBLEASE. In addition to the provisions of Paragraph 12.3 of the
Lease, any sublease of the Premises shall be subject and subordinate to the
provisions of this Lease and LESSOR shall not be bound by any of the terms,
covenants, conditions, provisions or agreements of the sublease, including,
without limitation, any provisions that may be inconsistent with the terms of
this Lease, including, without limitation, any provisions providing for (a) a
term of the sublease extending beyond the Term of this Lease, (b) any right
to renew or extend the term of the sublease for a period extending beyond the
Term of this Lease, or (c) the transfer of any rights or benefits under in
this Lease that expressly provide that they are personal to LESSEE or not
transferable. The sublease shall terminate upon any termination of this
Lease, subject to the right of LESSOR, in its sole discretion, to require the
subtenant to attorn to LESSOR as provided in Paragraph 12 of the Lease and
section 11.4.1 of this Addendum. LESSOR shall no have any duty or obligation
to inspect or review the terms and conditions of any sublease and/or advise
or notify subtenant of any such terms or conditions that are inconsistent
with the provisions of this Lease. LESSOR, by giving its consent to a
sublease as provided in this Lease, shall not be construed or applied to make
LESSOR a party to the sublease and, except as otherwise expressly provided in
this Lease, no contractual relationship shall exist between LESSOR and
subtenant notwithstanding that LESSOR shall have the right to elect to
enforce the terms of the sublease against subtenant and requiring payment of
the rent due under the sublease directly to LESSOR as provided in Paragraph
12.3 of the Lease.
11.4.1 ADDITIONAL PROVISIONS REGARDING SUBTENANT ATTORNMENT. The
provisions of this section are intended to supplement the provisions of
Paragraph 12.3(b) granting LESSOR the right, in its discretion, to require
any subtenant to attorn to LESSOR. In event LESSOR elects to require such
attornment, LESSOR shall undertake the obligations of the sublessor under the
sublease, provided LESSOR shall not (a) be liable for any prepayment of rent
or any security deposit paid by subtenant, except to the extent that LESSOR
is then in possession of any portion of any prepaid rent or security deposit,
(b) be liable for any previous acts or omissions of LESSEE under the
sublease, (c) be subject to any defenses or offsets which such subtenant may
have against LESSEE on account of any act, omission, transaction or
occurrence, (d) be required to complete construction of any tenant
improvements and/or provide pay for any portion of such tenant improvements,
or (e) be bound by any changes or modifications made to the sublease made
without the written consent of the LESSOR.
12. No Restriction on LESSOR'S Remedies. In the event that LESSEE
commits a Breach of the Lease by failing or refusing to take possession of
the Premises and commencing payment of the Rent, nothing in the Lease is
intended to nor shall it be applied to restrict any rights or remedies that
LESSOR may have on account of such Breach, including, without limitation,
LESSOR's entitlement to recover consequential and incidental damages from
LESSEE on account of such breach. LESSEE acknowledges that it is aware that,
based upon LESSEE's inducement in entering into this Lease, LESSOR is making
a substantial investment of its own funds and creditworthiness to develop the
Building, and, in the event of such Default by LESSEE, LESSOR will suffer
substantial damages and losses, including lost profits and loss of use of its
invested funds and credits and potential loss of its creditworthiness and
business reputation.
13. [THIS SECTION INTENTIONALLY OMITTED]
14. ADDITIONAL PROVISIONS REGARDING TENANCY STATEMENT. In addition
to the information required under Paragraph 16 of the Lease, LESSOR may also
require that LESSEE certify to the absence of any violations of any Hazardous
Substance Laws and require that LESSEE provide and certify to an updated
Hazardous Materials Questionnaire. In addition, in lieu of the form of the
Estoppel Certificate described in Paragraph 16 of the Lease, LESSOR shall
have the right, at its election, to require LESSEE to deliver an Estoppel
Certificate in the form of the Estoppel Certificate annexed to this Addendum
as EXHIBIT "6 " and LESSEE agrees to execute and deliver to LESSOR from time
to time as requested by LESSOR.
15. PROHIBITION AGAINST RECORDATION. LESSEE shall not record nor
attempt to record this Lease or any memorandum referencing its option rights.
Upon expiration or termination, LESSEE agrees, if requested by LESSOR, to
execute, acknowledge and deliver a quitclaim deed to LESSOR within five (5)
days from such request together with such additional documents required by
any title company to further evidence the lack of any further right of LESSEE
to any leasehold interest in the Premises.
16. ADDITIONAL PROVISIONS REGARDING SUBORDINATION/NON-DISTURBANCE.
Without limiting the generality of LESSEE's obligations under Paragraph 30 of
the Lease, LESSEE approves the form of the Subordination, Nondisturbance and
Attornment Agreement annexed to the Lease as EXHIBIT "7 " for use in
connection with any of LESSOR's financing of the Building, which may, if
elected by LESSOR, be used in lieu of the form described in Paragraph 30 of
the Lease. LESSEE agrees to execute, acknowledge and deliver to LESSOR from
time to time as requested by LESSOR, such documents in favor of LESSOR's
lender(s) within ten (10) days of LESSOR's request and the failure to timely
provide such documentation shall constitute a non-curable Default under this
Lease.
17. SIGNAGE. If permitted by Applicable Requirements, LESSEE shall
be entitled to one sign displaying its name on the exterior facade of the
building immediately in front of the entrance to the premises and a monument
sign near the parking lot entrance, All installation and maintenance
signage costs will be born by the LESSEE. LESSEE shall be responsible for,
at its expense, causing all signage to be permitted by the City of Moorpark
and conform to any other Applicable Requirements.
18. CORPORATE RESOLUTION. Within ten (10) days of Lease execution,
LESSEE shall provide LESSOR with a certified copy of a Corporate Resolution
authorizing the person(s) designated below to execute this Lease on the
behalf of LESSEE and thereupon become a binding contractual obligation of
LESSEE.
19. INTERPRETATION. Each party acknowledges that the terms of this
Lease have been negotiated and that any rule of construction or
interpretation of a written document against the draftsperson shall not apply
to the interpretation or application of this Lease. If any provision of this
Lease is determined, by a court of competent jurisdiction to be illegal or
unenforceable, such provision shall be deemed to be severed and deleted, and
neither such provision, its severance nor deletion shall affect the validity
of the remaining provisions of this Lease so long as the primary
consideration and rights intended to be afforded each party are preserved.
20. PROTECTION OF AFFILIATES. Whenever in this Lease a party is
obligated to indemnify, defend and/or hold harmless another party, such
obligation to provide indemnification shall be deemed to include
indemnification of the officers, directors, shareholders, partners, members
and agents of the party entitled to indemnification, who are expressly
declared to be third party beneficiaries of this Lease for purposes of the
enforcement of such indemnification rights.
21. ENTIRE AGREEMENT. This Lease, including the Addendum together
with all exhibits annexed to this Addendum and other agreements expressly
referred to herein, constitutes the entire agreement between the parties with
respect to this Lease. All prior or contemporaneous agreements,
understandings, representations, warranties and statements, oral or written,
are superseded, and neither party shall have any right to rely on such
agreements, understandings, representations, warranties and statements in
entering into this Lease.
22. INDEMNIFICATION. Whenever in this Lease, a party is obligated to
indemnify, defend and hold harmless another party, such obligation to provide
indemnification specifically includes, but is not limited to, the obligation
to pay reasonable attorneys' fees and other legal expenses to the attorney
reasonably retained by the party obligated to provide such indemnification on
a continuing basis and upon submission of as such attorneys' fees and legal
expenses are incurred. The attorney retained by the party obligated to
provide indemnification shall be qualified and experienced in the field of
law which is the subject of the action and shall be subject to the reasonable
approval of the party entitled to indemnification.
23. OPTION TO PURCHASE. Subject to the provisions of Paragraph 39 of
the Lease, LESSOR grants to LESSEE an option ( "Option Right ") to purchase
the Premises during the Option Period (as defined below) for the Purchase
Price (as defined below) in strict accordance with all terms, conditions and
requirements set forth in this section 23 and on the terms and conditions set
forth in the Real Estate Purchase and Sale Contract and Joint Escrow
Instructions annexed to the Lease as EXHIBIT "8 " ( "Sale Contract "). Any
words or phrases constituting defined terms in the Sale Contract shall have
the same meaning and effect when used in this Addendum. Except for the
Option Right expressly granted in this section 23, LESSEE shall not have any
other right or entitlement to purchase the Premises or any interest in the
Premises.
23.1 "OPTION PERIOD " DEFINED. The phrase "Option Period " means
the period of time during which the Option Right is exercisable, which is the
period beginning at the start of the sixth Lease Year and expiring sixty (60)
consecutive days thereafter and such Option Period shall not be subject to
extension for any reason. The Option Right is not exercisable prior to the
start of the Option Period nor after the end of the Option Period. If the
Option Right is not timely exercised in accordance with the procedure
provided in this section prior to the expiration of the Option Period, the
Option Right shall automatically expire without further notice or demand and
LESSEE shall have no further right to purchase the Premises.
23.2 MANNER OF EXERCISING OPTION. The Option Right granted LESSEE may
be exercised by LESSEE delivering to LESSOR, before the expiration of the
Option Period, written notice of the election to exercise the option (
"Notice of Election "), which Notice of Election shall state that the option
is exercised without condition or qualification. A Notice of Election must
be accompanied by three (3) copies of a Sale Contract (EXHIBIT "8 ")
executed by LESSEE and in which LESSEE shall insert the "Effective Date " in
the blank in the first paragraph of the Sale Contract, which shall be the
date of delivery of the Notice of Election, which shall be a date prior to
the expiration of the Option Period.
23.3 DETERMINATION OF PURCHASE PRICE. The phrase "Purchase Price "
means the total consideration payable by LESSEE to LESSOR for the purchase of
the Premises as calculated in accordance with Section 4 of the Sale Contract.
LESSEE shall be entitled to have credited to the Purchase Price any unused
portion of the Security Deposit (but not any amounts earned by LESSOR as
rent) paid by LESSEE to LESSOR in accordance with Paragraph 1.7 of the Lease.
In addition to payment of the Purchase Price, LESSEE shall be responsible for
payment of any prepayment premium and/or other costs incurred as a result of
the early payment by LESSOR of LESSOR's Permanent Loan, as more particularly
described in Section 4.8 of the Sale Contract.
23.4 COMPLETION OF SALE. Upon LESSOR's receipt of the Notice of
Election and the three (3) copies of the Sale Contract executed by LESSEE in
compliance with subsection 23.2 above, LESSOR shall execute, within five (5)
days, the Sale Contract and deliver one (1) executed copy to LESSEE and one
(1) executed copy to the Escrow Agent identified in the Sale Contract. The
Sale Contract shall be immediately effective and binding on both LESSOR and
LESSEE.
23.5 TIME OF ESSENCE; FAILURE TO EXERCISE OPTION. Time is of the
essence for the parties' performance of their obligations under this
Addendum. If the Option Right is not exercised in the manner provided in
this section 23 before the earlier to occur of (a) expiration of the Option
Period, or (b) the termination of the Option Right in accordance with section
23.6 of this Addendum, then such Option Right shall automatically expire or
terminate and be of no further force or effect, and LESSEE shall have no
further right whatsoever to purchase the Premises and any such expired Option
Right may not be revived by any subsequent payment or further action by
LESSEE.
23.6 TERMINATION OF OPTION RIGHTS. In addition to the expiration of
the Option Right upon expiration of the Option Period, the Option Right, and
LESSEE's entitlement to purchase the Premises, shall be subject to immediate
termination, without further notice or demand, upon the occurrence of any of
the following events:
(a) in the event that LESSEE commits any Breach or Material Default
under the Lease, including, without limitation, at any time from the date of
the Lease through the date of Close of Escrow under the Sale Contract. The
phrase "Material Default " means and includes (i) any failure by LESSEE to
take possession of the Premises upon the Commencement Date or any repudiation
by LESSEE of its obligations under the Lease, (ii) the occurrence of three
(3) or more Defaults in failing to timely pay Rent or other charges payable
by LESSEE under the Lease within any twenty four (24) month period, (iii) any
Default under Paragraphs 13.1(a),(c),(e) or (f) of the Lease, and (iv) any
Default under sections 5.3 or 5.4 of this Addendum in failing to timely pay
amounts due LESSOR;
(b) in the event LESSEE timely gives a Notice of Election and
exercises the Option Right, but thereafter LESSEE (i) commits a default under
the terms of the Sale Contract by failing to purchase the Premises, or (ii)
LESSEE decides not to purchase the Premises and terminates the Sale Contract
in accordance with an express right of termination granted LESSEE;
(c) in the event of any assignment, or attempted assignment, of all
or any part of the Option Right; or
(d) LESSEE's Option Right is terminated as a result of the operation
of section 23.7 of this Addendum
23.7 SUBORDINATE TO LENDER'S INTEREST. The rights of LESSEE under
this section are subordinate and inferior to any lender holding a mortgage,
deed of trust or other security interest in the Premises. In the event
ownership of the Premises is acquired by any such lender of LESSOR, whether
by foreclosure, deed-in-lieu of foreclosure or other similar transactions as
a result of LESSOR's default on any of its obligations to such lender, or
LESSOR's ownership is otherwise divested by any action of such lender, then
all of LESSEE's rights under this section 23 shall immediately terminate
without further notice or demand.
23.8 PROHIBITION AGAINST RECORDATION. LESSEE shall not record nor
attempt to record this Lease or any memorandum referencing its Option Right.
Upon expiration or termination of the Option Right, LESSEE agrees, if
requested by LESSOR, to execute, acknowledge and deliver a quitclaim deed to
LESSOR within five (5) days from such request together with such additional
documents required by any title company to further evidence the lack of any
further right of LESSEE to purchase the Premises.
23.9 CONTINUING VALIDITY OF LEASE/TERMINATION OF LEASE. Except as
otherwise expressly provided in this section 23, the terms of the Lease shall
continue to govern the terms and conditions for LESSEE's continued occupancy
before and during the Option Period, and if LESSEE exercises the Option
Right, until the Close of Escrow under the Sale Contract. If LESSEE does not
exercise the Option Right, or if LESSEE exercises the Option Right but fails
to purchase the Premises in accordance with the Sale Contract, the Lease
shall remain in full force and effect, except LESSEE's Option Right shall no
longer be deemed a part of the Lease. Upon the Close of Escrow under the
Sale Contract, the Lease shall automatically terminate and be of no further
force or effect and neither party shall have any further rights or
obligations under the Lease except (a) to the extent the Lease provides for
rights and obligations to survive the termination or expiration of the Lease,
or (b) if otherwise provided in the Sale Contract.
23.10 NOT ASSIGNABLE. The Option Right granted in this section 23 is
personal to SMTEK, INC. and is not assignable under any circumstances nor
subject to exercise by any other person. The Option Right shall be subject
to automatic termination in the event of any assignment, or attempted
assignment of all or any part of the Option Right.
24. RIGHT OF FIRST OFFER. During the Original Term and during any
Extension Term, LESSEE shall have a Right of First Offer to purchase the
Premises strictly in accordance with the terms and conditions of Sections
24.1 to 24.9 of this Addendum.
24.1 OFFER NOTICE. If LESSOR desires to sell the Premises to a third
party ( "Third Party Sale "), LESSOR agrees to provide LESSEE with a written
notice ( "Offer Notice ") of LESSOR's intent to sell the Premises before
entering into any binding agreement to sell the Premises to a third party.
The Offer Notice shall set forth all of the material terms ( "Offer Terms ")
of the proposed sale offering.
24.2 ACCEPTANCE OF OFFER TERMS. LESSEE shall have ten (10) days after
the delivery of the Offer Notice described above to elect to purchase the
Premises by (a) giving written notice to LESSOR of such election, and (b)
executing and delivering to LESSOR within such ten (10) day period written
acceptance of the Offer Terms ( "Acceptance Notice "). If LESSEE does not
elect to purchase the Premises on the Offer Terms by giving an Acceptance
Notice within such ten (10) day period, then LESSOR may thereafter sell the
Premises to a third party in accordance with the requirements of Section
24.3 of this Addendum.
24.3 THIRD PARTY SALE. If LESSEE does not elect to purchase the
Premises in accordance with Section 24.2 above, LESSOR shall thereafter be
free, for a period of six (6) months from the delivery of the Offer Notice,
to sell the Premises to a third party on terms and conditions which do not
constitute a Material Deviation from the Offer Terms submitted to LESSEE and
otherwise on such terms and conditions as may be agreed upon between LESSOR
and such third party ( "Third Party Sale "). The term "Material Deviation
" means and refers only to: (a) a sale price that is less than ninety seven
and one-half percent (97.5%) of the sale price included in the Offer Terms,
or (b) the purchase price is payable other than by cash or cash equivalent
upon Close of Escrow. If LESSOR decides to proceed with a Third Party Sale
of the Premises on terms and conditions which constitute a Material Deviation
from the Offer Terms, or if LESSOR has not entered into a binding contract
for a Third Party Sale within six (6) months from the delivery of the Offer
Notice and, thereafter, completed the conveyance for such Third Party Sale
within nine (9) months from the delivery of the Offer Notice, then LESSOR
shall resubmit to LESSEE a new Offer Notice ( "New Offer Notice ") in
accordance with the procedure provided in Section 24.1 above, which New
Offer Notice shall be on such terms and conditions as determined by LESSOR,
and all terms and conditions of this section shall apply to such New Offer
Notice, and the time permitted for LESSEE's delivery of an acceptance notice
shall be ten (10) days from the delivery of the New Offer Notice.
24.4 TERMINATION OF RIGHTS. Notwithstanding any other provision,
LESSEE's rights under this Section 24 shall automatically terminate and be of
no further force or effect in the event LESSOR gives an Offer Notice or New
Offer Notice, whichever is applicable, and LESSEE declines to exercise its
Right of First Offer and LESSOR closes on a Third Party Sale, and LESSEE
shall have no subsequent rights to purchase the Premises, except as provided
in Section 24.3 of this Addendum regarding a Material Deviation.
24.5 LIMITATIONS ON RIGHTS. The Right of First Offer to purchase the
Premises shall be exercisable only in strict accordance with the terms and
conditions described in this section; provided, however, that all conditions
and requirements for the exercise of an Option under Paragraph 39 of the
Lease shall apply to LESSEE's entitlement to exercise such Right of First
Offer. All of LESSEE's rights under this section shall automatically
terminate in the event of the occurrence of a Breach or other event or
circumstance consisting a Material Default (as defined in section 23 of this
Addendum) either at the time LESSEE would otherwise be required to give an
acceptance notice as described in Section 24.2 of this Addendum or during the
course of any escrow for the purchase of the Premises.
24.6 LIMITED APPLICATION. The provisions of this section shall only
apply to a transfer of the Premises as a part of an arms-length transaction
intended by LESSOR as a Third Party Sale. Nothing in this section shall be
construed or applied to require LESSOR to first offer the Premises for
purchase by LESSEE as a condition to LESSEE (or any successor) otherwise
transferring the Premises or any interest in the Premises in connection with
any merger, consolidation, dissolution, reorganization or the similar
transaction, or by gift or for consideration other than the payment of money
or delivery of a promissory obligation of the purchaser.
24.7 COOPERATION WITH TAX DEFERRED EXCHANGE. Without limiting the
generality of any other provision, LESSOR may include in the Offer Terms a
requirement that the purchaser reasonably cooperate with LESSOR to
accommodate LESSOR's treatment of the transaction as a tax-deferred exchange
under Internal Revenue Code 1031; provided, however, such obligation of
cooperation shall not require LESSEE to incur any additional expense, debt,
liability or obligation nor delay the date for consummation of the conveyance
of the Premises from the period set forth in the Offer Terms on account of
such obligation.
24.8 SUBORDINATE TO LENDER'S INTEREST. The rights of LESSEE under
this section are subordinate and inferior to any lender holding a mortgage,
deed of trust or other security interest in the Premises. In the event
ownership of the Premises is acquired by any such lender of LESSOR, whether
by foreclosure, deed-in-lieu of foreclosure or other similar transactions as
a result of LESSOR's default on any of its obligations to such lender, or
LESSOR's ownership is otherwise divested by any action of such lender, then
all of LESSEE's rights under this Section 24 shall immediately terminate
without further notice or demand.
24.9 NOT ASSIGNABLE. The Right of First Offer granted in this section
24 is personal to SMTEK, INC. and is not assignable under any circumstances
nor subject to exercise by any other person. The Right of First Offer shall
be subject to automatic termination in the event of any assignment, or
attempted assignment of all or any part of the Option Right.
25. NO BINDING OFFER. LESSOR'S SUBMISSION OF THIS DOCUMENT FOR
EXAMINATION, NEGOTIATION AND/OR SIGNATURE BY LESSEE DOES NOT CONSTITUTE AN
OFFER TO LEASE, NOR A RESERVATION OF, NOR AN OPTION FOR THE LEASE OF THE
PREMISES. THE DOCUMENT SHALL NOT BE BINDING AND IN EFFECT AGAINST EITHER
PARTY UNTIL AT LEAST ONE COUNTERPART OF THIS LEASE IS FULLY EXECUTED AND
DELIVERED BY LESSOR AND LESSEE.
"LESSOR "
MOORPARK VENTURE L.P.,
a California limited partnership
By: MANAGING GP, INC.
a California corporation,
Its General Partner
By:
Jeffrey C. Hamann, President
"LESSEE "
SMTEK, INC.
a California corporation
By:
/s/ Gregory L. Horton
Gregory L. Horton, President
By:
/s/ Mitchell J. Freedman
Mitchell J. Freedman, Secretary
Triple Net Calculations for Smtek - Moorpark 06/13/2001
SMTEK - Moorpark
Leased SF 115,538
Total Bldg. SF 116,538
Percentage of Project 100.00%
ANNUALLY MONTHLY MONTHLY
DESCRIPTION ANNUAL /SF OF BLDG /SF OF BLDG NNN
--------------------------------------------------------------------------------------
Property Taxes $ 79,056.00 $ 0.6842 $0.0570 $6,588.00
Management Fee $ 8,580.00 $ 0.0743 $0.0082 $ 715.00
Property Insurance $ 5,545.82 $ 0.0480 $0.0040 $ 462.15
Utilities:
Electricity $ 0.00 $ 0.0000 $0.0000 $ 0.00
Telephone $ 0.00 $ 0.0000 $0.0000 $ 0.00
Alarm $ 0.00 $ 0.0000 $0.0000 $ 0.00
Landscape Water $ 0.00 $ 0.0000 $0.0000 $ 0.00
Security $ 0.00 $ 0.0000 $0.0000 $ 0.00
HVAC Maint. $ 0.00 $ 0.0000 $0.0000 $ 0.00
Elevator Maint. & Reserve N/A $ 0.0000 $0.0000 $ 0.00
Landscape $ 0.00 $ 0.0000 $0.0000 $ 0.00
Roof Replacement Reserve $ 6,000.00 $ 0.0519 $0.0043 $ 500.00
Painting Reserve $ 1,800.00 $ 0.0227 $0.0019 $ 150.00
Paving Reserve $ 4,392.00 $ 0.0380 $0.0032 $ 368.00
--------------------------------------------------------------------------------------
TOTAL $105,373.82 $ 0.9191 $0.0766 $8,781.15
======================================================================================
Per month for SMTEK $ 8,781.15 $ 0.0766
--------------------------------------------------------------------------------------
EXHIBIT "1 "
ESTIMATED OPERATING
EXPENSES BUDGET
[STAMP]
HAMANN CONSTRUCTION
475 W. BRADLEY AVE. TELEPHONE: 440-7424
EL CAJON, CA 92020 FAX: 440-8914
COST BREAKDOWN 112,320 TOTAL BUILDING SIZE
TENANT IMPROVEMENT 14,000 SQ. FT. OF MEZZANIN
DATED: January 15, 2000 28,000 SQ. FT. OF OFFICE
Revised May 29, 2001
JOB: SMTEK @ Moorpark
FILE: SMTEK1
ITEM # ITEM NAME UNIT PRICE AMOUNT
--------------------------------------------------------------------------------
110 DRAWINGS 28,000 0.03 840
112 STRUCTURAL ENGINEER 500
200 PERMITS (ALLOWANCE) 28,000 0.20 8,600
330 DEMO: demising walls 765 18.00 11,475
DEMO: office walls 32 15.00 480
DEMO: carpet 28,000 0.50 14,000
DEMO: concrete ramps 180 5.00 900
DEMO: rails & footings 500
330 DEMO PLUMBING 8 175.00 1,400
430 TEMPORARY UTILITIES BY OWNER
512 SLAB PATCH 4,337 3.00 13,011
820 OFFICE FRAMING 45 18.00 810
824 STAIRWAY 1 3000.00 3,000
830 DEMISING WALL @ 14' 600 19.00 11,400
850 CARPENTRY HARDWARE 150
899 MISC. FINISH CARPENTRY 28,000 0.2 5,000
920 ROOFING Foam 106,420 1.40 148,988
Skylights 19 425.00 7,650
1010 PLUMBING 8 1200.00 9,600
1011 PLUMBING: service 8 275.00 2,200
1020 HVAC Service 18,000
HVAC: demo & safe-out 3,000
HVAC: Rework 5,000
1030 FIRE SPRINKLERS: safe-out 20 155.00 3,100
1034 FIRE EXTINGUISHER 8 85.00 680
1110 ELECTRICAL & PHONE RING 28,000 0.40 11,200
ELECTRICAL, safe-out 106,420 0.05 5,321
ELECTRICAL, parking lights 163,240 0.04 6,530
1310 PAINT: walls; office 32,420 0.28 9,078
PAINT: walls, cafe, weld, QC 18,580 0.28 5,202
PAINT: Office ceilings 28,000 0.28 7,840
PAINT: Mfg. ceilings 84,320 1.35 113,832
PAINT: Mfg. walls @ 25 ft. 57,350 0.26 16,058
PAINT: Mfg. walls @ 10 ft. 5,470 0.28 1,532
PAINT: Mfg. screen wall @ 14 ft. 6,400 0.28 2,352
1320 DRYWALL 22,320 1.35 30,132
1410 Carpet; allowance 28,400 2.50 71,000
VCT; allowance 64,320 1.00 84,320
1460 Wallpaper Strip 2,000 0.60 1,000
1470 ACOUSTIC CEILING: replace 3,000 1.25 3,750
1510 GLASS & GLAZING: replace 40 16.00 640
GLASS gaskets 1,000
1620 OTHER DOORS, FRAMES & H 1 325,000 325
1630 Roll-Up Door Service 3 100.00 300
1710 TOILET ACCESSORIES 8 250.00 2,000
1740 INSULATION; rework 5,000 0.30 1,500
1910 AC Paving; Seal and Sand 163,240 0.05 8,162
AC Paving; repairs 20,000 2.50 50,000
AC Paving; striping 1,000
2000 CLEANUP; CONSTRUCTION 26,000 0.25 7,000
2100 TEMPORARY EXPENSE 26,000 0.12 3,360
2200 SUPERVISION 28,000 0.50 14,000
Subsistence 88 80.00 5,280
Contingency 50,000
Environmental Phase II Survey 15,000
------ ------------------------------------------ ------- -------- -------
SUBTOTAL 796,558
PROFIT & OVERHEAD 15 119,490
====== ========================================== ======= ======== =======
TOTAL 916,088
NOTE: Fire sprinkler design is @ .20/3000. I have concerns that it may be too
low for the building use.
EXHIBIT "2 "
COST BREAKDOWN
TENANT IMPROVEMENT
[STAMP]
HAMANN CONSTRUCTION
475 W. BRADLEY AVE. TELEPHONE: 440-7424
EL CAJON, CA 92020 FAX: 440-8914
COST BREAKDOWN 112,320 TOTAL BUILDING SIZE
TENANT IMPROVEMENT 14,000 SQ. FT. OF MEZZANINE
DATED: January 15, 2000 28,000 SQ. FT. OF OFFICE
Revised May 29, 2001
JOB: SMTEK @ MANDATORY ITEMS
FILE: SMTEK1 MAND #1
ITEM # ITEM NAME UNIT PRICE AMOUNT
----------------------------------------------- ---------- ------- --------
512 SLAB PATCH 4,337 3.00 13,011
920 ROOFING Foam 106,420 1.40 148,988
Skylights 0
1010 PLUMBING 0
1011 PLUMBING: service 0
1020 HVAC Service 18,000
1510 GLASS & GLAZING: replace 40 15.00 640
GLASS: gaskets 1,000
1630 Roll-Up Door Service 3 100.00 300
1710 TOILET ACCESSORIES 8 250.00 2,000
1910 AC Paving: Seal and Sand 163,240 0.05 8,162
AC Paving: repairs 20,000 2.50 30,000
AC Paving: striping 1,000
2000 CLEANUP: CONSTRUCTION 28,000 0.05 1,400
2200 SUPERVISION 28,000 0.10 2,800
Subsistence 20 85.00 1,700
Environmental Phase II Survey 15,000
Elevator Certification 1,200
------ ------------------------------------------- ------- ------ -------
SUBTOTAL 265,201
PROFIT & OVERHEAD 15 39,780
====== =========================================== ======= ====== =======
TOTAL 304,981
NOTE: Fire sprinkler design is @ .20/3000. I have concerns that it may be too
low for the building use.
SMTEK IS NOT OBLIGATED TO SPEND ANY MONIES ABOVE $304,981
FOR MANDATORY ITEMS WITHOUT THEIR PRIOR WRITTEN CONSENT. [STAMP]
EXHIBIT "3 "
SCHEDULE OF
MANDATORY ITEMS
[STAMP]
EXHIBITS
Exhibit "1 " Legal Description
Exhibit "2 " Building Shell Drawings
Exhibit "3 " Specifications
Exhibit "4 " Triple Net Calculations
Exhibit "5 " Cost Breakdown - Tenant improvement
Exhibit "6 " Hazardous Materials Questionnaire
Exhibit "7 " Estoppel Certificates
Exhibit "8 " Subordination, Non-Disturbance, and Attornment Agreement
Exhibit "9 " Rules and Regulations
[STAMP]
CONSENT TO SUB-LEASE AND SUB-SUB-LEASE,
NONDISTURBANCE AND ATTORNMENT AGREEMENT AND
CONSENT TO TENANT IMPROVEMENTS
THIS CONSENT TO SUB-LEASE AND SUB-SUB-LEASE, NONDISTURBANCE AND
ATTORNMENT AGREEMENT AND CONSENT TO TENANT IMPROVEMENTS ( "Agreement ") is
made effective as of September 1, 2001 ( "Effective Date ") by and among
MOORPARK VENTURE L.P., a California corporation ( "MVLP "), SMTEK, INC., a
California corporation ( "SMTEK "), PARKER-HANNIFIN CORPORATION, an Ohio
corporation ( "PARKER-HANNIFIN "), and SWS ASSOCIATES, a California general
partnership ( "SWS ") and is made with reference to the following facts,
which are a material part of this Agreement:
A. On January 6, 1984, Metal Bellows Corporation ( "Metal Bellows
"), as tenant, entered into a Lease with SWS, as landlord ( "Lease "), for
the Premises commonly known and referred to as 200 Science Drive, Moorpark,
California ( "Premises "). On May 29, 1986, Metal Bellows merged into
PARKER-HANNIFIN and PARKER-HANNIFIN thereby acquired and assumed all of Metal
Bellows' rights and obligations under the Lease. Thereafter, PARKER-HANNIFIN
and SWS entered into an Amendment to Lease on May 29, 1986 ( "First Amendment
") and a Second Amendment to Lease on August 15, 1992 ( "Second Amendment ").
"Primary Lease " means and refers to the Lease, as amended by the First
Amendment and Second Amendment. Any words or phrases constituting defined
terms in the Primary Lease shall have the same meaning when used in this
Agreement, unless the otherwise stated.
B. PARKER-HANNIFIN and MVLP have entered into that certain Agreement
and Escrow Instructions dated May 31, 2001 providing for the purchase of the
Premises by MVLP, as amended by a First Amendment dated June 15, 2001, a
Second Amendment dated June 29, 2001 and a Third Amendment dated July 13,
2001 (as amended, the "Purchase Agreement ") and PARKER-HANNIFIN has or
will be entering into that certain Real Estate Purchase and Sale Agreement
and Escrow Instructions dated September 1, 2001 with SWS ( "Owner Sale
Contract ") whereby SWS is agreeing to convey title to the Premises to MVLP.
Any words or phrases constituting defined terms in the Purchase Agreement or
the Owner Sale Contract shall have the same meaning when used in this
Agreement, unless the otherwise stated.
C. Also, concurrently with the execution of the Purchase Agreement,
PARKER-HANNIFIN and MVLP are entering that certain Sub-Lease Agreement dated
May 31, 2001, as amended by a First Amendment dated July 20, 2001 (as
amended, the "Sub-Lease ") providing for MVLP to sublease the Premises from
PARKER-HANNIFIN pending the Closing under the Purchase Agreement and the
Owner Sale Contract; a copy of the Sub-Lease Agreement is annexed as EXHIBIT
"A " to this Agreement.
D. Also, concurrently with the execution of this Agreement, MVLP and
SMTEK are entering that certain Sub-Sub-Lease Agreement ( "Sub-Sub-Lease ")
providing for the SMTEK to sublease the Premises from MVLP; a copy of the
Sub-Sub-Lease Agreement is annexed as EXHIBIT "B " to this Agreement.
E. The execution and delivery of this Agreement by PARKER-HANNIFIN,
SWS, MVLP and SMTEK are conditions precedent to the final effectiveness of
the Purchase Agreement, the Owner Sale Contract, the Sub-Lease and the Sub-
Sub-Lease in order to (i) confirm the consent of SWS to the Sublease, (ii)
confirm the consent of SWS and PARKER-HANNIFIN to the Sub-Sub-Lease, (iii)
provide for certain special rights and remedies for MVLP in the event SWS
fails or refuses to convey the Premises to MVLP in accordance with the Owner
Sale Contract, (iv) provide for certain special rights and remedies for MVLP
in the event PARKER-HANNIFIN fails or refuses to perform its obligations
under the Purchase Agreement to cause SWS to convey the Premises to MVLP in
accordance with the Purchase Agreement, and (v) provide for certain special
rights and remedies for SMTEK in the event MVLP fails or refuses to purchase
the Premises in accordance with the Purchase Agreement.
IT IS THEREFORE AGREED, in consideration for the covenants,
representations and agreements of the parties set forth in this Agreement and
for other good and valuable consideration, the receipt and sufficiency of
which is acknowledged by all parties, as follows:
1. CONSENT TO SUB-LEASE AND SUB-SUB-LEASE. SWS hereby consents to
the Sublease and both SWS and PARKER-HANNIFIN hereby consent to the Sub-Sub-
Lease, subject to all terms and conditions of this Agreement and such consent
is granted only upon the terms and conditions set forth in this Agreement.
The Sublease and the Sub-Sub-Lease are subject and subordinate to the Primary
Lease, except as otherwise provided in this Agreement. SWS shall not be
bound by any of the terms, covenants, conditions, provisions or agreements of
the Sublease and SWS and PARKER-HANNIFIN shall not be bound by any of the
terms, covenants, conditions, provisions or agreements of the Sub-Sublease,
except as expressly provided in this Agreement. Neither SWS nor PARKER-
HANNIFIN shall have any duty or obligation to inspect or review the terms and
conditions of the Sublease or the Sub-Sub-Lease and/or advise or notify MVLP
or SMTEK of any such terms or conditions that are inconsistent with the
provisions of the Primary Lease.
2. NON-RELEASE OF PARKER-HANNIFIN. Neither the Sublease, the Sub-
Sub-Lease nor this Agreement shall release or discharge PARKER-HANNIFIN from
any liability, whether past, present or future, under or with respect to the
Primary Lease nor alter the primary liability of PARKER-HANNIFIN to perform
and comply with all of its obligations of under the Primary Lease. Neither
SWS's acceptance of rent or any other sum directly from MVLP or SMTEK nor the
acceptance of performance by MVLP or SMTEK of any other term, covenant, or
condition of the Primary Lease shall be deemed to be a waiver of any of the
provisions of the Primary Lease, a consent to any further subletting or
assignment of the Premises or a waiver of any default of PARKER-HANNIFIN
under the Primary Lease.
3. SWS DEFAULT UNDER OWNER SALE CONTRACT. The provisions of this
section 3 shall only apply in the event that SWS defaults under the terms of
the Owner Sale Contract by failing to convey the Premises to MVLP in
accordance with the terms and conditions of the Owner Sale Contract. In such
event, the provisions of sections 3.1 to 3.3 below shall apply.
3.1 NONDISTURBANCE AGREEMENT. So long as MVLP is not in default
(beyond any period given to cure such default) in the performance of the
terms, covenants, conditions and provisions contained in the Sub-Lease and so
long as MVLP observes the provisions of this Agreement, MVLP and SMTEK, as
MVLP's subtenant, shall continue to have the right to occupy and retain
possession of the Premises in accordance with the terms of the Sub-Lease, and
the leasehold estate shall not be affected in any manner by SWS's
nonperformance of the Owner Sale Contract. Such right of continued occupancy
and quiet possession shall continue to apply for the entire duration of Sub-
Sub-Lease notwithstanding the expiration or termination of the Primary Lease
or the Sublease for any reason.
3.2 MUTUAL ATTORNMENT. Upon the expiration or earlier termination of
the Primary Lease, MVLP (and SMTEK, as MVLP's subtenant) shall recognize and
attorn to SWS as the Sublessor under the Sub-Lease and SWS shall undertake to
perform the obligations of the Sublessor under the Sub-Lease only from the
time of the expiration or earlier termination of the Primary Lease; provided,
however, in such event, MVLP (and SMTEK, as MVLP's subtenant) acknowledge and
agree that SWS shall not (a) be liable for any prepayment of rent or any
security deposit paid by MVLP, except to the extent that SWS is then in
possession of any portion of any prepaid rent or security deposit, (b) be
liable for any previous acts or omissions of PARKER-HANNIFIN under the Sub-
Lease, (c) be subject to any defenses or offsets which MVLP may have against
PARKER-HANNIFIN on account of any act, omission, transaction or occurrence
arising prior to the date of the expiration or termination of the Primary
Lease, (d) be required to complete construction of any tenant improvements
and/or provide pay for any portion of such tenant improvements, or (e) be
bound by any changes or modifications made to the Sub-Sublease without the
written consent of the PARKER-HANNIFIN or SWS, whichever is applicable.
3.3 NO LIMITATION OR WAIVER OF LIABILITY. Nothing in this section is
intended to limit any liability of SWS arising on account of a default under
the Owner Sale Contract or otherwise waive any right or remedy any other
party may have at law or in equity on account of such default.
4. PARKER-HANNIFIN LEASE DEFAULT/DEFAULT UNDER OWNER SALE CONTRACT.
The provisions of this section 4 shall only apply in the following events:
(a) PARKER-HANNIFIN defaults under the terms of the Primary Lease, or (b)
PARKER-HANNIFIN defaults under the terms of either the Owner Sale Contract
(except if caused by MVLP) or the Purchase Agreement by failing to take such
action as required to cause SWS to convey (or taking action which prevents
such conveyance) the Premises to MVLP in accordance with the terms and
conditions of the Owner Sale Contract and Purchase Agreement. In such
events, the provisions of sections 4.1 to 4.4 below shall apply.
4.1 NONDISTURBANCE AGREEMENT. Subject to the limitation in section
4.3.2 below and so long as MVLP cures any monetary default and any Curable
Non-Monetary Default (as defined below) of PARKER-HANNIFIN under the Primary
Lease in accordance with the procedure provided in section 4.2 below and
thereafter continues to perform the terms and conditions of the Primary Lease
(except as provided in section 4.3 below), MVLP and SMTEK, as MVLP's
subtenant, shall continue to have the right to occupy and retain possession
of the Premises in accordance with the terms of the Primary Lease (except as
provided in section 4.3 below) for the duration of the Sub-Sub-Lease and such
leasehold estate shall not be affected in any manner by either (a) the
termination of PARKER-HANNIFIN's rights under the Primary Lease on account of
the default of PARKER-HANNIFIN, (b) the prior expiration of the Primary
Lease, or (c) the default of PARKER-HANNIFIN under the Owner Sale Contract
or the Purchase Agreement and/or the termination of either of such
agreements.
4.2 DEFAULT NOTICE/CURE RIGHT. So long as MVLP is not in default
under this Agreement or the Sub-Lease, SWS agrees to give MVLP a copy of any
notice of default under the Primary Lease that SWS may give to PARKER-
HANNIFIN. SWS further agrees to accept performance by MVLP of any obligation
of PARKER-HANNIFIN to be performed under the Primary Lease which MVLP is
capable of performing, including the cure of any such default. Any notice
of default from SWS shall describe the amounts required to fully cure any
monetary defaults and describe the nature of any Curable Non-Monetary Default
under the Primary Lease as of the date of the notice, which will be required
to be cured by MVLP. MVLP shall have a period of thirty (30) days from the
receipt of such default notice to cure any monetary default under the Primary
Lease and sixty (60) days to cure any Curable Non-Monetary Default; provided,
however, if the nature of such default is such that more than sixty (60) days
is reasonably required to cure such default, then the time for MVLP's cure
shall be extended for a reasonable time so long as MVLP commences such cure
within fifteen (15) days from receipt of the notice of default and thereafter
diligently prosecutes such cure to completion. With respect to any Curable
Non-Monetary Default, such as a violation of the provisions of the Primary
Lease governing Hazardous Materials contamination or compliance with laws,
rules, ordinances and regulations of governmental authorities, MVLP, by
beginning to undertake to cure any such default shall not be deemed to have
assumed all of the obligations of PARKER-HANNIFIN with respect to such
Curable Non-Monetary Default and shall have the right to abandon at any time
such undertaking to cure the default by giving written notice to SWS. In the
event that MVLP does not timely undertake to cure any default, or with
respect to a Curable Non-Monetary Default described in the preceding
provisions, elects to abandon such cure undertaking, then the right of MVLP
(and SMTEK, its subtenant) to continued occupancy of the Premises shall
terminate upon the later to occur of (a) thirty (30) days following the
delivery of MVLP's abandonment notice, (b) the termination for default or
expiration of the Primary Lease, or (c) the expiration of the period provided
in the Owner's Sale Contract for MVLP to purchase the Premises from SWS in
the event of PARKER-HANNIFIN's default. The inclusion of this provision for
notice to MVLP (and, indirectly, SMTEK, as its subtenant) is solely for the
benefit of MVLP (and, indirectly, SMTEK, as its subtenant) and PARKER-
HANNIFIN shall not have the right to assert as a defense to any action or
proceeding any failure of SWS to timely provide a notice of default under the
Primary Lease to MVLP.
4.2.1 "CURABLE NON-MONETARY DEFAULT " DEFINED. For purposes of this
section 4, the term "Curable Non-Monetary Default " means a non-monetary
default that is reasonably susceptible of being cured by MVLP in that the
required performance is not something unique to PARKER-HANNIFIN and the
following shall not be considered a Curable Non-Monetary Default: (a) a
default arising on account of PARKER-HANNIFIN filing a bankruptcy or similar
proceeding, provided this exception shall not be construed as waiving or
changing the requirement for MVLP to cure all monetary defaults, including
those arising during any bankruptcy or similar proceeding in order to
continue in occupancy, (b) PARKER-HANNIFIN 's violation of any Hazardous
Materials requirements of the Primary Lease, provided this exception shall
not be deemed to waive or change the requirement of MVLP to remediate
Hazardous Materials contamination of the Premises in order to continue in
occupancy; (c) PARKER-HANNIFIN's violation of any provisions of the Primary
Lease concerning the assignment of the Primary Lease or subleasing of the
Premises; (d) PARKER-HANNIFIN 's violation of any provisions of the Primary
Lease requiring PARKER-HANNIFIN to deliver financial statements, reports or
other information unique to PARKER-HANNIFIN's operation and not capable of
delivery by MVLP; (e) PARKER-HANNIFIN's violation of the provisions of the
Primary Lease described in section 4.3.1 below; or (f) Waste to the Premises
caused by PARKER-HANNIFIN. The term "Waste " means injury or damage to the
Premises caused by the malicious act or gross neglect of PARKER-HANNIFIN, but
does not include ordinary repairs and maintenance not performed by PARKER-
HANNIFIN, which shall remain the responsibility of MVLP to cure to continue
in occupancy.
4.3 ASSUMPTION OF PRIMARY LEASE. If MVLP cures any such monetary
default and any Curable Non-Monetary Default, MVLP shall be deemed to have
assumed any and all obligations of PARKER-HANNIFIN under the Primary Lease
arising from and after the date of such cure, except the obligations
described in section 4.3.1 below, and shall be entitled to exercise any and
all rights of the lessee under the Primary Lease, except any rights or
obligations described in section 4.3.1 below. Neither the cure and
assumption of the Primary Lease obligations by MVLP nor SWS acceptance of
performance from MVLP, shall waive, discharge or otherwise prejudice the
right of SWS to terminate all rights of PARKER-HANNIFIN under the Primary
Lease and/or any claims of SWS against PARKER-HANNIFIN on account of such
default. If requested by MVLP or SWS, the other party agrees to execute and
deliver a new lease on the same terms and conditions as the Primary Lease,
except as otherwise provided in this section 4, including section 4.3.1
below.
4.3.1 EXCEPTIONS TO ASSUMPTION. Notwithstanding any other provision in
this Agreement or the Primary Lease, in the event MVLP assumes the
obligations of the Primary Lease in accordance with section 4.2 above, such
assumption shall not be deemed to include: (a) the right of PARKER-HANNIFIN
to purchase the Premises or the obligation of PARKER-HANNIFIN to purchase,
upon SWS's election, the Premises from SWS, both as provided in Section 30 of
the Original Lease as amended by Section 6 of the First Amendment; (b) the
obligation to maintain earthquake insurance as a part of the extended
insurance coverage as otherwise required by Section 5 of the Second
Amendment; (c) any obligation of the lessee under the Primary Lease to
provide indemnification to SWS for any acts, omissions, occurrences or events
occurring prior to the date of MVLP's assumption of the Primary Lease
obligations under this section 4.3; or (d) any obligation to surrender
certain improvements, alternations and additions as provided in Section 2 of
the First Amendment to the extent that any such items are replaced, removed
or demolished as a result of the Tenant Improvements being approved by SWS in
accordance with section 6 below. Nothing in this provision is intended to
waive or change any right that SWS may have under the Primary Lease to
require PARKER-HANNIFIN to purchase the Premises or any claim by SWS against
PARKER-HANNIFIN for the default under such provision.
4.3.2 SWS'S SPECIAL SALE RIGHT. As a special inducement to SWS to
waive the requirement of MVLP assuming the obligation to purchase the
Premises at the election of SWS as described in section 4.3.1(a) above and
notwithstanding any other provision, MVLP acknowledges and agrees that in the
event that the Purchase Agreement or the Owner Sale Contract is terminated on
account of PARKER-HANNIFIN'S default, SWS shall thereafter be free to sell
the Premises and terminate MVLP's right under this section 4 in the event
that SWS thereafter arranges an Owner-User Sale of the Premises, in which
event, MVLP (and, SMTEK, its subtenant) shall surrender possession of the
Premises upon the later to occur of (a) ninety (90) days following delivery
of notice of SWS making such Owner-User Sale, or (b) such later date as may
be specified by SWS in its notice of the Owner-User Sale. "Owner-User Sale
" means a sale or exchange of the Premises in connection with a transaction
where the purchaser or an affiliate of the purchaser intends to use and
occupy the Premises for the conduct of its business operations on a regular
basis as opposed to a person who is purchasing the Premises for investment
and rental to an unaffiliated tenant.
4.4 SUPPLEMENTAL REMEDIES AND RIGHTS. The rights and remedies
provided MVLP under this section 4.4 are in addition to and cumulative with
any rights or remedies granted MVLP under the Purchase Agreement in the event
PARKER-HANNIFIN fails to cause SWS to convey the Premises or prevents SWS
from conveying the Premises.
5. MVLP SUB-LEASE DEFAULT/DEFAULT UNDER PURCHASE AGREEMENT. The
provisions of this section 5 shall only apply in the following events: (a)
MVLP defaults under the terms of the Sub-Lease, or (b) MVLP defaults under
the terms of the Purchase Agreement by failing to purchase the Premises in
contravention of the Purchase Agreement. In such events, the provisions of
sections 5.1 to 5.5 below shall apply.
5.1 NONDISTURBANCE AGREEMENT. So long as SMTEK cures any monetary
default and any Curable Non-Monetary Default (as defined below) of MVLP under
the Sub-Lease in accordance with the procedure provided in section 5.2 below
and thereafter continues to perform the terms and conditions of the Sub-
Lease, SMTEK shall continue to have the right to occupy and retain possession
of the Premises in accordance with the terms of the Sub-Lease (except as
provided in section 5.4 below) and such leasehold estate shall not be
affected in any manner by either (b) the termination of MVLP's rights under
the Sub-Lease on account of the default of MVLP, or (b) the default of MVLP
under the Purchase Agreement. Such right of continued possession and
occupancy shall only apply for a period of time equal to the lesser of (i)
the Term of the Sub-Lease, or (ii) the last day that SMTEK will have the
right to purchase the Premises under Section 25 of the Purchase Agreement.
5.2 DEFAULT NOTICE/CURE RIGHT. So long as SMTEK is not in default
under this Agreement or the Sub-Sub-Lease, PARKER-HANNIFIN agrees to give
SMTEK a copy of any notice of default under the Sub-Lease that PARKER-
HANNIFIN may give to MVLP. PARKER-HANNIFIN further agrees to accept
performance by SMTEK of any obligation of MVLP to be performed under the Sub-
Lease which SMTEK is capable of performing, including the cure of any
monetary default and any Curable Non-Monetary Default. Any notice of
default from SWS shall describe the amounts required to fully cure any
monetary defaults and describe the nature of any Curable Non-Monetary Default
under the Sub-Lease as of the date of the notice, which will be required to
be cured by SMTEK. SMTEK shall have a period of thirty (30) days from the
receipt of such default notice to cure any monetary default under the Sub-
Lease and sixty (60) days to cure any Curable Non-Monetary Default; provided,
however, if the nature of such default is such that more than sixty (60) days
is reasonable required to cure such default, then the time for SMTEK's cure
shall be extended for a reasonable time so long as SMTEK commences such cure
within fifteen (15) days from receipt of the notice of default and thereafter
diligently prosecutes such cure to completion. With respect to any Curable
Non-Monetary Default, such as a violation of the provisions of the Sub-Lease
governing Hazardous Materials contamination or compliance with laws, rules,
ordinances and regulations of governmental authorities, SMTEK, by beginning
to undertake to cure any such default shall not be deemed to have assumed all
of the obligations of MVLP with respect to such Curable Non-Monetary Default
and shall have the right to abandon at any time such undertaking to cure the
default by giving written notice to SWS. In the event that MVLP does not
timely undertake to cure any default, or with respect to the Curable Non-
Monetary Default described in the preceding provisions, elects to abandon
such cure undertaking, then the right of SMTEK to continued occupancy of the
Premises shall terminate upon the later to occur of (a) thirty (30) days
following the delivery of SMTEK's abandonment notice, (b) the termination for
default or expiration of the Sub-Lease, or (c) the last day that SMTEK will
have the right to purchase the Premises under the Purchase Agreement. The
inclusion of this provision for notice of default to SMTEK is solely for the
benefit of SMTEK and MVLP shall not have the right to assert as a defense to
any action or proceeding any failure of SWS to timely provide a notice of
default under the Sub-Lease to SMTEK.
5.2.1 "CURABLE NON-MONETARY DEFAULT " DEFINED. For purposes of this
section 5, the term "Curable Non-Monetary Default " means a non-monetary
default that is reasonably susceptible of being cured by SMTEK in that the
required performance is not something unique to MVLP and the following shall
not be considered a Curable Non-Monetary Default: (a) a default arising on
account of MVLP filing a bankruptcy or similar proceeding, provided this
exception shall not be construed as waiving or changing the requirement for
SMTEK to cure all monetary defaults, including those arising during any
bankruptcy or similar proceeding, in order to continue in occupancy; (b)
MVLP 's violation of any Hazardous Materials requirements of the Sub-Lease
provided this exception shall not be deemed to waive or change the
requirement of SMTEK to remediate any Hazardous Materials contamination of
the Premises as required by the Sub-Lease in order to continue in occupancy;
(c) MVLP's violation of any provisions of the Sub-Lease concerning the
assignment of the Sub-Lease or subleasing of the Premises; (d) MVLP 's
violation of any provisions of the Sub-Lease requiring MVLP to deliver
financial statements, reports or other information unique to MVLP's operation
and not capable of delivery by SMTEK; or (e) Waste to the Premises caused by
MVLP. The term "Waste " means injury or damage to the Premises caused by
the malicious act or gross neglect of MVLP, but does not include ordinary
repairs and maintenance not performed by MVLP, which shall remain the
responsibility of SMTEK to cure to continue in occupancy.
5.3 ASSUMPTION OF SUB-LEASE. If SMTEK cures any such monetary
default and any Curable Non-Monetary Default, SMTEK shall be deemed to have
assumed any and all obligations of MVLP under the Sub-Lease arising from and
after the date of such cure and shall be entitled to exercise any and all
rights of the lessee under the Sub-Lease. Neither the cure and assumption of
the Sub-Lease obligations by SMTEK nor PARKER-HANNIFIN's acceptance of
performance from SMTEK, shall waive, discharge or otherwise prejudice the
right of PARKER-HANNIFIN to terminate all rights of MVLP under the Sub-Lease
and/or any claims of PARKER-HANNIFIN against MVLP on account of such
default. If requested by SMTEK or PARKER-HANNIFIN, the other party agrees to
execute and delivery a new lease on the same terms and conditions as the
Sub-Lease, except as otherwise provided in this section 5.
5.4 ATTORNMENT ELECTION. Notwithstanding any other provision, in
the event of the termination of MVLP's interest in the Sub-Lease on account
of MVLP's default, PARKER-HANNIFIN, prior to the termination or expiration of
the Primary Lease, and thereafter, SWS, at their respective option and
without any obligation to do so, may require SMTEK to attorn to them, in
which event PARKER-HANNIFIN, prior to the termination or expiration of the
Primary Lease, and thereafter, SWS, shall undertake the obligations of the
sub-sublessor under such Sub-Sub-Lease from the time of the exercise of such
election in accordance with section 5.4.1 below until the expiration of such
Sub-Sub-Lease and SMTEK shall continue to perform its obligations under the
Sub-Sub-Lease for the benefit of PARKER-HANNIFIN or SWS, whichever is
applicable; provided, however, neither PARKER-HANNIFIN nor SWS shall be (a)
liable for any prepayment of rent or any security deposit paid by SMTEK to
MVLP, except to the extent that PARKER-HANNIFIN or SWS, whichever is
applicable, actually receives possession of any portion of any prepaid rents
or security deposit, (b) be liable for any previous act or omissions of MVLP
under the Sub-Sub-Lease, (c) be subject to any claims, defenses or offsets
which SMTEK may have against MVLP on account of any act, omission,
transaction or occurrence arising prior to the such attornment, (d) be
required to complete construction of any Tenant Improvements and/or provide
pay for any portion of such Tenant Improvements, or (e) be bound by any
changes or modifications made to the Sub-Sub-Lease without the written
consent of the PARKER-HANNIFIN or SWS, whichever is applicable.
5.4.1 ELECTION NOTICE. The obligation of SMTEK to attorn and continue
performance under the Sub-Sub-Lease shall only apply if PARKER-HANNIFIN and
SWS make the election to require such attornment in accordance with this
section. If PARKER-HANNIFIN and SWS desire to require such attornment, both
PARKER-HANNIFIN and SWS must give an notice of election to SMTEK ( "Election
Notice ") no later than fifteen (15) days following the date of the delivery
of any notice of default under section 5.2 above. If either PARKER-HANNIFIN
and SWS fail to timely delivery an Election Notice then the right of PARKER-
HANNIFIN and SWS to require such attornment shall terminate without further
notice or demand. If PARKER-HANNIFIN and SWS timely give such Election
Notice, then the attornment provisions of this section 5.4 shall apply and
remain in full force and effect. In such event, PARKER-HANNIFIN, SWS and
SMTEK agree to execute such additional documents as may be reasonably
requested by the other party(s) to evidence such attornment and assumption
and the continued validity of the Sub-Sub-Lease.
5.5 SUPPLEMENT REMEDIES AND RIGHTS. The rights and remedies provided
SMTEK under this section 5 are in addition to and cumulative with any rights
or remedies granted SMTEK under the Purchase Agreement in the event MVLP
fails to perform its obligation to purchase the Premises.
6. TENANT IMPROVEMENTS. In connection with the initial occupancy
under the Sub-Lease and the Sub-Sub-Lease, MVLP and SMTEK desire to make
certain repairs, alternations and improvements ( "Tenant Improvements ") to
the Premises as more particularly described in the scope of work description,
cost breakdown and space plans drawings ( "Tenant Improvement Information ");
a copy of the Tenant Improvement Information is annexed to this Agreement as
EXHIBIT "C ". PARKER-HANNIFIN and SWS do hereby consent to MVLP's and/or
SMTEK's constructing such Tenant Improvements, including any commercially
reasonable changes or modifications to such Tenant Improvements that do not
materially change the fundamental nature of the such Tenant Improvements or
which are reasonably required in connection with the installation of any
trade fixtures, machinery or equipment, subject to compliance with the
conditions and requirements set forth in section 6.1 below.
6.1 CONSTRUCTION PROCEDURES. MVLP shall cause written notice of the
commencement date of the actual construction of the Tenant Improvements to be
given to PARKER-HANNIFIN and SWS no later than ten (10) days prior to the
start of such construction in order to permit PARKER-HANNIFIN and SWS the
opportunity to post a Notice of Nonresponsibility at the Premises and if the
date of the start of actual construction is delayed following the notice to
SWS and PARKER-HANNIFIN, MVLP shall be responsible for providing a new notice
stating the delayed date for the start of construction no later than five (5)
days prior to such delayed start date. MVLP shall comply with all applicable
laws in carrying out the construction, including procurement of such pre-
construction building permits and other governmental approvals as are
required, copies of which shall be furnished to PARKER-HANNIFIN and SWS.
MVLP shall comply with the provisions of Section 6.4c. of the Sub-Lease
concerning the lien free completion of the construction of such Tenant
Improvements.
6.2 REMOVAL. PARKER-HANNIFIN and SWS agree that neither MVLP nor
SMTEK shall be required to remove any of such Tenant Improvements upon the
expiration or termination of the Sub-Lease, provided MVLP and SMTEK shall
retain the right to remove any such Tenant Improvements constituting trade
fixtures, equipment or machinery so long as any damage to the Premises caused
by such removal is fully repaired.
6.3 EXISTING IMPROVEMENTS. To the extent that such Tenant
Improvements replace any of the improvements described in Section 2 of the
First Amendment, which amended Section 2 of the Primary Lease, MVLP shall
have the right to demolish and/or remove any such existing improvements and
SWS waives any requirement to require such existing improvements so removed
or demolished to be surrendered upon the expiration or termination of the
Primary Lease.
6.4 NO LIABILITY FOR CONSENT. The rights granted PARKER-HANNIFIN and
SWS to consent to any Tenant Improvements are solely for the benefit of
PARKER-HANNIFIN and SWS. Neither PARKER-HANNIFIN nor SWS shall have any
obligation or liability whatsoever to MVLP or SMTEK or to any other person on
account of PARKER-HANNIFIN's and SWS's consents or approvals for any reason,
including, without limitation, in the event the Tenant Improvements do not
conform to applicable laws or otherwise contain design defects or
deficiencies.
7. PARKER-HANNIFIN AND SWS WARRANTIES. PARKER-HANNIFIN and SWS each
warrant for the benefit of MVLP and SMTEK that: (a) a true, correct and
complete copy of the Primary Lease between PARKER-HANNIFIN and SWS (including
any and all amendments, agreements, assignments, and other related documents)
is attached to the Sub-Lease; (b) the Primary Lease is in full force and
effect as of the Effective Date; (c) there are no uncured defaults presently
existing under the Primary Lease by either PARKER-HANNIFIN and SWS and no
event has occurred or conditions exist which with the giving of notice or
passage of time would constitute a default under the Primary Lease by either
PARKER-HANNIFIN and SWS.
8. MODIFICATIONS TO PRIMARY LEASE. In addition to any other
provisions limiting the application of any provisions in the Primary Lease,
SWS, PARKER-HANNIFIN and MVLP agree that the Primary Lease shall be deemed
modified and amended as provided in section 8.1 and 8.2 below for purposes of
defining the required performance by MVLP under the Sub-Lease Agreement and,
if MVLP assumes the Primary Lease as provided in section 4.3 above, then
MVLP's performance under the Primary Lease. Notwithstanding the preceding
provisions, as between PARKER-HANNIFIN and SWS, the original terms of the
Primary Lease shall be deemed reinstated in the event of the expiration or
termination of MVLP's rights (and SMTEK's rights) under the Sublease or under
section 4.3 of this Agreement.
8.1 INCREASE IN PERMITTED IMPROVEMENT LIMIT. Section 9 of the
Primary Lease provides that the prior consent of SWS is required for any
alterations or improvements to the Premises to the extent that the cost would
exceed $500.00. The Primary Lease shall be deemed modified to change
"$500.00 " to "$10,000.00 per year ", in addition to the right to construct
the Tenant Improvements.
8.2 SUB-LESSEE'S RIGHT OF REPAIR OR RESTORATION. The second
paragraph of Section 7 of the Primary Lease, providing the "Lessee " the
right to complete repair or restoration in the event the "Owner " fails to
complete such repair or restoration because the reasonable estimated time for
the completion of such restoration or repairs exceeds one hundred and twenty
(120) days under normal conditions, shall be deemed amended to eliminate the
clause "provided that such restoration or rebuilding can normally be
completed within 120 days " so that MVLP shall, in all events, have the right
to elect to complete such repair or restoration as provided Section 7 of the
Primary Lease without regard to such hundred and twenty (120) day period.
9. CONTROLLING LAW. The terms and provisions of this Agreement
shall be construed in accordance with and governed by the laws of the State
of California.
10. BINDING EFFECT. Subject to any limitations provided in the
Primary Lease or this Agreement, this Agreement shall be binding upon and
inure to the benefit of the parties hereto, their heirs, successors and
assigns. As used herein, the singular number includes the plural and the
masculine gender includes the feminine and neuter.
11. CAPTIONS. The paragraph captions utilized herein are in no way
intended to interpret or limit the terms and conditions hereof, rather, they
are intended for purposes of convenience only.
12. ATTORNEYS' FEES AND LEGAL EXPENSES. In the event of any action
or proceeding to enforce or interpret this Contract or otherwise arising out
of the transaction which is the subject of this Agreement, the prevailing
party shall be entitled to recover, in addition to all other remedies and
relief, reasonable attorneys' fees and legal expenses and costs, including
expert witness fees, whether or not such action or proceeding is prosecuted
to judgment, including attorneys' fees and legal expenses and costs incurred
in connection with any post-judgment motions or proceedings for the
enforcement of any judgment, appellate proceedings, and/or bankruptcy
litigation.
13. INTEGRATION; MODIFICATION; WAIVER. This Agreement, together with
any other agreements, exhibits, or documents expressly referred to in this
Agreement, constitutes the complete and final expression of the agreement of
the parties relating to the subject of this Agreement and supersedes all
previous contracts, agreements, representations, and understandings, either
oral or written. This Agreement cannot be modified or amended, or any of the
terms hereof waived, except by an instrument in writing (referring
specifically to this Agreement) executed by the party against whom
enforcement of the modification or waiver is sought.
14. AGREEMENT IN COUNTERPARTS. This Agreement, or any amendment
thereto, may be executed in multiple counterparts, each of which shall be
deemed an original Agreement, and all of which shall constitute one (1)
Agreement, by each of the parties hereto on the dates respectively indicated
below notwithstanding that all of the Parties are not signatories to the
original or the same counterpart, to be effective as of the date provided in
this Agreement.
15. FACSIMILE TRANSMISSIONS. A facsimile transmission of the
executed signature page from this Agreement, or any other documents to be
delivered in accordance with this Agreement, shall constitute due and proper
execution of such document, and each party making such facsimile delivery
agrees to also deliver a copy of such document bearing the original signature
of such party no later than three (3) days following the date of the
facsimile transmission.
16. NOTICE. Except as otherwise provided in this Agreement, any
notice or other items to be delivered to a party pursuant to this Agreement
shall be in writing and either personally delivered, sent by first class mail
(alone or in combination with a facsimile transmittal), postage prepaid,
addressed to the party to be notified at the address specified in accordance
with this section, or delivered by Federal Express or other comparable
overnight delivery service, delivery costs prepaid and addressed to the party
to be notified at the address specified in accordance with this section. Any
such notice or other items to be delivered shall be deemed duly given,
delivered and received on the date of personal delivery to the party (or such
party's authorized representative) or in the case of mailing, three (3)
business days after deposit in the U.S. Mail, or, in the case of Federal
Express or other comparable overnight delivery service, one (1) business day
following the delivery of such notice or item to such delivery service, as
the case may be; provided, however, in the case a party transmits such notice
or item by facsimile transmission to a facsimile number designated above
together with the separate mailing of the original, then such notice shall be
deemed delivered one (1) day following the date of the facsimile
transmission. Unless a party changes its address or facsimile number for
notice by giving a notice in accordance with this section changing such
address or facsimile number, the address or facsimile number for notice and
delivery of each party shall be as set forth as follows:
If to SWS: SWS ASSOCIATES
Attn: James Solheim
3196 NW Melville Drive
Bend, Oregon 97701
Facsimile: 541/318-6200-
If to PARKER-HANNIFIN : PARKER-HANNIFIN CORPORATION
6035 Parkland Boulevard
Cleveland, Ohio 44124-4141
Attention: Richard O. Wilkison
Corporate Real Estate Manager
Facsimile: 216/896-4032
If to MVLP: MOORPARK L.P.
Attn: Jeffrey C. Hamann
475 W. Bradley Avenue
El Cajon, CA 92020
Facsimile: (858) 440-8914
If to SMTEK: SMTEK
Attn: Legal Department
2150 Anchor Court
Newbury Park, CA 91320
Facsimile: -(805) 376-9015
17. VALIDITY. Should any portion of this Agreement be declared
invalid and unenforceable, then such portion shall be deemed to be severable
from this Agreement and shall not affect the remainder of this Agreement.
18. AUTHORITY OF SIGNATORY. Each of the individuals executing this
Agreement where designated below on behalf of any corporation, partnership,
limited liability company, or trust, represents and warrants, by so executing
this Agreement, that he or she has the legal authority and capacity to
execute this Agreement so that it becomes a contract binding upon such
corporation, partnership, limited liability company, or trust and agrees to
indemnify, hold harmless, and defend the parties from any loss, damage, cost,
or expense (including reasonable attorneys' fees) suffered or incurred as a
result of the breach or inaccuracy of such representation and warranty.
19. INDEMNIFICATION. Whenever in this Agreement, a party is
obligated to indemnify, defend and hold harmless another party, such
obligation to provide indemnification specifically includes, but is not
limited to, the obligation to pay reasonable attorneys' fees and other legal
expenses on a continuing basis and upon submission of invoices from legal
counsel reasonably retained by the party entitled to indemnification as and
when such attorneys' fees and legal expenses are incurred, and any dispute
concerning the reasonableness of such attorneys' fees and legal expenses
shall be deferred and resolved upon the conclusion of the applicable action
or proceeding.
IN WITNESS WHEREOF, the parties have executed this Agreement to be
binding as of the Effective Date first set forth above.
"SWS "
SWS Associates,
a California general partnership
By:
/s/ Andrew Raines
Andrew Raines, General Partner
By:
____________, General Partner
"PARKER-HANNIFIN "
PARKER-HANNIFIN CORPORATION,
an Ohio corporation
By:
/s/ Thomas Meyer
Thomas Meyer, Vice President
By:
____________, Assistant Secretary
"MVLP "
MOORPARK VENTURE L.P.,
a California limited partnership
By:
/s/ Jeffrey C. Hamann
Jeffrey C. Hamann, President
By:
____________, Secretary
"SMTEK "
SMTEK., INC.
a California corporation
By:
/s/ Gregory L. Horton
Gregory L. Horton, President
By:
/s/ Mitchell J. Freedman
Mitchell J. Freedman, Secretary
INTERIM SUB-SUB-LEASE AGREEMENT
THIS INTERIM SUB-SUB-LEASE AGREEMENT ( "Sub-Sub-Lease ") is made
effective as of July 20, 2001 ( "Effective Date ") by and among MOORPARK
VENTURE L.P., a California corporation ( "MVLP ") and SMTEK, INC., a
California corporation ( "SMTEK ") and is made with reference to the
following facts, which are a material part of this Sub-Sub-Lease:
A. On January 6, 1984, Metal Bellows Corporation ( "Metal Bellows
"), as tenant, entered into a Lease with SWS Associates, a general
partnership ( "SWS "), as landlord ( "Original Lease "), for the Premises
commonly known and referred to as 200 Science Drive, Moorpark, California (
"Premises "). On May 29, 1986, Metal Bellows merged into Parker Hannifin,
Inc. ( "Parker-Hannifin ") and Parker-Hannifin thereby acquired and assumed
all of Metal Bellows' rights and obligations under the Lease. Thereafter,
Parker-Hannifin and SWS entered into an Amendment to Lease on May 29, 1986 (
"First Amendment ") and a Second Amendment to Lease on August 15, 1992 (
"Second Amendment "). "Primary Lease " means and refers to the Original
Lease, as amended by the First Amendment and Second Amendment. Any words or
phrases constituting defined terms in the Primary Lease shall have the same
meaning when used in this Sub-Sub-Lease, unless the otherwise stated.
B. Parker-Hannifin and MVLP have entered into that certain Agreement
and Escrow Instructions dated May 31, 2001, that First Amendment to Agreement
and Escrow Instructions, dated June 15, 2001, that Second Amendment to
Agreement and Escrow Instructions, dated June 29, 2001 and that Third
Amendment to Agreement and Escrow Instructions, dated July 13, 2001,
providing for the purchase of the Premises by MVLP ( "Purchase Agreement ")
and Parker-Hannifin has or will be entering into that certain Real Estate
Purchase and Sale Agreement and Escrow Instructions with SWS ( "Owner Sale
Contract ") whereby SWS is agreeing to convey title to the Premises to MVLP.
Any words or phrases constituting defined terms in the Purchase Agreement or
the Owner Sale Contract shall have the same meaning when used in this Sub-
Sub-Lease, unless the otherwise stated. SMTEK has received a copy of the
Purchase Agreement and the Owner's Sale Contract.
C. The escrow under the Purchase Agreement is not scheduled to close
until on or after March 1, 2002 and Parker-Hannifin is requiring as a
condition to entering into the Purchase Agreement that MVLP sublease the
Premises from Parker-Hannifin during the pendency of the Escrow.
Accordingly, concurrently with the execution of the Purchase Agreement,
Parker-Hannifin and MVLP are entering that certain Sub-Lease Agreement dated
May 31, 2001 and that First Amendment to Sub-Lease Agreement, dated July 20,
2001 ( "Sub-Lease Agreement ") providing for MVLP to sublease the Premises
from Parker-Hannifin pending the Closing under the Purchase Agreement and the
Owner Sale Contract; a copy of the Sub-Lease Agreement is annexed as EXHIBIT
"A " to this Sub-Sub-Lease.
D. MVLP is acquiring the Premises at the request of SMTEK in order
for SMTEK to lease the Premises on a long term basis. Concurrently with the
execution of this Sub-Sub-Lease, SMTEK and MVLP are entering into that
certain Standard Industrial/Commercial Single-Tenant Lease-Net dated July 20,
2001( "Final Lease "), which includes that certain Addendum to Lease (
"Addendum "); a copy of the Final Lease is annexed as EXHIBIT "B " to this
Sub-Sub-Lease. Any words or phrases constituting defined terms in the
Purchase Agreement or the Owner Sale Contract shall have the same meaning
when used in this Sub-Sub-Lease, unless the otherwise stated.
E. The Final Lease sets forth the complete terms and conditions on
which MVLP is leasing the Premises to SMTEK for an Original Term of ten (10)
years beginning on Commencement Date of the Final Lease, which is the
scheduled date of the Close of Escrow under the Purchase Agreement, when MVLP
acquires ownership of the Premises.
F. Between the Effective Date of this Sub-Sub-Lease and the
Commencement Date of the Final Lease, SMTEK is subleasing the Premises from
pursuant to the terms of this Sub-Sub-Lease and, thereby, assuming MVLP's
obligations under the Sub-Lease Agreement between MVLP and Parker-Hannifin.
The terms and conditions of the Sub-Lease Agreement with Parker-Hannifin are
different than the terms and conditions of the Final Lease and the terms and
conditions of the Final Lease shall not be used to interpret the obligations
and liabilities of SMTEK by its assumption, of the Sub-Lease obligations.
G. SMTEK and MVLP have elected to sign this separate Sub-Sub-Lease
to set forth the special lease terms in effect during the Interim Term (as
defined below) primarily for administrative convenience so that from and
after the date Commencement Date of the Final Lease, such Final Lease can be
interpreted and applied without regard to terms and conditions that are only
in effect during the Interim Term under this Sub-Sub-Lease.
IT IS THEREFORE AGREED, in consideration for the covenants,
representations and agreements of the parties set forth in this Sub-Sub-Lease
and for other good and valuable consideration, the receipt and sufficiency of
which is acknowledged by all parties, as follows:
1. GENERAL LEASE AGREEMENT. MVLP hereby leases the Premises to
SMTEK and SMTEK hereby leases the Premises from MVLP. During the Interim
Term (as defined below), such leasing shall be pursuant to (a) this Sub-Sub-
Lease, and to the extent not inconsistent with the terms of this Sub-Sub-
Lease, the terms of the Final Lease, and (b) following the expiration of the
Interim Term, the terms and conditions of the Final Lease, without regard to
the terms of this Sub-Sub-Lease, except as provided in section 7 below. This
Sub-Sub-Lease is and shall be at all times subject and subordinate to the
Primary Lease and the Sub-Lease Agreement.
2. CONTINGENCY. MVLP's obligation to purchase the Premises under
the Purchase Agreement is subject to the satisfaction of certain
contingencies prior to July 20, 2001or such later date as is approved by MVLP
and Parker-Hannifin ( "Contingency Expiration Date "), as more particularly
provided in Section 8.3 of the Purchase Agreement. Accordingly, the final
effectiveness of this Sub-Sub-Lease is subject to the satisfaction or waiver
by MVLP of the same contingencies and conditions on or before the
Contingency Expiration Date. MVLP, in its sole discretion, shall have the
right to elect to terminate this Sub-Sub-Lease if any contingencies are not
satisfied to MVLP's satisfaction by giving SMTEK written notice of such
election to terminate on or before the Contingency Expiration Date (
"Termination Notice "). In the event MVLP timely gives such Termination
Notice, then this Sub-Sub-Lease and the Final Lease shall terminate and be of
no further force or effect, except MVLP shall be obligated to promptly
return the Security Deposit to SMTEK. If MVLP does not timely give a
Termination Notice, then MVLP shall be deemed to have waived any such
contingencies and this Sub-Sub-Lease, and the Final Lease shall remain in
full force and effect without further notice or action of either party.
3 INTERIM TERM. The term ( "Interim Term ") of this Sub-Sub-Lease
shall commence on the Commencement Date of the Sub-Lease Agreement ( "Sub-
Sub-Lease Start Date "), which will be the same date as the Contingency
Expiration Date and shall end on the date of the Close of Escrow (as defined
in the Purchase Agreement), unless earlier terminated pursuant to any
provision of this Sub-Sub-Lease; provided, however, the Interim Term shall be
deemed to terminate in the event (a) the Sub-Lease Agreement is terminated,
or (b) the Purchase Agreement is terminated by MVLP on account of the default
of Parker-Hannifin or SWS. Upon the expiration or earlier termination of
the Interim Term, the obligations of MVLP and SMTEK under the Sub-Sub-Lease
shall terminate, except as provided in section 7 below concerning the
survival of certain obligations, and the respective rights and obligations of
MVLP and SMTEK shall thereafter be determined in accordance with the Final
Lease without regard to this Sub-Sub-Lease.
3.1 EXTENSION OF SUB-SUB-LEASE START DATE. Notwithstanding any other
provisions and without affecting the validity of SMTEK's obligations under
this Sub-Sub-Lease or the Final Lease, in the event that MVLP and Parker-
Hannifin agree to extend the Contingency Expiration Date under the Purchase
Agreement and the Commencement Date of the Sub-Lease Agreement, then the Sub-
Sub-Lease Start Date shall be automatically extended until the extended
Contingency Expiration Date expires; provided, however, (a) MVLP agrees to
give SMTEK written notice of any such extension within five (5) days from
MVLP's approval of such extension, and (b) MVLP agrees not to extend the
Contingency Expiration Date by more than sixty (60) days except with SMTEK's
consent, in its reasonable discretion. In addition, MVLP shall have the
right (but shall not be obligated to) extend the date for the Close of Escrow
by the same number of days as the Contingency Expiration Date is extended, in
which event the expiration date of the Interim Term (and, thus, the
Commencement Date of the Final Lease) shall be extended by the same number of
days. MVLP agrees to give SMTEK written notice of any such extension of the
Close of Escrow within ten (10) days from MVLP's approval of such extension.
3.2 SMTEK'S COOPERATION. If the date for Close of Escrow is so
extended, then SMTEK agrees that the Commencement Date of the Final Lease
shall likewise be extended and SMTEK agrees to cooperate to execute an
amendment to the Final Lease to set forth the extended Commencement Date.
4. SMTEK'S ASSUMPTION OF OBLIGATIONS. Except as provided in this
section and in section 5 below, SMTEK assumes and agrees to timely and fully
perform, for the benefit of MVLP, all obligations of MVLP to be performed
under the Sub-Lease Agreement. The obligations of SMTEK under this Sub-Sub-
Lease and the rights of MVLP as the sub-sub-lessor shall be deemed to be
coexistensive with the obligations of MVLP and the rights of Parker-Hannifin
under the Sub-Lease Agreement. Without limiting the generality of the
preceding provision, SMTEK's obligations include the obligation to provide
indemnification to Parker-Hannifin under the Sub-Lease Agreement and, in
addition, SMTEK shall be obligated to provide indemnification for the benefit
of MVLP to the same extent.
4.1 EXCEPTION/SECURITY DEPOSIT. Notwithstanding the preceding
provision, the obligation for SMTEK to provide a Security Deposit shall be
determined under section 6 below, which is different than the security
deposit required to be made by MVLP to Parker under the Sub-Lease Agreement.
4.2 EXCEPTION/INSURANCE. Notwithstanding the preceding provisions,
MVLP shall be responsible for procuring insurance as required to comply with
the Sub-Lease Agreement, provided that SMTEK shall be obligated to reimburse
MVLP for the actual cost of such insurance as a part of the Sub-Sub-Lease
Rent.
4.3 EXCEPTION/INDEMNIFICATION OBLIGATION. Section 7.7 of the Sub-
Lease Agreement provides for MVLP to indemnify, defend and hold harmless
Parker Hannifin with respect to certain matters and SMTEK is agreeing to
indemnify, defend and hold harmless Parker Hannifin and MVLP with respect to
the same matters; provided, however, SMTEK shall not be obligated to
indemnify, defend and hold harmless MVLP for claims arising solely from the
negligence or intentional acts of MVLP, its agents, contractor or employees.
5. RENT. Subject to the provisions of section 5.1 to 5.2 below, the
rent ( "Sub-Sub-Lease Rent ") payable by SMTEK under this Sub-Sub-Lease,
shall equal the Base Rent of Thirty Four Thousand Five Hundred Dollars
($34,500.00) monthly payable under the Sub-Lease Agreement together with any
and all additional amount payable as additional rent become due under the
Sub-Lease Agreement, including, without limitation, the costs of taxes and
insurance as required by the Sub-Lease Agreement. The Sub-Sub-Lease Rent
shall be due and payable five (5) days prior to the date that the applicable
payment is payable from MVLP under the Sub-Lease Agreement and SMTEK shall be
entitled to the benefit of any free Base Rent period that Parker Hannifin
grants under the Sub-Lease Agreement. In addition, LESSEE shall be entitled
to a credit of Eleven Thousand Two Hundred Fifty Dollars ($11,250.00) on the
Base Rent for the first full calendar month that the Base Rent becomes
payable after any free Base Rent period that Parker Hannifin grants under the
Sub-Lease Agreement.
5.1 DELAY. in Completion of Tenant Improvements. The Sub-Sub-Lease
Rent shall be due and payable beginning on the Sub-Sub-Lease Start Date
notwithstanding that the Premises will not be ready for SMTEK's occupancy
except as provided in section. Section 5 of the Final Lease provides for
MVLP to complete certain Tenant Improvements prior to SMTEK's occupancy of
the Premises. If MVLP has not caused the Substantial Completion of such
Tenant Improvements on or before one hundred twenty (120) days following the
Sub-Sub-Lease Start Date ( "Substantial Completion Date "), then SMTEK's
obligation to pay the Sub-Sub-Lease Rent shall be suspended until MVLP causes
such Substantial Completion; provided, however, the Substantial Completion
Date shall be subject to extension on account of any Excusable Delay. If
such Excusable Delays are encountered, the Substantial Completion Date and,
thus, the date SMTEK would be entitled to suspend payment of the Sub-Sub-
Lease Rent under this section, shall be automatically extended for the period
of such Excusable Delays.
5.1.1 "SUBSTANTIAL COMPLETION " DEFINED. The term "Substantial
Completion " means the date upon which MVLP reasonably satisfies all of the
following requirements: (a) the construction of the applicable Capital
Improvements and Tenant Improvements are substantially completed, subject
only to minor corrective work which does not materially affect or limit
SMTEK's use of the Premises; provided, MVLP shall complete any such minor
work within thirty (30) days following Substantial Completion; (b) MVLP has
procured a certificate of occupancy (whether temporary or permanent) or other
applicable permit permitting SMTEK's immediate use and occupancy of the
Premises; and (c) MVLP has given SMTEK written notice stating that such
Substantial Completion has occurred and that the Premises are available for
SMTEK's immediate possession and occupancy ( "Notice of Possession "). MVLP
shall give SMTEK at least ten (10) days written notice in advance of the
estimated date of Substantial Completion.
5.1.2 "EXCUSABLE DELAY " DEFINED. "Excusable Delay " means a delay
arising or on account of (a) SMTEK's failure to timely submit the Tenant
Improvement Plans and permits (or any revisions thereto) as required under
Section 5 of the Addendum to Final Lease, SMTEK's request for special
materials, finishes or installations other than those readily available and
customarily and ordinarily used in similarly situated construction work,
changes to the approved Tenant Improvement Plans and Change Delays resulting
from SMTEK's submission of Change Orders as described in Section 5.4 of the
Addendum to Final Lease, SMTEK's failure to timely pay its Initial
Contribution and any other amounts required to be paid by SMTEK in connection
with such construction or other delays caused by SMTEK ( "SMTEK Delays "),
or (b). delays caused by fire, earthquake or other unavoidable casualties or
inclement weather conditions not reasonably anticipatable, extraordinary
governmental action other than usual permit and inspection procedures, delays
encountered in processing building permits and other governmental approvals
or inspections, delays encountered as a result of the discovery of any
unknown or concealed conditions affecting the Premises, delays causes by
general area wide labor or material shortages or labor disputes (such as
strikes or lock-outs), or any other causes not the fault of MVLP or MVLP's
Contractor, subcontractors, agents or employees.
5.2 CHANGE IN RENT. Notwithstanding any other provision, if the
Close of Escrow under the Purchase Agreement does not occur on or before
March 1, 2002, then the Sub-Sub-Lease Rent shall be deemed automatically
adjusted as of March 1, 2002 to an amount equal to the full amount of the
Rent (including Base Rent and Allowance Amortization Charge) calculated under
the Final Lease at a rate equal to the rate in effect for each month of the
first Lease Year following the Commencement Date of the Final Lease.
6. SECURITY DEPOSIT. SMTEK is delivering to MVLP a Security Deposit
as described in the Final Lease. During the Interim Term this Sub-Sub-Lease
is in effect, such Security Deposit shall also constitute a security deposit
( "Security Deposit ") by SMTEK under this Sub-Sub-Lease as security for
SMTEK's faithful performance of its obligations under this Sub-Sub-Lease. If
SMTEK fails to pay rent or other charges due hereunder, or otherwise defaults
with respect to any provision of this Sub-Sub-Lease, MVLP may use, apply or
retain all or any portion of such Security Deposit for the payment of any
rent or other charge in default, for the payment of any other sum to which
MVLP may become obligated by reason of SMTEK's default, or to compensate MVLP
for reasonable loss or damage proximately caused by SMTEK's default under
this Sub-Sub-Lease which MVLP may suffer thereby to the extent MVLP cannot
reasonably mitigate such loss or damage. If any portion of the Security
Deposit has been exhausted during the Interim Term, then SMTEK shall
replenish the Security Deposit to the amount of the Security
Deposit required under the Final Lease as of the Commencement Date of the
Final Lease.
7. DELIVERY OF POSSESSION. MVLP shall be deemed to have delivered
possession of the Premises to SMTEK as of the Sub-Sub-Lease Start Date.
Notwithstanding the preceding provision, prior to the Substantial Completion
of the Tenant Improvements, SMTEK agrees to limit its access to the Premises
to those commercially reasonable activities necessary for SMTEK's planning
for its occupancy and use of the Premises following such Substantial
Completion and, in all events, SMTEK agrees not to interfere with MVLP's
planning or construction of the Tenant Improvements.
8. SURVIVAL OF REPRESENTATIONS AND COVENANTS. Any liability
accruing under this Sub-Sub-Lease on account of a default or on account of
any obligation to provide indemnification, shall survive the expiration or
earlier termination of this Sub-Sub-Lease and remain in effect and shall not
be merged by delivery of possession of the Premises under the Final Lease.
9. ENFORCEMENT OF PARKER-HANNIFIN INDEMNITY OBLIGATIONS. MVLP has
obtained from Parker-Hannifin a covenant to indemnity, defend and hold
harmless MVLP from losses or expenses arising from pre-existing Hazardous
Materials contamination of the Premises as more particularly provided in
Section 29.6 of the Sub-Lease Agreement ( "Parker Hannifin Indemnity ").
Notwithstanding any limitation on the liability of MVLP with respect to such
Hazardous Materials contamination, in the event that a claim arises under the
Parker Hannifin Indemnity, MVLP shall either (a) take such commercially
reasonable action as necessary to enforce such Parker Hannifin Indemnity for
the benefit of SMTEK to the extent SMTEK incurs or will incur any out-of-
pocket expense or cost in the performance of its obligations under this Sub-
Sub-Lease for the repair or remediation of the Premises on account of any
items covered under such Parker Hannifin Indemnity, provided that MVLP shall
first be entitled to recover its Legal Expenses (as defined below) prior to
any reimbursement to SMTEK of any such out-of-pocket expenses, or (b) assign
to SMTEK the right to enforce any such claims, provided any such assignment
shall be effective only to the extent SMTEK incurs or will incur any out-of-
pocket expense or cost in the performance of any such repairs or remediation
on account of any items covered by the Parker Hannifin Indemnity, and MVLP
shall be entitled to receive any excess recovery after deduction of SMTEK's
Legal Expenses (as defined below).
9.1 "LEGAL EXPENSES " DEFINED. For purposes of this section, the
term "Legal Expenses " means reasonable attorneys' fees and costs (including
any expert witness fees), including attorneys' fees and costs in connection
with the enforcement of any award or judgment or any appellate proceedings,
which Legal Expenses are incurred by MVLP in the event MVLP elects to enforce
such legal proceedings against Parker Hannifin, or incurred by SMTEK, in the
event MVLP assigns the right to SMTEK to enforce such Parker Hannifin
Indemnity.
10. CONTROLLING LAW. The terms and provisions of this Sub-Sub-Lease
shall be construed in accordance with and governed by the laws of the State
of California.
11. BINDING EFFECT. Subject to any limitations provided in the
Primary Lease or this Sub-Sub-Lease, this Sub-Sub-Lease shall be binding upon
and inure to the benefit of the parties hereto, their heirs, successors and
assigns. As used herein, the singular number includes the plural and the
masculine gender includes the feminine and neuter.
12. CAPTIONS. The paragraph captions utilized herein are in no way
intended to interpret or limit the terms and conditions hereof, rather, they
are intended for purposes of convenience only.
13. ATTORNEYS' FEES AND LEGAL EXPENSES. In the event of any action
or proceeding to enforce or interpret this Sub-Sub-Lease or otherwise arising
out of the transaction which is the subject of this Sub-Sub-Lease, the
prevailing party shall be entitled to recover, in addition to all other
remedies and relief, reasonable attorneys' fees and legal expenses and costs,
including expert witness fees, including attorneys' fees and legal expenses
and costs incurred in connection with any post-judgment motions or
proceedings for the enforcement of any judgment, appellate proceedings,
and/or bankruptcy litigation.
14. INTEGRATION; MODIFICATION; WAIVER. This Sub-Sub-Lease, together
with any other agreements, exhibits, or documents expressly referred to in
this Sub-Sub-Lease, constitutes the complete and final expression of the
agreement of the parties relating to the subject of this Sub-Sub-Lease and
supersedes all previous contracts, agreements, representations, and
understandings, either oral or written. This Sub-Sub-Lease cannot be
modified or amended, or any of the terms hereof waived, except by an
instrument in writing (referring specifically to this Sub-Sub-Lease) executed
by the party against whom enforcement of the modification or waiver is
sought.
15. AGREEMENT IN COUNTERPARTS. This Sub-Sub-Lease, or any amendment
thereto, may be executed in multiple counterparts, each of which shall be
deemed an original Sub-Sub-Lease, and all of which shall constitute one (1)
Sub-Sub-Lease, by each of the parties hereto on the dates respectively
indicated below notwithstanding that all of the Parties are not signatories
to the original or the same counterpart, to be effective as of the date
provided in this Sub-Sub-Lease.
16. FACSIMILE TRANSMISSIONS. A facsimile transmission of the
executed signature page from this Sub-Sub-Lease, or any other documents to be
delivered in accordance with this Sub-Sub-Lease, shall constitute due and
proper execution of such document, and each party making such facsimile
delivery agrees to also deliver a copy of such document bearing the original
signature of such party no later than three (3) days following the date of
the facsimile transmission.
17. NOTICE. Except as otherwise provided in this Sub-Sub-Lease, any
notice or other items to be delivered to a party pursuant to this Sub-Sub-
Lease shall be in writing and either personally delivered, sent by first
class mail (alone or in combination with a facsimile transmittal), postage
prepaid, addressed to the party to be notified at the address specified in
accordance with this section, or delivered by Federal Express or other
comparable overnight delivery service, delivery costs prepaid and addressed
to the party to be notified at the address specified in accordance with this
section. Any such notice or other items to be delivered shall be deemed duly
given, delivered and received on the date of personal delivery to the party
(or such party's authorized representative) or in the case of mailing, three
(3) business days after deposit in the U.S. Mail, or, in the case of Federal
Express or other comparable overnight delivery service, one (1) business day
following the delivery of such notice or item to such delivery service, as
the case may be; provided, however, in the case a party transmits such notice
or item by facsimile transmission to a facsimile number designated above
together with the separate mailing of the original, then such notice shall be
deemed delivered one (1) day following the date of the facsimile
transmission. Unless a party changes its address or facsimile number for
notice by giving a notice in accordance with this section changing such
address or facsimile number, the address or facsimile number for notice and
delivery of each party shall be as set forth as follows:
If to MVLP: MOORPARK VENTURE L.P.
Attn: Jeffrey C. Hamann
475 W. Bradley Avenue
El Cajon, CA 92020
Facsimile: (619) 440-8914
If to SMTEK: SMTEK
Attn: Legal Department
2150 Anchor Court
Newbury Park, CA 91320
Facsimile: (858) 376-9015
18. VALIDITY. Should any portion of this Sub-Sub-Lease be declared
invalid and unenforceable, then such portion shall be deemed to be severable
from this Sub-Sub-Lease and shall not affect the remainder of this Sub-Sub-
Lease.
19. AUTHORITY OF SIGNATORY. Each of the individuals executing this
Sub-Sub-Lease where designated below on behalf of any corporation,
partnership, limited liability company, or trust, represents and warrants, by
so executing this Sub-Sub-Lease, that he or she has the legal authority and
capacity to execute this Sub-Sub-Lease so that it becomes a contract binding
upon such corporation, partnership, limited liability company, or trust and
agrees to indemnify, hold harmless, and defend the parties from any loss,
damage, cost, or expense (including reasonable attorneys' fees) suffered or
incurred as a result of the breach or inaccuracy of such representation and
warranty.
20. INDEMNIFICATION. Whenever in this Sub-Sub-Lease, a party is
obligated to indemnify, defend and hold harmless another party, such
obligation to provide indemnification specifically includes, but is not
limited to, the obligation to pay reasonable attorneys' fees and other legal
expenses to the attorney reasonably retained by the party obligated to
provide such indemnification on a continuing basis and upon submission of as
such attorneys' fees and legal expenses are incurred. The attorney retained
by the party obligated to provide indemnification shall be qualified and
experienced in the field of law which is the subject of the action and shall
be subject to the reasonable approval of the party entitled to
indemnification.
IN WITNESS WHEREOF, the parties have executed this Sub-Sub-Lease to be
binding as of the Effective Date first set forth above.
"MVLP "
MOORPARK VENTURE L.P.,
a California limited partnership
By: MANAGING GP, INC.
a California corporation,
Its General Partner
By:
Jeffrey C. Hamann, President
"SMTEK "
SMTEK., INC.
a California corporation
By:
/s/ Gregory L. Horton
Gregory L. Horton, President
By:
/s/ Mitchell J. Freedman
Mitchell J. Freedman, Secretary
EX-10
6
bank.txt
CREDIT AGREEMENT
EXHIBIT 10.10
REVOLVING CREDIT NOTE
Detroit, Michigan
$16,000,000 September 25, 2001
On or before the Revolving Credit Maturity Date FOR VALUE RECEIVED,
SMTEK International, Inc., a Delaware corporation, (herein called "Company")
promises to pay to the order of COMERICA BANK, a Michigan banking corporation
(herein called "Bank") at its Main Office at 500 Woodward Avenue, Detroit,
Michigan, in lawful money of the United States of America the indebtedness or
so much of the sum of Sixteen Million Dollars ($16,000,000) as may from time
to time have been advanced and then be outstanding hereunder pursuant to the
Credit Agreement dated as of September 25, 2001, made by and between Company
and Bank (as the same may be amended or modified from time to time, herein
called "Agreement"), together with interest thereon as hereinafter set
forth.
Each of the Advances hereunder shall bear interest at the Applicable
Interest Rate from time to time applicable thereto under the Agreement or as
otherwise determined thereunder, and interest shall be computed, assessed and
payable as set forth in the Agreement.
This Note is a note under which advances, repayments and readvances may
be made from time to time, subject to the terms and conditions of the
Agreement. This Note evidences borrowing under, is subject to, is secured in
accordance with, and may be matured under, the terms of the Agreement, to
which reference is hereby made. As additional security for this Note, Company
grants Bank a lien on all property and assets including deposits and other
credits of the Company, at any time in possession or control of or owing by
Bank for any purpose.
Company hereby waives presentment for payment, demand, protest and
notice of dishonor and nonpayment of this Note and agrees that no obligation
hereunder shall be discharged by reason of any extension, indulgence, or
forbearance granted by any holder of this Note to any party now or hereafter
liable hereon. Any transferees of, or endorser, guarantor or surety paying
this Note in full shall succeed to all rights of Bank, and Bank shall be
under no further responsibility for the exercise thereof or the loan
evidenced hereby. Nothing herein shall limit any right granted Bank by other
instrument or by law.
All capitalized terms used but not defined herein shall have the
meanings ascribed to them in the Agreement.
SMTEK INTERNATIONAL, INC.
By: /s/ Kirk A. Waldron
Its: Chief Financial Officer/Tresurer
SMTEK INTERNATIONAL, INC. CREDIT AGREEMENT DATED AS OF SEPTEMBER 25, 2001
COMERICA BANK
CREDIT AGREEMENT
THIS CREDIT AGREEMENT, made as of the 25th day of September, 2001, by
and between SMTEK INTERNATIONAL, a Delaware corporation, of Thousand Oaks,
California (herein called "Company") and COMERICA BANK, a Michigan banking
corporation, of Detroit, Michigan (herein called "Bank").
RECITALS:
A. Company desires to obtain certain credit facilities from Bank.
B. Bank is willing to extend such credit to Company on the terms and
conditions herein set forth.
NOW, THEREFORE, Bank and Company agree as follows:
WITNESSETH:
1. DEFINITIONS
For the purposes of this Agreement the following terms will have the
following meanings:
"Account" shall have the meaning assigned to it in the Michigan Uniform
Commercial Code on the date of this Agreement.
"Account Debtor" shall mean the party who is obligated on or under any
Account.
"Adjusted Tangible Net Worth" shall mean as of any date of
determination, Tangible Net Worth as of such date plus the outstanding
principal amount of the Subordinated Debt as of such date.
"Advance" shall mean a borrowing requested by Company and made by Bank
under Section 2 of this Agreement, including any refunding or conversions of
such borrowings pursuant to Section 4.A.3 hereof, and shall include a
Eurodollar-based Advance and a Prime-based Advance.
"Affiliate" shall mean, with respect to any Person, any other Person
directly or indirectly controlling (including but not limited to all
directors and executive officers of such Person), controlled by, or under
direct or indirect common control with such Person. A Person shall be deemed
to control a corporation for the purposes of this definition if such Person
possesses, directly or indirectly, the power (i) to vote 10% or more of the
securities having ordinary voting power for the election of directors of such
corporation or (ii) to direct or cause the direction of the management and
policies of such corporation, whether throughthe ownership of voting
securities, by contract or otherwise.
"Alternate Base Rate" shall mean for any day a rate per annum (rounded
upwards, if necessary, to the next higher 1/16 of 1%) equal to the Federal
Funds Effective Rate in effect on such day plus one
percent (1%).
"Applicable Eurodollar Margin" shall mean one and three quarters percent
(1-3/4%).
"Applicable Interest Rate" shall mean the Eurodollar-based Rate or the
Prime-based Rate, as selected by Company from time to time subject to the
terms and conditions of this Agreement.
"Applicable L/C Commission Rate" shall mean one and three quarters
percent (1 3/4%) per annum.
"Availability" shall mean as of any date of determination the aggregate
amount by which the Borrowing Base as of such date exceeds the outstanding
principal amount of the Advances plus the Letter
of Credit Reserve.
"Base Adjusted Tangible Net Worth" shall initially mean $11,220,000.
Beginning September 30, 2001 and on the last day of each fiscal quarter
thereafter, Base Adjusted Tangible Net Worth shall increase by fifty percent
(50%) of Net Income for the fiscal quarter then ending. If Net Income is less
than zero for any fiscal quarter, it shall be deemed to be zero for the
purposes of this calculation.
"Borrowing Base" shall mean as of any date of determination, the sum of
(a) eighty five percent (85%) of Eligible Accounts plus (b) the lesser of (i)
forty percent (40%) of Eligible Inventory and (ii) $4,000,000.
"Business Day" shall mean any day on which commercial banks are open for
domestic and international business (including dealings in foreign exchange)
in Detroit, Los Angeles, London and New York.
"Capital Expenditure" shall mean, without duplication, any payment made
directly or indirectly for the purpose of acquiring or constructing fixed
assets, real property or equipment which in accordance with GAAP would be
added as a debit to the fixed asset account of Company, including, without
limitation, amounts paid or payable under any conditional sale or other title
retention agreement or under any lease or other periodic payment arrangement
which is of such a nature that payment obligations of Company or a
Subsidiary, as applicable, thereunder would be required by GAAP to be
capitalized and shown as liabilities on the balance sheet of Company and its
consolidated Subsidiaries.
"Capital Lease" shall mean any lease of any property (whether real,
personal or mixed) by Company or any Subsidiary as lessee which, in
conformity with GAAP, is, or is required to be accounted for as a capital
lease on the balance sheet of Company and its consolidated Subsidiaries,
together with any renewals of such leases (or entry into new leases) on
substantially similar terms.
"Consolidated" or "Consolidating" shall mean, when used with reference
to any financial term in this Agreement, the aggregate for two or more
Persons of the amounts signified by such term for all such Persons determined
on a consolidated or combined, as applicable, basis in accordance with GAAP.
Unless otherwise specified herein, references to Consolidated financial
statements or data of Company includes consolidation with its Subsidiaries in
accordance with GAAP.
"Debentures" or "2008 Debentures" shall mean the 8 1/2% Convertible
Subordinated Debentures issued by Data-Design Laboratories, Inc. (Company 's
predecessor), due 2008, with principal outstanding as of September 25, 2001:
$1,580,000.
"Debt Service Coverage Ratio" shall mean as of any date of
determination, a ratio, the numerator of which is net income of Company and
its Domestic Subsidiaries for the four preceding fiscal quarters ending on
such date of determination plus, to the extent deducted in determining such
net income, depreciation and amortization for such period and the denominator
of which is current maturities of longterm debt (including Capital Leases) of
Company and its consolidated Subsidiaries as of such date of determination,
as determined in accordance with GAAP.
"Domestic Subsidiary" shall mean a Subsidiary of Company which is not a
Foreign Subsidiary.
"EBITDA" shall mean as of any date of determination, Net Income for the
four preceding fiscal quarters ending or such date of determination plus, to
the extent deducted in determining Net Income, (i) depreciation and
amortization expense for such period, (ii) interest expense for such period
and (iii) income taxes for such period, all as determined in accordance with
GAAP.
"Eligible Account" shall mean an Account (but shall not include interest
and service charges) arising in the ordinary course of SMI 's, Technetics '
or Jolt 's business which meets each of the following requirements:
(a) it is not owing more than ninety (90) days after the date of the
original invoice or other writing evidencing such Account;
(b) it is not owing by an Account Debtor (as defined in the UCC) who has
failed to pay twenty five percent (25 %) or more of the aggregate amount of
its Accounts owing to Company within ninety (90) days after the date of the
respective invoices or other writings evidencing such Accounts;
(c) it arises from the sale or lease of goods and such goods have been
shipped or delivered to the Account Debtor under such Account; or it arises
from services rendered and such services have been performed;
(d) it is evidenced by an invoice, dated not later than the date of
shipment or performance, rendered to such Account Debtor or some other
evidence of billing acceptable to Bank;
(e) it is not evidenced by any note or other negotiable instrument or by
any chattel paper;
(f) it is a valid, legally enforceable obligation of the Account Debtor
thereunder, and is not subject to any offset, counterclaim or other defense
on the part of such Account Debtor or to any claim on the part of such
Account Debtor denying liability thereunder in whole
or in part;
(g) it is not subject to any sale of accounts, any rights of offset,
assignment, lien or security interest whatsoever other than to Bank;
provided, however, if an Account is subject to an offset and Bank has
received a waiver letter from the Account Debtor in form and substance
acceptable to Bank in its sole discretion, then such Account shall, if it
meets all other requirements, be an Eligible Account;
h) it is not owing by a subsidiary or affiliate of Company or any of its
Subsidiaries, nor by an Account Debtor which (i) does not maintain its chief
executive office in the United States of America, (ii) is not organized under
the laws of the United States of America, or any state thereof (unless the
Account is covered by FCIA insurance or a letter of credit issued by a bank
which is acceptable to Bank in the exercise of its sole discretion), or (iii)
is the government of any foreign country or sovereign state, or of any state,
province, municipality or other instrumentality thereof;
(i) it is not an account owing by the United States of America or any
state or political subdivision thereof, or by any department, agency, public
body corporate or other instrumentality of any of the foregoing, unless all
necessary steps are taken to comply with the Federal Assignment of Claims Act
of 1940, as amended, or with any comparable state law, if applicable, and all
other necessary steps are taken to perfect Bank 's security interest in such
account;
(j) it is not owing by an Account Debtor for which Company or any
Subsidiary has received a notice of (i) the death of the Account Debtor or
any partner of the Account Debtor, (ii) the dissolution, liquidation,
termination of existence, insolvency or business failure of the Account
Debtor, (iii) the appointment of a receiver for any part of the property of
the Account Debtor, or (iv) an assignment for the benefit of creditors, the
filing of a petition in bankruptcy, or the commencement of any proceeding
under any bankruptcy or insolvency laws by or against the Account Debtor;
(k) it is not an account billed in advance, payable on delivery, for
consigned goods, for guaranteed sales, for unbilled sales, payable at a
future date in accordance with its terms, subject to a retainage or holdback
by the Account Debtor or insured by a surety company; and
(l) it is not owing by any Account Debtor whose obligations Bank (in its
sole reasonable discretion) shall have notified Company are not deemed to
constitute Eligible Accounts. An Account which is at any time an Eligible
Account, but which subsequently fails to meet any of the foregoing
requirements, shall forthwith cease to be an Eligible Account.
"Eligible Inventory" shall be valued at the lesser of cost or present
market value in accordance with GAAP, on a first in/first out basis, and
shall mean all of SMI 's and Tech 's Inventory which is in good and
merchantable condition, is not obsolete or discontinued, and which would
properly be classified as "raw materials" or "finished goods inventory" under
GAAP, excluding (a) Company 's work in process, consigned goods and inventory
located outside the United States of America, (b) inventory covered by or
subject to a seller 's right to repurchase, or any consensual or
nonconsensual lien or security interest (including without limitation
purchase money security interests) other than in favor of Bank, whether
senior or junior to Bank 's security interest, and (c) Inventory that Bank
(in its sole reasonable discretion) after having notified Company, excludes.
Inventory which is at any time Eligible Inventory, but which subsequently
fails to meet any of the foregoing requirements, shall forthwith cease to be
Eligible Inventory.
"Environmental Laws" shall mean all federal, state and local laws
including statutes, regulations, ordinances, codes, rules, and other
governmental restrictions and requirements, relating to environmental
pollution, contamination or other impairment of the environment or any
hazardous or toxic substances of any nature. These Environmental Laws shall
include but not be limited to the Federal Solid Waste Disposal Act, the
Federal Clean Air Act, the Federal Clean Water Act, the Federal Resource
Conservation and Recovery Act of 1976, the Federal Comprehensive
Environmental Response, Compensation and Liability Act of 1980, and the
Federal Superfund Amendments and Reauthorization Act of 1986.
"Equipment Loans" shall mean the loans requested by Company and made by
Bank pursuant to the provisions of Section 3.
"Equipment Drawdown Period" shall mean the period beginning on the date
of execution of this Agreement and ending September 23, 2002.
"Equipment Note Maturity Date" shall mean with respect to each Equipment
Note the date which is five (5) years after the date of funding of such Note.
"Equipment Notes" shall mean the Notes described in Section 3 hereof
made by Company to Bank in the form annexed to this Agreement as Exhibit "A".
"ERISA" shall mean the Employee Retirement Income Security Act of 1974,
as amended, or any successor act or code.
"Eurodollar-based Advance" shall mean an Advance which bears interest at
the Eurodollar-based Rate.
"Eurodollar-based Rate" shall mean a per annum interest rate which is
the Applicable Eurodollar Margin plus the quotient of:
(a) the per annum interest rate at which Bank 's Eurodollar Lending
Office offers deposits to prime banks in the eurodollar market in an amount
comparable to the relevant Eurodollarbased Advance or relevant principal
portion of any term loan and for a period equal to the relevant Interest
Period at approximately the time Company requests such Advance on the first
day of such Interest Period; divided by
(b) a percentage equal to 100% minus the maximum rate on such date at
which Bank is required to maintain reserves on "Euro-currency Liabilities" as
defined in and pursuant to Regulation D of the Board of Governors of the
Federal Reserve System or, if such regulation or definition is modified, and
as long as Bank is required to maintain reserves against a category of
liabilities which includes eurodollar deposits or includes a category of
assets which includes eurodollar loans, the rate at which such reserves are
required to be maintained on such category; all as conclusively determined by
Bank, such sum to be rounded upward, if necessary, to the nearest whole
multiple of 1/16th of 1%.
"Eurodollar Lending Office" shall mean Bank 's office located at Grand
Cayman, British West Indies or such other branch of Bank, domestic or
foreign, as it may hereafter designate as its Eurodollar
Lending Office by notice to Company.
"Event of Default" shall mean any of the Events of Default specified in
Section 11 hereof.
"Federal Funds Effective Rate" shall mean, for any day, a fluctuating
interest rate per annum equal to the weighted average of the rates on
overnight Federal funds transactions with members of the Federal Reserve
System arranged by Federal funds brokers, as published for such day (or, if
such day is not a Business Day, for the next preceding Business Day) by the
Federal Reserve Bank of New York, or, if such rate is not so published for
any day which is a Business Day, the average of the quotations for such day
on such transactions received by Bank from three Federal funds brokers of
recognized standing selected by it.
"Foreign Subsidiary" shall mean a Subsidiary of Company that is
organized under the laws of a country (or political subdivision thereof)
other than the United States of America.
"GAAP" shall mean, as of any applicable date of determination, generally
accepted accounting principles consistently applied, as in effect on the date
of this Agreement.
"Guarantors" shall mean SMI, Jolt, Tech and each Domestic Subsidiary of
Company formed or acquired after the date of this Agreement.
"Guaranty" shall mean the Guaranty by the Guarantors of the obligations
and liabilities of Company to Bank in the form attached hereto as Exhibit
"G".
"Indebtedness" shall mean all loans, advances, indebtedness, obligations
and liabilities of Company to Bank under this Agreement, together with all
other indebtedness, obligations and liabilities whatsoever of Company to Bank
arising under or in connection with this Agreement, whether matured or
unmatured, liquidated or unliquidated, direct or indirect, absolute or
contingent, joint or several, due or to become due, now existing or hereafter
arising.
"Interest Period" shall mean a period of one (1), two (2) or three (3)
months as selected by Company pursuant to the provisions of this Agreement
commencing on the day a Eurodollar-based Advance is made, or on the effective
date of an election of the Eurodollar-based Rate made under Section 4.A.1 or
Section 4.B.1.
"Inventory" shall have the meaning assigned to it in the Michigan
Uniform Commercial Code on the date of this Agreement.
"Jolt" shall mean Jolt Technology, Inc., a Delaware corporation.
"Letter of Credit" shall have the meaning set forth in Section 2.6.
"Letter of Credit Reserve" shall mean as of any date of determination,
an amount equal to the aggregate principal amount of all issued and undrawn
Letters of Credit issued by Bank for the account of Company under and
pursuant to this Agreement and the amount of all draws under Letters of
Credit paid by Bank and not reimbursed by Company.
"Loan Documents" shall mean collectively, this Agreement, any Notes, the
Security Agreements, the Subordination Agreement and any other instruments or
agreements executed at any time pursuant to or in connection with any such
documents.
"Net Income" shall mean the net income (or loss) of Company and its
consolidated Subsidiaries for any period determined in accordance with GAAP.
"Net Worth" shall mean as of any date of determination the stockholders
' equity of Company and its consolidated Subsidiaries as of such date as
determined in accordance with GAAP.
"Note" shall mean the Revolving Credit Note and each Equipment Note, as
the case may be, as any may be amended or modified from time to time, and
"Notes" shall refer to each of them.
"Notice of Term Rate" shall mean a Notice of Term Rate issued by Company
under this Agreement in the form annexed to this Agreement as Exhibit "B".
"Permitted Foreign Acquisitions" means any acquisition by any wholly-
owned Foreign Subsidiary of Company of (a) all or substantially all of the
operating assets of any person or entity, or (b) all or substantially all of
the ownership interests of any entity which is organized under the laws of a
jurisdiction outside of the U.S.; provided, however, that all of the
following conditions are satisfied:
(i) The assets, entity or line of business which is acquired is in a
substantially similar line of business as that of the Foreign Subsidiaries as
their businesses are conducted on the date of this Agreement.
(ii) After giving effect to the acquisition there is no Event of Default
under any of the covenants set forth in Section 8 or Section 9 and the
requirements of Section 2.3(e) shall have been satisfied;
(iii) The acquisition is consummated in compliance with applicable law.
(iv) There is no Event of Default, nor any act, condition or event which
with the giving of notice or the passage of time or both would constitute an
Event of Default, and no such Event of Default or
potential Event of Default would result after giving effect to the
acquisition.
(v) In the case of any operating assets which are acquired, such assets
are located outside of the U.S., and in the case of any entity which is
acquired, such entity is organized under the laws of a jurisdiction outside
of the U.S.
(vi) Company gives Bank at least thirty (30) days (or, in the case of
the acquisition of Century, twenty (20) days) prior notice of the
acquisition.
(vii) Company shall furnish Bank with copies of such documents and
information pertaining to the acquisition as Bank may require.
"Permitted Liens" shall mean with respect to any Person:
(a) liens for taxes not yet due and payable or which are being contested
in good faith by appropriate proceedings diligently pursued, provided that
provision for the payment of all such taxes has been made on the books of
such Person as may be required by generally accepted accounting principles,
consistently applied;
(b) mechanics ', materialmen 's, banker 's, carriers ', warehousemen 's
and similar liens and encumbrances arising in the ordinary course of business
and securing obligations of such Person that are not overdue for a period of
more than 60 days or are being contested in good faith by appropriate
proceedings diligently pursued, provided that in the case of any such contest
(i) any proceedings commenced for the enforcement of such liens and
encumbrances shall have been duly suspended; and (ii) such provision for the
payment of such liens and encumbrances has been made on the books of such
Person as may be required by generally accepted accounting principles,
consistently applied;
(c) liens arising in connection with worker 's compensation,
unemployment insurance, old age pensions and social security benefits and
similar statutory obligations which are not overdue or are being contested in
good faith by appropriate proceedings diligently pursued, provided that in
the case of any such contest (i) any proceedings commenced for the
enforcement of such liens shall have been duly suspended; and (ii) such
provision for the payment of such liens has been made on the books of such
Person as may be required by generally accepted accounting principles,
consistently applied;
(d)(i) liens incurred in the ordinary course of business to secure the
performance of statutory obligations arising in connection with progress
payments or advance payments due under contracts with the United States
government or any agency thereof entered into in the ordinary course of
business and (ii) liens incurred or deposits made in the ordinary course of
business to secure the performance of statutory obligations, bids, leases,
fee and expense arrangements with trustees and fiscal agents and other
similar obligations (exclusive of obligations incurred in connection with the
borrowing of money, any lease-purchase arrangements or the payment of the
deferred purchase price of property), provided that full provision for the
payment of all such obligations set forth in clauses (i) and (ii) has been
made on the books of such Person as may be required by generally accepted
accounting principles, consistently applied; and
(e) minor survey exceptions or minor encumbrances, easements or
reservations, or rights of others for rights-of-way, utilities and other
similar purposes, or zoning or other restrictions as to the use of real
properties, which do not materially interfere with the business of such
Person.
"Permitted U.S. Acquisitions" means any acquisition by Company or any
wholly-owned Domestic Subsidiary of Borrower of (a) all or substantially all
of the operating assets of any person or entity or (b) all or substantially
all of the ownership interests of any; provided, however, that all of the
following conditions are satisfied:
(i) The assets, entity or line of business which is acquired is in a
substantially similar line of business as that of Company or any of its
Domestic Subsidiaries as their businesses are conducted on the date of this
Agreement.
(ii) After giving effect to the acquisition there is no Event of Default
under any of the covenants set forth in Section 8 or Section 9 and the
requirements of Section 2.3(e) shall have been satisfied.
(iii) The acquisition is consummated in compliance with applicable law.
(iv) There is no Event of Default, nor any act, condition or event which
with the giving of notice or the passage of time or both would constitute an
Event of Default, and no such Event of Default or potential Event of Default
would result after giving effect to the acquisition.
(v) Any operating assets which are acquired are located in the U.S., and
any entity which is acquired is organized under the laws of a jurisdiction
within the U.S. and with all of its assets located in the U.S.; provided,
however, the ownership by the acquired entity of stock of a foreign
corporation will not disqualify an otherwise qualifying Permitted U.S.
Acquisition, if the assets of the foreign corporation constitute less than
25% of the assets of the acquired entity.
(vi) Company gives Bank at least thirty (30) days prior written notice
of the acquisition.
(vii) In the case of any entity which is acquired, such entity shall
provide Bank with a guaranty in accordance with Section 8.17 herein, security
for its guaranty in accordance with Section 8.17 herein, and such related
documents, instruments and agreements as may be required by Bank hereunder.
(viii) Company shall furnish Bank with copies of such documents and
information pertaining to the acquisition as Bank may require.
(ix) Neither Company nor any Subsidiary shall issue any note, assume any
liabilities or otherwise incur any indebtedness in connection with the
acquisition.
"Person" or "person" shall mean any individual, corporation,
partnership, joint venture, limited liability company, association, trust,
unincorporated association, joint stock company, government, municipality,
political subdivision or agency, or other entity.
"Prime Rate" shall mean the per annum interest rate established by Bank
as its prime rate for its borrowers as such rate may vary from time to time,
which rate is not necessarily the lowest rate on loans made by Bank at any
such time.
"Prime-based Advance" shall mean an Advance which bears interest at the
Prime-based Rate.
"Prime-based Rate" shall mean for any day a per annum interest rate
which is the greater of (i) the Prime Rate or (ii) the Alternate Base Rate.
"Request for Advance" shall mean a Request for Advance issued by Company
under this Agreement in the form annexed to this Agreement as Exhibit "C".
"Revolving Credit Maturity Date" shall mean September 25, 2003.
"Revolving Credit Note" shall mean the Note described in Section 2.1
hereof made by Company to Bank in the form annexed to this Agreement as
Exhibit "D".
"Security Agreements" shall mean the Security Agreements in the form and
content of Exhibit "E" to this Agreement pursuant to which Company and each
Domestic Subsidiary grants to Bank a first priority security interest in all
accounts, chattel paper, documents, equipment, fixtures, general intangibles,
goods, instruments and inventory, wherever located and whether now owned or
hereafter acquired, together with all replacements thereof, substitutions
therefor, accessions thereto and all proceeds and products of all the
foregoing.
"SMI" shall mean Smtek, Inc., a California corporation.
"Subordinated Debt" shall mean the Debentures and all other indebtedness
of Company which is subordinated to the obligations and liabilities of
Company to Bank pursuant to a written subordination agreement in form and
substance satisfactory to Bank.
"Subsidiary" shall mean a corporation or other entity of which more than
fifty percent (50%) of the outstanding voting stock or equivalent equity
interests are owned by Company, either direct or indirectly, through one or
more intermediaries.
"Tangible Net Worth" shall mean as of any date Net Worth less the
Intangible Assets of the Company and its consolidated Subsidiaries, all
determined as of such date. For purposes of this Agreement, "Intangible
Assets" means the amount (to the extent reflected in determining such Net
Worth) of (i) all write-ups (other than write-ups resulting from foreign
currency translations and write-ups of assets of a going concern business
made within twelve months after the acquisition of such business) in the book
value of any asset owned by Company and its consolidated Subsidiaries, (ii)
loans or advances to employees or Affiliates, (iii) all investments in
unconsolidated Subsidiaries of the Company and all equity investments in
Persons which are not Subsidiaries of Company and (iv) all unamortized debt
discount and expense, unamortized deferred charges, goodwill, patents,
trademarks, service marks, trade names, copyrights, organization or
developmental expenses and other intangible assets.
"Technetics" shall mean Technetics, Inc., a California corporation.
"Total Debt" shall mean all liabilities of Company and its Consolidated
Subsidiaries except for Subordinated Debt.
"UCC" means Act No. 174 of the Michigan Public Acts of 1962, as amended,
revised or replaced from time to time, including without limit as amended by
Act No. 348 of the Michigan Public Acts of 2000. Notwithstanding the
foregoing, the parties intend that the terms used herein which are defined in
the UCC have, at all times, the broadest and most inclusive meanings
possible. Accordingly, if the UCC shall in the future be amended or held by a
court to define any term used herein more broadly or inclusively than the UCC
in effect on the date of this Agreement, then such term, as used herein,
shall be given broadened meaning. If the UCC shall in the future be amended
or held by a court to define any term used herein more narrowly, or less
inclusively, than the UCC in effect on the date of this Agreement, such
amendment or holding shall be disregarded in defining terms used in this
Agreement.
2. THE INDEBTEDNESS: Revolving Credit
2.1 Bank agrees to make Advances to Company at any time and from time to
time from the date hereof until the Revolving Credit Maturity Date, not to
exceed Sixteen Million Dollars ($16,000,000) in aggregate principal amount at
any one time outstanding. All of the Advances under this Section 2 shall be
evidenced by the Revolving Credit Note under which Advances, repayments and
readvances may be made, subject to the terms and conditions of this
Agreement.
2.2 The Revolving Credit Note shall mature on the Revolving Credit
Maturity Date and each Advance from time to time outstanding thereunder shall
bear interest at its Applicable Interest Rate. The amount and date of each
Advance, its Applicable Interest Rate, its Interest Period, if applicable,
and the amount and date of any repayment shall be noted on Bank 's records,
which records will be conclusive evidence thereof absent manifest error.
2.3 Company may request an Advance under this Section 2 upon the
delivery to Bank of a Request for Advance executed by an authorized officer
of Company, subject to compliance with the requirements of Section 9.16 and
the following:
(a) each such Request for Advance shall set forth the information
required on the Request for Advance form annexed hereto as Exhibit "C";
(b) each such Request for Advance shall be delivered to Bank by 11:00
a.m. on the proposed date of Advance; provided, however, at the option of
Bank, in lieu of written Requests for Advances, Company may utilize Bank 's
"Sweep to Loan" automated system for obtaining Prime-based Advances. Each
time an Advance is made using the "Sweep to Loan" system, it shall constitute
a certificate by Company of the matters set forth in the Request for Advance
form as of such date. If Company no longer uses the "Sweep to Loan" system,
then thereafter, the regular procedures set forth herein shall apply;
(c) the principal amount of such Advance, plus the amount of any
outstanding indebtedness to be then combined therewith having the same
Applicable Interest Rate and Interest Period, if any, shall be in the case of
a Eurodollar-based Advance at least $150,000 or any larger amount in $50,000
increments;
(d) the principal amount of such Advance, plus the sum of the amount of
all other outstanding Advances under this Section 2, the Letter of Credit
Reserve shall not exceed the formula set forth in Section 2.5 below;
(e) if the proceeds of the Advance are to be used to fund a Permitted
U.S. Acquisition or a Permitted Foreign Acquisition, (i) the amount of the
requested Advance plus the amount of all other Advances the proceeds which
were used to fund Permitted U.S. Acquisitions and Permitted Foreign
Acquisitions shall not exceed Five Million Dollars ($5,000,000) and (ii)
after giving effect to the Advance and the consummation of the Permitted U.S.
Acquisition or Permitted Foreign Acquisition, as applicable, Availability
must be at least One Million Dollars ($1,000,000);
(f) a Request for Advance, once delivered to Bank, shall not be
revocable by Company.
Bank may, at its option, lend under this Section 2 upon the telephone
request of an authorized officer of Company and, in the event Bank makes any
such advance upon a telephone request, the requesting officer shall, if so
requested by Bank, mail to Bank, on the same day as such telephone request, a
Request for Advance in the form attached as Exhibit "C". Company hereby
authorizes Bank to disburse Advances under this Section 2 pursuant to the
telephone instructions of any person purporting to be an authorized officer
of Company and Company shall bear all risk of loss resulting from
disbursements made upon any telephone request. Each telephone request for an
Advance shall constitute a certification of the matters set forth in the
Request for Advance form as of the date of such requested Advance.
2.4 Company may prepay all or part of the outstanding balance of the
Prime-based Advance(s) under the Revolving Credit Note at any time. Upon one
(1) Business Day prior notice to Bank, Company may prepay all or part of any
Eurodollar-based Advance, provided that the amount of any such partial
prepayment shall be at least $50,000 and the unpaid portion of such Advance
which is refunded or converted under Section 4.A.3 shall be subject to the
limitations of Section 2.3(c) hereof. Any prepayment of a Prime-based
Advance, or a Eurodollar-based Advance on the last day of the Interest Period
therefor, made in accordance with this Section shall be without premium,
penalty or prejudice to Company 's right to reborrow under the terms of this
Agreement. Any other prepayment shall be subject to the provisions of Section
5.1 hereof.
2.5 The aggregate principal amount at any one time outstanding under the
Revolving Credit Note plus the Letter of Credit Reserve shall never exceed
the Borrowing Base. Company shall immediately make all payments necessary to
comply with this provision. Any such payments shall be applied first to
outstanding Prime-based Advances and the remainder, if any, to outstanding
Eurodollar-based Advances.
2.6 In addition to Advances under the Revolving Credit Note to be
provided to Company by Bank under and pursuant to Section 2.1 of this
Agreement, Bank further agrees to issue, or commit to issue, from time to
time, standby and commercial letters of credit for the account of Company
(herein individually called a "Letter of Credit" and collectively "Letters of
Credit") in; provided, however that the sum of the aggregate amount of
Advances outstanding under the Revolving Credit Note plus the Letter of
Credit Reserve shall not exceed Sixteen Million Dollars ($16,000,000) at any
one time; and provided further that no Letter of Credit shall, by its terms,
have an expiration date which extends beyond the fifth (5th) Business Day
before the Revolving Credit Maturity Date or one (1) year after issuance,
whichever first occurs and no trade/commercial Letters of Credit shall by its
terms, have an expiration date which extends beyond one hundred eighty (180)
days after issuance or the fifth (5th) Business Day before the Revolving
Credit Maturity Date, whichever first occurs. In addition to the terms and
conditions of this Agreement, the issuance of any Letters of Credit shall
also be subject to payments of Bank 's customary issuance fees and to the
terms and conditions of any letter of credit applications and agreements
executed and delivered by Company to Bank with respect thereto. Company shall
pay to Bank annually in advance a per annum fee equal to the Applicable L/C
Commission Rate of the amount of each standby Letter of Credit and one and
three-quarters percent (1_%) of the amount of each commercial letter of
credit.
2.7 Company agrees to pay to Bank a commitment fee on the average daily
balance of the unused portion of the revolving credit commitment at the rate
of one eighth of one percent (c%) per annum, computed on the actual number of
days elapsed using a year of 360 days. The commitment fee shall be payable
quarterly in arrears on the first day of each October, January April and July
(commencing October 1, 2001) and on the Revolving Credit Maturity Date. For
purposes of calculating the commitment fee, outstanding Letters of Credit
shall be considered usage of the commitment.
2.8 Company may, upon at least five (5) Business Days ' prior written
notice to Bank, permanently reduce the revolving credit commitment in whole
at any time, or in part from time to time, without premium or penalty,
provided that: (i) each partial reduction of the revolving credit commitment
shall be in an aggregate amount equal to at least One Million Dollars
($1,000,000); (ii) each reduction shall be accompanied by the payment of the
commitment fee, if any, accrued to the date of such reduction attributable to
the amount of such reduction; (iii) Company shall prepay in accordance with
the terms hereof the amount, if any, by which the aggregate unpaid principal
amount of Advances, plus the aggregate amount of outstanding Letters of
Credit, exceeds the amount of the revolving credit commitment, taking into
account the aforesaid reductions thereof, together with accrued but unpaid
interest on the principal amount of such prepaid Advances to the date of
prepayment; (iv) if the termination or reduction of the revolving credit
commitment requires the prepayment of a Eurodollar-based Advance, the
termination or reduction may be made only on the last Business Day of the
then current Interest Period applicable to such Advance and (v) no reduction
shall reduce the amount of the revolving credit commitment to an amount which
is less than the sum of the aggregate undrawn amount of any Letters of Credit
outstanding at such time. Reductions of the revolving credit commitment will
not be available for reinstatement by or readvance to the Company and shall
be permanent and irrevocable. When requesting a Letter of Credit, Company
shall identify the Guarantor which is a party to the transaction supported
thereby. Bank may require the Guarantor which is a party to the transaction
supported by a Letter of Credit to be a co-applicant for such Letter of
Credit.
2.9 Proceeds of Advances under the Revolving Credit Note shall be used
solely for working capital purposes of the Guarantors and to repay existing
indebtedness owed to Wells Fargo Bank, National Association. When requesting
an advance under the revolving credit, Company shall identify the Guarantor
to which the proceeds thereof will be advanced by Company.
3 THE INDEBTEDNESS: Equipment Credit
3.1 Bank agrees to make loans to Company at any time and from time to
time during the Equipment Drawdown Period, not to exceed Three Million Six
Hundred Thousand Dollars ($3,600,000) in aggregate principal amount. Each of
the loans under this Section 3 shall be evidenced by an Equipment Note. There
shall be no readvances of the Equipment Loans.
3.2 Each Equipment Note shall mature on its applicable Equipment Note
Maturity Date and each loan from time to time outstanding thereunder shall
bear interest at its Applicable Interest Rate. The amount and date of each
loan under each Equipment Note, its Applicable Interest Rate, its Interest
Period, if applicable, and the amount and date of any repayment shall be
noted on Bank 's records, which records will be conclusive evidence thereof
absent manifest error. The principal outstanding under each Equipment Note
shall be repaid in monthly installments each equal to one sixtieth (1/60th)
of the original principal amount of such Equipment Note. Such principal
installments shall be due commencing on the first day of the first month
after an Equipment Note is funded and on the first day of each month
thereafter. Interest shall accrue and be payable as set forth in Section 4.B.
3.3 Company may request a loan under this Section 3 upon the delivery to
Bank of a Request for Advance executed by an authorized officer of Company,
subject to the following:
(a) each such Request for Advance shall set forth the information
required on the Request for Advance form annexed hereto as Exhibit "C";
(b) each such Request for Advance shall be delivered to Bank by 1:00
p.m. on the fifth (5th) Business Day before the proposed date of the loan;
(c) the principal amount of such loan, plus the amount of any
outstanding indebtedness to be then combined therewith having the same
Applicable Interest Rate and Interest Period, if any, shall be in the case of
a Eurodollar-based Advance at least $150,000 or any larger amount in $50,000
increments;
(d) the principal amount of such loan, shall not exceed the formula set
forth in Section 3.5 below;
(e) a Request for Advance, once delivered to Bank, shall not be
revocable by Company. Bank may, at its option, lend under this Section 3 upon
the telephone request of an authorized officer of Company and, in the event
Bank makes any such advance upon a telephone request, the requesting officer
shall, if so requested by Bank, mail to Bank, on the same day as such
telephone request, a Request for Advance in the form attached as Exhibit "C".
Company hereby authorizes Bank to disburse loans under this Section 3
pursuant to the telephone instructions of any person purporting to be an
authorized officer of Company and Company shall bear all risk of loss
resulting from disbursements made upon any telephone request. Each telephone
request for a loan shall constitute a certification of the matters set forth
in the Request for Advance form as of the date of such requested loan.
3.4 Company may prepay all or part of the outstanding balance of an
Equipment Note bearing interest at the Prime-based Rate at any time. Upon one
(1) Business Day prior notice to Bank, Company may prepay all or part of any
portion of an Equipment Note bearing interest at the Eurodollar-based Rate,
provided that the amount of any such partial prepayment shall be at least
$250,000 and the unpaid portion of such loan which is refunded or converted
under Section 4.B.3 shall be subject to the limitations of Section 3.3
hereof. Any prepayment shall be subject to the provisions of Section 5.1
hereof.
3.5 The principal amount of each loan under an Equipment Note shall not
exceed eighty percent (80%) of the invoice cost (excluding installation and
delivery expense, import fees and other soft costs) of new machinery and
equipment purchased by Company with the proceeds of such loan or eighty
percent (80%) of the forced sale value of used machinery and equipment
determined based on an appraisal by an appraiser acceptable to Bank. Loans
under an Equipment Note shall be used solely to fund the purchase price of
new or used machinery and equipment to be used in the conduct of the business
of a Domestic Subsidiary of Company and the machinery and equipment must be
acceptable to Bank in the exercise of its sole discretion.
3.6 Each request for loan under an Equipment Note shall be in an amount
not less than $50,000.
4.A. INTEREST, INTEREST PERIODS, CONVERSIONS, PREPAYMENTS.
4.A.1 Interest. The Revolving Credit Note and the Advances thereunder
shall bear interest from the date thereof on the unpaid principal balance
thereof from time to time outstanding, at a rate per annum equal to the
Prime-based Rate or the Eurodollar-based Rate, as the Company may elect
subject to the provisions of this Agreement. With respect to Prime-based
Advances, interest shall be payable monthly on the first Business Day of each
month, commencing on the first Business Day following the month during which
such Advance is made, and at maturity. With respect to Eurodollar-based
Advances, interest shall be payable on the last day of each Interest Period
applicable thereto. Notwithstanding the foregoing, from and after the
occurrence of any Event of Default and solely during the continuation
thereof, the Advances shall bear interest, payable on demand, at a rate per
annum equal to: (i) in the case of Prime-based Advances, three percent (3%)
above the Prime-based Rate; and (ii) in the case of a Eurodollar-based
Advance, three percent (3%) above the rate which would otherwise be
applicable under this Section 4.A.1 until the end of the then current
Interest Period, at which time such Advance shall bear interest at the rate
provided for in clause (i) of this Section 4.A.1. Interest on all Advances
shall be calculated on the basis of a 360 day year for the actual number of
days elapsed. The interest rate with respect to any Prime-based Advance shall
change on the effective date of any change in the Prime-based Rate.
4.A.2 Interest Periods. Each Interest Period for a Eurodollar-based
Advance shall commence on the date such Eurodollar-based Advance is made or
is converted from an Advance of another type pursuant to Section 4.A.3 hereof
or on the last day of the immediately preceding Interest Period for such
Eurodollar-based Advance, and shall end on the date one, two or three months
thereafter, as the Company may elect as set forth below, subject to the
following:
(i) no Interest Period shall extend beyond the Revolving Credit Maturity
Date; and
(ii) any Interest Period which would otherwise end on a day which is not
a Business Day shall be extended to the next succeeding Business Day unless
the next succeeding Business Day falls in another calendar month, in which
case, such Interest Period shall end on the immediately preceding Business
Day and when an Interest Period begins on a day which has no numerically
corresponding day in the calendar month during which such Interest Period is
to end, it shall end on the last Business Day of such calendar month.
The Company shall elect the initial Interest Period applicable to a
Eurodollar-based Advance by its Request for Advance given to the Bank
pursuant to Section 2.3 or by its notice of conversion given to the Bank
pursuant to Section 4.A.3, as the case may be. Provided that no Event of
Default shall have occurred and be continuing, the Company may elect to
continue an Advance as a Eurodollar-based Advance by giving irrevocable
written, telephonic or telegraphic notice thereof to the Bank, before 11:00
a.m. on the last day of the then current Interest Period applicable to such
Eurodollar-based Advance, specifying the duration of the succeeding Interest
Period therefor. If the Bank does not receive timely notice of the election
and the Interest Period elected by the Company, the Company shall be deemed
to have elected to convert such Eurodollar-based Advance to a Prime-based
Advance at the end of the then current Interest Period.
4.A.3 Conversion of Advances. Provided that no Event of Default shall
have occurred and be continuing, the Company may, on any Business Day,
convert any outstanding Advance into an Advance of another type in the same
aggregate principal amount, provided that any conversion of a Eurodollar-
based Advance shall be made only on the last Business Day of the then current
Interest Period applicable to such Advance. If the Company desires to convert
an Advance, it shall give the Bank written, telephonic or telegraphic notice,
specifying the date of such conversion, the Advances to be converted, the
type of Advance elected and, if the conversion is into a Eurodollar-based
Advance, the duration of the first Interest Period therefor, which notice
shall be given not later than 11:00 a.m. on the applicable date of
conversion.
4.B. INTEREST, INTEREST PERIODS, CONVERSIONS, PREPAYMENTS.
4.B.1 Interest. (a) The Equipment Notes and the loans thereunder shall
bear interest from the date thereof on the unpaid principal balance thereof
from time to time outstanding, at a rate per annum equal to the Prime-based
Rate or the Eurodollar-based Rate as the Company may elect subject to the
provisions of this Agreement. In the case of any portion of an Equipment Note
with respect to which the Applicable Interest Rate is the Prime-based Rate,
interest shall be payable monthly on the first Business Day of each month and
at maturity (whether by acceleration or otherwise). In the case of any
portion of an Equipment Note with respect to which the Applicable Interest
Rate is the Eurodollar-based Rate, interest shall be payable on the last day
of each Interest Period applicable thereto. Notwithstanding the foregoing,
from and after the occurrence of an Event of Default and during the
continuation thereof, the principal outstanding under the Equipment Notes
shall bear interest payable on demand, at a rate per annum equal to: (i) in
the case of a portion of an Amortizing Note with respect to which the
Applicable Interest Rate is the Primebased Rate, three percent (3%) above the
rate which would otherwise be applicable under this Section 4.B.1 and (ii) in
the case of a portion of an Equipment Note with respect to which the
Applicable Interest Rate is the Eurodollar-based Rate, three percent (3%)
above the rate which would otherwise be applicable under this Section 4.B.1
until the end of the then current Interest Period, and thereafter at the rate
provided for in clause (i) of this Section 4.B.1. Interest shall be
calculated on the basis of a 360 day year for the actual number of days
elapsed. The interest rate applicable to any portion of an Amortizing Note
with respect to which the Applicable Interest Rate is the Prime-based Rate
shall change on the effective date of any change in the Prime-based Rate.
(b) On the date each Equipment Loan, Company shall designate the initial
Applicable Interest Rate with respect to such loan.
4.B.2 Interest Periods. Each Interest Period for a portion of an
Equipment Note with respect to which the Applicable Interest Rate is the
Eurodollar-based Rate shall commence on the date such rate is selected
pursuant to Section 4.B.3 hereof or on the last day of the immediately
preceding Interest Period, as the case may be, and shall end on the date one,
two or three months thereafter as the Company may elect as set forth below,
subject to the following:
(i) no Interest Period with respect to an Equipment Note shall extend
beyond the applicable maturity date applicable to such Note;
(ii) any Interest Period which would otherwise end on a day which is not
a Business Day shall be extended to the next succeeding Business Day unless
the next succeeding Business Day falls in another calendar month, in which
case, such Interest Period shall end on the immediately preceding Business
Day and when an Interest Period begins on a day which has no numerically
corresponding day in the calendar month during which such Interest Period is
to end, it shall end on the last Business Day of such calendar month; and
(iii) no Interest Period with respect to a portion of a Equipment Loan
shall end past a date on which an installment of principal is due with
respect to such loan. The Company shall elect the initial Interest Period
applicable to an Equipment Loan with respect to which the Applicable Interest
Rate is the Eurodollar-based Rate by its Notice of Term Rate given to the
Bank pursuant to Section 4.B.1 and subsequent Interest Periods by its Notice
of Term Rate given to the Bank pursuant to Section 4.B.3, as the case may be.
Provided that no Event of Default shall have occurred and be continuing, the
Company may elect to continue a portion of an Equipment Loan with respect to
which the Applicable Interest Rate is the Eurodollar-based Rate by giving
irrevocable written notice thereof to the Bank by its Notice of Term Rate,
not later than 11:00 a.m. on the last day of the then current Interest Period
applicable to such portion of an Equipment Loan, as applicable, specifying
the duration of the succeeding Interest Period therefor. If the Bank does not
receive timely notice of the election and the Interest Period elected by the
Company, the Company shall be deemed to have elected to convert such
Applicable Interest Rate to the Prime-based Rate at the end of the then
current Interest Period.
4.B.3 Conversion of Loans. Provided that no Event of Default shall have
occurred and be continuing, the Company may, on any Business Day, convert the
Applicable Interest Rate with respect to a portion of an Equipment Loan, as
applicable to another Applicable Interest Rate, provided that any conversion
while the Applicable Interest Rate is the Eurodollar-based Rate shall be made
only on the last Business Day of the then current Interest Period. If the
Company desires to convert an Applicable Interest Rate, it shall give the
Bank irrevocable written notice thereof not later than 11:00 a.m. (Detroit
time) on the effective date of any such change specifying the date of such
conversion, the Applicable Interest Rate elected and, if the conversion is
into the Eurodollar-based Rate, the duration of the first Interest Period
therefor.
4.B.4 Prepayments. (a) At its option and upon one (1) Business Day 's
prior written, telephonic or telegraphic notice to the Bank, the Company may
prepay any portion of an Equipment Loan in whole at any time or in part from
time to time, with accrued interest on the principal being prepaid to the
date of such prepayment, provided that: (i) in the case of a portion of an
Equipment Loan bearing interest at the Prime-based Rate each partial
prepayment shall be in an amount not less than $50,000 or an integral
multiple thereof; (ii) in the case of a portion of an Equipment Loan bearing
interest at the Eurodollar-based Rate, each partial prepayment shall be in an
amount not less than $50,000. Any prepayment of a portion of an Equipment
Loan as to which the Applicable Interest Rate is the Prime-based Rate, or a
Term Loan as to which the Applicable Interest Rate is the Eurodollar-based
Rate, on the last day of the applicable Interest Period shall be without
premium or penalty. Any other prepayment shall be subject to the provisions
of Section 5.1.
(b) Each partial prepayment of an Equipment Loan or the principal
outstanding under the applicable Equipment Note shall be applied to the
principal payments due thereunder in the inverse
order of their maturities.
5. SPECIAL PROVISIONS, CHANGES IN CIRCUMSTANCES AND YIELD PROTECTION.
5.1 If Company makes any payment of principal with respect to any
Eurodollar-based Advance or the principal under an Equipment Loan with
respect to which the Eurodollar-based Rate is the Applicable Interest Rate on
any day other than the last day of the Interest Period applicable thereto
(whether voluntarily, by acceleration, or otherwise), or if Company fails to
borrow any Eurodollar-based Advance after notice has been given by Company to
Bank in accordance with the terms hereof requesting such Advance, or if
Company fails to make any payment of principal or interest when due in
respect of a Eurodollar-based Advance or the principal under Loan with
respect to which the Eurodollar-based Rate is the Applicable Interest Rate,
Company shall reimburse Bank on demand for any resulting loss, cost or
expense incurred by Bank as a result thereof, including, without limitation,
any such loss, cost or expense incurred in obtaining, liquidating, employing
or redeploying deposits from third parties, whether or not Bank shall have
funded or committed to fund such Advance. Such amount payable by Company to
Bank may include, without limitation, an amount equal to the excess, if any,
of (a) the amount of interest which would have accrued on the amount so
prepaid, or not so borrowed, refunded or converted, for the period from the
date of such prepayment or of such failure to borrow, refund or convert,
through the last day of the relevant Interest Period, at the applicable rate
of interest for said Advance(s) or principal under an Equipment Loan provided
under this Agreement, over (b) the amount of interest (as reasonably
determined by Bank) which would have accrued to Bank on such amount by
placing such amount on deposit for a comparable period with leading banks in
the interbank eurodollar market. Calculation of any amounts payable to Bank
under this paragraph shall be made as though Bank shall have actually funded
or committed to fund the relevant Eurodollar-based Advance or an Equipment
Loan through the purchase of an underlying deposit in an amount equal to the
amount of such Advance and having a maturity comparable to the relevant
Interest Period; provided, however, that Bank may fund any Eurodollar-based
Advance or an Equipment Loan in any manner it deems fit and the foregoing
assumptions shall be utilized only for the purpose of the calculation of
amounts payable under this paragraph. Upon the written request of Company,
Bank shall deliver to Company a certificate setting forth the basis for
determining such losses, costs and expenses, which certificate shall be
conclusively presumed correct, absent manifest error.
5.2 For any Interest Period for which the Applicable Interest Rate is
the Eurodollar-based Rate, if Bank shall designate a Eurodollar Lending
Office which maintains books separate from those of the rest of Bank, Bank
shall have the option of maintaining and carrying the relevant Advance or
Term Loan on the books of such Eurodollar Lending Office.
5.3 If with respect to any Interest Period Bank reasonably determines
that, by reason of circumstances affecting the foreign exchange and interbank
markets generally, deposits in Eurodollars in the applicable amounts are not
being offered to the Bank for such Interest Period, then Bank shall forthwith
give notice thereof to the Company. Thereafter, until Bank notifies Company
that such circumstances no longer exist, the obligation of Bank to make
Eurodollar-based Advances, and the right of Company to convert an Advance to
or refund an Advance as a Eurodollar-based Advance and the right of Company
to elect the Eurodollar-based Rate for the Term Loans shall be suspended.
5.4 If, after the date hereof, the introduction or implementation of, or
any change in, any applicable law, rule or regulation or in the
interpretation or administration thereof by any governmental authority
charged with the interpretation or administration thereof, or compliance by
Bank (or its Eurodollar Lending Office) with any request or directive
(whether or not having the force of law) of any such authority, shall make it
unlawful or impossible for the Bank (or its Eurodollar Lending Office) to
honor its obligations hereunder to make or maintain any Advance or the
indebtedness under the Equipment Loans with interest at the Eurodollar-based
Rate, Bank shall forthwith give notice thereof to Company. Thereafter (a) the
obligations of Bank to make Eurodollar-based Advances and the right of
Company to convert an Advance or refund an Advance as a Eurodollar-based
Advance and to elect the Eurodollar-based Rate for the Equipment Loans shall
be suspended and thereafter Company may select as Applicable Interest Rates
only those which remain available, and (b) if Bank may not lawfully continue
to maintain an Advance or an Equipment Loan, as the case may be, to the end
of the then current Interest Period applicable thereto, the Prime-based Rate
shall be the Applicable Interest Rate for the remainder of such Interest
Period.
5.5 If the adoption or implementation after the date hereof, or any
change after the date hereof in, any applicable law, rule or regulation of
any governmental authority, central bank or comparable agency charged with
the interpretation or administration thereof, or compliance by Bank (or its
Eurodollar Lending Office) with any request or directive (whether or not
having the force of law) made by any such authority, central bank or
comparable agency after the date hereof:
(a) shall subject Bank (or its Eurodollar Lending Office) to any tax,
duty or other charge with respect to any Advance or any Note or shall change
the basis of taxation of payments to Bank (or its Eurodollar Lending Office)
of the principal of or interest on any Advance or any Note or any other
amounts due under this Agreement in respect thereof (except for changes in
the rate of tax on the overall net income of Bank or its Eurodollar Lending
Office imposed by any jurisdiction in which Bank is organized or engaged in
business); or
(b) shall impose, modify or deem applicable any reserve (including,
without limitation, any imposed by the Board of Governors of the Federal
Reserve System), special deposit or similar requirement against assets of,
deposits with or for the account of, or credit extended by Bank (or its
Eurodollar Lending Office) or shall impose on Bank (or its Eurodollar Lending
Office) or the foreign exchange and interbank markets any other condition
affecting any Advance or any Note; and the result of any of the foregoing is
to increase the costs to Bank of maintaining any part of the indebtedness
hereunder or to reduce the amount of any sum received or receivable by Bank
under this Agreement or under the Notes, by an amount deemed by the Bank to
be material, then Bank shall promptly notify Company of such fact and demand
compensation therefor and, within fifteen days after demand by Bank, Company
agrees to pay to Bank such additional amount or amounts as will compensate
Bank for such increased cost or reduction. Bank will promptly notify Company
of any event of which it has knowledge which will entitle Bank to
compensation pursuant to this Section. A certificate of Bank setting forth
the basis for determining such additional amount or amounts necessary to
compensate Bank shall be conclusively presumed to be correct save for
manifest error. Bank agrees that, as promptly as practical after it becomes
aware of the occurrence of any event or the existence of a condition that
will cause Bank to be entitled to compensation under this Section, it will,
to the extent not inconsistent with Bank 's internal policies, use reasonable
efforts to make, fund or maintain any affected Eurodollar-based Advance
through another lending office of Bank if as a result thereof the additional
monies which would otherwise be required to be paid in respect of such
Eurodollar-based Advance would be materially reduced and if, as determined by
Bank, in its reasonable discretion, the making, funding or maintaining of
such Eurodollarbased Advance through such other lending office would not
materially adversely affect such Advance or Bank. Company shall pay all
reasonable expenses incurred by Bank in utilizing another lending office
pursuant to this Section.
5.6 In the event that at any time after the date of this Agreement any
change in law such as described in Section 5.5, hereof, shall, in the
reasonable opinion of Bank require that the credit provided under Section 2
or 3 of this Agreement be treated as an asset or otherwise be included for
purposes of calculating the appropriate amount of capital to be maintained by
Bank or any corporation controlling Bank and such change has or would have
the effect of reducing the rate of return on Bank 's or Bank 's parent 's
capital or assets as a consequence of the Bank 's obligations hereunder to a
level below that which Bank or Bank 's parent would have achieved but for
such change, then Bank shall notify Company and demand compensation therefor
and, within fifteen days after demand by Bank, Company agrees to pay to Bank
such additional amount or amounts as will compensate Bank for such reduction.
Bank will promptly notify Company of any event of which it has knowledge
which will entitle Bank to compensation pursuant to this Section. A
certificate of Bank setting forth the basis for determining such additional
amount or amounts necessary to compensate Bank shall be conclusively presumed
to be correct save for manifest error.
5.7 A late installment charge equal to five percent (5%) of each late
installment under any Note may be charged on any installment payment not
received by Bank within ten (10) calendar days after the installment due date
but acceptance of this charge shall not waive any default or Event of Default
under this Agreement.
6. CONDITIONS
6.1 Company agrees to furnish Bank prior to the initial borrowing under
this Agreement, in form and substance to be satisfactory to Bank, with (i)
certified copies of resolutions of the Directors of Company and its Domestic
Subsidiaries evidencing approval of the borrowings and transactions
contemplated hereunder; (ii) a certificate of good standing from the state of
Company 's incorporation and from the state(s) in which is required to be
qualified to do business; (iii) an opinion of Company 's legal counsel; and
(iv) such other documents and instruments as Bank may reasonably require.
6.2 As security for all indebtedness of Company to Bank hereunder,
Company agrees to furnish, execute and deliver to Bank, or cause to be
furnished, executed and delivered to Bank, prior to or simultaneously with
the initial borrowing hereunder, in form to be satisfactory to Bank and
supported by appropriate resolution in certified form authorizing same, the
following:
(a) The Security Agreements;
(b) The Guaranty;
(c) Financing Statements required or requested by Bank to perfect all
security interests to be conferred upon Bank under this Agreement and to
accord Bank a perfected first priority security position under the Uniform
Commercial Code (subject only to the encumbrances permitted hereunder);
(d) Such other documents or agreements of security and appropriate
assurances of validity and perfected first priority of lien or security
interest as Bank may reasonably request at any time.
6.3 Prior to the initial advance, Company shall have satisfied the
requirements of the commitment letter dated September 6, 2001.
7. REPRESENTATIONS AND WARRANTIES
Company represents and warrants and such representations and warranties
shall be deemed to be continuing representations and warranties during the
entire life of this Agreement:
7.1 Company is a corporation duly organized and existing in good
standing under the laws of the State of Delaware; Company and each of its
Subsidiaries is in good standing in each jurisdiction in which it is required
to be qualified to do business, except where the failure to be so qualified
would not have a material adverse effect on the financial condition of
Company and its Subsidiaries or their ability to carry on their business;
execution, delivery and performance of this Agreement and other documents and
instruments required under this Agreement, and the issuance of the Notes by
Company are within its powers, have been duly authorized, are not in
contravention of law or the terms of Company 's Certificate of Incorporation
or Bylaws, and do not require the consent or approval of any governmental
body, agency or authority; and this Agreement and other documents and
instruments required under this Agreement and Notes, when issued and
delivered, will be valid and binding on the Company in accordance with their
terms.
7.2 The execution, delivery and performance of this Agreement and any
other documents and instruments required under this Agreement, and the
issuance of the Notes by Company are not in contravention of the unwaived
terms of any indenture, agreement or undertaking to which Company is a party
or by which it is bound.
7.3 No litigation or other proceeding before any court or administrative
agency is pending, or to the knowledge of the officers of Company is
threatened against Company or any of its Subsidiaries, the outcome of which
would reasonably be expected to materially impair Company 's or any
Subsidiary 's financial condition or the ability of Company or any Subsidiary
to carry on its business.
7.4 There are no security interests in, liens, mortgages, or other
encumbrances on any of Company 's or any Subsidiary 's assets, except to Bank
or as otherwise permitted by this Agreement.
7.5 Neither Company nor any Subsidiary maintains or contributes to any
employee pension benefit plan subject to title IV of the "Employee Retirement
Income Security Act of 1974" (herein called "ERISA"), except those set forth
in attached Schedule 7.5. There was no unfunded past service liability of any
pension plan maintained by the Company as of December 31, 1999 , and there is
no accumulated funding deficiency within the meaning of ERISA, or any
existing material liability with respect to any pension plan owed to the
Pension Benefit Guaranty Corporation ("PBGC") or any successor thereto,
except any funding deficiency for which an application to the PBGC for waiver
is pending or for which a waiver has been granted by the PBGC.
7.6 The financial statements of the Company dated June 30, 2001,
previously furnished to Bank, fairly present in all material respects the
financial condition of the Company and its Subsidiaries as of such date,
since said date there has been no material adverse change in the financial
condition of the Company or it Subsidiaries; to the best of the knowledge of
Company 's officers, Company and its Subsidiaries do not have any material
contingent obligations (including any liability for taxes) not disclosed by
or reserved against in said balance sheet, and at the present time there are
no material unrealized or anticipated losses from any present commitment of
Company or any of its Subsidiaries.
7.7 To the best knowledge of Company, the financial projections
previously furnished by Company to Bank were as of the date thereof and are
as of the date of execution of this Agreement reasonable in all material
respects taking into account all facts and information known or reasonably
available to Company.
7.8 All tax returns and tax reports of Company and its consolidated
Subsidiaries required by law to have been filed have been duly filed or
extensions obtained, and all taxes, assessments and other governmental
charges or levies (other than those presently payable without penalty and
those currently being contested in good faith for which adequate reserves
have been established) upon Company and its consolidated Subsidiaries (or any
of its or their properties) which are due and payable and for which the
failure to pay would materially adversely affect its business or the value of
its property or assets have been paid. The charges, accruals and reserves on
the books of Company in respect of the Federal income tax for all periods are
adequate in the opinion of Company.
7.9 There are no subsidiaries of Company, except for Technetics, Inc.,
Jolt Technology, Inc., Smtek, Inc. and DDL Europe, Ltd. (d/b/a Smtek Europe).
7.10 Except as set forth in Schedule 7.10:
(a) Company and each of its Subsidiaries, in the conduct of its
business, is in compliance in all material respects with all federal, state
or local laws, statutes, ordinances and regulations applicable to any of
them, the enforcement of which, if such Person were not in compliance, would
reasonably be expected to materially adversely affect its business or the
value of its property or assets. Company and its Subsidiaries have all
approvals, authorizations, consents, licenses, orders and other permits of
all governmental agencies and authorities, whether federal, state or local,
required to permit the operation of their business as presently conducted,
except such approvals, authorizations, consents, licenses, orders and other
permits with respect to which the failure to have would not reasonably be
expected to materially adversely affect their business or the value of their
property or assets (taken as a whole).
(b) Neither Company nor any Subsidiary is a party to any litigation or
administrative proceeding, nor so far as is known by Company is any
litigation or administrative proceeding threatened against Company or any
Subsidiary, the outcome of which would reasonably be expected to have a
material adverse effect on the Company or any Subsidiary which in either case
(i) asserts or alleges that Company or any Subsidiary violated Environmental
Laws, (ii) asserts or alleges that Company or any Subsidiary is required to
clean up, remove, or take remedial or other response action due to the
disposal, depositing, discharge, leaking or other release of any hazardous
substances or materials, (iii) asserts or alleges that Company or any
Subsidiary is required to pay all or a portion of the cost of any past,
present, or future cleanup, removal or remedial or other response action
which arises out of or is related to the disposal, depositing, discharge,
leaking or other release of any hazardous substances or materials by Company
or any Subsidiary.
(c) Neither Company nor any Subsidiary is subject to any judgment,
decree, order or citation related to or arising out of applicable
Environmental Laws which would reasonably be expected to materially adversely
affect its business or the value of its property or assets and to the best
knowledge of the Company, neither Company nor any Subsidiary has been named
or listed as a potentially responsible party by any governmental body or
agency in a matter arising under any applicable Environmental Laws which
would reasonably be expected to materially adversely affect its business or
the value of its property or assets.
(d) To the best of Company 's knowledge, Company and its Subsidiaries
have all permits, licenses and approvals required under applicable
Environmental Laws, the failure of which to have would have a material
adverse effect on the operation of their business as presently conducted and
as proposed to be conducted.
7.11 Company is not an "investment company" within the meaning of the
Investment Company Act of 1940, as amended. Company is not engaged
principally, or as one of its important activities, directly or indirectly,
in the business of extending credit for the purpose of purchasing or carrying
margin stock, and none of the proceeds of any of the loans hereunder will be
used, directly or indirectly, for any purpose which would violate the
provisions of Regulation U or X of the Board of Governors of the Federal
Reserve System. Terms for which meanings are provided in Regulation U of the
Board of Governors of the Federal Reserve System or any regulations
substituted therefor, as from time to time in effect, are used in this
paragraph with such meanings.
7.12 Company and its Subsidiaries have good and valid title to the
property pledged, mortgaged or otherwise encumbered or to be encumbered by
them under the Security Agreements.
8. AFFIRMATIVE COVENANTS
Company covenants and agrees that it will, so long as Bank may make any
advance under this Agreement and thereafter so long as any indebtedness
remains outstanding under this Agreement:
8.1 Furnish Bank:
(a) within ninety (90) days after and as of the end of each fiscal year
of Company and its consolidated Subsidiaries, a detailed consolidated and
consolidating audit report of Company certified to by independent certified
public accountants satisfactory to Bank;
(b) within forty five (45) days after and as of the end of each fiscal
quarter, (i) consolidated and consolidating balance sheets, statements of
profit and loss and a statement of changes in cash flow of Company and its
consolidated Subsidiaries certified by an authorized officer of Company as
being correct and accurate to the best of his knowledge and (ii) a
consolidated balance sheet, statement of profit and loss and a statement of
changes in cash flow of Company and its Domestic Subsidiaries certified by an
authorized officer of Company as being correct and accurate to the best of
his knowledge;
(c) within fifteen (15) days after and as of the end of each month,
including the last month of each fiscal year, (i) the monthly aging of
Accounts (and a schedule identifying each ineligible Account), and any such
schedule shall be accompanied, if so requested by Bank, by a true and correct
copy of the invoices evidencing Eligible Accounts, and by evidence of
shipment or performance, (ii) a monthly aging of Company 's accounts payable,
(iii) an inventory report in form satisfactory to Bank and (iv) a borrowing
base report, each in form acceptable to Bank; provided, however, at all times
when Availability is less than $2,000,000, borrowing base reports shall be
due weekly on Wednesday of each week as of Friday of the preceding week;
(d) within thirty (30) days prior to the first day of each fiscal year
of Company, financial projections for the Company and its consolidated
Subsidiaries in form satisfactory to Bank;
(e) promptly after filing, a copy of each 10-K, 8-K and 10-Q report
filed by Company with the Securities and Exchange Commission;
(f) such information as required by the terms and conditions of any
security agreements referred to in this Agreement;
(g) promptly, and in form to be satisfactory to Bank, such other
information as Bank may reasonably request from time to time.
8.2 Pay and discharge, and cause its Subsidiaries to pay and discharge,
all taxes and other governmental charges, and all contractual obligations
calling for the payment of money, before the same shall become overdue,
unless and to the extent only that such payment is being contested in good
faith.
8.3 Maintain, and cause its Subsidiaries to maintain, insurance coverage
on their physical assets and against other business risks in such amounts and
of such types as are customarily carried by companies similar in size and
nature, and in the event of acquisition of additional property, real or
personal, or of incurrence of additional risks of any nature, increase such
insurance coverage in such manner and to such extent as prudent business
judgment and present practice would dictate; and in the case of all policies
covering property mortgaged or pledged to Bank or property in which Bank
shall have a security interest of any kind whatsoever, other than those
policies protecting against casualty liabilities to strangers, all such
insurance policies shall provide that the loss payable thereunder shall be
payable to Company and Bank (as mortgagee) as their respective interests may
appear, all said policies or copies thereof, including all endorsements
thereon and those required hereunder, to be deposited with Bank.
8.4 Permit Bank, through its authorized attorneys, accountants and
representatives, to examine Company 's and each Subsidiary 's books,
accounts, records, ledgers and assets of every kind and description at all
reasonable times upon oral or written request of Bank, which shall include
but shall not be limited to collateral audits of Company conducted by Bank,
at Company 's own cost and expense.
8.5 Promptly notify Bank immediately after becoming aware of any
condition or event which constitutes or with the running of time and/or the
giving of notice would constitute an Event of Default under this Agreement,
and promptly inform Bank of the existence or occurrence of any condition or
event (other than conditions having an effect on the economy in general)
which could have a material adverse effect upon Company 's or any Subsidiary
's financial condition.
8.6 Maintain, and cause its Subsidiaries to maintain, in good standing
all licenses required by the State of California or any agency thereof, or
other governmental authority that may be necessary or required for Company
and its Subsidiaries to carry on its general business objects and purposes.
8.7 Comply, and cause its Subsidiaries to comply, with all material
requirements imposed by ERISA as presently in effect or hereafter
promulgated, including but not limited to, the minimum funding requirements
of any Pension Plan.
8.8 Promptly notify Bank after the occurrence thereof in writing of any
of the following events:
(a) the termination of a Pension Plan pursuant to Subtitle C of Title IV
of ERISA or otherwise;
(b) the appointment of a trustee by a United States District Court to
administer a Pension Plan;
(c) the commencement by the Pension Benefit Guaranty Corporation, or any
successor thereto of any proceeding to terminate a Pension Plan;
(d) the failure of a Pension Plan to satisfy the minimum funding
requirements for any plan year as established in Section 412 of the Internal
Revenue Code of 1954, as amended or any similar provision under the Internal
Revenue Code of 1986, as amended;
(e) the withdrawal of Company or any Subsidiary from a Pension Plan; or
(f) a reportable event, within the meaning of Title IV of ERISA.
8.9 Furnish Bank, upon Bank 's request, in form satisfactory to Bank
with pledges, assignments, mortgages, lien instruments or other security
instruments covering any or all of Company 's and each Domestic Subsidiary 's
real and personal property, of every nature and description, whether now owed
or hereafter acquired, to the extent that Bank may in its sole reasonable
discretion require.
8.10 Furnish to the Bank concurrently with the delivery of each of the
financial statements required by Section 8.1(a) and (b), a statement prepared
and certified by the chief financial officer of Company (or in such officer
's absence, a responsible senior officer of Company) (a) setting forth all
computations necessary to show compliance by Company with the financial
covenants contained in Sections 8.11 through 8.15 hereof, (b) stating that as
of the date thereof, no condition or event which constitutes an event of
default hereunder or which with the running of time and/or the giving of
notice would constitute an event of default hereunder has occurred and is
continuing, or if any such event or condition has occurred and is continuing
or exists, specifying in detail the nature and period of existence thereof
and any action with respect thereto taken or contemplated to be taken by
Company and (c) stating that the signer has personally reviewed this
Agreement and that such certificate is based on an examination sufficient to
assure that such certificate is accurate.
8.11 Maintain as of the end of each fiscal quarter of Company an
Adjusted Tangible Net Worth of not less than the Base Adjusted Tangible Net
Worth.
8.12 Maintain as of the end of each fiscal quarter of Company a ratio of
Total Debt to Adjusted Tangible Net Worth of not more than 3.0 to 1.0.
8.13 Maintain as of the end of each fiscal quarter a Debt Service
Coverage Ratio of not less than the following amounts during the periods set
forth below:
Closing through June 29, 2002 . . . . . . . . . . . . . . . . . . 1.2 to 1.0
June 30, 2002 and thereafter . . . . . . . . . . . . . . . . . . 1.25 to 1.0
8.14 Maintain for each fiscal year of Company a Net Income of not less
than $750,000.
8.15 Not allow any year-to-date loss during any fiscal year to exceed
$500,000.
8.16 Maintain all cash collection and general disbursement accounts with
Bank.
8.17 Cause each person that is or becomes a Domestic Subsidiary of the
Company from time to time to execute and deliver a secured Guaranty to the
Bank, together with such other documentation as Bank may reasonable require.
8.18 Use the proceeds of any payment received by Company from a
Guarantor on account of an advance which had been made by Company to such
Guarantor and which had been funded by Bank under the revolving credit, to
repay outstanding Advances.
9. NEGATIVE COVENANTS
Company covenants and agrees that, so long as Bank may make any Advances
under this Agreement and thereafter so long as any Indebtedness remains
outstanding under this Agreement, it will not, and will cause its
Subsidiaries not to, without the prior written consent of Bank:
9.1 Purchase, acquire or redeem any of its stock or make any material
change in its capital structure.
9.2 Enter into any merger or consolidation or sell, lease, transfer, or
dispose of all, substantially all, or any part of its assets, except (a)
sales of inventory in the ordinary course of its business, (b) sales of
interests in Foreign Subsidiaries which are permitted under Section 9.14, (c)
the merger of any wholly owned Domestic Subsidiary into another wholly owned
Domestic Subsidiary of Company, (d) the merger of a Foreign Subsidiary into
another Foreign Subsidiary and (e) the merger of any wholly owned Subsidiary
of Company into Company (with Company as the survivor).
9.3 Guarantee, endorse, or otherwise become secondarily liable for or
upon the obligations of others, except (a) by endorsement for deposit in the
ordinary course of business, (b) guaranties in favor of Bank, and (c) Company
's unsecured guaranty of Smtek Europe 's $3,400,000 (2,500,000 pound
sterling) operating line of credit.
9.4 Purchase or otherwise acquire or become obligated for the purchase
of all or substantially all of the assets or business interests of any
person, firm or corporation or any shares of stock of any corporation,
trusteeship or association or in any other manner effectuate or attempt to
effectuate an expansion of present business by acquisition, except for
Permitted U.S. Acquisitions and Permitted Foreign Acquisitions.
9.5 Affirmatively pledge or mortgage any of its assets, whether now
owned or hereafter acquired, or create, suffer or permit to exist any lien,
security interest in, or encumbrance thereon, except:
(a) to Bank;
(b) the Permitted Liens;
(c) liens described in attached Schedule 9.5;
(d) liens and security interests upon fixed assets acquired by Company
after the date of this Agreement (including by virtue of a Capital Lease)
provided that (i) any such lien or security interest is created solely for
the purpose of securing indebtedness representing, or incurred to finance,
the cost of the item of property subject thereto; (ii) the principal amount
of the indebtedness secured by such lien does not exceed 100% of the fair
value of the property at the time it was acquired, (iii) the lien or security
interest does not cover any property other than such item of property, and
(iv) the indebtedness secured is permitted under Section 9.13(d); and
(e) security interests in assets of a Foreign Subsidiary which secure
borrowings by such Subsidiary from a lender other than Bank or Company as
long as such borrowings are permitted under Section 9.13.
9.6 Sell, assign, transfer or confer a security interest in any account,
contract, note, trade acceptance or other receivable, except to Bank.
9.7 Materially alter the character of its business from that conducted
as of the date of this Agreement.
9.8 Declare or pay any dividends or make any other distribution upon its
stock except (i) dividends payable in the stock of Company, and (ii)
dividends by a Subsidiary to Company.
9.9 Make any Capital Expenditure during any fiscal year if after giving
effect thereto the aggregate amount of all Capital Expenditures made by
Company and its Subsidiaries during such fiscal year would exceed $4,000,000;
provided that the limitation for the fiscal year ending June 30, 2002 shall
be $6,000,000.
9.10 Enter into any transaction or series of transactions with any
Affiliate other than on terms and conditions as favorable to Company as would
be obtainable in a comparable arms-length transaction with a Person other
than an Affiliate.
9.11 Make or allow to remain outstanding any investment (whether such
investment shall be of the character of investment in shares of stock,
evidence of indebtedness or other securities or otherwise) in, or any loans
or advances or extensions of credit to, any person, firm, corporation or
other entity or association, except:
(a) investments of surplus cash in cash equivalents;
(b) sales on open account and in the ordinary course of business;
(c) deposits made in the ordinary course of business in order to obtain
goods or services;
(d) other loans, advances and investments not exceeding $150,000 in the
aggregate at any time outstanding;
(e) loans, advances and investments by Company in Domestic Subsidiaries
and loans and advances by a Subsidiary to Company; and
(f) existing investments in Foreign Subsidiaries as set forth in
attached Schedule 9.11.
9.12 Enter into or become subject to any agreement (other than this
Agreement) (i) prohibiting the creation or assumption of any lien or
encumbrance upon the properties or assets of Company or (ii) requiring an
obligation to become secured (or further secured) if another obligation is
secured or further secured.
9.13 Become or remain obligated for any indebtedness for borrowed money,
or for any indebtedness incurred in connection with the acquisition of any
property, real or personal, tangible or intangible, except:
(a) indebtedness to Bank;
(b) current unsecured trade payables and accrued liabilities arising in
the ordinary course of Company 's or a Subsidiary 's business (including,
without limitation, obligations under operating leases);
(c) existing indebtedness described in attached Schedule 9.13;
(d) purchase money indebtedness incurred in connection with the
acquisition of fixed assets in an aggregate amount not exceeding $2,500,000
incurred during any single fiscal year of Company;
(e) the Subordinated Debt;
(f) borrowings by any Foreign Subsidiary from Company in the ordinary
course of business hereafter, so long as outstanding borrowings by Foreign
Subsidiaries from Company at not time exceed $100,000.00 in the aggregate for
all such borrowings by Foreign Subsidiaries combined, and
(g) borrowings by any Foreign Subsidiary from any lender other than
Company or Bank in the
ordinary course of business hereafter.
9.14 Sell, pledge, encumber or otherwise transfer any interest in any
Subsidiary except for (a) such mergers as may be permitted by Section 9.2
above, and (b) the sale by Company or any Foreign Subsidiary of all or any
portion of its interest in any Foreign Subsidiary so long as (1) such sale is
on commercially reasonable terms and for fair consideration, and (2) Company
gives Bank at least ten (10) days prior written notice thereof.
9.15 Become a general partner in any partnership or a joint venturer in
any joint venture; provided, however, that any Foreign Subsidiary may become
a general partner in any foreign partnership or a joint venturer in any
foreign joint venture so long as Company gives Bank at least ten (10) days
prior written notice thereof.
9.16. Permit outstanding advances by Company to a Guarantor which are
funded by Bank under the revolving credit, when combined with outstanding
Letters of Credit issued by Bank to support that Guarantor 's transactions
and any other credit extended by Bank hereunder to support that Guarantor 's
transactions which Bank has informed Company is to be combined with such
advances and Letters of Credit for purposes of this Section 9.16, to exceed
the amount of borrowings which would available under the Borrowing Base if
only that Guarantor 's Eligible Accounts and Eligible Inventory were included
in the Borrowing Base. Company will keep complete and accurate records of all
advances by Borrower to each Guarantor which are funded with the proceeds of
Advances by Bank to Company under the revolving credit and of all repayments
thereof, and Company will furnish Bank upon request with statements showing
the outstanding principal balance of all such advances to each Guarantor.
9.17 Make any voluntary payment on or voluntary redemption of any
Debenture (including without limitation any "Security" as defined therein),
nor modify or amend any Debenture in any material respect.
10. ENVIRONMENTAL PROVISIONS
10.1 Company shall comply, and shall cause its Subsidiaries to comply,
with all applicable Environmental Laws except for such non-compliance which
would reasonably not be expected to materially adversely affect its business
or the value of its property or assets.
10.2 Company shall provide to Bank, promptly upon receipt, copies of any
correspondence, notice, pleading, citation, indictment, complaint, order,
decree, or other document from any source asserting or alleging a
circumstance or condition which requires or may require a financial
contribution by Company or any Subsidiary to a cleanup, removal, remedial
action, or other response by or on the part of Company or any Subsidiary
under applicable Environmental Laws or which seeks damages or civil, criminal
or punitive penalties from Company for an alleged violation of Environmental
Laws, where such contribution, response or damages would reasonably be
expected to materially adversely affect its business or the value of its
property or assets.
10.3 Company shall promptly notify Bank in writing as soon as Company
becomes aware of the occurrence or existence of any condition or circumstance
which makes the environmental warranties contained in this Agreement
incomplete or inaccurate in any material respect as of any date.
10.4 In the event of any condition or circumstance that makes any
environmental warranty, representation and/or agreement incomplete or
inaccurate in any material respect as of any date, Company shall, at the
reasonable request of Bank, at its sole expense, retain an environmental
consultant, reasonably acceptable to Bank, to conduct a thorough and complete
investigation regarding the changed condition and/or circumstance. A copy of
the environmental consultant 's report will be promptly delivered to both
Bank and Company upon completion.
10.5 At any time Company, directly or indirectly through any
environmental consultant or other representative, determines to undertake an
environmental audit, assessment or investigation relating to any fact, event
or condition which would reasonably be expected to materially adversely
affect its business or the value of its property or assets, Company shall
promptly provide Bank with written notice of the initiation of the
environmental audit, fully describing the purpose and intended scope of the
environmental audit. Upon receipt, Company will promptly provide to Bank
copies of all final findings and conclusions of any such environmental
investigation.
10.6 Company hereby indemnifies, saves and holds Bank and any of its
past, present and future officers, directors, shareholders, employees,
representatives and consultants harmless from any and all loss, damages,
suits, penalties, costs, liabilities and expenses (including but not limited
to reasonable investigation, environmental audit(s), and legal expenses)
arising out of any claim, loss or damage to any property, injuries to or
death of persons, contamination of or adverse affects on the environment,
caused by or in any way related to the violation of any applicable
Environmental Laws by Company or its officers, directors, shareholders,
employees, consultants and/or representatives; provided, however, that the
foregoing indemnification shall not be applicable when arising solely from
events or conditions occurring while the Bank is in sole possession (subject
to the rights of any creditors of Company) of such property. In no event
shall Company be liable hereunder for any loss, damages, suits, penalties,
costs, liabilities or expenses arising from any act of gross negligence of
Bank, or its agents or employees. It is expressly understood and agreed that
the indemnifications granted herein are intended to protect Bank, its past,
present and future officers, directors, shareholders, employees, consultants
and representatives from any claims that may arise by reason of the security
interest, liens and/or mortgages granted to Bank, or under any other document
or agreement given to secure repayment of any indebtedness from Company,
whether or not such claims arise before or after Bank has foreclosed upon
and/or otherwise become the owner of any such property. All obligations of
indemnity as provided hereunder shall be secured by the collateral documents.
It is expressly agreed and understood that the provisions hereof shall and
are intended to be continuing and shall survive the repayment of any
indebtedness from Company to Bank.
10.7 Company shall maintain, and shall cause its Subsidiary to maintain,
all permits, licenses and approvals required under applicable Environmental
Laws except such permits, licenses and approvals the failure of which to have
would reasonably not be expected to materially adversely affect its business
or the value of its property or assets.
11. EVENTS OF DEFAULT
11.1 Upon occurrence of any of the following events of default:
(a) non-payment of any installment of the principal of the Notes when
due or any reimbursement obligation with respect to any Letter of Credit when
due;
(b) non-payment of any interest on the Notes when due in accordance with
the terms thereof, or upon non-payment of any other outstanding Indebtedness
when due in accordance with the terms thereof;
(c) default in the observance or performance of any of the conditions,
covenants or agreements of Company set forth in Section 8 or set forth in
Section 9;
(d) default in observance or performance of any of the other conditions,
covenants or agreements of Company herein set forth, and continuance thereof
for thirty (30) days after written notice to Company by Bank;
(e) any material representation or warranty made by Company or any other
Person herein or in any instrument submitted pursuant hereto proves untrue in
any material respect when made or deemed made;
(f) default in the observance or performance of any of the conditions,
covenants or agreements of Company or any other Person set forth in any
collateral document which may be given to secure the indebtedness hereunder
or in any other collateral document related to or connected with this
Agreement or the indebtedness hereunder and continuance for ten (10) days;
(g) default in the payment of any other obligation of Company, any
Subsidiary or any Guarantor for borrowed money in an aggregate amount in
excess of Fifty Thousand Dollars ($50,000), or in the observance or
performance of any conditions, covenants or agreements related or given with
respect to any obligations for borrowed money in an aggregate amount in
excess of Fifty Thousand Dollars ($50,000) sufficient to permit the holder
thereof to accelerate the maturity of such obligation;
(h) judgments for the payment of money in excess of the sum of One
Hundred Thousand Dollars ($100,000) in the aggregate shall be rendered
against Company, any Subsidiary or any Guarantor and such judgments shall
remain unpaid, unvacated, unbonded or unstayed by appeal or otherwise for a
period of thirty (30) consecutive days from the date of its entry and such
judgment is not covered by insurance from a solvent insurer who is defending
such action without reservation of rights;
(i) the occurrence of any "reportable event", as defined in the Employee
Retirement Income Security Act of 1974 and any amendments thereto, which is
determined to constitute grounds for termination by the Pension Benefit
Guaranty Corporation of any employee pension benefit plan maintained by or on
behalf of Company or any Subsidiary for the benefit of any of its employees
or for the appointment by the appropriate United States District Court of a
trustee to administer such plan and is reasonably likely that the occurrence
of such event would result in a material adverse effect on Company, and such
reportable event is not corrected and such determination is not revoked
within thirty (30) days after notice thereof has been given to the plan
administrator or Company; or the institution of proceedings by the Pension
Benefit Guaranty Corporation to terminate any such employee benefit pension
plan or to appoint a trustee to administer such plan; or the appointment of a
trustee by the appropriate United States District Court to administer any
such employee benefit pension plan;
(j) if Gregory Horton no longer is the President of Company or no longer
is actively involved in the day-to-day business of Company or if Thomas M.
Wheeler or entities controlled by him no longer own at least 30% of the
outstanding stock of Company having voting power or if at any time any person
or group of affiliated Persons owns a greater percentage of the outstanding
stock of Company than is owned at such time by Thomas M. Wheeler and the
entities controlled by him;
(k) if any Guaranty or any subordination agreement relating to
Subordinated Debt is revoked;
(l) if Bank shall deem itself to be insecure (subject to the provisions
of Section 1-208 of the UCC);
(m) there shall exist or occur an event or condition which obligates or
requires Company to make any payment on or redemption of the 2008 Debenture
(including without limitation any "Security" as defined therein), other than
the semiannual interest payments scheduled for February 1 and August 1 of
each year, the principal payment scheduled on August 1, 2008 and the annual
mandatory redemptions scheduled for August 1 of each year thereunder. It is
acknowledged that the events which would constitute an Event of Default under
this subparagraph (m) include, without limitation, the occurrence of any
event which would obligate Borrower to make a "Repurchase Offer" or an
"Offer" as defined in the 2008 Debenture of the occurrence of any event which
results in the acceleration of any of the "Securities" or which would entitle
some or all of the holders hereof to accelerate all or a portion of the
"Securities"; then, or at any time thereafter, unless such default is
remedied, Bank may give notice to Company declaring all outstanding
indebtedness hereunder and under the Notes to be due and payable, whereupon
all indebtedness then outstanding hereunder and under the Notes and any
Letters of Credit shall immediately become due and payable without further
notice and demand, and Bank shall not be obligated to make further Advances,
any Equipment Loan, or issue any Letter of Credit hereunder.
11.2 If a creditors ' committee shall have been appointed for the
business of Company or any Subsidiary in connection with any bankruptcy or
insolvency; or if Company or any Subsidiary shall have made a general
assignment for the benefit of creditors or shall have been adjudicated
bankrupt, or shall have filed a voluntary petition in bankruptcy or for
reorganization or to effect a plan or arrangement with creditors; or shall
file an answer to a creditor 's petition or other petition filed against it,
admitting the material allegations thereof for an adjudication in bankruptcy
or for reorganization; or shall have applied for or permitted the appointment
of a receiver, or trustee or custodian for any of its property or assets; or
such receiver, trustee or custodian shall have been appointed for any of its
property or assets (otherwise than upon application or consent of Company or
any Subsidiary, as applicable), and such receiver, trustee or custodian so
appointed shall not have been discharged within sixty (60) days after the
date of his appointment or if an order shall be entered and shall not be
dismissed or stayed within sixty (60) days from its entry, approving any
petition for reorganization of Company or any Subsidiary, then the Notes and
all indebtedness then outstanding hereunder and under any Letters of Credit
shall automatically become immediately due and payable and Bank shall not be
obligated to make further Advances, any Equipment Loans or issue any Letters
of Credit under this Agreement.
11.3 Upon the occurrence and during the continuance of an Event of
Default, unless all of the Indebtedness is then immediately fully paid, Bank
shall have and may exercise any one or more of the rights and remedies for
which provision is made for a secured party under the UCC, under the Security
Agreements or under any other document contemplated hereby or for which
provision is provided by law or in equity, including, without limitation, the
right to take possession and sell, lease or otherwise dispose of any or all
of the collateral and to set off against the Indebtedness any amount owing by
Bank to Company and/or any property of Company in possession of Bank. Company
agrees, upon request of Bank, to assemble the collateral and make it
available to Bank at any place designated by Bank which is reasonably
convenient to Bank and Company.
11.4 All of the Indebtedness shall constitute one loan secured by Bank 's
security interest in the collateral and by all other security interests,
mortgages, liens, claims, and encumbrances now and from time to time
hereafter granted from Company to Bank. Upon the occurrence and during the
continuance of an Event of Default which is not cured within the cure period,
if any, provided hereunder, Bank may in its sole discretion apply the
collateral to any portion of the Indebtedness. The proceeds of any sale or
other disposition of the Collateral authorized by this Agreement shall be
applied by Bank, first upon all expenses authorized by the Michigan Uniform
Commercial Code (or other applicable law) or otherwise in connection with the
sale and all reasonable attorneys ' fees and legal expenses incurred by Bank;
the balance of the proceeds of such sale or other disposition shall be
applied in the payment of the Indebtedness, first to interest, then to
principal, then to other Indebtedness and the surplus, if any, shall be paid
over to Company or to such other Person or Persons as may be entitled thereto
under applicable law. Company shall remain liable for any deficiency, which
Company shall pay to Bank immediately upon demand.
11.5 The remedies provided for herein are cumulative to the remedies for
collection of the Indebtedness as provided by law, in equity or by any
mortgage, security agreement or other document contemplated hereby. Nothing
herein contained is intended, nor shall it be construed, to preclude Bank
from pursuing any other remedy for the recovery of any other sum to which
Bank may be or become entitled for the breach of this Agreement by Company.
11.6 Upon the occurrence and during the continuance of any Event of Default,
Company shall immediately upon demand by Bank deposit with Bank cash
collateral in the amount equal to the maximum amount available to be drawn at
any time under any Letter of Credit then outstanding.
12. MISCELLANEOUS
12.1 This Agreement shall be binding upon and shall inure to the benefit
of Company and Bank and their respective successors and assigns, except that
the credit provided for under this Agreement and no part thereof and no
obligation of Bank hereunder shall be assignable or otherwise transferable by
Company.
12.2 Company shall pay all closing costs and expenses, including, by way
of description and not limitation, reasonable attorney fees, lien search
fees, appraisal fees and title policy fees incurred by Bank in connection
with the commitment, consummation and closing of this Agreement. All of said
amounts required to be paid by Company may, at Bank 's option, be charged by
Bank as an advance against the proceeds of the Notes. All costs, including
reasonable attorney fees incurred by Bank in protecting or enforcing any of
its or any of the Bank 's rights against Company or any collateral or in
defending Bank from any claims or liabilities by any party or otherwise
incurred by Bank in connection with an event of default or the enforcement of
this Agreement or the related documents, including by way of description and
not limitation, such charges in any court or bankruptcy proceedings or
arising out of any claim or action by any person against Bank which would not
have been asserted were it not for Bank 's relationship with Company
hereunder, shall also be paid by Company.
12.3 Where the character or amount of any asset or liability or item of
income or expense is required to be determined or any consolidation or other
accounting computation is required to be made for the purposes of this
Agreement, it shall be done in accordance with GAAP.
12.4 No delay or failure of Bank in exercising any right, power or
privilege hereunder shall affect such right, power or privilege, nor shall
any single or partial exercise thereof preclude any further exercise thereof,
or the exercise of any other power, right or privilege. The rights of Bank
and Company under this Agreement are cumulative and not exclusive of any
right or remedies which Bank or Company, as applicable, would otherwise have.
12.5 Except as expressly provided otherwise in this Agreement, all
notices and other communications provided to any party hereto under this
Agreement shall be in writing and shall be given by personal delivery, by
mail, by reputable overnight courier, by telex or by facsimile and addressed
or delivered to it at its address set forth below or at such other address as
may be designated by such party in a notice to the other parties that
complies as to delivery with the terms of this Section 12.5. Any notice, if
personally delivered or if mailed and properly addressed with postage prepaid
and sent by registered or certified mail, shall be deemed given when
received; any notice, if given to a reputable overnight courier and properly
addressed, shall be deemed given two (2) Business Days after the date on
which it was sent, unless it is actually received sooner by the named
addressee; and any notice, if transmitted by telex or facsimile, shall be
deemed given when received (answerback confirmed in the case of telexes and
receipt confirmed by Bank in the case of telecopies from Company to Bank and
receipt confirmed by Company in the case of telecopies from Bank to Company).
Bank may, but shall not be required to, take any action on the basis of any
notice given to it by telephone, but Company shall promptly confirm such
notice in writing or by telex or facsimile, and such notice will not be
deemed to have been received until such confirmation is deemed received in
accordance with the provisions of this Section set forth above. If such
telephonic notice conflicts with any such confirmation, the terms of such
telephonic notice shall control.
To Company:
2151 Anchor Court
Thousand Oaks, California 91320
Attention: Kirk A. Waldron
Fax No.(805) 376-9015
To Bank:
One Detroit Center
500 Woodward Avenue
Detroit, Michigan 48226
Attention: Comerica Business Credit/Group Manager
Fax No. (313) 222-9297
12.6 This Agreement and the Notes have been delivered at Detroit,
Michigan, and shall be governed by and construed and enforced in accordance
with the laws of the State of Michigan. Whenever possible each provision of
this Agreement shall be interpreted in such manner as to be effective and
valid under applicable law, but if any provision of this Agreement shall be
prohibited by or invalid under applicable law, such provision shall be
ineffective to the extent of such prohibition or invalidity, without
invalidating the remainder of such provision or the remaining provisions of
this Agreement.
12.7 No amendments or waiver of any provisions of this Agreement nor
consent to any departure by Company therefrom shall in any event be effective
unless the same shall be in writing and signed by the Bank, and then such
amendment, waiver or consent shall be effective only in the specific instance
and for the specific purpose for which given. No amendment, waiver or consent
with respect to any provision of this Agreement shall affect any other
provision of this Agreement.
12.8 All sums payable by Company to Bank under this Agreement or the
other documents contemplated hereby shall be paid directly to Bank at its
principal office set forth in Section 12.5 hereof in immediately available
United States funds, without set off, deduction or counterclaim. In its sole
discretion, Bank may charge any and all deposit or other accounts (including
without limit an account evidenced by a certificate of deposit) of Company
with Bank for all or a part of any Indebtedness then due; provided, however,
that this authorization shall not affect Company 's obligation to pay, when
due, any Indebtedness whether or not account balances are sufficient to pay
amounts due.
12.9 Any payment of the Indebtedness made by mail will be deemed tendered
and received only upon actual receipt by Bank at the address designated for
such payment, whether or not Bank has authorized payment by mail or any other
manner, and shall not be deemed to have been made in a timely manner unless
received on the date due for such payment, time being of the essence. Company
expressly assumes all risks of loss or liability resulting from non-delivery
or delay of delivery of any item of payment transmitted by mail or in any
other manner. Acceptance by Bank of any payment in an amount less than the
amount then due shall be deemed an acceptance on account only, and the
failure to pay the entire amount then due shall be and continue to be an
Event of Default, and at any time thereafter and until the entire amount then
due has been paid, Bank shall be entitled to exercise any and all rights
conferred upon it herein upon the occurrence of an Event of Default. Upon the
occurrence and during the continuance of an Event of Default, Company waives
the right to direct the application of any and all payments at any time or
times hereafter received by Bank from or on behalf of Company. Upon the
occurrence and during the continuance of an Event of Default, Company agrees
that Bank shall have the continuing exclusive right to apply and to reapply
any and all payments received at any time or times hereafter against the
Indebtedness in such manner as Bank may deem advisable, notwithstanding any
entry by Bank upon any of its books and records. Company expressly agrees
that to the extent that Bank receives any payment or benefit and such payment
or benefit, or any part thereof, is subsequently invalidated, declared to be
fraudulent or preferential, set aside or is required to be repaid to a
trustee, receiver, or any other party under any bankruptcy act, state or
federal law, common law or equitable cause, then to the extent of such
payment or benefit, the Indebtedness or part thereof intended to be satisfied
shall be revived and continued in full force and effect as if such payment or
benefit had not been made and, further, any such repayment by Bank, to the
extent that Bank did not directly receive a corresponding cash payment, shall
be added to and be additional Indebtedness payable upon demand by Bank.
12.10 In the event Company 's obligation to pay interest on the principal
balance of the Notes is or becomes in excess of the maximum interest rate
which Company is permitted by law to contract or agree to pay, giving due
consideration to the execution date of this Agreement, then, in that event,
the rate of interest applicable shall be deemed to be immediately reduced to
such maximum rate and all previous payments in excess of such maximum rate
shall be deemed to have been payments in reduction of principal and not of
interest.
12.11 COMPANY AND BANK ACKNOWLEDGE THAT THE RIGHT TO TRIAL BY JURY IS A
CONSTITUTIONAL ONE, BUT THAT IT MAY BE WAIVED. EACH PARTY, AFTER CONSULTING
(OR HAVING HAD THE OPPORTUNITY TO CONSULT) WITH COUNSEL OF THEIR CHOICE,
KNOWINGLY AND VOLUNTARILY, AND FOR THEIR MUTUAL BENEFIT WAIVES ANY RIGHT TO
TRIAL BY JURY IN THE EVENT OF LITIGATION REGARDING THE PERFORMANCE OR
ENFORCEMENT OF, OR IN ANY WAY RELATED TO, THIS AGREEMENT OR THE INDEBTEDNESS.
12.12 This Agreement shall become effective upon the execution hereof by
Bank and Company.
WITNESS the due execution hereof as of the day and year first above written.
COMERICA BANK SMTEK INTERNATIONAL, INC.
By: By: /s/ Kirk A. Waldron
Its: Vice President Its: Chief Financial Officer/Treasurer
EXHIBIT "A"
EQUIPMENT NOTE
Detroit, Michigan
$ , 2001
-------------------- ------------
FOR VALUE RECEIVED, SMTEK International, Inc., a Delaware corporation
(herein called "Company") promises to pay to the order of COMERICA BANK, a
Michigan banking corporation (herein called "Bank"), at its Main Office at
500 Woodward Avenue, Detroit, Michigan, the principal sum of and 00/100
Dollars ($___________) in lawful money of the United States of America
payable in monthly principal installments each in the amount of Dollars
($__________), commencing on ___________, 200___, and on a like day of each
month thereafter until the Equipment Credit Maturity Date, when the entire
unpaid balance of principal and interest thereon shall be due and payable,
together with interest thereon as hereinafter set forth.
The principal balance from time to time outstanding hereunder shall bear
interest at the Applicable Interest Rate from time to time applicable thereto
under the Agreement (as defined below) or as otherwise determined thereunder,
and interest shall be computed, assessed and payable as set forth in the
Agreement.
This Note evidences borrowing under, is subject to, is secured in
accordance with, may be prepaid in accordance with, and may be matured under
the terms of the Credit Agreement dated as of September 25, 2001 by and
between Company and Bank (as the same may be amended or modified from time to
time, "Agreement") to which reference is hereby made. As additional security
for this Note, Company grants Bank a lien on all property and assets,
including deposits and other credits, of the Company, at any time in
possession or control of or owing by Bank for any purpose.
Company hereby waives presentment for payment, demand, protest and
notice of protest and notice of dishonor and nonpayment of this Note and
agrees that no obligation hereunder shall be discharged by reason of any
extension, indulgence, or forbearance granted by any holder of this Note to
any party now or hereafter liable hereon. Any transferees of, or endorser,
guarantor or surety paying this Note in full shall succeed to all rights of
Bank, and Bank shall be under no further responsibility for the exercise
thereof or the loan evidenced hereby. Nothing herein shall limit any right
granted by other instrument or by law.
All capitalized terms used but not defined herein shall have the
meanings ascribed to them in the Agreement.
SMTEK INTERNATIONAL, INC.
By:
Its:
EXHIBIT "B"
NOTICE OF TERM RATE
With reference to the Equipment Note dated , 200___ in the original
principal amount of $ delivered by the Company to the Bank under the Credit
Agreement dated as of September 25, 2001 by and between Company and the Bank
(as the same may be amended or modified from time to time, "Agreement") and
pursuant to the Agreement, the Company hereby elects as the Applicable
Interest Rate for such Note the ____(1) Rate. Such Applicable Interest Rate
shall be effected on , ___________, and the Interest Period applicable
thereto, if any, shall be _____.(2)
All capitalized terms used but not defined herein shall have the
meanings ascribed to them in the Agreement.
Dated this_________ day of , ________.
SMTEK INTERNATIONAL, INC.
By:
Its:
(1) Insert, as applicable, "Eurodollar-based", or "Prime-based".
(2) Insert, as applicable, "one month", "two months" or "three months".
EXHIBIT "C"
REQUEST FOR ADVANCE
Pursuant to the Credit Agreement dated as of September 25, 2001, (herein
called "Agreement"), the undersigned hereby requests COMERICA BANK to make
a(an) ______(1) Advance to the undersigned on , , in the amount of DOLLARS,
($ ) under [the Revolving Credit Note dated September 25, 2001] [an Equipment
Note], issued by the undersigned to said Bank (herein called "Note"). The
Interest Period for the requested Advance, if applicable, shall be _____(2).
The last day of the Interest Period for the amounts being converted or
refunded hereunder, if applicable, is , . The undersigned certifies that no
event has occurred or condition exists which constitutes, or with the passage
of time and/or giving of notice would constitute, a default under the
Agreement or the Note, and none will exist upon the making of the Advance
requested hereunder.
The undersigned further certifies that upon advancing the sum requested
hereunder, the aggregate principal amount outstanding under the Note will not
exceed the face amount thereof or any advance formula applicable to Advances
under such Note. If the amount advanced to the undersigned under the Note
shall at any time exceed the face amount thereof or any Advance formula
applicable to Advances under such Note, the undersigned will pay such excess
amount on demand.
[The proceeds of the Advance in the amount of $_______ will be used to
fund a Permitted U.S. Acquisition.]
The undersigned hereby authorizes said Bank to disburse the proceeds of
this Request for Advance by crediting the account of the undersigned with
Bank separately designated by the undersigned or as the undersigned may
otherwise direct, unless this Request for Advance is being submitted for a
conversion or refunding, in which case it shall refund or convert that
portion stated above of the existing outstandings under the Note.
Dated this ______ day of _____, ______.
SMTEK INTERNATIONAL, INC.
By:
Its:
(1) Insert, as applicable, "Eurodollar-based", or "Prime-based".
(2) For a Eurodollar-based Advance insert, as applicable, "one month", "two
months" or "three months".
EXHIBIT "D"
REVOLVING CREDIT NOTE
Detroit, Michigan
$16,000,000 September 25, 2001
On or before the Revolving Credit Maturity Date FOR VALUE RECEIVED,
SMTEK International, Inc., a Delaware corporation, (herein called "Company")
promises to pay to the order of COMERICA BANK, a Michigan banking corporation
(herein called "Bank") at its Main Office at 500 Woodward Avenue, Detroit,
Michigan, in lawful money of the United States of America the indebtedness or
so much of the sum of Sixteen Million Dollars ($16,000,000) as may from time
to time have been advanced and then be outstanding hereunder pursuant to the
Credit Agreement dated as of September 25, 2001, made by and between Company
and Bank (as the same may be amended or modified from time to time, herein
called "Agreement"), together with interest thereon as hereinafter set forth.
Each of the Advances hereunder shall bear interest at the Applicable
Interest Rate from time to time applicable thereto under the Agreement or as
otherwise determined thereunder, and interest shall be computed, assessed and
payable as set forth in the Agreement.
This Note is a note under which advances, repayments and readvances may
be made from time to time, subject to the terms and conditions of the
Agreement. This Note evidences borrowing under, is subject to, is secured in
accordance with, and may be matured under, the terms of the Agreement, to
which reference is hereby made. As additional security for this Note, Company
grants Bank a lien on all property and assets including deposits and other
credits of the Company, at any time in possession or control of or owing by
Bank for any purpose.
Company hereby waives presentment for payment, demand, protest and
notice of dishonor and nonpayment of this Note and agrees that no obligation
hereunder shall be discharged by reason of any extension, indulgence, or
forbearance granted by any holder of this Note to any party now or hereafter
liable hereon. Any transferees of, or endorser, guarantor or surety paying
this Note in full shall succeed to all rights of Bank, and Bank shall be
under no further responsibility for the exercise thereof or the loan
evidenced hereby. Nothing herein shall limit any right granted Bank by other
instrument or by law.
All capitalized terms used but not defined herein shall have the
meanings ascribed to them in the Agreement.
SMTEK INTERNATIONAL, INC.
By:
Its:
SECURITY AGREEMENT
(All Assets)
As of September 25, 2001, for value received, the undersigned ("Debtor")
grants to Comerica Bank, a Michigan banking corporation ("Bank"), whose
address is 39200 Six Mile Road, Livonia, Michigan 48152 , Attention:
Commercial Loan Documentation, Mail Code 7578, a continuing security interest
and lien (any pledge, assignment, security interest or other lien arising
hereunder is sometimes referred to herein as a "security interest") in the
Collateral (as defined below) to secure payment when due, whether by stated
maturity, demand, acceleration or otherwise, of all existing and future
indebtedness ("Indebtedness") to the Bank of Smtek International, Inc.
("Borrower") and/or Debtor. Indebtedness includes without limit any and all
obligations or liabilities of the Borrower and/or Debtor to the Bank, whether
absolute or contingent, direct or indirect, voluntary or involuntary,
liquidated or unliquidated, joint or several, known or unknown; any and all
obligations or liabilities for which the Borrower and/or Debtor would
otherwise be liable to the Bank were it not for the invalidity or
unenforceability of them by reason of any bankruptcy, insolvency or other
law, or for any other reason; any and all amendments, modifications, renewals
and/or extensions of any of the above; all costs incurred by Bank in
establishing, determining, continuing, or defending the validity or priority
of its security interest, or in pursuing its rights and remedies under this
Agreement or under any other agreement between Bank and Borrower and/or
Debtor or in connection with any proceeding involving Bank as a result of any
financial accommodation to Borrower and/or Debtor; and all other costs of
collecting Indebtedness, including without limit attorney fees. Debtor agrees
to pay Bank all such costs incurred by the Bank, immediately upon demand, and
until paid all costs shall bear interest at the highest per annum rate
applicable to any of the Indebtedness, but not in excess of the maximum rate
permitted by law. Any reference in this Agreement to attorney fees shall be
deemed a reference to reasonable fees, costs, and expenses of both in-house
and outside counsel and paralegals, whether or not a suit or action is
instituted, and to court costs if a suit or action is instituted, and whether
attorney fees or court costs are incurred at the trial court level, on
appeal, in a bankruptcy, administrative or probate proceeding or otherwise.
Debtor further covenants, agrees and represents as follows:
1. COLLATERAL shall mean all of the following property Debtor now or later
owns or has an interest in, wherever located:
(a) all Accounts Receivable (for purposes of this Agreement, "Accounts
Receivable" consists of all accounts; general intangibles; chattel paper
(including without limit electronic chattel paper and tangible chattel
paper); contract rights; deposit accounts; documents; instruments; rights to
payment evidenced by chattel paper, documents or instruments; health care
insurance receivables; commercial tort claims; letters of credit; letter of
credit rights; supporting obligations; and rights to payment for money or
funds advanced or sold),
(b) all Inventory,
(c) all Equipment and Fixtures,
(d) all Software (for purposes of this Agreement, "Software" consists of
all (i) computer programs and supporting information provided in connection
with a transaction relating to the program, and (ii) computer programs
embedded in goods and any supporting information provided in connection with
a transaction relating to the program whether or not the program is
associated with the goods in such a manner that it customarily is considered
part of the goods, and whether or not, by becoming the owner of the goods, a
person acquires a right to use the program in connection with the goods, and
whether or not the program is embedded in goods that consist solely of the
medium in which the program is embedded),
(e) specific items listed below and/or on attached Schedule A, if any,
is/are also included in Collateral:
(f) all goods, instruments, documents, policies and certificates of
insurance, deposits, money, investment property or other property (except
real property which is not a fixture) which are now or later in possession or
control of Bank, or as to which Bank now or later controls possession by
documents or otherwise, and
(g) all additions, attachments, accessions, parts, replacements,
substitutions, renewals, interest, dividends, distributions, rights of any
kind (including but not limited to stock splits, stock rights, voting and
preferential rights), products, and proceeds of or pertaining to the above
including, without limit, cash or other property which were proceeds and are
recovered by a bankruptcy trustee or otherwise as a preferential transfer by
Debtor.
In the definition of Collateral, a reference to a type of collateral shall
not be limited by a separate reference to a more specific or narrower type of
that collateral.
2. WARRANTIES, COVENANTS AND AGREEMENTS. Debtor warrants, covenants and
agrees as follows:
2.1 Debtor shall furnish to Bank, in form and at intervals as Bank may
request, any information Bank may reasonably request and allow Bank to
examine, inspect, and copy any of Debtor's books and records. Debtor shall,
at the request of Bank, mark its records and the Collateral to clearly
indicate the security interest of Bank under this Agreement.
2.2 At the time any Collateral becomes, or is represented to be, subject to a
security interest in favor of Bank, Debtor shall be deemed to have warranted
that (a) Debtor is the lawful owner of the Collateral and has the right and
authority to subject it to a security interest granted to Bank; (b) none of
the Collateral is subject to any security interest other than that in favor
of Bank and Permitted Liens (as defined below); (c) there are no financing
statements on file, other than in favor of Bank and those filed with respect
to Permitted Liens; (d) no person, other than Bank, has possession or control
(as defined in the Uniform Commercial Code) of any Collateral of such nature
that perfection of a security interest may be accomplished by control; and
(e) Debtor acquired its rights in the Collateral in the ordinary course of
its business.
2.3 Debtor will keep the Collateral free at all times from all claims, liens,
security interests and encumbrances other than those in favor of Bank and
liens and security interests permitted under the terms of the Credit
Agreement dated as of September ___, 2001 between Borrower and Bank
("Permitted Liens"). Debtor will not, without the prior written consent of
Bank, sell, transfer or lease, or permit to be sold, transferred or leased,
any or all of the Collateral, except for Inventory in the ordinary course of
its business and will not return any Inventory to its supplier. Bank or its
representatives may at all reasonable times inspect the Collateral and may
enter upon all premises where the Collateral is kept or might be located.
2.4 Debtor will do all acts and will execute or cause to be executed all
writings requested by Bank to establish, maintain and continue an exclusive,
perfected and first security interest of Bank in the Collateral (subject to
Permitted Liens). Debtor agrees that Bank has no obligation to acquire or
perfect any lien on or security interest in any asset(s), whether realty or
personalty, to secure payment of the Indebtedness, and Debtor is not relying
upon assets in which the Bank may have a lien or security interest for
payment of the Indebtedness.
2.5 Debtor will pay within the time that they can be paid without interest or
penalty all taxes, assessments and similar charges which at any time are or
may become a lien, charge, or encumbrance upon any Collateral, except to the
extent contested in good faith and, if reasonably required by Bank, bonded in
a manner satisfactory to Bank. If Debtor fails to pay any of these taxes,
assessments, or other charges in the time provided above, Bank has the option
(but not the obligation) to do so and Debtor agrees to repay all amounts so
expended by Bank immediately upon demand, together with interest at the
highest lawful default rate which could be charged by Bank on any
Indebtedness.
2.6 Debtor will keep the Collateral in good condition and will protect it
from loss, damage, or deterioration from any cause ordinary wear and tear
excepted. Debtor has and will maintain at all times (a) with respect to the
Collateral, insurance under an "all risk" policy against fire and other risks
customarily insured against, and (b) public liability insurance and other
insurance as may be required by law or reasonably required by Bank, all of
which insurance shall be in amount, form and content, and written by
companies as may be satisfactory to Bank, containing a lender's loss payable
endorsement acceptable to Bank. Debtor will deliver to Bank immediately upon
demand evidence satisfactory to Bank that the required insurance has been
procured. If Debtor fails to maintain satisfactory insurance, Bank has the
option (but not the obligation) to do so and Debtor agrees to repay all
amounts so expended by Bank immediately upon demand, together with interest
at the highest lawful default rate which could be charged by Bank on any
Indebtedness.
2.7 On each occasion on which Debtor evidences to Bank the account balances
on and the nature and extent of the Accounts Receivable which are included in
a borrowing base report as an eligible account, Debtor shall be deemed to
have warranted that except as otherwise indicated (a) each of those Accounts
Receivable is valid and enforceable without performance by Debtor of any act;
(b) each of those account balances are in fact owing, (c) there are no
setoffs, recoupments, credits, contra accounts, counterclaims or defenses
against any of those Accounts Receivable, (d) as to any Accounts Receivable
represented by a note, trade acceptance, draft or other instrument or by any
chattel paper or document, the same have been endorsed and/or delivered by
Debtor to Bank, (e) Debtor has not received with respect to any Account
Receivable, any notice of the death of the related account debtor, nor of the
dissolution, liquidation, termination of existence, insolvency, business
failure, appointment of a receiver for, assignment for the benefit of
creditors by, or filing of a petition in bankruptcy by or against, the
account debtor, and (f) as to each Account Receivable, except as may be
expressly permitted by Bank to the contrary in another document, the account
debtor is not an affiliate of Debtor, the United States of America or any
department, agency or instrumentality of it, or a citizen or resident of any
jurisdiction outside of the United States. Debtor will do all acts and will
execute all writings requested by Bank to perform, enforce performance of,
and collect all Accounts Receivable. Debtor shall neither make nor permit any
modification, compromise or substitution for any Account Receivable without
the prior written consent of Bank except for modifications and compromises
made in the ordinary course of business in a manner consistent with past
practice and to the extent made prior to the occurrence of an Event of
Default. Debtor shall, at Bank's request, arrange for verification of
Accounts Receivable directly with account debtors or by other methods
acceptable to Bank.
2.8 Debtor at all times shall be in compliance in all material respects with
all applicable laws, including without limit any laws, ordinances,
directives, orders, statutes, or regulations an object of which is to
regulate or improve health, safety, or the environment ("Environmental
Laws").
2.9 If Bank, acting in its sole discretion, redelivers Collateral to Debtor
or Debtor's designee for the purpose of (a) the ultimate sale or exchange
thereof; or (b) presentation, collection, renewal, or registration of
transfer thereof; or (c) loading, unloading, storing, shipping,
transshipping, manufacturing, processing or otherwise dealing with it
preliminary to sale or exchange; such redelivery shall be in trust for the
benefit of Bank and shall not constitute a release of Bank's security
interest in it or in the proceeds or products of it unless Bank specifically
so agrees in writing. If Debtor requests any such redelivery, Debtor will
deliver with such request a duly executed financing statement in form and
substance satisfactory to Bank. Any proceeds of Collateral coming into
Debtor's possession as a result of any such redelivery shall be held in trust
for Bank and immediately delivered to Bank for application on the
Indebtedness. Bank may (in its sole discretion) deliver any or all of the
Collateral to Debtor, and such delivery by Bank shall discharge Bank from all
liability or responsibility for such Collateral. Bank, at its option, may
require delivery of any Collateral to Bank at any time with such endorsements
or assignments of the Collateral as Bank may request.
2.10 At any time and without notice, Bank may (a) cause any or all of the
Collateral to be transferred to its name or to the name of its nominees; (b)
receive or collect by legal proceedings or otherwise all dividends, interest,
principal payments and other sums and all other distributions at any time
payable or receivable on account of the Collateral, and hold the same as
Collateral, or apply the same to the Indebtedness, the manner and
distribution of the application to be in the sole discretion of Bank; (c)
enter into any extension, subordination, reorganization, deposit, merger or
consolidation agreement or any other agreement relating to or affecting the
Collateral, and deposit or surrender control of the Collateral, and accept
other property in exchange for the Collateral and hold or apply the property
or money so received pursuant to this Agreement; and (d) take such actions in
its own name or in Debtor's name as Bank, in its sole discretion, deems
necessary or appropriate to establish exclusive control (as defined in the
Uniform Commercial Code) over any Collateral of such nature that perfection
of Bank's security interest may be accomplished by control.
2.11 Bank may assign any of the Indebtedness and deliver any or all of the
Collateral to its assignee, who then
shall have with respect to Collateral so delivered all the rights and powers
of Bank under this Agreement,
and after that Bank shall be fully discharged from all liability and
responsibility with respect to Collateral
so delivered.
2.12 [Intentionally Left Blank].
2.13 Debtor shall defend, indemnify and hold harmless Bank, its employees,
agents, shareholders, affiliates, officers, and directors from and against
any and all claims, damages, fines, expenses, liabilities or causes of action
of whatever kind, including without limit consultant fees, legal expenses,
and attorney fees, suffered by any of them as a direct or indirect result of
any actual or asserted violation of any law by Debtor or any of its
employees, agents, affiliates, officers, directors or other persons under its
direction or control, including, without limit, Environmental Laws, or of any
remediation relating to any property required by any law, including without
limit Environmental Laws.
3. COLLECTION OF PROCEEDS.
3.1 Debtor agrees to collect and enforce payment of all Collateral until Bank
shall direct Debtor to the contrary (which direction may only be given
following the occurrence of an Event of Default). Immediately upon notice to
Debtor by Bank and at all times after that, Debtor agrees to fully and
promptly cooperate and assist Bank in the collection and enforcement of all
Collateral and to hold in trust for Bank all payments received in connection
with Collateral and from the sale, lease or other disposition of any
Collateral, all rights by way of suretyship or guaranty and all rights in the
nature of a lien or security interest which Debtor now or later has regarding
Collateral. Immediately upon and after such notice, Debtor agrees to (a)
endorse to Bank and immediately deliver to Bank all payments received on
Collateral or from the sale, lease or other disposition of any Collateral or
arising from any other rights or interests of Debtor in the Collateral, in
the form received by Debtor without commingling with any other funds, and (b)
immediately deliver to Bank all property in Debtor's possession or later
coming into Debtor's possession through enforcement of Debtor's rights or
interests in the Collateral. Debtor irrevocably authorizes Bank or any Bank
employee or agent to endorse the name of Debtor upon any checks or other
items which are received in payment for any Collateral, and to do any and all
things necessary in order to reduce these items to money. Bank shall have no
duty as to the collection or protection of Collateral or the proceeds of it,
nor as to the preservation of any related rights, beyond the use of
reasonable care in the custody and preservation of Collateral in the
possession of Bank. Debtor agrees to take all steps necessary to preserve
rights against prior parties with respect to the Collateral. Nothing in this
Section 3.1 shall be deemed a consent by Bank to any sale, lease or other
disposition of any Collateral.
3.2 Debtor agrees that immediately upon Bank's request (which notice may only
be given following the occurrence of an Event of Default) the Indebtedness
shall be on a "remittance basis" as follows: Debtor shall at its sole expense
establish and maintain (and Bank, at Bank's option may establish and maintain
at Debtor's expense): (a) an United States Post Office lock box (the "Lock
Box"), to which Bank shall have exclusive access and control. Debtor
expressly authorizes Bank, from time to time, to remove contents from the
Lock Box, for disposition in accordance with this Agreement. Debtor agrees to
notify all account debtors and other parties obligated to Debtor that all
payments made to Debtor (other than payments by electronic funds transfer)
shall be remitted, for the credit of Debtor, to the Lock Box, and Debtor
shall include a like statement on all invoices; and (b) a non-interest
bearing deposit account with Bank which shall be titled as designated by Bank
(the "Cash Collateral Account") to which Bank shall have exclusive access and
control. Debtor agrees to notify all account debtors and other parties
obligated to Debtor that all payments made to Debtor by electronic funds
transfer shall be remitted to the Cash Collateral Account, and Debtor, at
Bank's request, shall include a like statement on all invoices. Debtor shall
execute all documents and authorizations as required by Bank to establish and
maintain the Lock Box and the Cash Collateral Account.
3.3 All items or amounts which are remitted to the Lock Box, to the Cash
Collateral Account, or otherwise delivered by or for the benefit of Debtor to
Bank on account of partial or full payment of, or with respect to, any
Collateral shall, at Bank's option, (a) be applied to the payment of the
Indebtedness, whether then due or not, in such order or at such time of
application as Bank may determine in its sole discretion, or, (b) be
deposited to the Cash Collateral Account. Debtor agrees that Bank shall not
be liable for any loss or damage which Debtor may suffer as a result of
Bank's processing of items or its exercise of any other rights or remedies
under this Agreement, including without limitation indirect, special or
consequential damages, loss of revenues or profits, or any claim, demand or
action by any third party arising out of or in connection with the processing
of items or the exercise of any other rights or remedies under this
Agreement. Debtor agrees to indemnify and hold Bank harmless from and against
all such third party claims, demands or actions, and all related expenses or
liabilities, including, without limitation, attorney fees, except for claims
arising solely as a result of Bank's gross negligence or willful misconduct.
4. DEFAULTS, ENFORCEMENT AND APPLICATION OF PROCEEDS.
4.1 Upon the occurrence of any of the following events (each an "Event of
Default"), Debtor shall be in default under this Agreement:
(a) Any failure to pay the Indebtedness or any other indebtedness when
due, or such portion of it as may be due, by acceleration or otherwise; or
(b) Any failure or neglect to comply with, or breach of or default
under, any term of this Agreement, or any other agreement or commitment
between Borrower, Debtor, or any guarantor of any of the Indebtedness
("Guarantor") and Bank and continuance beyond any applicable period of cure;
or
(c) Any warranty, representation, financial statement, or other
information made, given or furnished to Bank by or on behalf of Borrower,
Debtor, or any Guarantor shall be, or shall prove to have been, false or
materially misleading when made, given, or furnished; or
(d) Any material loss, theft, substantial damage or destruction to or of
any Collateral which is not covered by insurance, or the issuance or filing
of any attachment, levy, garnishment or the commencement of any similar
proceeding in connection with any Collateral; or
(e) Bank in good faith deems the margin of Collateral insufficient or
itself insecure (subject to the provisions of Section 1-208 of the Uniform
Commercial Code) or shall in good faith fear deterioration, removal, or waste
of Collateral; or
(f) A default shall occur under any instrument, agreement or other
document evidencing, securing or otherwise relating to any of the
Indebtedness and continue beyond any applicable period of cure.
4.2 Upon the occurrence of any Event of Default, Bank may at its discretion
and without prior notice to Debtor declare any or all of the Indebtedness to
be immediately due and payable, and shall have and may exercise any one or
more of the following rights and remedies:
(a) Exercise all the rights and remedies upon default, in foreclosure
and otherwise, available to secured parties under the provisions of the
Uniform Commercial Code and other applicable law;
(b) Institute legal proceedings to foreclose upon the lien and security
interest granted by this Agreement, to recover judgment for all amounts then
due and owing as Indebtedness, and to collect the same out of any Collateral
or the proceeds of any sale of it;
(c) Institute legal proceedings for the sale, under the judgment or
decree of any court of competent jurisdiction, of any or all Collateral;
and/or
(d) Personally or by agents, attorneys, or appointment of a receiver,
enter upon any premises where Collateral may then be located, and take
possession of all or any of it and/or render it unusable; and without being
responsible for loss or damage to such Collateral, hold, operate, sell,
lease, or dispose of all or any Collateral at one or more public or private
sales, leasings or other disposition, at places and times and on terms and
conditions as Bank may deem fit, without any previous demand or
advertisement; and except as provided in this Agreement, all notice of sale,
lease or other disposition, and advertisement, and other notice or demand,
any right or equity of redemption, and any obligation of a prospective
purchaser or lessee to inquire as to the power and authority of Bank to sell,
lease, or otherwise dispose of the Collateral or as to the application by
Bank of the proceeds of sale or otherwise, which would otherwise be required
by, or available to Debtor under, applicable law are expressly waived by
Debtor to the fullest extent permitted. At any sale pursuant to this Section
4.2, whether under the power of sale, by virtue of judicial proceedings or
otherwise, it shall not be necessary for Bank or a public officer under order
of a court to have present physical or constructive possession of Collateral
to be sold. The recitals contained in any conveyances and receipts made and
given by Bank or the public officer to any purchaser at any sale made
pursuant to this Agreement shall, to the extent permitted by applicable law,
conclusively establish the truth and accuracy of the matters stated
(including, without limit, as to the amounts of the principal of and interest
on the Indebtedness, the accrual and nonpayment of it and advertisement and
conduct of the sale); and all prerequisites to the sale shall be presumed to
have been satisfied and performed. Upon any sale of any Collateral, the
receipt of the officer making the sale under judicial proceedings or of Bank
shall be sufficient discharge to the purchaser for the purchase money, and
the purchaser shall not be obligated to see to the application of the money.
Any sale of any Collateral under this Agreement shall be a perpetual bar
against Debtor with respect to that Collateral. At any sale or other
disposition of Collateral pursuant to this Section 4.2, Bank disclaims all
warranties which would otherwise be given under the Uniform Commercial Code,
including without limit a disclaimer of any warranty relating to title,
possession, quiet enjoyment or the like, and Bank may communicate these
disclaimers to a purchaser at such disposition. This disclaimer of warranties
will not render the sale commercially unreasonable.
4.3 Debtor shall at the request of Bank, notify the account debtors or
obligors of Bank's security interest in the Collateral and direct payment of
it to Bank. Bank may, itself, upon the occurrence of any Event of Default so
notify and direct any account debtor or obligor. At the request of Bank,
whether or not an Event of Default shall have occurred, Debtor shall
immediately take such actions as Bank shall request to establish exclusive
control (as defined in the Uniform Commercial Code) by Bank over any
Collateral which is of such a nature that perfection of a security interest
may be accomplished by control.
4.4 The proceeds of any sale or other disposition of Collateral authorized by
this Agreement shall be applied by Bank first upon all expenses authorized by
the Uniform Commercial Code and all reasonable attorney fees and legal
expenses incurred by Bank; the balance of the proceeds of the sale or other
disposition shall be applied in the payment of the Indebtedness, first to
interest, then to principal, then to remaining Indebtedness and the surplus,
if any, shall be paid over to Debtor or to such other person(s) as may be
entitled to it under applicable law. Debtor shall remain liable for any
deficiency, which it shall pay to Bank immediately upon demand. Debtor agrees
that Bank shall be under no obligation to accept any noncash proceeds in
connection with any sale or disposition of Collateral unless failure to do so
would be commercially unreasonable. If Bank agrees in its sole discretion to
accept noncash proceeds (unless the failure to do so would be commercially
unreasonable), Bank may ascribe any commercially reasonable value to such
proceeds. Without limiting the foregoing, Bank may apply any commercially
reasonable discount factor in determining the present value of proceeds to be
received in the future or may elect to apply proceeds to be received in the
future only as and when such proceeds are actually received in cash by Bank.
4.5 Nothing in this Agreement is intended, nor shall it be construed, to
preclude Bank from pursuing any other remedy provided by law for the
collection of the Indebtedness or for the recovery of any other sum to which
Bank may be entitled for the breach of this Agreement by Debtor. Nothing in
this Agreement shall reduce or release in any way any rights or security
interests of Bank contained in any existing agreement between Borrower,
Debtor, or any Guarantor and Bank.
4.6 No waiver of default or consent to any act by Debtor shall be
effective unless in writing and signed by an authorized officer of Bank. No
waiver of any default or forbearance on the part of Bank in enforcing any of
its rights under this Agreement shall operate as a waiver of any other
default or of the same default on a future occasion or of any rights.
4.7 Debtor (a) irrevocably appoints Bank or any agent of Bank (which
appointment is coupled with an interest and which, except as to subclause
(ii) below, may only be exercised following the occurrence of an Event of
Default) the true and lawful attorney of Debtor (with full power of
substitution) in the name, place and stead of, and at the expense of, Debtor
and (b) authorizes Bank or any agent of Bank, in its own name, at Debtor's
expense, to do any of the following, as Bank, in its sole discretion, deems
appropriate:
(i) to demand, receive, sue for, and give receipts or acquittances for
any moneys due or to become due on any Collateral (including without limit to
draft against Collateral) and to endorse any item representing any payment on
or proceeds of the Collateral;
(ii) to execute and file in the name of and on behalf of Debtor all
financing statements or other filings deemed necessary or desirable by Bank
to evidence, perfect, or continue the security interests granted in this
Agreement; and
(iii) to do and perform any act on behalf of Debtor permitted or
required under this Agreement.
4.8 Upon the occurrence of an Event of Default, Debtor also agrees, upon
request of Bank, to assemble the Collateral and make it available to Bank at
any place designated by Bank which is reasonably convenient to Bank and
Debtor.
4.9 The following shall be the basis for any finder of fact's determination
of the value of any Collateral which is the subject matter of a disposition
giving rise to a calculation of any surplus or deficiency under Section 9.615
(f) of the Uniform Commercial Code (as in effect on or after July 1, 2001):
(a) the Collateral which is the subject matter of the disposition shall be
valued in an "as is" condition as of the date of the disposition, without any
assumption or expectation that such Collateral will be repaired or improved
in any manner; (b) the valuation shall be based upon an assumption that the
transferee of such Collateral desires a resale of the Collateral for cash
promptly (but no later than 30 days) following the disposition; (c) all
reasonable closing costs customarily borne by the seller in commercial sales
transactions relating to property similar to such Collateral shall be
deducted including, without limitation, brokerage commissions, tax
prorations, attorneys' fees, whether inside or outside counsel is used, and
marketing costs; (d) the value of the Collateral which is the subject matter
of the disposition shall be further discounted to account for any estimated
holding costs associated with maintaining such Collateral pending sale (to
the extent not accounted for in (c) above), and other maintenance,
operational and ownership expenses; and (e) any expert opinion testimony
given or considered in connection with a determination of the value of such
Collateral must be given by persons having at least 5 years experience in
appraising property similar to the Collateral and who have conducted and
prepared a complete written appraisal of such Collateral taking into
consideration the factors set forth above. The "value" of any such Collateral
shall be a factor in determining the amount of proceeds which would have been
realized in a disposition to a transferee other than a secured party, a
person related to a secured party or a secondary obligor under Section 9-
615(f).
5. MISCELLANEOUS.
5.1 Until Bank is advised in writing by Debtor to the contrary, all notices,
requests and demands required under this Agreement or by law shall be given
to, or made upon, Debtor at the first address indicated in Section 5.15
below.
5.2 Debtor will give Bank not less than 30 days prior written notice of all
contemplated changes in Debtor's name, location, chief executive office,
principal place of business, and/or location of any Collateral, but the
giving of this notice shall not cure any Event of Default caused by this
change.
5.3 Bank assumes no duty of performance or other responsibility under any
contracts contained within the Collateral.
5.4 Bank has the right to sell, assign, transfer, negotiate or grant
participations or any interest in, any or all of the Indebtedness and any
related obligations, including without limit this Agreement. In connection
with the above, but without limiting its ability to make other disclosures to
the full extent allowable, Bank may disclose all documents and information
which Bank now or later has relating to Debtor, the Indebtedness or this
Agreement, however obtained to any assignee or participant who agrees to hold
such information confidential in the same manner as the Bank. Debtor further
agrees that Bank may provide information relating to this Agreement or
relating to Debtor to the Bank's parent, affiliates, subsidiaries, and
service providers.
5.5 In addition to Bank's other rights, any indebtedness owing from Bank to
Debtor can be set off and applied by Bank on any Indebtedness at any time(s)
after maturity and without notice or demand notice to anyone. Any such action
shall not constitute an acceptance of collateral in discharge of the
Indebtedness.
5.6 Debtor, to the extent not expressly prohibited by applicable law, waives
any right to require the Bank to: (a) proceed against any person or property;
(b) give notice of the terms, time and place of any public or private sale of
personal property security held from Borrower or any other person, or
otherwise comply with the provisions of Sections 9-611 or 9-621 of the
Uniform Commercial Code; or (c) pursue any other remedy in the Bank's power.
Debtor waives notice of acceptance of this Agreement and presentment, demand,
protest, notice of protest, dishonor, notice of dishonor, notice of default,
notice of intent to accelerate or demand payment of any Indebtedness, any and
all other notices to which the undersigned might otherwise be entitled, and
diligence in collecting any Indebtedness, and agree(s) that the Bank may,
once or any number of times, modify the terms of any Indebtedness,
compromise, extend, increase, accelerate, renew or forbear to enforce payment
of any or all Indebtedness, or permit Borrower to incur additional
Indebtedness, all without notice to Debtor and without affecting in any
manner the unconditional obligation of Debtor under this Agreement. Debtor
unconditionally and irrevocably waives each and every defense and setoff of
any nature which, under principles of guaranty or otherwise, would operate to
impair or diminish in any way the obligation of Debtor under this Agreement,
and acknowledges that such waiver is by this reference incorporated into each
security agreement, collateral assignment, pledge and/or other document from
Debtor now or later securing the Indebtedness, and acknowledges that as of
the date of this Agreement no such defense or setoff exists.
5.7 [Intentionally Left Blank].
5.8 In the event that applicable law shall obligate Bank to give prior notice
to Debtor of any action to be taken under this Agreement, Debtor agrees that
a written notice given to Debtor at least ten days before the date of the act
shall be reasonable notice of the act and, specifically, reasonable
notification of the time and place of any public sale or of the time after
which any private sale, lease, or other disposition is to be made, unless a
shorter notice period is reasonable under the circumstances. A notice shall
be deemed to be given under this Agreement when delivered to Debtor or when
placed in an envelope addressed to Debtor and deposited, with postage
prepaid, in a post office or official depository under the exclusive care and
custody of the United States Postal Service or delivered to an overnight
courier. The mailing shall be by overnight courier, certified, or first class
mail.
5.9 Notwithstanding any prior revocation, termination, surrender, or
discharge of this Agreement in whole or in part, the effectiveness of this
Agreement shall automatically continue or be reinstated in the event that any
payment received or credit given by Bank in respect of the Indebtedness is
returned, disgorged, or rescinded under any applicable law, including,
without limitation, bankruptcy or insolvency laws, in which case this
Agreement, shall be enforceable against Debtor as if the returned, disgorged,
or rescinded payment or credit had not been received or given by Bank, and
whether or not Bank relied upon this payment or credit or changed its
position as a consequence of it. In the event of continuation or
reinstatement of this Agreement, Debtor agrees upon demand by Bank to execute
and deliver to Bank those documents which Bank determines are appropriate to
further evidence (in the public records or otherwise) this continuation or
reinstatement, although the failure of Debtor to do so shall not affect in
any way the reinstatement or continuation.
5.10 This Agreement and all the rights and remedies of Bank under this
Agreement shall inure to the benefit of Bank's successors and assigns and to
any other holder who derives from Bank title to or an interest in the
Indebtedness or any portion of it, and shall bind Debtor and the heirs, legal
representatives, successors, and assigns of Debtor. Nothing in this Section
5.10 is deemed a consent by Bank to any assignment by Debtor.
5.11 If there is more than one Debtor, all undertakings, warranties and
covenants made by Debtor and all rights, powers and authorities given to or
conferred upon Bank are made or given jointly and severally.
5.12 Except as otherwise provided in this Agreement, all terms in this
Agreement have the meanings assigned to them in Article 9 (or, absent
definition in Article 9, in any other Article) of the Uniform Commercial
Code, as those meanings may be amended, revised or replaced from time to
time. "Uniform Commercial Code" means Act No. 174 of the Michigan Public Acts
of 1962, as amended, revised or replaced from time to time, including without
limit as amended by Act No. 348 of the Michigan Public Acts of 2000.
Notwithstanding the foregoing, the parties intend that the terms used herein
which are defined in the Uniform Commercial Code have, at all times, the
broadest and most inclusive meanings possible. Accordingly, if the Uniform
Commercial Code shall in the future be amended or held by a court to define
any term used herein more broadly or inclusively than the Uniform Commercial
Code in effect on the date of this Agreement, then such term, as used herein,
shall be given such broadened meaning. If the Uniform Commercial Code shall
in the future be amended or held by a court to define any term used herein
more narrowly, or less inclusively, than the Uniform Commercial Code in
effect on the date of this Agreement, such amendment or holding shall be
disregarded in defining terms used in this Agreement.
5.13 No single or partial exercise, or delay in the exercise, of any right or
power under this Agreement, shall preclude other or further exercise of the
rights and powers under this Agreement. The unenforceability of any provision
of this Agreement shall not affect the enforceability of the remainder of
this Agreement. This Agreement constitutes the entire agreement of Debtor and
Bank with respect to the subject matter of this Agreement. No amendment or
modification of this Agreement shall be effective unless the same shall be in
writing and signed by Debtor and an authorized officer of Bank. This
Agreement shall be governed by and construed in accordance with the internal
laws of the State of Michigan, without regard to conflict of laws principles.
5.14 To the extent that any of the Indebtedness is payable upon demand,
nothing contained in this Agreement shall modify the terms and conditions of
that Indebtedness nor shall anything contained in this Agreement prevent Bank
from making demand, without notice and with or without reason, for immediate
payment of any or all of that Indebtedness at any time(s), whether or not an
Event of Default has occurred.
5.15 Debtor represents and warrants that Debtor's exact name is the name set
forth in this Agreement. Debtor further represents and warrants the following
and agrees that Debtor is, and at all times shall be, located in the
following place [mark applicable provision]:
Debtor is an individual, and Debtor is located (as determined pursuant to
the Uniform Commercial Code) at Debtor's principal residence which is (street
address, state and county or parish):
.
X Debtor is a registered organization which is organized under the laws of
one of the states comprising the United States (e.g. corporation, limited
partnership, registered limited liability partnership or limited liability
company), and Debtor is located (as determined pursuant to the Uniform
Commercial Code) in the state under the laws of which it was organized, which
is Deleware.
Debtor is a domestic organization which is not a registered organization
under the laws of the United States or any state thereof (e.g. general
partnership, joint venture, trust, estate or association), and Debtor is
located (as determined pursuant to the Uniform Commercial Code) at its sole
place of business or, if it has more than one place of business, at its chief
executive office, which is (street address, state and county or parish): .
Debtor is a registered organization organized under the laws of the United
States, and Debtor is located in the state that United States law designates
as its location or, if United States law authorizes the Debtor to designate
the state for its location, the state designated by Debtor, or if neither of
the foregoing are applicable, at the District of Columbia. Debtor is located
(as determined pursuant to the Uniform Commercial Code) at (street address,
state and county or parish): .
Debtor is a foreign individual or foreign organization or a branch or agency
of a bank that is not organized under the laws of the United States or a
state thereof. Debtor is located (as determined pursuant to the Uniform
Commercial Code) at: _______________________.
If Collateral is located at other than the address specified above, such
Collateral is located and shall be maintained at
See attached Schedule of Collateral Locations
STREET ADDRESS
CITY STATE ZIP CODE COUNTY
Collateral shall be maintained only at the locations identified in this
Section 5.15.
5.16 A carbon, photographic or other reproduction of this Agreement shall be
sufficient as a financing statement under the Uniform Commercial Code and may
be filed by Bank in any filing office.
5.17 This Agreement shall be terminated only by the filing of a termination
statement in accordance with the applicable provisions of the Uniform
Commercial Code, but the obligations contained in Section 2.13 of this
Agreement shall survive termination.
6. DEBTOR AND BANK ACKNOWLEDGE THAT THE RIGHT TO TRIAL BY JURY IS A
CONSTITUTIONAL ONE, BUT THAT IT MAY BE WAIVED. EACH PARTY, AFTER CONSULTING
(OR HAVING HAD THE OPPORTUNITY TO CONSULT) WITH COUNSEL OF THEIR CHOICE,
KNOWINGLY AND VOLUNTARILY, AND FOR THEIR MUTUAL BENEFIT WAIVES ANY RIGHT TO
TRIAL BY JURY IN THE EVENT OF LITIGATION REGARDING THE PERFORMANCE OR
ENFORCEMENT OF, OR IN ANY WAY RELATED TO, THIS AGREEMENT OR THE INDEBTEDNESS.
7. SPECIAL PROVISIONS APPLICABLE TO THIS AGREEMENT. (*None, if left blank)
Debtor:
SMTEK INTERNATIONAL, INC.
By: /s/ Kirk A. Waldron
SIGNATURE OF KIRK A. WALDRON
Its: Treasurer
TITLE (If applicable)
SECURITY AGREEMENT
(All Assets)
As of September 25, 2001, for value received, the undersigned ("Debtor")
grants to Comerica Bank, a Michigan banking corporation ("Bank"), whose
address is 39200 Six Mile Road, Livonia, Michigan 48152 , Attention:
Commercial Loan Documentation, Mail Code 7578, a continuing security interest
and lien (any pledge, assignment, security interest or other lien arising
hereunder is sometimes referred to herein as a "security interest") in the
Collateral (as defined below) to secure payment when due, whether by stated
maturity, demand, acceleration or otherwise, of all existing and future
indebtedness ("Indebtedness") to the Bank of Smtek International, Inc.
("Borrower") and/or Debtor. Indebtedness includes without limit any and all
obligations or liabilities of the Borrower and/or Debtor to the Bank, whether
absolute or contingent, direct or indirect, voluntary or involuntary,
liquidated or unliquidated, joint or several, known or unknown; any and all
obligations or liabilities for which the Borrower and/or Debtor would
otherwise be liable to the Bank were it not for the invalidity or
unenforceability of them by reason of any bankruptcy, insolvency or other
law, or for any other reason; any and all amendments, modifications, renewals
and/or extensions of any of the above; all costs incurred by Bank in
establishing, determining, continuing, or defending the validity or priority
of its security interest, or in pursuing its rights and remedies under this
Agreement or under any other agreement between Bank and Borrower and/or
Debtor or in connection with any proceeding involving Bank as a result of any
financial accommodation to Borrower and/or Debtor; and all other costs of
collecting Indebtedness, including without limit attorney fees. Debtor agrees
to pay Bank all such costs incurred by the Bank, immediately upon demand, and
until paid all costs shall bear interest at the highest per annum rate
applicable to any of the Indebtedness, but not in excess of the maximum rate
permitted by law. Any reference in this Agreement to attorney fees shall be
deemed a reference to reasonable fees, costs, and expenses of both in-house
and outside counsel and paralegals, whether or not a suit or action is
instituted, and to court costs if a suit or action is instituted, and whether
attorney fees or court costs are incurred at the trial court level, on
appeal, in a bankruptcy, administrative or probate proceeding or otherwise.
Debtor further covenants, agrees and represents as follows:
1. COLLATERAL shall mean all of the following property Debtor now or later
owns or has an interest in, wherever located:
(a) all Accounts Receivable (for purposes of this Agreement, "Accounts
Receivable" consists of all accounts; general intangibles; chattel paper
(including without limit electronic chattel paper and tangible chattel
paper); contract rights; deposit accounts; documents; instruments; rights to
payment evidenced by chattel paper, documents or instruments; health care
insurance receivables; commercial tort claims; letters of credit; letter of
credit rights; supporting obligations; and rights to payment for money or
funds advanced or sold),
(b) all Inventory,
(c) all Equipment and Fixtures,
(d) all Software (for purposes of this Agreement, "Software" consists of
all (i) computer programs and supporting information provided in connection
with a transaction relating to the program, and (ii) computer programs
embedded in goods and any supporting information provided in connection with
a transaction relating to the program whether or not the program is
associated with the goods in such a manner that it customarily is considered
part of the goods, and whether or not, by becoming the owner of the goods, a
person acquires a right to use the program in connection with the goods, and
whether or not the program is embedded in goods that consist solely of the
medium in which the program is embedded),
(e) specific items listed below and/or on attached Schedule A, if any,
is/are also included in Collateral:
(f) all goods, instruments, documents, policies and certificates of
insurance, deposits, money, investment property or other property (except
real property which is not a fixture) which are now or later in possession or
control of Bank, or as to which Bank now or later controls possession by
documents or otherwise, and
(g) all additions, attachments, accessions, parts, replacements,
substitutions, renewals, interest, dividends, distributions, rights of any
kind (including but not limited to stock splits, stock rights, voting and
preferential rights), products, and proceeds of or pertaining to the above
including, without limit, cash or other property which were proceeds and are
recovered by a bankruptcy trustee or otherwise as a preferential transfer by
Debtor.
In the definition of Collateral, a reference to a type of collateral shall
not be limited by a separate reference to a more specific or narrower type of
that collateral.
2. WARRANTIES, COVENANTS AND AGREEMENTS. Debtor warrants, covenants and
agrees as follows:
2.1 Debtor shall furnish to Bank, in form and at intervals as Bank may
request, any information Bank may reasonably request and allow Bank to
examine, inspect, and copy any of Debtor's books and records. Debtor shall,
at the request of Bank, mark its records and the Collateral to clearly
indicate the security interest of Bank under this Agreement.
2.2 At the time any Collateral becomes, or is represented to be, subject to a
security interest in favor of Bank, Debtor shall be deemed to have warranted
that (a) Debtor is the lawful owner of the Collateral and has the right and
authority to subject it to a security interest granted to Bank; (b) none of
the Collateral is subject to any security interest other than that in favor
of Bank and Permitted Liens (as defined below); (c) there are no financing
statements on file, other than in favor of Bank and those filed with respect
to Permitted Liens; (d) no person, other than Bank, has possession or control
(as defined in the Uniform Commercial Code) of any Collateral of such nature
that perfection of a security interest may be accomplished by control; and
(e) Debtor acquired its rights in the Collateral in the ordinary course of
its business.
2.3 Debtor will keep the Collateral free at all times from all claims, liens,
security interests and encumbrances other than those in favor of Bank and
liens and security interests permitted under the terms of the Credit
Agreement dated as of September ___, 2001 between Borrower and Bank
("Permitted Liens"). Debtor will not, without the prior written consent of
Bank, sell, transfer or lease, or permit to be sold, transferred or leased,
any or all of the Collateral, except for Inventory in the ordinary course of
its business and will not return any Inventory to its supplier. Bank or its
representatives may at all reasonable times inspect the Collateral and may
enter upon all premises where the Collateral is kept or might be located.
2.4 Debtor will do all acts and will execute or cause to be executed all
writings requested by Bank to establish, maintain and continue an exclusive,
perfected and first security interest of Bank in the Collateral (subject to
Permitted Liens). Debtor agrees that Bank has no obligation to acquire or
perfect any lien on or security interest in any asset(s), whether realty or
personalty, to secure payment of the Indebtedness, and Debtor is not relying
upon assets in which the Bank may have a lien or security interest for
payment of the Indebtedness.
2.5 Debtor will pay within the time that they can be paid without interest or
penalty all taxes, assessments and similar charges which at any time are or
may become a lien, charge, or encumbrance upon any Collateral, except to the
extent contested in good faith and, if reasonably required by Bank, bonded in
a manner satisfactory to Bank. If Debtor fails to pay any of these taxes,
assessments, or other charges in the time provided above, Bank has the option
(but not the obligation) to do so and Debtor agrees to repay all amounts so
expended by Bank immediately upon demand, together with interest at the
highest lawful default rate which could be charged by Bank on any
Indebtedness.
2.6 Debtor will keep the Collateral in good condition and will protect it
from loss, damage, or deterioration from any cause ordinary wear and tear
excepted. Debtor has and will maintain at all times (a) with respect to the
Collateral, insurance under an "all risk" policy against fire and other risks
customarily insured against, and (b) public liability insurance and other
insurance as may be required by law or reasonably required by Bank, all of
which insurance shall be in amount, form and content, and written by
companies as may be satisfactory to Bank, containing a lender's loss payable
endorsement acceptable to Bank. Debtor will deliver to Bank immediately upon
demand evidence satisfactory to Bank that the required insurance has been
procured. If Debtor fails to maintain satisfactory insurance, Bank has the
option (but not the obligation) to do so and Debtor agrees to repay all
amounts so expended by Bank immediately upon demand, together with interest
at the highest lawful default rate which could be charged by Bank on any
Indebtedness.
2.7 On each occasion on which Debtor evidences to Bank the account balances
on and the nature and extent of the Accounts Receivable which are included in
a borrowing base report as an eligible account, Debtor shall be deemed to
have warranted that except as otherwise indicated (a) each of those Accounts
Receivable is valid and enforceable without performance by Debtor of any act;
(b) each of those account balances are in fact owing, (c) there are no
setoffs, recoupments, credits, contra accounts, counterclaims or defenses
against any of those Accounts Receivable, (d) as to any Accounts Receivable
represented by a note, trade acceptance, draft or other instrument or by any
chattel paper or document, the same have been endorsed and/or delivered by
Debtor to Bank, (e) Debtor has not received with respect to any Account
Receivable, any notice of the death of the related account debtor, nor of the
dissolution, liquidation, termination of existence, insolvency, business
failure, appointment of a receiver for, assignment for the benefit of
creditors by, or filing of a petition in bankruptcy by or against, the
account debtor, and (f) as to each Account Receivable, except as may be
expressly permitted by Bank to the contrary in another document, the account
debtor is not an affiliate of Debtor, the United States of America or any
department, agency or instrumentality of it, or a citizen or resident of any
jurisdiction outside of the United States. Debtor will do all acts and will
execute all writings requested by Bank to perform, enforce performance of,
and collect all Accounts Receivable. Debtor shall neither make nor permit any
modification, compromise or substitution for any Account Receivable without
the prior written consent of Bank except for modifications and compromises
made in the ordinary course of business in a manner consistent with past
practice and to the extent made prior to the occurrence of an Event of
Default. Debtor shall, at Bank's request, arrange for verification of
Accounts Receivable directly with account debtors or by other methods
acceptable to Bank.
2.8 Debtor at all times shall be in compliance in all material respects with
all applicable laws, including without limit any laws, ordinances,
directives, orders, statutes, or regulations an object of which is to
regulate or improve health, safety, or the environment ("Environmental
Laws").
2.9 If Bank, acting in its sole discretion, redelivers Collateral to Debtor
or Debtor's designee for the purpose of (a) the ultimate sale or exchange
thereof; or (b) presentation, collection, renewal, or registration of
transfer thereof; or (c) loading, unloading, storing, shipping,
transshipping, manufacturing, processing or otherwise dealing with it
preliminary to sale or exchange; such redelivery shall be in trust for the
benefit of Bank and shall not constitute a release of Bank's security
interest in it or in the proceeds or products of it unless Bank specifically
so agrees in writing. If Debtor requests any such redelivery, Debtor will
deliver with such request a duly executed financing statement in form and
substance satisfactory to Bank. Any proceeds of Collateral coming into
Debtor's possession as a result of any such redelivery shall be held in trust
for Bank and immediately delivered to Bank for application on the
Indebtedness. Bank may (in its sole discretion) deliver any or all of the
Collateral to Debtor, and such delivery by Bank shall discharge Bank from all
liability or responsibility for such Collateral. Bank, at its option, may
require delivery of any Collateral to Bank at any time with such endorsements
or assignments of the Collateral as Bank may request.
2.10 At any time and without notice, Bank may (a) cause any or all of the
Collateral to be transferred to its name or to the name of its nominees; (b)
receive or collect by legal proceedings or otherwise all dividends, interest,
principal payments and other sums and all other distributions at any time
payable or receivable on account of the Collateral, and hold the same as
Collateral, or apply the same to the Indebtedness, the manner and
distribution of the application to be in the sole discretion of Bank; (c)
enter into any extension, subordination, reorganization, deposit, merger or
consolidation agreement or any other agreement relating to or affecting the
Collateral, and deposit or surrender control of the Collateral, and accept
other property in exchange for the Collateral and hold or apply the property
or money so received pursuant to this Agreement; and (d) take such actions in
its own name or in Debtor's name as Bank, in its sole discretion, deems
necessary or appropriate to establish exclusive control (as defined in the
Uniform Commercial Code) over any Collateral of such nature that perfection
of Bank's security interest may be accomplished by control.
2.11 Bank may assign any of the Indebtedness and deliver any or all of the
Collateral to its assignee, who then
shall have with respect to Collateral so delivered all the rights and powers
of Bank under this Agreement,
and after that Bank shall be fully discharged from all liability and
responsibility with respect to Collateral
so delivered.
2.12 Debtor delivers this Agreement based solely on Debtor's independent
investigation of (or decision not to investigate) the financial condition of
Borrower and is not relying on any information furnished by Bank. Debtor
assumes full responsibility for obtaining any further information concerning
the Borrower's financial condition, the status of the Indebtedness or any
other matter which the undersigned may deem necessary or appropriate now or
later. Debtor waives any duty on the part of Bank, and agrees that Debtor is
not relying upon nor expecting Bank to disclose to Debtor any fact now or
later known by Bank, whether relating to the operations or condition of
Borrower, the existence, liabilities or financial condition of any guarantor
of the Indebtedness, the occurrence of any default with respect to the
Indebtedness, or otherwise, notwithstanding any effect such fact may have
upon Debtor's risk or Debtor's rights against Borrower. Debtor knowingly
accepts the full range of risk encompassed in this Agreement, which risk
includes without limit the possibility that Borrower may incur Indebtedness
to Bank after the financial condition of Borrower, or Borrower's ability to
pay debts as they mature, has deteriorated.
2.13 Debtor shall defend, indemnify and hold harmless Bank, its employees,
agents, shareholders, affiliates, officers, and directors from and against
any and all claims, damages, fines, expenses, liabilities or causes of action
of whatever kind, including without limit consultant fees, legal expenses,
and attorney fees, suffered by any of them as a direct or indirect result of
any actual or asserted violation of any law by Debtor or any of its
employees, agents, affiliates, officers, directors or other persons under its
direction or control, including, without limit, Environmental Laws, or of any
remediation relating to any property required by any law, including without
limit Environmental Laws.
3. COLLECTION OF PROCEEDS.
3.1 Debtor agrees to collect and enforce payment of all Collateral until Bank
shall direct Debtor to the contrary (which direction may only be given
following the occurrence of an Event of Default). Immediately upon notice to
Debtor by Bank and at all times after that, Debtor agrees to fully and
promptly cooperate and assist Bank in the collection and enforcement of all
Collateral and to hold in trust for Bank all payments received in connection
with Collateral and from the sale, lease or other disposition of any
Collateral, all rights by way of suretyship or guaranty and all rights in the
nature of a lien or security interest which Debtor now or later has regarding
Collateral. Immediately upon and after such notice, Debtor agrees to (a)
endorse to Bank and immediately deliver to Bank all payments received on
Collateral or from the sale, lease or other disposition of any Collateral or
arising from any other rights or interests of Debtor in the Collateral, in
the form received by Debtor without commingling with any other funds, and (b)
immediately deliver to Bank all property in Debtor's possession or later
coming into Debtor's possession through enforcement of Debtor's rights or
interests in the Collateral. Debtor irrevocably authorizes Bank or any Bank
employee or agent to endorse the name of Debtor upon any checks or other
items which are received in payment for any Collateral, and to do any and all
things necessary in order to reduce these items to money. Bank shall have no
duty as to the collection or protection of Collateral or the proceeds of it,
nor as to the preservation of any related rights, beyond the use of
reasonable care in the custody and preservation of Collateral in the
possession of Bank. Debtor agrees to take all steps necessary to preserve
rights against prior parties with respect to the Collateral. Nothing in this
Section 3.1 shall be deemed a consent by Bank to any sale, lease or other
disposition of any Collateral.
3.2 Debtor agrees that immediately upon Bank's request (which notice may only
be given following the occurrence of an Event of Default) the Indebtedness
shall be on a "remittance basis" as follows: Debtor shall at its sole expense
establish and maintain (and Bank, at Bank's option may establish and maintain
at Debtor's expense): (a) an United States Post Office lock box (the "Lock
Box"), to which Bank shall have exclusive access and control. Debtor
expressly authorizes Bank, from time to time, to remove contents from the
Lock Box, for disposition in accordance with this Agreement. Debtor agrees to
notify all account debtors and other parties obligated to Debtor that all
payments made to Debtor (other than payments by electronic funds transfer)
shall be remitted, for the credit of Debtor, to the Lock Box, and Debtor
shall include a like statement on all invoices; and (b) a non-interest
bearing deposit account with Bank which shall be titled as designated by Bank
(the "Cash Collateral Account") to which Bank shall have exclusive access and
control. Debtor agrees to notify all account debtors and other parties
obligated to Debtor that all payments made to Debtor by electronic funds
transfer shall be remitted to the Cash Collateral Account, and Debtor, at
Bank's request, shall include a like statement on all invoices. Debtor shall
execute all documents and authorizations as required by Bank to establish and
maintain the Lock Box and the Cash Collateral Account.
3.3 All items or amounts which are remitted to the Lock Box, to the Cash
Collateral Account, or otherwise delivered by or for the benefit of Debtor to
Bank on account of partial or full payment of, or with respect to, any
Collateral shall, at Bank's option, (a) be applied to the payment of the
Indebtedness, whether then due or not, in such order or at such time of
application as Bank may determine in its sole discretion, or, (b) be
deposited to the Cash Collateral Account. Debtor agrees that Bank shall not
be liable for any loss or damage which Debtor may suffer as a result of
Bank's processing of items or its exercise of any other rights or remedies
under this Agreement, including without limitation indirect, special or
consequential damages, loss of revenues or profits, or any claim, demand or
action by any third party arising out of or in connection with the processing
of items or the exercise of any other rights or remedies under this
Agreement. Debtor agrees to indemnify and hold Bank harmless from and against
all such third party claims, demands or actions, and all related expenses or
liabilities, including, without limitation, attorney fees, except for claims
arising solely as a result of Bank's gross negligence or willful misconduct.
4. DEFAULTS, ENFORCEMENT AND APPLICATION OF PROCEEDS.
4.1 Upon the occurrence of any of the following events (each an "Event of
Default"), Debtor shall be in default under this Agreement:
(a) Any failure to pay the Indebtedness or any other indebtedness when
due, or such portion of it as may be due, by acceleration or otherwise; or
(b) Any failure or neglect to comply with, or breach of or default
under, any term of this Agreement, or any other agreement or commitment
between Borrower, Debtor, or any guarantor of any of the Indebtedness
("Guarantor") and Bank and continuance beyond any applicable period of cure;
or
(c) Any warranty, representation, financial statement, or other
information made, given or furnished to Bank by or on behalf of Borrower,
Debtor, or any Guarantor shall be, or shall prove to have been, false or
materially misleading when made, given, or furnished; or
(d) Any material loss, theft, substantial damage or destruction to or of
any Collateral which is not covered by insurance, or the issuance or filing
of any attachment, levy, garnishment or the commencement of any similar
proceeding in connection with any Collateral; or
(e) Bank in good faith deems the margin of Collateral insufficient or
itself insecure (subject to the provisions of Section 1-208 of the Uniform
Commercial Code) or shall in good faith fear deterioration, removal, or waste
of Collateral; or
(f) A default shall occur under any instrument, agreement or other
document evidencing, securing or otherwise relating to any of the
Indebtedness and continue beyond any applicable period of cure.
4.2 Upon the occurrence of any Event of Default, Bank may at its discretion
and without prior notice to Debtor declare any or all of the Indebtedness to
be immediately due and payable, and shall have and may exercise any one or
more of the following rights and remedies:
(a) Exercise all the rights and remedies upon default, in foreclosure
and otherwise, available to secured parties under the provisions of the
Uniform Commercial Code and other applicable law;
(b) Institute legal proceedings to foreclose upon the lien and security
interest granted by this Agreement, to recover judgment for all amounts then
due and owing as Indebtedness, and to collect the same out of any Collateral
or the proceeds of any sale of it;
(c) Institute legal proceedings for the sale, under the judgment or
decree of any court of competent jurisdiction, of any or all Collateral;
and/or
(d) Personally or by agents, attorneys, or appointment of a receiver,
enter upon any premises where Collateral may then be located, and take
possession of all or any of it and/or render it unusable; and without being
responsible for loss or damage to such Collateral, hold, operate, sell,
lease, or dispose of all or any Collateral at one or more public or private
sales, leasings or other disposition, at places and times and on terms and
conditions as Bank may deem fit, without any previous demand or
advertisement; and except as provided in this Agreement, all notice of sale,
lease or other disposition, and advertisement, and other notice or demand,
any right or equity of redemption, and any obligation of a prospective
purchaser or lessee to inquire as to the power and authority of Bank to sell,
lease, or otherwise dispose of the Collateral or as to the application by
Bank of the proceeds of sale or otherwise, which would otherwise be required
by, or available to Debtor under, applicable law are expressly waived by
Debtor to the fullest extent permitted. At any sale pursuant to this Section
4.2, whether under the power of sale, by virtue of judicial proceedings or
otherwise, it shall not be necessary for Bank or a public officer under order
of a court to have present physical or constructive possession of Collateral
to be sold. The recitals contained in any conveyances and receipts made and
given by Bank or the public officer to any purchaser at any sale made
pursuant to this Agreement shall, to the extent permitted by applicable law,
conclusively establish the truth and accuracy of the matters stated
(including, without limit, as to the amounts of the principal of and interest
on the Indebtedness, the accrual and nonpayment of it and advertisement and
conduct of the sale); and all prerequisites to the sale shall be presumed to
have been satisfied and performed. Upon any sale of any Collateral, the
receipt of the officer making the sale under judicial proceedings or of Bank
shall be sufficient discharge to the purchaser for the purchase money, and
the purchaser shall not be obligated to see to the application of the money.
Any sale of any Collateral under this Agreement shall be a perpetual bar
against Debtor with respect to that Collateral. At any sale or other
disposition of Collateral pursuant to this Section 4.2, Bank disclaims all
warranties which would otherwise be given under the Uniform Commercial Code,
including without limit a disclaimer of any warranty relating to title,
possession, quiet enjoyment or the like, and Bank may communicate these
disclaimers to a purchaser at such disposition. This disclaimer of warranties
will not render the sale commercially unreasonable.
4.3 Debtor shall at the request of Bank, notify the account debtors or
obligors of Bank's security interest in the Collateral and direct payment of
it to Bank. Bank may, itself, upon the occurrence of any Event of Default so
notify and direct any account debtor or obligor. At the request of Bank,
whether or not an Event of Default shall have occurred, Debtor shall
immediately take such actions as Bank shall request to establish exclusive
control (as defined in the Uniform Commercial Code) by Bank over any
Collateral which is of such a nature that perfection of a security interest
may be accomplished by control.
4.4 The proceeds of any sale or other disposition of Collateral authorized by
this Agreement shall be applied by Bank first upon all expenses authorized by
the Uniform Commercial Code and all reasonable attorney fees and legal
expenses incurred by Bank; the balance of the proceeds of the sale or other
disposition shall be applied in the payment of the Indebtedness, first to
interest, then to principal, then to remaining Indebtedness and the surplus,
if any, shall be paid over to Debtor or to such other person(s) as may be
entitled to it under applicable law. Debtor shall remain liable for any
deficiency, which it shall pay to Bank immediately upon demand. Debtor agrees
that Bank shall be under no obligation to accept any noncash proceeds in
connection with any sale or disposition of Collateral unless failure to do so
would be commercially unreasonable. If Bank agrees in its sole discretion to
accept noncash proceeds (unless the failure to do so would be commercially
unreasonable), Bank may ascribe any commercially reasonable value to such
proceeds. Without limiting the foregoing, Bank may apply any commercially
reasonable discount factor in determining the present value of proceeds to be
received in the future or may elect to apply proceeds to be received in the
future only as and when such proceeds are actually received in cash by Bank.
4.5 Nothing in this Agreement is intended, nor shall it be construed, to
preclude Bank from pursuing any other remedy provided by law for the
collection of the Indebtedness or for the recovery of any other sum to which
Bank may be entitled for the breach of this Agreement by Debtor. Nothing in
this Agreement shall reduce or release in any way any rights or security
interests of Bank contained in any existing agreement between Borrower,
Debtor, or any Guarantor and Bank.
4.6 No waiver of default or consent to any act by Debtor shall be
effective unless in writing and signed by an authorized officer of Bank. No
waiver of any default or forbearance on the part of Bank in enforcing any of
its rights under this Agreement shall operate as a waiver of any other
default or of the same default on a future occasion or of any rights.
4.7 Debtor (a) irrevocably appoints Bank or any agent of Bank (which
appointment is coupled with an interest and which, except as to subclause
(ii) below, may only be exercised following the occurrence of an Event of
Default) the true and lawful attorney of Debtor (with full power of
substitution) in the name, place and stead of, and at the expense of, Debtor
and (b) authorizes Bank or any agent of Bank, in its own name, at Debtor's
expense, to do any of the following, as Bank, in its sole discretion, deems
appropriate:
(i) to demand, receive, sue for, and give receipts or acquittances for
any moneys due or to become due on any Collateral (including without limit to
draft against Collateral) and to endorse any item representing any payment on
or proceeds of the Collateral;
(ii) to execute and file in the name of and on behalf of Debtor all
financing statements or other filings deemed necessary or desirable by Bank
to evidence, perfect, or continue the security interests granted in this
Agreement; and
(iii) to do and perform any act on behalf of Debtor permitted or
required under this Agreement.
4.8 Upon the occurrence of an Event of Default, Debtor also agrees, upon
request of Bank, to assemble the Collateral and make it available to Bank at
any place designated by Bank which is reasonably convenient to Bank and
Debtor.
4.9 The following shall be the basis for any finder of fact's determination
of the value of any Collateral which is the subject matter of a disposition
giving rise to a calculation of any surplus or deficiency under Section 9.615
(f) of the Uniform Commercial Code (as in effect on or after July 1, 2001):
(a) the Collateral which is the subject matter of the disposition shall be
valued in an "as is" condition as of the date of the disposition, without any
assumption or expectation that such Collateral will be repaired or improved
in any manner; (b) the valuation shall be based upon an assumption that the
transferee of such Collateral desires a resale of the Collateral for cash
promptly (but no later than 30 days) following the disposition; (c) all
reasonable closing costs customarily borne by the seller in commercial sales
transactions relating to property similar to such Collateral shall be
deducted including, without limitation, brokerage commissions, tax
prorations, attorneys' fees, whether inside or outside counsel is used, and
marketing costs; (d) the value of the Collateral which is the subject matter
of the disposition shall be further discounted to account for any estimated
holding costs associated with maintaining such Collateral pending sale (to
the extent not accounted for in (c) above), and other maintenance,
operational and ownership expenses; and (e) any expert opinion testimony
given or considered in connection with a determination of the value of such
Collateral must be given by persons having at least 5 years experience in
appraising property similar to the Collateral and who have conducted and
prepared a complete written appraisal of such Collateral taking into
consideration the factors set forth above. The "value" of any such Collateral
shall be a factor in determining the amount of proceeds which would have been
realized in a disposition to a transferee other than a secured party, a
person related to a secured party or a secondary obligor under Section 9-
615(f).
5. MISCELLANEOUS.
5.1 Until Bank is advised in writing by Debtor to the contrary, all notices,
requests and demands required under this Agreement or by law shall be given
to, or made upon, Debtor at the first address indicated in Section 5.15
below.
5.2 Debtor will give Bank not less than 30 days prior written notice of all
contemplated changes in Debtor's name, location, chief executive office,
principal place of business, and/or location of any Collateral, but the
giving of this notice shall not cure any Event of Default caused by this
change.
5.3 Bank assumes no duty of performance or other responsibility under any
contracts contained within the Collateral.
5.4 Bank has the right to sell, assign, transfer, negotiate or grant
participations or any interest in, any or all of the Indebtedness and any
related obligations, including without limit this Agreement. In connection
with the above, but without limiting its ability to make other disclosures to
the full extent allowable, Bank may disclose all documents and information
which Bank now or later has relating to Debtor, the Indebtedness or this
Agreement, however obtained to any assignee or participant who agrees to hold
such information confidential in the same manner as the Bank. Debtor further
agrees that Bank may provide information relating to this Agreement or
relating to Debtor to the Bank's parent, affiliates, subsidiaries, and
service providers.
5.5 In addition to Bank's other rights, any indebtedness owing from Bank to
Debtor can be set off and applied by Bank on any Indebtedness at any time(s)
after maturity and without notice or demand notice to anyone. Any such action
shall not constitute an acceptance of collateral in discharge of the
Indebtedness.
5.6 Debtor, to the extent not expressly prohibited by applicable law, waives
any right to require the Bank to: (a) proceed against any person or property;
(b) give notice of the terms, time and place of any public or private sale of
personal property security held from Borrower or any other person, or
otherwise comply with the provisions of Sections 9-611 or 9-621 of the
Uniform Commercial Code; or (c) pursue any other remedy in the Bank's power.
Debtor waives notice of acceptance of this Agreement and presentment, demand,
protest, notice of protest, dishonor, notice of dishonor, notice of default,
notice of intent to accelerate or demand payment of any Indebtedness, any and
all other notices to which the undersigned might otherwise be entitled, and
diligence in collecting any Indebtedness, and agree(s) that the Bank may,
once or any number of times, modify the terms of any Indebtedness,
compromise, extend, increase, accelerate, renew or forbear to enforce payment
of any or all Indebtedness, or permit Borrower to incur additional
Indebtedness, all without notice to Debtor and without affecting in any
manner the unconditional obligation of Debtor under this Agreement. Debtor
unconditionally and irrevocably waives each and every defense and setoff of
any nature which, under principles of guaranty or otherwise, would operate to
impair or diminish in any way the obligation of Debtor under this Agreement,
and acknowledges that such waiver is by this reference incorporated into each
security agreement, collateral assignment, pledge and/or other document from
Debtor now or later securing the Indebtedness, and acknowledges that as of
the date of this Agreement no such defense or setoff exists.
5.7 Debtor waives any and all rights (whether by subrogation, indemnity,
reimbursement, or otherwise) to recover from Borrower any amounts paid or the
value of any Collateral given by Debtor pursuant to this Agreement.
5.8 In the event that applicable law shall obligate Bank to give prior notice
to Debtor of any action to be taken under this Agreement, Debtor agrees that
a written notice given to Debtor at least ten days before the date of the act
shall be reasonable notice of the act and, specifically, reasonable
notification of the time and place of any public sale or of the time after
which any private sale, lease, or other disposition is to be made, unless a
shorter notice period is reasonable under the circumstances. A notice shall
be deemed to be given under this Agreement when delivered to Debtor or when
placed in an envelope addressed to Debtor and deposited, with postage
prepaid, in a post office or official depository under the exclusive care and
custody of the United States Postal Service or delivered to an overnight
courier. The mailing shall be by overnight courier, certified, or first class
mail.
5.9 Notwithstanding any prior revocation, termination, surrender, or
discharge of this Agreement in whole or in part, the effectiveness of this
Agreement shall automatically continue or be reinstated in the event that any
payment received or credit given by Bank in respect of the Indebtedness is
returned, disgorged, or rescinded under any applicable law, including,
without limitation, bankruptcy or insolvency laws, in which case this
Agreement, shall be enforceable against Debtor as if the returned, disgorged,
or rescinded payment or credit had not been received or given by Bank, and
whether or not Bank relied upon this payment or credit or changed its
position as a consequence of it. In the event of continuation or
reinstatement of this Agreement, Debtor agrees upon demand by Bank to execute
and deliver to Bank those documents which Bank determines are appropriate to
further evidence (in the public records or otherwise) this continuation or
reinstatement, although the failure of Debtor to do so shall not affect in
any way the reinstatement or continuation.
5.10 This Agreement and all the rights and remedies of Bank under this
Agreement shall inure to the benefit of Bank's successors and assigns and to
any other holder who derives from Bank title to or an interest in the
Indebtedness or any portion of it, and shall bind Debtor and the heirs, legal
representatives, successors, and assigns of Debtor. Nothing in this Section
5.10 is deemed a consent by Bank to any assignment by Debtor.
5.11 If there is more than one Debtor, all undertakings, warranties and
covenants made by Debtor and all rights, powers and authorities given to or
conferred upon Bank are made or given jointly and severally.
5.12 Except as otherwise provided in this Agreement, all terms in this
Agreement have the meanings assigned to them in Article 9 (or, absent
definition in Article 9, in any other Article) of the Uniform Commercial
Code, as those meanings may be amended, revised or replaced from time to
time. "Uniform Commercial Code" means Act No. 174 of the Michigan Public Acts
of 1962, as amended, revised or replaced from time to time, including without
limit as amended by Act No. 348 of the Michigan Public Acts of 2000.
Notwithstanding the foregoing, the parties intend that the terms used herein
which are defined in the Uniform Commercial Code have, at all times, the
broadest and most inclusive meanings possible. Accordingly, if the Uniform
Commercial Code shall in the future be amended or held by a court to define
any term used herein more broadly or inclusively than the Uniform Commercial
Code in effect on the date of this Agreement, then such term, as used herein,
shall be given such broadened meaning. If the Uniform Commercial Code shall
in the future be amended or held by a court to define any term used herein
more narrowly, or less inclusively, than the Uniform Commercial Code in
effect on the date of this Agreement, such amendment or holding shall be
disregarded in defining terms used in this Agreement.
5.13 No single or partial exercise, or delay in the exercise, of any right or
power under this Agreement, shall preclude other or further exercise of the
rights and powers under this Agreement. The unenforceability of any provision
of this Agreement shall not affect the enforceability of the remainder of
this Agreement. This Agreement constitutes the entire agreement of Debtor and
Bank with respect to the subject matter of this Agreement. No amendment or
modification of this Agreement shall be effective unless the same shall be in
writing and signed by Debtor and an authorized officer of Bank. This
Agreement shall be governed by and construed in accordance with the internal
laws of the State of Michigan, without regard to conflict of laws principles.
5.14 To the extent that any of the Indebtedness is payable upon demand,
nothing contained in this Agreement shall modify the terms and conditions of
that Indebtedness nor shall anything contained in this Agreement prevent Bank
from making demand, without notice and with or without reason, for immediate
payment of any or all of that Indebtedness at any time(s), whether or not an
Event of Default has occurred.
5.15 Debtor represents and warrants that Debtor's exact name is the name set
forth in this Agreement. Debtor further represents and warrants the following
and agrees that Debtor is, and at all times shall be, located in the
following place [mark applicable provision]:
Debtor is an individual, and Debtor is located (as determined pursuant to
the Uniform Commercial Code) at Debtor's principal residence which is (street
address, state and county or parish):
.
X Debtor is a registered organization which is organized under the laws of
one of the states comprising the United States (e.g. corporation, limited
partnership, registered limited liability partnership or limited liability
company), and Debtor is located (as determined pursuant to the Uniform
Commercial Code) in the state under the laws of which it was organized, which
is (state address, state and county or parish): 2151 Anchor Ct., Thousand
Oaks, California 91320.
Debtor is a domestic organization which is not a registered organization
under the laws of the United States or any state thereof (e.g. general
partnership, joint venture, trust, estate or association), and Debtor is
located (as determined pursuant to the Uniform Commercial Code) at its sole
place of business or, if it has more than one place of business, at its chief
executive office, which is (street address, state and county or parish): .
Debtor is a registered organization organized under the laws of the United
States, and Debtor is located in the state that United States law designates
as its location or, if United States law authorizes the Debtor to designate
the state for its location, the state designated by Debtor, or if neither of
the foregoing are applicable, at the District of Columbia. Debtor is located
(as determined pursuant to the Uniform Commercial Code) at (street address,
state and county or parish): .
Debtor is a foreign individual or foreign organization or a branch or agency
of a bank that is not organized under the laws of the United States or a
state thereof. Debtor is located (as determined pursuant to the Uniform
Commercial Code) at: _______________________.
If Collateral is located at other than the address specified above, such
Collateral is located and shall be maintained at
See attached Schedule of Collateral Locations
STREET ADDRESS
CITY STATE ZIP CODE COUNTY
Collateral shall be maintained only at the locations identified in this
Section 5.15.
5.16 A carbon, photographic or other reproduction of this Agreement shall be
sufficient as a financing statement under the Uniform Commercial Code and may
be filed by Bank in any filing office.
5.17 This Agreement shall be terminated only by the filing of a termination
statement in accordance with the applicable provisions of the Uniform
Commercial Code, but the obligations contained in Section 2.13 of this
Agreement shall survive termination.
6. DEBTOR AND BANK ACKNOWLEDGE THAT THE RIGHT TO TRIAL BY JURY IS A
CONSTITUTIONAL ONE, BUT THAT IT MAY BE WAIVED. EACH PARTY, AFTER CONSULTING
(OR HAVING HAD THE OPPORTUNITY TO CONSULT) WITH COUNSEL OF THEIR CHOICE,
KNOWINGLY AND VOLUNTARILY, AND FOR THEIR MUTUAL BENEFIT WAIVES ANY RIGHT TO
TRIAL BY JURY IN THE EVENT OF LITIGATION REGARDING THE PERFORMANCE OR
ENFORCEMENT OF, OR IN ANY WAY RELATED TO, THIS AGREEMENT OR THE INDEBTEDNESS.
7. SPECIAL PROVISIONS APPLICABLE TO THIS AGREEMENT. (*None, if left blank)
Debtor:
SMTEK, INC.
By: /s/ Kirk A. Waldron
SIGNATURE OF KIRK A. WALDRON
Its: Treasurer
TITLE (If applicable)
SECURITY AGREEMENT
(All Assets)
As of September 25, 2001, for value received, the undersigned ("Debtor")
grants to Comerica Bank, a Michigan banking corporation ("Bank"), whose
address is 39200 Six Mile Road, Livonia, Michigan 48152 , Attention:
Commercial Loan Documentation, Mail Code 7578, a continuing security interest
and lien (any pledge, assignment, security interest or other lien arising
hereunder is sometimes referred to herein as a "security interest") in the
Collateral (as defined below) to secure payment when due, whether by stated
maturity, demand, acceleration or otherwise, of all existing and future
indebtedness ("Indebtedness") to the Bank of Smtek International, Inc.
("Borrower") and/or Debtor. Indebtedness includes without limit any and all
obligations or liabilities of the Borrower and/or Debtor to the Bank, whether
absolute or contingent, direct or indirect, voluntary or involuntary,
liquidated or unliquidated, joint or several, known or unknown; any and all
obligations or liabilities for which the Borrower and/or Debtor would
otherwise be liable to the Bank were it not for the invalidity or
unenforceability of them by reason of any bankruptcy, insolvency or other
law, or for any other reason; any and all amendments, modifications, renewals
and/or extensions of any of the above; all costs incurred by Bank in
establishing, determining, continuing, or defending the validity or priority
of its security interest, or in pursuing its rights and remedies under this
Agreement or under any other agreement between Bank and Borrower and/or
Debtor or in connection with any proceeding involving Bank as a result of any
financial accommodation to Borrower and/or Debtor; and all other costs of
collecting Indebtedness, including without limit attorney fees. Debtor agrees
to pay Bank all such costs incurred by the Bank, immediately upon demand, and
until paid all costs shall bear interest at the highest per annum rate
applicable to any of the Indebtedness, but not in excess of the maximum rate
permitted by law. Any reference in this Agreement to attorney fees shall be
deemed a reference to reasonable fees, costs, and expenses of both in-house
and outside counsel and paralegals, whether or not a suit or action is
instituted, and to court costs if a suit or action is instituted, and whether
attorney fees or court costs are incurred at the trial court level, on
appeal, in a bankruptcy, administrative or probate proceeding or otherwise.
Debtor further covenants, agrees and represents as follows:
1. COLLATERAL shall mean all of the following property Debtor now or later
owns or has an interest in, wherever located:
(a) all Accounts Receivable (for purposes of this Agreement, "Accounts
Receivable" consists of all accounts; general intangibles; chattel paper
(including without limit electronic chattel paper and tangible chattel
paper); contract rights; deposit accounts; documents; instruments; rights to
payment evidenced by chattel paper, documents or instruments; health care
insurance receivables; commercial tort claims; letters of credit; letter of
credit rights; supporting obligations; and rights to payment for money or
funds advanced or sold),
(b) all Inventory,
(c) all Equipment and Fixtures,
(d) all Software (for purposes of this Agreement, "Software" consists of
all (i) computer programs and supporting information provided in connection
with a transaction relating to the program, and (ii) computer programs
embedded in goods and any supporting information provided in connection with
a transaction relating to the program whether or not the program is
associated with the goods in such a manner that it customarily is considered
part of the goods, and whether or not, by becoming the owner of the goods, a
person acquires a right to use the program in connection with the goods, and
whether or not the program is embedded in goods that consist solely of the
medium in which the program is embedded),
(e) specific items listed below and/or on attached Schedule A, if any,
is/are also included in Collateral:
(f) all goods, instruments, documents, policies and certificates of
insurance, deposits, money, investment property or other property (except
real property which is not a fixture) which are now or later in possession or
control of Bank, or as to which Bank now or later controls possession by
documents or otherwise, and
(g) all additions, attachments, accessions, parts, replacements,
substitutions, renewals, interest, dividends, distributions, rights of any
kind (including but not limited to stock splits, stock rights, voting and
preferential rights), products, and proceeds of or pertaining to the above
including, without limit, cash or other property which were proceeds and are
recovered by a bankruptcy trustee or otherwise as a preferential transfer by
Debtor.
In the definition of Collateral, a reference to a type of collateral shall
not be limited by a separate reference to a more specific or narrower type of
that collateral.
2. WARRANTIES, COVENANTS AND AGREEMENTS. Debtor warrants, covenants and
agrees as follows:
2.1 Debtor shall furnish to Bank, in form and at intervals as Bank may
request, any information Bank may reasonably request and allow Bank to
examine, inspect, and copy any of Debtor's books and records. Debtor shall,
at the request of Bank, mark its records and the Collateral to clearly
indicate the security interest of Bank under this Agreement.
2.2 At the time any Collateral becomes, or is represented to be, subject to a
security interest in favor of Bank, Debtor shall be deemed to have warranted
that (a) Debtor is the lawful owner of the Collateral and has the right and
authority to subject it to a security interest granted to Bank; (b) none of
the Collateral is subject to any security interest other than that in favor
of Bank and Permitted Liens (as defined below); (c) there are no financing
statements on file, other than in favor of Bank and those filed with respect
to Permitted Liens; (d) no person, other than Bank, has possession or control
(as defined in the Uniform Commercial Code) of any Collateral of such nature
that perfection of a security interest may be accomplished by control; and
(e) Debtor acquired its rights in the Collateral in the ordinary course of
its business.
2.3 Debtor will keep the Collateral free at all times from all claims, liens,
security interests and encumbrances other than those in favor of Bank and
liens and security interests permitted under the terms of the Credit
Agreement dated as of September ___, 2001 between Borrower and Bank
("Permitted Liens"). Debtor will not, without the prior written consent of
Bank, sell, transfer or lease, or permit to be sold, transferred or leased,
any or all of the Collateral, except for Inventory in the ordinary course of
its business and will not return any Inventory to its supplier. Bank or its
representatives may at all reasonable times inspect the Collateral and may
enter upon all premises where the Collateral is kept or might be located.
2.4 Debtor will do all acts and will execute or cause to be executed all
writings requested by Bank to establish, maintain and continue an exclusive,
perfected and first security interest of Bank in the Collateral (subject to
Permitted Liens). Debtor agrees that Bank has no obligation to acquire or
perfect any lien on or security interest in any asset(s), whether realty or
personalty, to secure payment of the Indebtedness, and Debtor is not relying
upon assets in which the Bank may have a lien or security interest for
payment of the Indebtedness.
2.5 Debtor will pay within the time that they can be paid without interest or
penalty all taxes, assessments and similar charges which at any time are or
may become a lien, charge, or encumbrance upon any Collateral, except to the
extent contested in good faith and, if reasonably required by Bank, bonded in
a manner satisfactory to Bank. If Debtor fails to pay any of these taxes,
assessments, or other charges in the time provided above, Bank has the option
(but not the obligation) to do so and Debtor agrees to repay all amounts so
expended by Bank immediately upon demand, together with interest at the
highest lawful default rate which could be charged by Bank on any
Indebtedness.
2.6 Debtor will keep the Collateral in good condition and will protect it
from loss, damage, or deterioration from any cause ordinary wear and tear
excepted. Debtor has and will maintain at all times (a) with respect to the
Collateral, insurance under an "all risk" policy against fire and other risks
customarily insured against, and (b) public liability insurance and other
insurance as may be required by law or reasonably required by Bank, all of
which insurance shall be in amount, form and content, and written by
companies as may be satisfactory to Bank, containing a lender's loss payable
endorsement acceptable to Bank. Debtor will deliver to Bank immediately upon
demand evidence satisfactory to Bank that the required insurance has been
procured. If Debtor fails to maintain satisfactory insurance, Bank has the
option (but not the obligation) to do so and Debtor agrees to repay all
amounts so expended by Bank immediately upon demand, together with interest
at the highest lawful default rate which could be charged by Bank on any
Indebtedness.
2.7 On each occasion on which Debtor evidences to Bank the account balances
on and the nature and extent of the Accounts Receivable which are included in
a borrowing base report as an eligible account, Debtor shall be deemed to
have warranted that except as otherwise indicated (a) each of those Accounts
Receivable is valid and enforceable without performance by Debtor of any act;
(b) each of those account balances are in fact owing, (c) there are no
setoffs, recoupments, credits, contra accounts, counterclaims or defenses
against any of those Accounts Receivable, (d) as to any Accounts Receivable
represented by a note, trade acceptance, draft or other instrument or by any
chattel paper or document, the same have been endorsed and/or delivered by
Debtor to Bank, (e) Debtor has not received with respect to any Account
Receivable, any notice of the death of the related account debtor, nor of the
dissolution, liquidation, termination of existence, insolvency, business
failure, appointment of a receiver for, assignment for the benefit of
creditors by, or filing of a petition in bankruptcy by or against, the
account debtor, and (f) as to each Account Receivable, except as may be
expressly permitted by Bank to the contrary in another document, the account
debtor is not an affiliate of Debtor, the United States of America or any
department, agency or instrumentality of it, or a citizen or resident of any
jurisdiction outside of the United States. Debtor will do all acts and will
execute all writings requested by Bank to perform, enforce performance of,
and collect all Accounts Receivable. Debtor shall neither make nor permit any
modification, compromise or substitution for any Account Receivable without
the prior written consent of Bank except for modifications and compromises
made in the ordinary course of business in a manner consistent with past
practice and to the extent made prior to the occurrence of an Event of
Default. Debtor shall, at Bank's request, arrange for verification of
Accounts Receivable directly with account debtors or by other methods
acceptable to Bank.
2.8 Debtor at all times shall be in compliance in all material respects with
all applicable laws, including without limit any laws, ordinances,
directives, orders, statutes, or regulations an object of which is to
regulate or improve health, safety, or the environment ("Environmental
Laws").
2.9 If Bank, acting in its sole discretion, redelivers Collateral to Debtor
or Debtor's designee for the purpose of (a) the ultimate sale or exchange
thereof; or (b) presentation, collection, renewal, or registration of
transfer thereof; or (c) loading, unloading, storing, shipping,
transshipping, manufacturing, processing or otherwise dealing with it
preliminary to sale or exchange; such redelivery shall be in trust for the
benefit of Bank and shall not constitute a release of Bank's security
interest in it or in the proceeds or products of it unless Bank specifically
so agrees in writing. If Debtor requests any such redelivery, Debtor will
deliver with such request a duly executed financing statement in form and
substance satisfactory to Bank. Any proceeds of Collateral coming into
Debtor's possession as a result of any such redelivery shall be held in trust
for Bank and immediately delivered to Bank for application on the
Indebtedness. Bank may (in its sole discretion) deliver any or all of the
Collateral to Debtor, and such delivery by Bank shall discharge Bank from all
liability or responsibility for such Collateral. Bank, at its option, may
require delivery of any Collateral to Bank at any time with such endorsements
or assignments of the Collateral as Bank may request.
2.10 At any time and without notice, Bank may (a) cause any or all of the
Collateral to be transferred to its name or to the name of its nominees; (b)
receive or collect by legal proceedings or otherwise all dividends, interest,
principal payments and other sums and all other distributions at any time
payable or receivable on account of the Collateral, and hold the same as
Collateral, or apply the same to the Indebtedness, the manner and
distribution of the application to be in the sole discretion of Bank; (c)
enter into any extension, subordination, reorganization, deposit, merger or
consolidation agreement or any other agreement relating to or affecting the
Collateral, and deposit or surrender control of the Collateral, and accept
other property in exchange for the Collateral and hold or apply the property
or money so received pursuant to this Agreement; and (d) take such actions in
its own name or in Debtor's name as Bank, in its sole discretion, deems
necessary or appropriate to establish exclusive control (as defined in the
Uniform Commercial Code) over any Collateral of such nature that perfection
of Bank's security interest may be accomplished by control.
2.11 Bank may assign any of the Indebtedness and deliver any or all of the
Collateral to its assignee, who then
shall have with respect to Collateral so delivered all the rights and powers
of Bank under this Agreement,
and after that Bank shall be fully discharged from all liability and
responsibility with respect to Collateral
so delivered.
2.12 Debtor delivers this Agreement based solely on Debtor's independent
investigation of (or decision not to investigate) the financial condition of
Borrower and is not relying on any information furnished by Bank. Debtor
assumes full responsibility for obtaining any further information concerning
the Borrower's financial condition, the status of the Indebtedness or any
other matter which the undersigned may deem necessary or appropriate now or
later. Debtor waives any duty on the part of Bank, and agrees that Debtor is
not relying upon nor expecting Bank to disclose to Debtor any fact now or
later known by Bank, whether relating to the operations or condition of
Borrower, the existence, liabilities or financial condition of any guarantor
of the Indebtedness, the occurrence of any default with respect to the
Indebtedness, or otherwise, notwithstanding any effect such fact may have
upon Debtor's risk or Debtor's rights against Borrower. Debtor knowingly
accepts the full range of risk encompassed in this Agreement, which risk
includes without limit the possibility that Borrower may incur Indebtedness
to Bank after the financial condition of Borrower, or Borrower's ability to
pay debts as they mature, has deteriorated.
2.13 Debtor shall defend, indemnify and hold harmless Bank, its employees,
agents, shareholders, affiliates, officers, and directors from and against
any and all claims, damages, fines, expenses, liabilities or causes of action
of whatever kind, including without limit consultant fees, legal expenses,
and attorney fees, suffered by any of them as a direct or indirect result of
any actual or asserted violation of any law by Debtor or any of its
employees, agents, affiliates, officers, directors or other persons under its
direction or control, including, without limit, Environmental Laws, or of any
remediation relating to any property required by any law, including without
limit Environmental Laws.
3. COLLECTION OF PROCEEDS.
3.1 Debtor agrees to collect and enforce payment of all Collateral until Bank
shall direct Debtor to the contrary (which direction may only be given
following the occurrence of an Event of Default). Immediately upon notice to
Debtor by Bank and at all times after that, Debtor agrees to fully and
promptly cooperate and assist Bank in the collection and enforcement of all
Collateral and to hold in trust for Bank all payments received in connection
with Collateral and from the sale, lease or other disposition of any
Collateral, all rights by way of suretyship or guaranty and all rights in the
nature of a lien or security interest which Debtor now or later has regarding
Collateral. Immediately upon and after such notice, Debtor agrees to (a)
endorse to Bank and immediately deliver to Bank all payments received on
Collateral or from the sale, lease or other disposition of any Collateral or
arising from any other rights or interests of Debtor in the Collateral, in
the form received by Debtor without commingling with any other funds, and (b)
immediately deliver to Bank all property in Debtor's possession or later
coming into Debtor's possession through enforcement of Debtor's rights or
interests in the Collateral. Debtor irrevocably authorizes Bank or any Bank
employee or agent to endorse the name of Debtor upon any checks or other
items which are received in payment for any Collateral, and to do any and all
things necessary in order to reduce these items to money. Bank shall have no
duty as to the collection or protection of Collateral or the proceeds of it,
nor as to the preservation of any related rights, beyond the use of
reasonable care in the custody and preservation of Collateral in the
possession of Bank. Debtor agrees to take all steps necessary to preserve
rights against prior parties with respect to the Collateral. Nothing in this
Section 3.1 shall be deemed a consent by Bank to any sale, lease or other
disposition of any Collateral.
3.2 Debtor agrees that immediately upon Bank's request (which notice may only
be given following the occurrence of an Event of Default) the Indebtedness
shall be on a "remittance basis" as follows: Debtor shall at its sole expense
establish and maintain (and Bank, at Bank's option may establish and maintain
at Debtor's expense): (a) an United States Post Office lock box (the "Lock
Box"), to which Bank shall have exclusive access and control. Debtor
expressly authorizes Bank, from time to time, to remove contents from the
Lock Box, for disposition in accordance with this Agreement. Debtor agrees to
notify all account debtors and other parties obligated to Debtor that all
payments made to Debtor (other than payments by electronic funds transfer)
shall be remitted, for the credit of Debtor, to the Lock Box, and Debtor
shall include a like statement on all invoices; and (b) a non-interest
bearing deposit account with Bank which shall be titled as designated by Bank
(the "Cash Collateral Account") to which Bank shall have exclusive access and
control. Debtor agrees to notify all account debtors and other parties
obligated to Debtor that all payments made to Debtor by electronic funds
transfer shall be remitted to the Cash Collateral Account, and Debtor, at
Bank's request, shall include a like statement on all invoices. Debtor shall
execute all documents and authorizations as required by Bank to establish and
maintain the Lock Box and the Cash Collateral Account.
3.3 All items or amounts which are remitted to the Lock Box, to the Cash
Collateral Account, or otherwise delivered by or for the benefit of Debtor to
Bank on account of partial or full payment of, or with respect to, any
Collateral shall, at Bank's option, (a) be applied to the payment of the
Indebtedness, whether then due or not, in such order or at such time of
application as Bank may determine in its sole discretion, or, (b) be
deposited to the Cash Collateral Account. Debtor agrees that Bank shall not
be liable for any loss or damage which Debtor may suffer as a result of
Bank's processing of items or its exercise of any other rights or remedies
under this Agreement, including without limitation indirect, special or
consequential damages, loss of revenues or profits, or any claim, demand or
action by any third party arising out of or in connection with the processing
of items or the exercise of any other rights or remedies under this
Agreement. Debtor agrees to indemnify and hold Bank harmless from and against
all such third party claims, demands or actions, and all related expenses or
liabilities, including, without limitation, attorney fees, except for claims
arising solely as a result of Bank's gross negligence or willful misconduct.
4. DEFAULTS, ENFORCEMENT AND APPLICATION OF PROCEEDS.
4.1 Upon the occurrence of any of the following events (each an "Event of
Default"), Debtor shall be in default under this Agreement:
(a) Any failure to pay the Indebtedness or any other indebtedness when
due, or such portion of it as may be due, by acceleration or otherwise; or
(b) Any failure or neglect to comply with, or breach of or default
under, any term of this Agreement, or any other agreement or commitment
between Borrower, Debtor, or any guarantor of any of the Indebtedness
("Guarantor") and Bank and continuance beyond any applicable period of cure;
or
(c) Any warranty, representation, financial statement, or other
information made, given or furnished to Bank by or on behalf of Borrower,
Debtor, or any Guarantor shall be, or shall prove to have been, false or
materially misleading when made, given, or furnished; or
(d) Any material loss, theft, substantial damage or destruction to or of
any Collateral which is not covered by insurance, or the issuance or filing
of any attachment, levy, garnishment or the commencement of any similar
proceeding in connection with any Collateral; or
(e) Bank in good faith deems the margin of Collateral insufficient or
itself insecure (subject to the provisions of Section 1-208 of the Uniform
Commercial Code) or shall in good faith fear deterioration, removal, or waste
of Collateral; or
(f) A default shall occur under any instrument, agreement or other
document evidencing, securing or otherwise relating to any of the
Indebtedness and continue beyond any applicable period of cure.
4.2 Upon the occurrence of any Event of Default, Bank may at its discretion
and without prior notice to Debtor declare any or all of the Indebtedness to
be immediately due and payable, and shall have and may exercise any one or
more of the following rights and remedies:
(a) Exercise all the rights and remedies upon default, in foreclosure
and otherwise, available to secured parties under the provisions of the
Uniform Commercial Code and other applicable law;
(b) Institute legal proceedings to foreclose upon the lien and security
interest granted by this Agreement, to recover judgment for all amounts then
due and owing as Indebtedness, and to collect the same out of any Collateral
or the proceeds of any sale of it;
(c) Institute legal proceedings for the sale, under the judgment or
decree of any court of competent jurisdiction, of any or all Collateral;
and/or
(d) Personally or by agents, attorneys, or appointment of a receiver,
enter upon any premises where Collateral may then be located, and take
possession of all or any of it and/or render it unusable; and without being
responsible for loss or damage to such Collateral, hold, operate, sell,
lease, or dispose of all or any Collateral at one or more public or private
sales, leasings or other disposition, at places and times and on terms and
conditions as Bank may deem fit, without any previous demand or
advertisement; and except as provided in this Agreement, all notice of sale,
lease or other disposition, and advertisement, and other notice or demand,
any right or equity of redemption, and any obligation of a prospective
purchaser or lessee to inquire as to the power and authority of Bank to sell,
lease, or otherwise dispose of the Collateral or as to the application by
Bank of the proceeds of sale or otherwise, which would otherwise be required
by, or available to Debtor under, applicable law are expressly waived by
Debtor to the fullest extent permitted. At any sale pursuant to this Section
4.2, whether under the power of sale, by virtue of judicial proceedings or
otherwise, it shall not be necessary for Bank or a public officer under order
of a court to have present physical or constructive possession of Collateral
to be sold. The recitals contained in any conveyances and receipts made and
given by Bank or the public officer to any purchaser at any sale made
pursuant to this Agreement shall, to the extent permitted by applicable law,
conclusively establish the truth and accuracy of the matters stated
(including, without limit, as to the amounts of the principal of and interest
on the Indebtedness, the accrual and nonpayment of it and advertisement and
conduct of the sale); and all prerequisites to the sale shall be presumed to
have been satisfied and performed. Upon any sale of any Collateral, the
receipt of the officer making the sale under judicial proceedings or of Bank
shall be sufficient discharge to the purchaser for the purchase money, and
the purchaser shall not be obligated to see to the application of the money.
Any sale of any Collateral under this Agreement shall be a perpetual bar
against Debtor with respect to that Collateral. At any sale or other
disposition of Collateral pursuant to this Section 4.2, Bank disclaims all
warranties which would otherwise be given under the Uniform Commercial Code,
including without limit a disclaimer of any warranty relating to title,
possession, quiet enjoyment or the like, and Bank may communicate these
disclaimers to a purchaser at such disposition. This disclaimer of warranties
will not render the sale commercially unreasonable.
4.3 Debtor shall at the request of Bank, notify the account debtors or
obligors of Bank's security interest in the Collateral and direct payment of
it to Bank. Bank may, itself, upon the occurrence of any Event of Default so
notify and direct any account debtor or obligor. At the request of Bank,
whether or not an Event of Default shall have occurred, Debtor shall
immediately take such actions as Bank shall request to establish exclusive
control (as defined in the Uniform Commercial Code) by Bank over any
Collateral which is of such a nature that perfection of a security interest
may be accomplished by control.
4.4 The proceeds of any sale or other disposition of Collateral authorized by
this Agreement shall be applied by Bank first upon all expenses authorized by
the Uniform Commercial Code and all reasonable attorney fees and legal
expenses incurred by Bank; the balance of the proceeds of the sale or other
disposition shall be applied in the payment of the Indebtedness, first to
interest, then to principal, then to remaining Indebtedness and the surplus,
if any, shall be paid over to Debtor or to such other person(s) as may be
entitled to it under applicable law. Debtor shall remain liable for any
deficiency, which it shall pay to Bank immediately upon demand. Debtor agrees
that Bank shall be under no obligation to accept any noncash proceeds in
connection with any sale or disposition of Collateral unless failure to do so
would be commercially unreasonable. If Bank agrees in its sole discretion to
accept noncash proceeds (unless the failure to do so would be commercially
unreasonable), Bank may ascribe any commercially reasonable value to such
proceeds. Without limiting the foregoing, Bank may apply any commercially
reasonable discount factor in determining the present value of proceeds to be
received in the future or may elect to apply proceeds to be received in the
future only as and when such proceeds are actually received in cash by Bank.
4.5 Nothing in this Agreement is intended, nor shall it be construed, to
preclude Bank from pursuing any other remedy provided by law for the
collection of the Indebtedness or for the recovery of any other sum to which
Bank may be entitled for the breach of this Agreement by Debtor. Nothing in
this Agreement shall reduce or release in any way any rights or security
interests of Bank contained in any existing agreement between Borrower,
Debtor, or any Guarantor and Bank.
4.6 No waiver of default or consent to any act by Debtor shall be
effective unless in writing and signed by an authorized officer of Bank. No
waiver of any default or forbearance on the part of Bank in enforcing any of
its rights under this Agreement shall operate as a waiver of any other
default or of the same default on a future occasion or of any rights.
4.7 Debtor (a) irrevocably appoints Bank or any agent of Bank (which
appointment is coupled with an interest and which, except as to subclause
(ii) below, may only be exercised following the occurrence of an Event of
Default) the true and lawful attorney of Debtor (with full power of
substitution) in the name, place and stead of, and at the expense of, Debtor
and (b) authorizes Bank or any agent of Bank, in its own name, at Debtor's
expense, to do any of the following, as Bank, in its sole discretion, deems
appropriate:
(i) to demand, receive, sue for, and give receipts or acquittances for
any moneys due or to become due on any Collateral (including without limit to
draft against Collateral) and to endorse any item representing any payment on
or proceeds of the Collateral;
(ii) to execute and file in the name of and on behalf of Debtor all
financing statements or other filings deemed necessary or desirable by Bank
to evidence, perfect, or continue the security interests granted in this
Agreement; and
(iii) to do and perform any act on behalf of Debtor permitted or
required under this Agreement.
4.8 Upon the occurrence of an Event of Default, Debtor also agrees, upon
request of Bank, to assemble the Collateral and make it available to Bank at
any place designated by Bank which is reasonably convenient to Bank and
Debtor.
4.9 The following shall be the basis for any finder of fact's determination
of the value of any Collateral which is the subject matter of a disposition
giving rise to a calculation of any surplus or deficiency under Section 9.615
(f) of the Uniform Commercial Code (as in effect on or after July 1, 2001):
(a) the Collateral which is the subject matter of the disposition shall be
valued in an "as is" condition as of the date of the disposition, without any
assumption or expectation that such Collateral will be repaired or improved
in any manner; (b) the valuation shall be based upon an assumption that the
transferee of such Collateral desires a resale of the Collateral for cash
promptly (but no later than 30 days) following the disposition; (c) all
reasonable closing costs customarily borne by the seller in commercial sales
transactions relating to property similar to such Collateral shall be
deducted including, without limitation, brokerage commissions, tax
prorations, attorneys' fees, whether inside or outside counsel is used, and
marketing costs; (d) the value of the Collateral which is the subject matter
of the disposition shall be further discounted to account for any estimated
holding costs associated with maintaining such Collateral pending sale (to
the extent not accounted for in (c) above), and other maintenance,
operational and ownership expenses; and (e) any expert opinion testimony
given or considered in connection with a determination of the value of such
Collateral must be given by persons having at least 5 years experience in
appraising property similar to the Collateral and who have conducted and
prepared a complete written appraisal of such Collateral taking into
consideration the factors set forth above. The "value" of any such Collateral
shall be a factor in determining the amount of proceeds which would have been
realized in a disposition to a transferee other than a secured party, a
person related to a secured party or a secondary obligor under Section 9-
615(f).
5. MISCELLANEOUS.
5.1 Until Bank is advised in writing by Debtor to the contrary, all notices,
requests and demands required under this Agreement or by law shall be given
to, or made upon, Debtor at the first address indicated in Section 5.15
below.
5.2 Debtor will give Bank not less than 30 days prior written notice of all
contemplated changes in Debtor's name, location, chief executive office,
principal place of business, and/or location of any Collateral, but the
giving of this notice shall not cure any Event of Default caused by this
change.
5.3 Bank assumes no duty of performance or other responsibility under any
contracts contained within the Collateral.
5.4 Bank has the right to sell, assign, transfer, negotiate or grant
participations or any interest in, any or all of the Indebtedness and any
related obligations, including without limit this Agreement. In connection
with the above, but without limiting its ability to make other disclosures to
the full extent allowable, Bank may disclose all documents and information
which Bank now or later has relating to Debtor, the Indebtedness or this
Agreement, however obtained to any assignee or participant who agrees to hold
such information confidential in the same manner as the Bank. Debtor further
agrees that Bank may provide information relating to this Agreement or
relating to Debtor to the Bank's parent, affiliates, subsidiaries, and
service providers.
5.5 In addition to Bank's other rights, any indebtedness owing from Bank to
Debtor can be set off and applied by Bank on any Indebtedness at any time(s)
after maturity and without notice or demand notice to anyone. Any such action
shall not constitute an acceptance of collateral in discharge of the
Indebtedness.
5.6 Debtor, to the extent not expressly prohibited by applicable law, waives
any right to require the Bank to: (a) proceed against any person or property;
(b) give notice of the terms, time and place of any public or private sale of
personal property security held from Borrower or any other person, or
otherwise comply with the provisions of Sections 9-611 or 9-621 of the
Uniform Commercial Code; or (c) pursue any other remedy in the Bank's power.
Debtor waives notice of acceptance of this Agreement and presentment, demand,
protest, notice of protest, dishonor, notice of dishonor, notice of default,
notice of intent to accelerate or demand payment of any Indebtedness, any and
all other notices to which the undersigned might otherwise be entitled, and
diligence in collecting any Indebtedness, and agree(s) that the Bank may,
once or any number of times, modify the terms of any Indebtedness,
compromise, extend, increase, accelerate, renew or forbear to enforce payment
of any or all Indebtedness, or permit Borrower to incur additional
Indebtedness, all without notice to Debtor and without affecting in any
manner the unconditional obligation of Debtor under this Agreement. Debtor
unconditionally and irrevocably waives each and every defense and setoff of
any nature which, under principles of guaranty or otherwise, would operate to
impair or diminish in any way the obligation of Debtor under this Agreement,
and acknowledges that such waiver is by this reference incorporated into each
security agreement, collateral assignment, pledge and/or other document from
Debtor now or later securing the Indebtedness, and acknowledges that as of
the date of this Agreement no such defense or setoff exists.
5.7 Debtor waives any and all rights (whether by subrogation, indemnity,
reimbursement, or otherwise) to recover from Borrower any amounts paid or the
value of any Collateral given by Debtor pursuant to this Agreement.
5.8 In the event that applicable law shall obligate Bank to give prior notice
to Debtor of any action to be taken under this Agreement, Debtor agrees that
a written notice given to Debtor at least ten days before the date of the act
shall be reasonable notice of the act and, specifically, reasonable
notification of the time and place of any public sale or of the time after
which any private sale, lease, or other disposition is to be made, unless a
shorter notice period is reasonable under the circumstances. A notice shall
be deemed to be given under this Agreement when delivered to Debtor or when
placed in an envelope addressed to Debtor and deposited, with postage
prepaid, in a post office or official depository under the exclusive care and
custody of the United States Postal Service or delivered to an overnight
courier. The mailing shall be by overnight courier, certified, or first class
mail.
5.9 Notwithstanding any prior revocation, termination, surrender, or
discharge of this Agreement in whole or in part, the effectiveness of this
Agreement shall automatically continue or be reinstated in the event that any
payment received or credit given by Bank in respect of the Indebtedness is
returned, disgorged, or rescinded under any applicable law, including,
without limitation, bankruptcy or insolvency laws, in which case this
Agreement, shall be enforceable against Debtor as if the returned, disgorged,
or rescinded payment or credit had not been received or given by Bank, and
whether or not Bank relied upon this payment or credit or changed its
position as a consequence of it. In the event of continuation or
reinstatement of this Agreement, Debtor agrees upon demand by Bank to execute
and deliver to Bank those documents which Bank determines are appropriate to
further evidence (in the public records or otherwise) this continuation or
reinstatement, although the failure of Debtor to do so shall not affect in
any way the reinstatement or continuation.
5.10 This Agreement and all the rights and remedies of Bank under this
Agreement shall inure to the benefit of Bank's successors and assigns and to
any other holder who derives from Bank title to or an interest in the
Indebtedness or any portion of it, and shall bind Debtor and the heirs, legal
representatives, successors, and assigns of Debtor. Nothing in this Section
5.10 is deemed a consent by Bank to any assignment by Debtor.
5.11 If there is more than one Debtor, all undertakings, warranties and
covenants made by Debtor and all rights, powers and authorities given to or
conferred upon Bank are made or given jointly and severally.
5.12 Except as otherwise provided in this Agreement, all terms in this
Agreement have the meanings assigned to them in Article 9 (or, absent
definition in Article 9, in any other Article) of the Uniform Commercial
Code, as those meanings may be amended, revised or replaced from time to
time. "Uniform Commercial Code" means Act No. 174 of the Michigan Public Acts
of 1962, as amended, revised or replaced from time to time, including without
limit as amended by Act No. 348 of the Michigan Public Acts of 2000.
Notwithstanding the foregoing, the parties intend that the terms used herein
which are defined in the Uniform Commercial Code have, at all times, the
broadest and most inclusive meanings possible. Accordingly, if the Uniform
Commercial Code shall in the future be amended or held by a court to define
any term used herein more broadly or inclusively than the Uniform Commercial
Code in effect on the date of this Agreement, then such term, as used herein,
shall be given such broadened meaning. If the Uniform Commercial Code shall
in the future be amended or held by a court to define any term used herein
more narrowly, or less inclusively, than the Uniform Commercial Code in
effect on the date of this Agreement, such amendment or holding shall be
disregarded in defining terms used in this Agreement.
5.13 No single or partial exercise, or delay in the exercise, of any right or
power under this Agreement, shall preclude other or further exercise of the
rights and powers under this Agreement. The unenforceability of any provision
of this Agreement shall not affect the enforceability of the remainder of
this Agreement. This Agreement constitutes the entire agreement of Debtor and
Bank with respect to the subject matter of this Agreement. No amendment or
modification of this Agreement shall be effective unless the same shall be in
writing and signed by Debtor and an authorized officer of Bank. This
Agreement shall be governed by and construed in accordance with the internal
laws of the State of Michigan, without regard to conflict of laws principles.
5.14 To the extent that any of the Indebtedness is payable upon demand,
nothing contained in this Agreement shall modify the terms and conditions of
that Indebtedness nor shall anything contained in this Agreement prevent Bank
from making demand, without notice and with or without reason, for immediate
payment of any or all of that Indebtedness at any time(s), whether or not an
Event of Default has occurred.
5.15 Debtor represents and warrants that Debtor's exact name is the name set
forth in this Agreement. Debtor further represents and warrants the following
and agrees that Debtor is, and at all times shall be, located in the
following place [mark applicable provision]:
Debtor is an individual, and Debtor is located (as determined pursuant to
the Uniform Commercial Code) at Debtor's principal residence which is (street
address, state and county or parish):
.
X Debtor is a registered organization which is organized under the laws of
one of the states comprising the United States (e.g. corporation, limited
partnership, registered limited liability partnership or limited liability
company), and Debtor is located (as determined pursuant to the Uniform
Commercial Code) in the state under the laws of which it was organized, which
is (state address, state and county or parish): 2151 Anchor Ct., Thousand
Oaks, California 91320.
Debtor is a domestic organization which is not a registered organization
under the laws of the United States or any state thereof (e.g. general
partnership, joint venture, trust, estate or association), and Debtor is
located (as determined pursuant to the Uniform Commercial Code) at its sole
place of business or, if it has more than one place of business, at its chief
executive office, which is (street address, state and county or parish): .
Debtor is a registered organization organized under the laws of the United
States, and Debtor is located in the state that United States law designates
as its location or, if United States law authorizes the Debtor to designate
the state for its location, the state designated by Debtor, or if neither of
the foregoing are applicable, at the District of Columbia. Debtor is located
(as determined pursuant to the Uniform Commercial Code) at (street address,
state and county or parish): .
Debtor is a foreign individual or foreign organization or a branch or agency
of a bank that is not organized under the laws of the United States or a
state thereof. Debtor is located (as determined pursuant to the Uniform
Commercial Code) at: _______________________.
If Collateral is located at other than the address specified above, such
Collateral is located and shall be maintained at
See attached Schedule of Collateral Locations
STREET ADDRESS
CITY STATE ZIP CODE COUNTY
Collateral shall be maintained only at the locations identified in this
Section 5.15.
5.16 A carbon, photographic or other reproduction of this Agreement shall be
sufficient as a financing statement under the Uniform Commercial Code and may
be filed by Bank in any filing office.
5.17 This Agreement shall be terminated only by the filing of a termination
statement in accordance with the applicable provisions of the Uniform
Commercial Code, but the obligations contained in Section 2.13 of this
Agreement shall survive termination.
6. DEBTOR AND BANK ACKNOWLEDGE THAT THE RIGHT TO TRIAL BY JURY IS A
CONSTITUTIONAL ONE, BUT THAT IT MAY BE WAIVED. EACH PARTY, AFTER CONSULTING
(OR HAVING HAD THE OPPORTUNITY TO CONSULT) WITH COUNSEL OF THEIR CHOICE,
KNOWINGLY AND VOLUNTARILY, AND FOR THEIR MUTUAL BENEFIT WAIVES ANY RIGHT TO
TRIAL BY JURY IN THE EVENT OF LITIGATION REGARDING THE PERFORMANCE OR
ENFORCEMENT OF, OR IN ANY WAY RELATED TO, THIS AGREEMENT OR THE INDEBTEDNESS.
7. SPECIAL PROVISIONS APPLICABLE TO THIS AGREEMENT. (*None, if left blank)
Debtor:
TECHNETICS, INC.
By: /s/ Kirk A. Waldron
SIGNATURE OF KIRK A. WALDRON
Its: Treasurer
TITLE (If applicable)
SECURITY AGREEMENT
(All Assets)
As of September 25, 2001, for value received, the undersigned ("Debtor")
grants to Comerica Bank, a Michigan banking corporation ("Bank"), whose
address is 39200 Six Mile Road, Livonia, Michigan 48152 , Attention:
Commercial Loan Documentation, Mail Code 7578, a continuing security interest
and lien (any pledge, assignment, security interest or other lien arising
hereunder is sometimes referred to herein as a "security interest") in the
Collateral (as defined below) to secure payment when due, whether by stated
maturity, demand, acceleration or otherwise, of all existing and future
indebtedness ("Indebtedness") to the Bank of Smtek International, Inc.
("Borrower") and/or Debtor. Indebtedness includes without limit any and all
obligations or liabilities of the Borrower and/or Debtor to the Bank, whether
absolute or contingent, direct or indirect, voluntary or involuntary,
liquidated or unliquidated, joint or several, known or unknown; any and all
obligations or liabilities for which the Borrower and/or Debtor would
otherwise be liable to the Bank were it not for the invalidity or
unenforceability of them by reason of any bankruptcy, insolvency or other
law, or for any other reason; any and all amendments, modifications, renewals
and/or extensions of any of the above; all costs incurred by Bank in
establishing, determining, continuing, or defending the validity or priority
of its security interest, or in pursuing its rights and remedies under this
Agreement or under any other agreement between Bank and Borrower and/or
Debtor or in connection with any proceeding involving Bank as a result of any
financial accommodation to Borrower and/or Debtor; and all other costs of
collecting Indebtedness, including without limit attorney fees. Debtor agrees
to pay Bank all such costs incurred by the Bank, immediately upon demand, and
until paid all costs shall bear interest at the highest per annum rate
applicable to any of the Indebtedness, but not in excess of the maximum rate
permitted by law. Any reference in this Agreement to attorney fees shall be
deemed a reference to reasonable fees, costs, and expenses of both in-house
and outside counsel and paralegals, whether or not a suit or action is
instituted, and to court costs if a suit or action is instituted, and whether
attorney fees or court costs are incurred at the trial court level, on
appeal, in a bankruptcy, administrative or probate proceeding or otherwise.
Debtor further covenants, agrees and represents as follows:
1. COLLATERAL shall mean all of the following property Debtor now or later
owns or has an interest in, wherever located:
(a) all Accounts Receivable (for purposes of this Agreement, "Accounts
Receivable" consists of all accounts; general intangibles; chattel paper
(including without limit electronic chattel paper and tangible chattel
paper); contract rights; deposit accounts; documents; instruments; rights to
payment evidenced by chattel paper, documents or instruments; health care
insurance receivables; commercial tort claims; letters of credit; letter of
credit rights; supporting obligations; and rights to payment for money or
funds advanced or sold),
(b) all Inventory,
(c) all Equipment and Fixtures,
(d) all Software (for purposes of this Agreement, "Software" consists of
all (i) computer programs and supporting information provided in connection
with a transaction relating to the program, and (ii) computer programs
embedded in goods and any supporting information provided in connection with
a transaction relating to the program whether or not the program is
associated with the goods in such a manner that it customarily is considered
part of the goods, and whether or not, by becoming the owner of the goods, a
person acquires a right to use the program in connection with the goods, and
whether or not the program is embedded in goods that consist solely of the
medium in which the program is embedded),
(e) specific items listed below and/or on attached Schedule A, if any,
is/are also included in Collateral:
(f) all goods, instruments, documents, policies and certificates of
insurance, deposits, money, investment property or other property (except
real property which is not a fixture) which are now or later in possession or
control of Bank, or as to which Bank now or later controls possession by
documents or otherwise, and
(g) all additions, attachments, accessions, parts, replacements,
substitutions, renewals, interest, dividends, distributions, rights of any
kind (including but not limited to stock splits, stock rights, voting and
preferential rights), products, and proceeds of or pertaining to the above
including, without limit, cash or other property which were proceeds and are
recovered by a bankruptcy trustee or otherwise as a preferential transfer by
Debtor.
In the definition of Collateral, a reference to a type of collateral shall
not be limited by a separate reference to a more specific or narrower type of
that collateral.
2. WARRANTIES, COVENANTS AND AGREEMENTS. Debtor warrants, covenants and
agrees as follows:
2.1 Debtor shall furnish to Bank, in form and at intervals as Bank may
request, any information Bank may reasonably request and allow Bank to
examine, inspect, and copy any of Debtor's books and records. Debtor shall,
at the request of Bank, mark its records and the Collateral to clearly
indicate the security interest of Bank under this Agreement.
2.2 At the time any Collateral becomes, or is represented to be, subject to a
security interest in favor of Bank, Debtor shall be deemed to have warranted
that (a) Debtor is the lawful owner of the Collateral and has the right and
authority to subject it to a security interest granted to Bank; (b) none of
the Collateral is subject to any security interest other than that in favor
of Bank and Permitted Liens (as defined below); (c) there are no financing
statements on file, other than in favor of Bank and those filed with respect
to Permitted Liens; (d) no person, other than Bank, has possession or control
(as defined in the Uniform Commercial Code) of any Collateral of such nature
that perfection of a security interest may be accomplished by control; and
(e) Debtor acquired its rights in the Collateral in the ordinary course of
its business.
2.3 Debtor will keep the Collateral free at all times from all claims, liens,
security interests and encumbrances other than those in favor of Bank and
liens and security interests permitted under the terms of the Credit
Agreement dated as of September ___, 2001 between Borrower and Bank
("Permitted Liens"). Debtor will not, without the prior written consent of
Bank, sell, transfer or lease, or permit to be sold, transferred or leased,
any or all of the Collateral, except for Inventory in the ordinary course of
its business and will not return any Inventory to its supplier. Bank or its
representatives may at all reasonable times inspect the Collateral and may
enter upon all premises where the Collateral is kept or might be located.
2.4 Debtor will do all acts and will execute or cause to be executed all
writings requested by Bank to establish, maintain and continue an exclusive,
perfected and first security interest of Bank in the Collateral (subject to
Permitted Liens). Debtor agrees that Bank has no obligation to acquire or
perfect any lien on or security interest in any asset(s), whether realty or
personalty, to secure payment of the Indebtedness, and Debtor is not relying
upon assets in which the Bank may have a lien or security interest for
payment of the Indebtedness.
2.5 Debtor will pay within the time that they can be paid without interest or
penalty all taxes, assessments and similar charges which at any time are or
may become a lien, charge, or encumbrance upon any Collateral, except to the
extent contested in good faith and, if reasonably required by Bank, bonded in
a manner satisfactory to Bank. If Debtor fails to pay any of these taxes,
assessments, or other charges in the time provided above, Bank has the option
(but not the obligation) to do so and Debtor agrees to repay all amounts so
expended by Bank immediately upon demand, together with interest at the
highest lawful default rate which could be charged by Bank on any
Indebtedness.
2.6 Debtor will keep the Collateral in good condition and will protect it
from loss, damage, or deterioration from any cause ordinary wear and tear
excepted. Debtor has and will maintain at all times (a) with respect to the
Collateral, insurance under an "all risk" policy against fire and other risks
customarily insured against, and (b) public liability insurance and other
insurance as may be required by law or reasonably required by Bank, all of
which insurance shall be in amount, form and content, and written by
companies as may be satisfactory to Bank, containing a lender's loss payable
endorsement acceptable to Bank. Debtor will deliver to Bank immediately upon
demand evidence satisfactory to Bank that the required insurance has been
procured. If Debtor fails to maintain satisfactory insurance, Bank has the
option (but not the obligation) to do so and Debtor agrees to repay all
amounts so expended by Bank immediately upon demand, together with interest
at the highest lawful default rate which could be charged by Bank on any
Indebtedness.
2.7 On each occasion on which Debtor evidences to Bank the account balances
on and the nature and extent of the Accounts Receivable which are included in
a borrowing base report as an eligible account, Debtor shall be deemed to
have warranted that except as otherwise indicated (a) each of those Accounts
Receivable is valid and enforceable without performance by Debtor of any act;
(b) each of those account balances are in fact owing, (c) there are no
setoffs, recoupments, credits, contra accounts, counterclaims or defenses
against any of those Accounts Receivable, (d) as to any Accounts Receivable
represented by a note, trade acceptance, draft or other instrument or by any
chattel paper or document, the same have been endorsed and/or delivered by
Debtor to Bank, (e) Debtor has not received with respect to any Account
Receivable, any notice of the death of the related account debtor, nor of the
dissolution, liquidation, termination of existence, insolvency, business
failure, appointment of a receiver for, assignment for the benefit of
creditors by, or filing of a petition in bankruptcy by or against, the
account debtor, and (f) as to each Account Receivable, except as may be
expressly permitted by Bank to the contrary in another document, the account
debtor is not an affiliate of Debtor, the United States of America or any
department, agency or instrumentality of it, or a citizen or resident of any
jurisdiction outside of the United States. Debtor will do all acts and will
execute all writings requested by Bank to perform, enforce performance of,
and collect all Accounts Receivable. Debtor shall neither make nor permit any
modification, compromise or substitution for any Account Receivable without
the prior written consent of Bank except for modifications and compromises
made in the ordinary course of business in a manner consistent with past
practice and to the extent made prior to the occurrence of an Event of
Default. Debtor shall, at Bank's request, arrange for verification of
Accounts Receivable directly with account debtors or by other methods
acceptable to Bank.
2.8 Debtor at all times shall be in compliance in all material respects with
all applicable laws, including without limit any laws, ordinances,
directives, orders, statutes, or regulations an object of which is to
regulate or improve health, safety, or the environment ("Environmental
Laws").
2.9 If Bank, acting in its sole discretion, redelivers Collateral to Debtor
or Debtor's designee for the purpose of (a) the ultimate sale or exchange
thereof; or (b) presentation, collection, renewal, or registration of
transfer thereof; or (c) loading, unloading, storing, shipping,
transshipping, manufacturing, processing or otherwise dealing with it
preliminary to sale or exchange; such redelivery shall be in trust for the
benefit of Bank and shall not constitute a release of Bank's security
interest in it or in the proceeds or products of it unless Bank specifically
so agrees in writing. If Debtor requests any such redelivery, Debtor will
deliver with such request a duly executed financing statement in form and
substance satisfactory to Bank. Any proceeds of Collateral coming into
Debtor's possession as a result of any such redelivery shall be held in trust
for Bank and immediately delivered to Bank for application on the
Indebtedness. Bank may (in its sole discretion) deliver any or all of the
Collateral to Debtor, and such delivery by Bank shall discharge Bank from all
liability or responsibility for such Collateral. Bank, at its option, may
require delivery of any Collateral to Bank at any time with such endorsements
or assignments of the Collateral as Bank may request.
2.10 At any time and without notice, Bank may (a) cause any or all of the
Collateral to be transferred to its name or to the name of its nominees; (b)
receive or collect by legal proceedings or otherwise all dividends, interest,
principal payments and other sums and all other distributions at any time
payable or receivable on account of the Collateral, and hold the same as
Collateral, or apply the same to the Indebtedness, the manner and
distribution of the application to be in the sole discretion of Bank; (c)
enter into any extension, subordination, reorganization, deposit, merger or
consolidation agreement or any other agreement relating to or affecting the
Collateral, and deposit or surrender control of the Collateral, and accept
other property in exchange for the Collateral and hold or apply the property
or money so received pursuant to this Agreement; and (d) take such actions in
its own name or in Debtor's name as Bank, in its sole discretion, deems
necessary or appropriate to establish exclusive control (as defined in the
Uniform Commercial Code) over any Collateral of such nature that perfection
of Bank's security interest may be accomplished by control.
2.11 Bank may assign any of the Indebtedness and deliver any or all of the
Collateral to its assignee, who then
shall have with respect to Collateral so delivered all the rights and powers
of Bank under this Agreement,
and after that Bank shall be fully discharged from all liability and
responsibility with respect to Collateral
so delivered.
2.12 Debtor delivers this Agreement based solely on Debtor's independent
investigation of (or decision not to investigate) the financial condition of
Borrower and is not relying on any information furnished by Bank. Debtor
assumes full responsibility for obtaining any further information concerning
the Borrower's financial condition, the status of the Indebtedness or any
other matter which the undersigned may deem necessary or appropriate now or
later. Debtor waives any duty on the part of Bank, and agrees that Debtor is
not relying upon nor expecting Bank to disclose to Debtor any fact now or
later known by Bank, whether relating to the operations or condition of
Borrower, the existence, liabilities or financial condition of any guarantor
of the Indebtedness, the occurrence of any default with respect to the
Indebtedness, or otherwise, notwithstanding any effect such fact may have
upon Debtor's risk or Debtor's rights against Borrower. Debtor knowingly
accepts the full range of risk encompassed in this Agreement, which risk
includes without limit the possibility that Borrower may incur Indebtedness
to Bank after the financial condition of Borrower, or Borrower's ability to
pay debts as they mature, has deteriorated.
2.13 Debtor shall defend, indemnify and hold harmless Bank, its employees,
agents, shareholders, affiliates, officers, and directors from and against
any and all claims, damages, fines, expenses, liabilities or causes of action
of whatever kind, including without limit consultant fees, legal expenses,
and attorney fees, suffered by any of them as a direct or indirect result of
any actual or asserted violation of any law by Debtor or any of its
employees, agents, affiliates, officers, directors or other persons under its
direction or control, including, without limit, Environmental Laws, or of any
remediation relating to any property required by any law, including without
limit Environmental Laws.
3. COLLECTION OF PROCEEDS.
3.1 Debtor agrees to collect and enforce payment of all Collateral until Bank
shall direct Debtor to the contrary (which direction may only be given
following the occurrence of an Event of Default). Immediately upon notice to
Debtor by Bank and at all times after that, Debtor agrees to fully and
promptly cooperate and assist Bank in the collection and enforcement of all
Collateral and to hold in trust for Bank all payments received in connection
with Collateral and from the sale, lease or other disposition of any
Collateral, all rights by way of suretyship or guaranty and all rights in the
nature of a lien or security interest which Debtor now or later has regarding
Collateral. Immediately upon and after such notice, Debtor agrees to (a)
endorse to Bank and immediately deliver to Bank all payments received on
Collateral or from the sale, lease or other disposition of any Collateral or
arising from any other rights or interests of Debtor in the Collateral, in
the form received by Debtor without commingling with any other funds, and (b)
immediately deliver to Bank all property in Debtor's possession or later
coming into Debtor's possession through enforcement of Debtor's rights or
interests in the Collateral. Debtor irrevocably authorizes Bank or any Bank
employee or agent to endorse the name of Debtor upon any checks or other
items which are received in payment for any Collateral, and to do any and all
things necessary in order to reduce these items to money. Bank shall have no
duty as to the collection or protection of Collateral or the proceeds of it,
nor as to the preservation of any related rights, beyond the use of
reasonable care in the custody and preservation of Collateral in the
possession of Bank. Debtor agrees to take all steps necessary to preserve
rights against prior parties with respect to the Collateral. Nothing in this
Section 3.1 shall be deemed a consent by Bank to any sale, lease or other
disposition of any Collateral.
3.2 Debtor agrees that immediately upon Bank's request (which notice may only
be given following the occurrence of an Event of Default) the Indebtedness
shall be on a "remittance basis" as follows: Debtor shall at its sole expense
establish and maintain (and Bank, at Bank's option may establish and maintain
at Debtor's expense): (a) an United States Post Office lock box (the "Lock
Box"), to which Bank shall have exclusive access and control. Debtor
expressly authorizes Bank, from time to time, to remove contents from the
Lock Box, for disposition in accordance with this Agreement. Debtor agrees to
notify all account debtors and other parties obligated to Debtor that all
payments made to Debtor (other than payments by electronic funds transfer)
shall be remitted, for the credit of Debtor, to the Lock Box, and Debtor
shall include a like statement on all invoices; and (b) a non-interest
bearing deposit account with Bank which shall be titled as designated by Bank
(the "Cash Collateral Account") to which Bank shall have exclusive access and
control. Debtor agrees to notify all account debtors and other parties
obligated to Debtor that all payments made to Debtor by electronic funds
transfer shall be remitted to the Cash Collateral Account, and Debtor, at
Bank's request, shall include a like statement on all invoices. Debtor shall
execute all documents and authorizations as required by Bank to establish and
maintain the Lock Box and the Cash Collateral Account.
3.3 All items or amounts which are remitted to the Lock Box, to the Cash
Collateral Account, or otherwise delivered by or for the benefit of Debtor to
Bank on account of partial or full payment of, or with respect to, any
Collateral shall, at Bank's option, (a) be applied to the payment of the
Indebtedness, whether then due or not, in such order or at such time of
application as Bank may determine in its sole discretion, or, (b) be
deposited to the Cash Collateral Account. Debtor agrees that Bank shall not
be liable for any loss or damage which Debtor may suffer as a result of
Bank's processing of items or its exercise of any other rights or remedies
under this Agreement, including without limitation indirect, special or
consequential damages, loss of revenues or profits, or any claim, demand or
action by any third party arising out of or in connection with the processing
of items or the exercise of any other rights or remedies under this
Agreement. Debtor agrees to indemnify and hold Bank harmless from and against
all such third party claims, demands or actions, and all related expenses or
liabilities, including, without limitation, attorney fees, except for claims
arising solely as a result of Bank's gross negligence or willful misconduct.
4. DEFAULTS, ENFORCEMENT AND APPLICATION OF PROCEEDS.
4.1 Upon the occurrence of any of the following events (each an "Event of
Default"), Debtor shall be in default under this Agreement:
(a) Any failure to pay the Indebtedness or any other indebtedness when
due, or such portion of it as may be due, by acceleration or otherwise; or
(b) Any failure or neglect to comply with, or breach of or default
under, any term of this Agreement, or any other agreement or commitment
between Borrower, Debtor, or any guarantor of any of the Indebtedness
("Guarantor") and Bank and continuance beyond any applicable period of cure;
or
(c) Any warranty, representation, financial statement, or other
information made, given or furnished to Bank by or on behalf of Borrower,
Debtor, or any Guarantor shall be, or shall prove to have been, false or
materially misleading when made, given, or furnished; or
(d) Any material loss, theft, substantial damage or destruction to or of
any Collateral which is not covered by insurance, or the issuance or filing
of any attachment, levy, garnishment or the commencement of any similar
proceeding in connection with any Collateral; or
(e) Bank in good faith deems the margin of Collateral insufficient or
itself insecure (subject to the provisions of Section 1-208 of the Uniform
Commercial Code) or shall in good faith fear deterioration, removal, or waste
of Collateral; or
(f) A default shall occur under any instrument, agreement or other
document evidencing, securing or otherwise relating to any of the
Indebtedness and continue beyond any applicable period of cure.
4.2 Upon the occurrence of any Event of Default, Bank may at its discretion
and without prior notice to Debtor declare any or all of the Indebtedness to
be immediately due and payable, and shall have and may exercise any one or
more of the following rights and remedies:
(a) Exercise all the rights and remedies upon default, in foreclosure
and otherwise, available to secured parties under the provisions of the
Uniform Commercial Code and other applicable law;
(b) Institute legal proceedings to foreclose upon the lien and security
interest granted by this Agreement, to recover judgment for all amounts then
due and owing as Indebtedness, and to collect the same out of any Collateral
or the proceeds of any sale of it;
(c) Institute legal proceedings for the sale, under the judgment or
decree of any court of competent jurisdiction, of any or all Collateral;
and/or
(d) Personally or by agents, attorneys, or appointment of a receiver,
enter upon any premises where Collateral may then be located, and take
possession of all or any of it and/or render it unusable; and without being
responsible for loss or damage to such Collateral, hold, operate, sell,
lease, or dispose of all or any Collateral at one or more public or private
sales, leasings or other disposition, at places and times and on terms and
conditions as Bank may deem fit, without any previous demand or
advertisement; and except as provided in this Agreement, all notice of sale,
lease or other disposition, and advertisement, and other notice or demand,
any right or equity of redemption, and any obligation of a prospective
purchaser or lessee to inquire as to the power and authority of Bank to sell,
lease, or otherwise dispose of the Collateral or as to the application by
Bank of the proceeds of sale or otherwise, which would otherwise be required
by, or available to Debtor under, applicable law are expressly waived by
Debtor to the fullest extent permitted. At any sale pursuant to this Section
4.2, whether under the power of sale, by virtue of judicial proceedings or
otherwise, it shall not be necessary for Bank or a public officer under order
of a court to have present physical or constructive possession of Collateral
to be sold. The recitals contained in any conveyances and receipts made and
given by Bank or the public officer to any purchaser at any sale made
pursuant to this Agreement shall, to the extent permitted by applicable law,
conclusively establish the truth and accuracy of the matters stated
(including, without limit, as to the amounts of the principal of and interest
on the Indebtedness, the accrual and nonpayment of it and advertisement and
conduct of the sale); and all prerequisites to the sale shall be presumed to
have been satisfied and performed. Upon any sale of any Collateral, the
receipt of the officer making the sale under judicial proceedings or of Bank
shall be sufficient discharge to the purchaser for the purchase money, and
the purchaser shall not be obligated to see to the application of the money.
Any sale of any Collateral under this Agreement shall be a perpetual bar
against Debtor with respect to that Collateral. At any sale or other
disposition of Collateral pursuant to this Section 4.2, Bank disclaims all
warranties which would otherwise be given under the Uniform Commercial Code,
including without limit a disclaimer of any warranty relating to title,
possession, quiet enjoyment or the like, and Bank may communicate these
disclaimers to a purchaser at such disposition. This disclaimer of warranties
will not render the sale commercially unreasonable.
4.3 Debtor shall at the request of Bank, notify the account debtors or
obligors of Bank's security interest in the Collateral and direct payment of
it to Bank. Bank may, itself, upon the occurrence of any Event of Default so
notify and direct any account debtor or obligor. At the request of Bank,
whether or not an Event of Default shall have occurred, Debtor shall
immediately take such actions as Bank shall request to establish exclusive
control (as defined in the Uniform Commercial Code) by Bank over any
Collateral which is of such a nature that perfection of a security interest
may be accomplished by control.
4.4 The proceeds of any sale or other disposition of Collateral authorized by
this Agreement shall be applied by Bank first upon all expenses authorized by
the Uniform Commercial Code and all reasonable attorney fees and legal
expenses incurred by Bank; the balance of the proceeds of the sale or other
disposition shall be applied in the payment of the Indebtedness, first to
interest, then to principal, then to remaining Indebtedness and the surplus,
if any, shall be paid over to Debtor or to such other person(s) as may be
entitled to it under applicable law. Debtor shall remain liable for any
deficiency, which it shall pay to Bank immediately upon demand. Debtor agrees
that Bank shall be under no obligation to accept any noncash proceeds in
connection with any sale or disposition of Collateral unless failure to do so
would be commercially unreasonable. If Bank agrees in its sole discretion to
accept noncash proceeds (unless the failure to do so would be commercially
unreasonable), Bank may ascribe any commercially reasonable value to such
proceeds. Without limiting the foregoing, Bank may apply any commercially
reasonable discount factor in determining the present value of proceeds to be
received in the future or may elect to apply proceeds to be received in the
future only as and when such proceeds are actually received in cash by Bank.
4.5 Nothing in this Agreement is intended, nor shall it be construed, to
preclude Bank from pursuing any other remedy provided by law for the
collection of the Indebtedness or for the recovery of any other sum to which
Bank may be entitled for the breach of this Agreement by Debtor. Nothing in
this Agreement shall reduce or release in any way any rights or security
interests of Bank contained in any existing agreement between Borrower,
Debtor, or any Guarantor and Bank.
4.6 No waiver of default or consent to any act by Debtor shall be
effective unless in writing and signed by an authorized officer of Bank. No
waiver of any default or forbearance on the part of Bank in enforcing any of
its rights under this Agreement shall operate as a waiver of any other
default or of the same default on a future occasion or of any rights.
4.7 Debtor (a) irrevocably appoints Bank or any agent of Bank (which
appointment is coupled with an interest and which, except as to subclause
(ii) below, may only be exercised following the occurrence of an Event of
Default) the true and lawful attorney of Debtor (with full power of
substitution) in the name, place and stead of, and at the expense of, Debtor
and (b) authorizes Bank or any agent of Bank, in its own name, at Debtor's
expense, to do any of the following, as Bank, in its sole discretion, deems
appropriate:
(i) to demand, receive, sue for, and give receipts or acquittances for
any moneys due or to become due on any Collateral (including without limit to
draft against Collateral) and to endorse any item representing any payment on
or proceeds of the Collateral;
(ii) to execute and file in the name of and on behalf of Debtor all
financing statements or other filings deemed necessary or desirable by Bank
to evidence, perfect, or continue the security interests granted in this
Agreement; and
(iii) to do and perform any act on behalf of Debtor permitted or
required under this Agreement.
4.8 Upon the occurrence of an Event of Default, Debtor also agrees, upon
request of Bank, to assemble the Collateral and make it available to Bank at
any place designated by Bank which is reasonably convenient to Bank and
Debtor.
4.9 The following shall be the basis for any finder of fact's determination
of the value of any Collateral which is the subject matter of a disposition
giving rise to a calculation of any surplus or deficiency under Section 9.615
(f) of the Uniform Commercial Code (as in effect on or after July 1, 2001):
(a) the Collateral which is the subject matter of the disposition shall be
valued in an "as is" condition as of the date of the disposition, without any
assumption or expectation that such Collateral will be repaired or improved
in any manner; (b) the valuation shall be based upon an assumption that the
transferee of such Collateral desires a resale of the Collateral for cash
promptly (but no later than 30 days) following the disposition; (c) all
reasonable closing costs customarily borne by the seller in commercial sales
transactions relating to property similar to such Collateral shall be
deducted including, without limitation, brokerage commissions, tax
prorations, attorneys' fees, whether inside or outside counsel is used, and
marketing costs; (d) the value of the Collateral which is the subject matter
of the disposition shall be further discounted to account for any estimated
holding costs associated with maintaining such Collateral pending sale (to
the extent not accounted for in (c) above), and other maintenance,
operational and ownership expenses; and (e) any expert opinion testimony
given or considered in connection with a determination of the value of such
Collateral must be given by persons having at least 5 years experience in
appraising property similar to the Collateral and who have conducted and
prepared a complete written appraisal of such Collateral taking into
consideration the factors set forth above. The "value" of any such Collateral
shall be a factor in determining the amount of proceeds which would have been
realized in a disposition to a transferee other than a secured party, a
person related to a secured party or a secondary obligor under Section 9-
615(f).
5. MISCELLANEOUS.
5.1 Until Bank is advised in writing by Debtor to the contrary, all notices,
requests and demands required under this Agreement or by law shall be given
to, or made upon, Debtor at the first address indicated in Section 5.15
below.
5.2 Debtor will give Bank not less than 30 days prior written notice of all
contemplated changes in Debtor's name, location, chief executive office,
principal place of business, and/or location of any Collateral, but the
giving of this notice shall not cure any Event of Default caused by this
change.
5.3 Bank assumes no duty of performance or other responsibility under any
contracts contained within the Collateral.
5.4 Bank has the right to sell, assign, transfer, negotiate or grant
participations or any interest in, any or all of the Indebtedness and any
related obligations, including without limit this Agreement. In connection
with the above, but without limiting its ability to make other disclosures to
the full extent allowable, Bank may disclose all documents and information
which Bank now or later has relating to Debtor, the Indebtedness or this
Agreement, however obtained to any assignee or participant who agrees to hold
such information confidential in the same manner as the Bank. Debtor further
agrees that Bank may provide information relating to this Agreement or
relating to Debtor to the Bank's parent, affiliates, subsidiaries, and
service providers.
5.5 In addition to Bank's other rights, any indebtedness owing from Bank to
Debtor can be set off and applied by Bank on any Indebtedness at any time(s)
after maturity and without notice or demand notice to anyone. Any such action
shall not constitute an acceptance of collateral in discharge of the
Indebtedness.
5.6 Debtor, to the extent not expressly prohibited by applicable law, waives
any right to require the Bank to: (a) proceed against any person or property;
(b) give notice of the terms, time and place of any public or private sale of
personal property security held from Borrower or any other person, or
otherwise comply with the provisions of Sections 9-611 or 9-621 of the
Uniform Commercial Code; or (c) pursue any other remedy in the Bank's power.
Debtor waives notice of acceptance of this Agreement and presentment, demand,
protest, notice of protest, dishonor, notice of dishonor, notice of default,
notice of intent to accelerate or demand payment of any Indebtedness, any and
all other notices to which the undersigned might otherwise be entitled, and
diligence in collecting any Indebtedness, and agree(s) that the Bank may,
once or any number of times, modify the terms of any Indebtedness,
compromise, extend, increase, accelerate, renew or forbear to enforce payment
of any or all Indebtedness, or permit Borrower to incur additional
Indebtedness, all without notice to Debtor and without affecting in any
manner the unconditional obligation of Debtor under this Agreement. Debtor
unconditionally and irrevocably waives each and every defense and setoff of
any nature which, under principles of guaranty or otherwise, would operate to
impair or diminish in any way the obligation of Debtor under this Agreement,
and acknowledges that such waiver is by this reference incorporated into each
security agreement, collateral assignment, pledge and/or other document from
Debtor now or later securing the Indebtedness, and acknowledges that as of
the date of this Agreement no such defense or setoff exists.
5.7 Debtor waives any and all rights (whether by subrogation, indemnity,
reimbursement, or otherwise) to recover from Borrower any amounts paid or the
value of any Collateral given by Debtor pursuant to this Agreement.
5.8 In the event that applicable law shall obligate Bank to give prior notice
to Debtor of any action to be taken under this Agreement, Debtor agrees that
a written notice given to Debtor at least ten days before the date of the act
shall be reasonable notice of the act and, specifically, reasonable
notification of the time and place of any public sale or of the time after
which any private sale, lease, or other disposition is to be made, unless a
shorter notice period is reasonable under the circumstances. A notice shall
be deemed to be given under this Agreement when delivered to Debtor or when
placed in an envelope addressed to Debtor and deposited, with postage
prepaid, in a post office or official depository under the exclusive care and
custody of the United States Postal Service or delivered to an overnight
courier. The mailing shall be by overnight courier, certified, or first class
mail.
5.9 Notwithstanding any prior revocation, termination, surrender, or
discharge of this Agreement in whole or in part, the effectiveness of this
Agreement shall automatically continue or be reinstated in the event that any
payment received or credit given by Bank in respect of the Indebtedness is
returned, disgorged, or rescinded under any applicable law, including,
without limitation, bankruptcy or insolvency laws, in which case this
Agreement, shall be enforceable against Debtor as if the returned, disgorged,
or rescinded payment or credit had not been received or given by Bank, and
whether or not Bank relied upon this payment or credit or changed its
position as a consequence of it. In the event of continuation or
reinstatement of this Agreement, Debtor agrees upon demand by Bank to execute
and deliver to Bank those documents which Bank determines are appropriate to
further evidence (in the public records or otherwise) this continuation or
reinstatement, although the failure of Debtor to do so shall not affect in
any way the reinstatement or continuation.
5.10 This Agreement and all the rights and remedies of Bank under this
Agreement shall inure to the benefit of Bank's successors and assigns and to
any other holder who derives from Bank title to or an interest in the
Indebtedness or any portion of it, and shall bind Debtor and the heirs, legal
representatives, successors, and assigns of Debtor. Nothing in this Section
5.10 is deemed a consent by Bank to any assignment by Debtor.
5.11 If there is more than one Debtor, all undertakings, warranties and
covenants made by Debtor and all rights, powers and authorities given to or
conferred upon Bank are made or given jointly and severally.
5.12 Except as otherwise provided in this Agreement, all terms in this
Agreement have the meanings assigned to them in Article 9 (or, absent
definition in Article 9, in any other Article) of the Uniform Commercial
Code, as those meanings may be amended, revised or replaced from time to
time. "Uniform Commercial Code" means Act No. 174 of the Michigan Public Acts
of 1962, as amended, revised or replaced from time to time, including without
limit as amended by Act No. 348 of the Michigan Public Acts of 2000.
Notwithstanding the foregoing, the parties intend that the terms used herein
which are defined in the Uniform Commercial Code have, at all times, the
broadest and most inclusive meanings possible. Accordingly, if the Uniform
Commercial Code shall in the future be amended or held by a court to define
any term used herein more broadly or inclusively than the Uniform Commercial
Code in effect on the date of this Agreement, then such term, as used herein,
shall be given such broadened meaning. If the Uniform Commercial Code shall
in the future be amended or held by a court to define any term used herein
more narrowly, or less inclusively, than the Uniform Commercial Code in
effect on the date of this Agreement, such amendment or holding shall be
disregarded in defining terms used in this Agreement.
5.13 No single or partial exercise, or delay in the exercise, of any right or
power under this Agreement, shall preclude other or further exercise of the
rights and powers under this Agreement. The unenforceability of any provision
of this Agreement shall not affect the enforceability of the remainder of
this Agreement. This Agreement constitutes the entire agreement of Debtor and
Bank with respect to the subject matter of this Agreement. No amendment or
modification of this Agreement shall be effective unless the same shall be in
writing and signed by Debtor and an authorized officer of Bank. This
Agreement shall be governed by and construed in accordance with the internal
laws of the State of Michigan, without regard to conflict of laws principles.
5.14 To the extent that any of the Indebtedness is payable upon demand,
nothing contained in this Agreement shall modify the terms and conditions of
that Indebtedness nor shall anything contained in this Agreement prevent Bank
from making demand, without notice and with or without reason, for immediate
payment of any or all of that Indebtedness at any time(s), whether or not an
Event of Default has occurred.
5.15 Debtor represents and warrants that Debtor's exact name is the name set
forth in this Agreement. Debtor further represents and warrants the following
and agrees that Debtor is, and at all times shall be, located in the
following place [mark applicable provision]:
Debtor is an individual, and Debtor is located (as determined pursuant to
the Uniform Commercial Code) at Debtor's principal residence which is (street
address, state and county or parish):
.
X Debtor is a registered organization which is organized under the laws of
one of the states comprising the United States (e.g. corporation, limited
partnership, registered limited liability partnership or limited liability
company), and Debtor is located (as determined pursuant to the Uniform
Commercial Code) in the state under the laws of which it was organized, which
is: Delaware
Debtor is a domestic organization which is not a registered organization
under the laws of the United States or any state thereof (e.g. general
partnership, joint venture, trust, estate or association), and Debtor is
located (as determined pursuant to the Uniform Commercial Code) at its sole
place of business or, if it has more than one place of business, at its chief
executive office, which is (street address, state and county or parish): .
Debtor is a registered organization organized under the laws of the United
States, and Debtor is located in the state that United States law designates
as its location or, if United States law authorizes the Debtor to designate
the state for its location, the state designated by Debtor, or if neither of
the foregoing are applicable, at the District of Columbia. Debtor is located
(as determined pursuant to the Uniform Commercial Code) at (street address,
state and county or parish): .
Debtor is a foreign individual or foreign organization or a branch or agency
of a bank that is not organized under the laws of the United States or a
state thereof. Debtor is located (as determined pursuant to the Uniform
Commercial Code) at: _______________________.
If Collateral is located at other than the address specified above, such
Collateral is located and shall be maintained at
See attached Schedule of Collateral Locations
STREET ADDRESS
CITY STATE ZIP CODE COUNTY
Collateral shall be maintained only at the locations identified in this
Section 5.15.
5.16 A carbon, photographic or other reproduction of this Agreement shall be
sufficient as a financing statement under the Uniform Commercial Code and may
be filed by Bank in any filing office.
5.17 This Agreement shall be terminated only by the filing of a termination
statement in accordance with the applicable provisions of the Uniform
Commercial Code, but the obligations contained in Section 2.13 of this
Agreement shall survive termination.
6. DEBTOR AND BANK ACKNOWLEDGE THAT THE RIGHT TO TRIAL BY JURY IS A
CONSTITUTIONAL ONE, BUT THAT IT MAY BE WAIVED. EACH PARTY, AFTER CONSULTING
(OR HAVING HAD THE OPPORTUNITY TO CONSULT) WITH COUNSEL OF THEIR CHOICE,
KNOWINGLY AND VOLUNTARILY, AND FOR THEIR MUTUAL BENEFIT WAIVES ANY RIGHT TO
TRIAL BY JURY IN THE EVENT OF LITIGATION REGARDING THE PERFORMANCE OR
ENFORCEMENT OF, OR IN ANY WAY RELATED TO, THIS AGREEMENT OR THE INDEBTEDNESS.
7. SPECIAL PROVISIONS APPLICABLE TO THIS AGREEMENT. (*None, if left blank)
Debtor:
JOLT TECHNOLOGY, INC.
By: /s/ Kirk A. Waldron
SIGNATURE OF KIRK A. WALDRON
Its: Treasurer
TITLE (If applicable)
GUARANTY
The undersigned, for value received, unconditionally and absolutely
guarantee(s) to Comerica Bank (Bank) a Michigan banking corporation, and to
the Bank's successors and assigns, payment when due, whether by stated
maturity, demand, acceleration or otherwise, of all existing and future
indebtedness to the Bank of Smtek International, Inc. ("Borrower) whose
address is 2151 Anchor Court, Thousand Oaks, California 91320, or any
successor in interest, including without limit any debtor-in-possession or
trustee in bankruptcy which succeeds to the interest of this party or person
(jointly and severally the "Borrower" however this indebtedness has been or
may be incurred or evidenced, whether absolute or contingent direct or
indirect, voluntary or involuntary, liquidated or unliquidated, joint or
several, and whether or not known to the undersigned at the time of this
Guaranty or at the time any future indebtedness is incurred (the
"Indebtedness").
The Indebtedness guaranteed includes without limit: (a) any and all direct
indebtedness of the Borrower to the Bank, including indebtedness evidenced by
any and all promissory notes; (b) any and all obligations or liabilities of
the Borrower to the Bank arising under any guaranty where the Borrower has
guaranteed the payment of indebtedness owing to the Bank from a third party;
(c) any and all obligations or liabilities of the Borrower to the Bank
arising from applications or agreements for the issuance of letters of
credit; (d) any and all obligations or liabilities of the Borrower to the
Bank arising out of any other agreement by the Borrower including without
limit any agreement to indemnify the Bank for environmental liability or to
clean up hazardous waste; (e) any and all indebtedness, obligations or
liabilities for which the Borrower would otherwise be liable to the Bank were
it not for the invalidity, irregularity or unenforceability of them by reason
of any bankruptcy, insolvency or other law or order of any kind, or for any
other reason, including without limit liability for interest and attorneys'
fees on, or in connection with, any of the indebtedness from and after the
filing by or against the Borrower of a bankruptcy petition whether an
involuntary or voluntary bankruptcy case, including, without limitation, all
attorneys fees and costs incurred in connection with motions for relief from
stay, cash collateral motions, nondischargeability motions, preference
liability motions, fraudulent conveyance liability motions, fraudulent
transfer liability motions and all other motions brought by Borrower,
Guarantor, Bank or third parties in any way relating to Bank's rights with
respect to such Borrower, Guarantor, or third party and/or affecting any
collateral securing any obligation owed to Bank by Borrower, Guarantor, or
any third party, probate proceedings, on appeal or otherwise; (f) any and all
amendments, modifications, renewals and/or extensions of any of the above,
including without limit amendments, modifications, renewals and/or extensions
which are evidenced by new or additional instruments, documents or
agreements; and (g) all costs of collecting indebtedness, including without
limit reasonable attorneys' fees and costs.
The undersigned waive(s) notice of acceptance of this Guaranty and
presentment, demand, protest, notice of protest, dishonor, notice of
dishonor, notice of default, notice of intent to accelerate or demand payment
of any indebtedness, and diligence in collecting any indebtedness, and
agree(s) that the Bank may modify the terms of any indebtedness, compromise,
extend, increase, accelerate, renew or forbear to enforce payment of any or
all indebtedness, or permit the Borrower to incur additional indebtedness,
all without notice to the undersigned and without affecting in any manner the
unconditional obligation of the undersigned under this Guaranty. The
undersigned further waive(s) any and all other notices to which the
undersigned might otherwise be entitled. The undersigned acknowledge(s) and
agree(s) that the liabilities created by this Guaranty are direct and are not
conditioned upon pursuit by the Bank of any remedy the Bank may have against
the Borrower or any other person or any security. No invalidity, irregularity
or unenforceability of any part or all of the indebtedness or any documents
evidencing the same, by reason of any bankruptcy, insolvency or other law or
order of any kind or for any other reason, and no defense or setoff available
at any time to the Borrower, shall impair, affect or be a defense or setoff
to the obligations of the undersigned under this Guaranty.
The undersigned deliver(s) this Guaranty based solely on the undersigned's
independent investigation of the financial condition of the Borrower and is
(are) not relying on any information furnished by the Bank. The undersigned
assume(s) full responsibility for obtaining any further information
concerning the Borrower's financial condition, the status of the indebtedness
or any other matter which the undersigned may deem necessary or appropriate
from time to time. The undersigned waive(s) any duty on the part of the Bank,
and agree(s) that it is not relying upon nor expecting the Bank to disclose
to the undersigned any fact now or later known by the Bank, whether relating
to the operations or condition of the Borrower, the existence, liabilities or
financial condition of any co-guarantor of the indebtedness, the occurrence
of any default with respect to the indebtedness, or otherwise,
notwithstanding any effect these facts may have upon the undersigned's risk
under this Guaranty or the undersigned's rights against the Borrower. The
undersigned knowingly accept(s) the full range of risk encompassed in this
Guaranty, which risk includes without limit the possibility that the Borrower
may incur indebtedness to the Bank after the financial condition of the
Borrower, or its ability to pay its debts as they mature, has deteriorated.
The undersigned represent(s) and warrant(s) that: (a) the Bank has made no
representation to the undersigned as to the creditworthiness of the Borrower;
and (b) the undersigned has (have) established adequate means of obtaining
from the Borrower on a continuing basis financial and other information
pertaining to the Borrower's financial condition. The undersigned agree(s) to
keep adequately informed of any facts, events or circumstances which might in
any way affect the risks of the undersigned under this Guaranty . The
undersigned grant(s) to the Bank a security interest in and the right of
setoff as to any and all property of the undersigned now or later in the
possession of the Bank. The undersigned subordinate(s) any claim of any
nature that the undersigned now or later has (have) against the Borrower to
and in favor of all indebtedness and agree(s) not to accept payment or
satisfaction of any claim that the undersigned now or later may have against
the Borrower without the prior written consent of the Bank. Should any
payment, distribution, security, or proceeds, be received by the undersigned
upon or with respect to any claim that the undersigned now or may later have
against the Borrower, the undersigned shall immediately deliver the same to
the Bank in the form received (except for endorsement or assignment by the
undersigned where required by the Bank) for application on the indebtedness,
whether matured or unmatured, and until delivered the same shall be held in
trust by the undersigned as the property of the Bank. The undersigned further
assign(s) to the Bank as collateral for the obligations of the undersigned
under this Guaranty all claims of any nature that the undersigned now or
later has (have) against the Borrower (other than any claim under a deed of
trust or mortgage covering real property) with full right on the part of the
Bank in its own name or in the name of the undersigned, to collect and
enforce these claims.
The undersigned agree(s) that no security now or later held by the Bank for
the payment of any indebtedness, whether from the Borrower, any guarantor, or
otherwise, and whether in the nature of a security interest, pledge, lien,
assignment, setoff, suretys hip, guaranty, indemnity insurance or otherwise,
shall affect in any manner the unconditional obligation of the undersigned
under this Guaranty, and the Bank, in its sole discretion, without notice to
the undersigned, may release, exchange, enforce and otherwise deal with any
security without affection in any manner the unconditional obligation of the
undersigned under this Guaranty. The undersigned acknowledges(s) and agree(s)
that the Bank has no obligation to acquire or perfect any lien on or security
interest in any asset(s) whether realty or personalty, to secure payment of
the indebtedness, and the undersigned is (are) not relying upon any asset(s)
in which the Bank has or may have a lien or security interest for payment of
the indebtedness.
The undersigned acknowledge(s) that the effectiveness of this Guaranty is not
conditioned on any or all of the indebtedness being guaranteed by anyone
else. Until the indebtedness is irrevocably paid in full, the undersigned
waive(s) any and all rights to be subrogated to the position of the Bank or
to have the benefit of any lien, security interest or other guaranty now or
later held by the Bank for the indebtedness or to enforce any remedy which
the Bank now or later has against the Borrower or any other person. Until the
indebtedness is irrevocably paid in full, the undersigned shall have no right
of reimbursement indemnity, contribution or other right of recourse to or
with respect to the Borrower or any other person. The undersigned agree(s) to
indemnity and hold harmless the Bank from and against any and all claims,
actions, damages, costs and expenses, including without limit reasonable
attorneys' fees, incurred by the Bank in connection with the undersigned's
exercise of any right of subrogation, contribution, indemnification or
recourse with respect to this Guaranty. The Bank has no duty to enforce or
protect any rights which the undersigned may have against the Borrower or any
other person and the undersigned assume(s) full responsibility for enforcing
and protecting these rights.
Notwithstanding any provision of the preceding paragraph or anything else in
this Guaranty to the contrary, if any of the undersigned is or becomes an
"Insider" or "affiliate" (as defined in Section 101 of the Federal Bankruptcy
Code, as it may be amended) with respect to the Borrower, then that
undersigned irrevocably and absolutely waives any and all rights of
subrogation, contribution, indemnification, recourse, reimbursement and any
similar rights against the Borrower (or any other guarantor) with respect to
this Guaranty, whether such rights arise under an express or implied contract
or by operation of law. It is the intention of the parties that the
undersigned shall not be (or be deemed to be) a "Creditor" (as defined in
Section 101 of the Federal Bankruptcy Code, as it may be amended) of the
Borrower (or any other guarantor) by reason of the existence of this Guaranty
in the event that the Borrower becomes a debtor in any proceeding under the
Federal Bankruptcy Code. This waiver is given to induce the Bank to enter
into certain written contracts with the Borrower included in the
Indebtedness. The undersigned warrant(s) and agree(s) that none of Bank's
rights, remedies or interests shall be directly or indirectly impaired
because of any of the undersigned's status as an "insider" or affiliate of
the Borrower, and undersigned shall take any action, and shall execute any
document, which the Bank may request in order to effectuate this warranty to
the Bank.
If any indebtedness is guaranteed by two or more guarantors, the obligation
of the undersigned shall be several and also joint, each with all and also
each with any one or more of the others, and may be enforced at the option of
the Bank against each severally, any two or more jointly, or some severally
and some jointly The Bank, in its sole discretion, may release any one or
more of the guarantors for any consideration which it deems adequate, and may
fail or elect not to prove a claim against the estate of any bankrupt,
insolvent, incompetent or deceased guarantor; and after that, without notice
to any other guarantor, the Bank may extend or renew any or all Indebtedness
and may permit the Borrower to incur additional Indebtedness, without
affecting in any manner the unconditional obligation of the remaining
guarantor(s). This action by the Bank shall not, however, be deemed to affect
any right to contribution which may exist among the guarantors.
Any of the undersigned may terminate their obligation under this Guaranty as
to future indebtedness (except as provided below) by (and only by) delivering
written notice of termination to the Bank; provided, the termination shall
not be effective until the opening of business on the fifth (5th) day
following Bank's receipt of the written notice of termination. Any such
notice of termination to be effective must be sent by certified or registered
mail, return receipt requested or by reputable overnight delivery service
addressed as follows: Comerica Bank, 500 Woodward Avenue, 7th Floor, Detroit,
Michigan 48226 Attention: Comerica Business Credit/Group Manager. Any
termination shall not affect in any way the unconditional obligations of the
remaining guarantor(s), whether or not the termination is known to the
remaining guarantor(s). Any termination shall not affect in any way the
unconditional obligations of the terminating guarantor(s) as to any
indebtedness existing at the effective date of termination or any
indebtedness created after that pursuant to any commitment or agreement of
the Bank or any Borrower loan with the Bank existing at the effective date of
termination (whether advances or readvances by the Bank are optional or
obligatory), or any modifications, extensions or renewals of any of this
Indebtedness, whether in whole or in part, and as to all of this Indebtedness
and modifications, extensions or renewals of it, this Guaranty shall continue
effective until the same shall have been fully paid. The Bank has no duty to
give notice of termination by any guarantor(s) to any remaining guarantor(s).
The undersigned shall indemnify the Bank against all claims, damages, costs
and expenses, including without limit reasonable attorneys' fees and costs,
incurred by the Bank in connection with any suit, claim or action against the
Bank arising out of any modification or termination of a Borrower loan or any
refusal by the Bank to extend additional credit in connection with the
termination of this Guaranty.
Notwithstanding any prior revocation, termination, surrender or discharge of
this Guaranty (or of any Lien, pledge or security interest securing this
Guaranty) in whole or part, the effectiveness of this Guaranty, and of all
liens, pledges and security interests securing this Guaranty, shall
automatically continue or be reinstated, as the case may be, in the event
that (a) any payment received or credit given by the Bank in respect of the
indebtedness is returned, disgorged or rescinded as a preference,
impermissible setoff, fraudulent conveyance, diversion of trust funds, or
otherwise under any applicable state or federal law, including, without
limitation, laws pertaining to bankruptcy or insolvency, in which case this
Guaranty, and all liens, pledges and security interests securing this
Guaranty, shall be enforceable against the undersigned as if the returned,
disgorged or rescinded payment or credit had not been received or given by
the Bank, and whether or not the Bank relied upon this payment or credit or
changed its position as a consequence of it; or (b) any liability is imposed,
or sought to be imposed, against the Bank relating to the environmental
condition of, or the presence of hazardous or toxic substances on, in or
about, any property given as collateral to the Bank by the Borrower, whether
this condition is known or unknown, now exists or subsequently arises
(excluding only conditions which arise after any acquisition by the Bank of
any such property, by foreclosure, in lieu of foreclosure or otherwise, to
the extent due to the wrongful act or omission of the Bank), in which case
this Guaranty, and all liens, pledges and security interests securing this
Guaranty, shall be enforceable against the undersigned to the extent of all
liabilities, costs and expenses (including without limit reasonable
attorneys' fees and costs), incurred by the Bank as the direct or indirect
result of any environmental condition or hazardous or toxic substances. In
the event of continuation or reinstatement of this Guaranty and the liens,
pledges and security interests securing it, the undersigned agree(s) upon
demand by the Bank to execute and deliver to the Bank those documents which
the Bank determines are appropriate to further evidence (in the public
records or otherwise) this continuation or reinstatement, although the
failure of the undersigned to do so shall not affect in any way the
reinstatement or continuation. If the undersigned do(es) not execute and
deliver to the Bank upon demand such documents, the Bank and each Bank
officer is irrevocably appointed (which appointment is coupled with an
interest) the true and lawful attorney of the undersigned (with full power of
substitution) to execute and deliver such documents in the name and on behalf
of the undersigned. For purposes of this Guaranty,"Environmental condition"
includes, without limitation, conditions existing with respect to the surface
or ground water, drinking water supply, land surface or subsurface and the
air; and "hazardous or toxic substances" shall include any and all substances
now or subsequently determined by any federal, state or local authority to be
hazardous or toxic, or otherwise regulated by any of these authorities.
Although the intent of the undersigned and the Bank is that Michigan law
shall apply to this Guaranty, regardless of whether Michigan law applies, the
undersigned further agree(s) as follows: With respect to the limitation, if
any, stated in the Additional Provisions below on the amount of principal
guaranteed under this Guaranty, the undersigned agree(s) that (a) this
limitation shall not be a limitation on the amount of Borrower's indebtedness
to the Bank; (b) any payments by the undersigned shall not reduce the maximum
liability of the undersigned under this Guaranty unless written notice to
that effect is actually received by the Bank at or prior to the time of the
payment; and (c) the liability of the undersigned to the Bank shall at all
times be deemed to be the aggregate liability of the undersigned under this
Guaranty and any other guaranties previously or subsequently given to the
Bank by the undersigned and not expressly revoked, modified or invalidated in
writing.
The undersigned waive(s) any right to require the Bank to: (a) proceed
against any person, including without limit the Borrower; (b) proceed against
or exhaust any security held from the Borrower or any other person; (c) give
notice of the terms, time and place of any public or private sale of personal
property security held from the Borrower or any other person, or otherwise
comply with the provisions of Section 9-504 of the Michigan or other
applicable Uniform Commercial Code; (d) pursue any other remedy in the Bank's
power; or (e) make any presentments or demands for performance, or give any
notices of nonperformance, protests, notices of protest, or notices of
dishonor in connection with any obligations or evidences of indebtedness held
by the Bank as security, in connection with any other obligations or
evidences of indebtedness which constitute in whole or in part indebtedness,
or in connection with the creation of new or additional indebtedness.
The undersigned authorize(s) the Bank, either before or after termination of
this Guaranty, without notice to or demand on the undersigned and without
affecting the undersigned's liability under this Guaranty, from time to time
to: (a) apply any security and direct the order or manner of sale of it,
including without limit, a nonjudicial sale permitted by the terms of the
controlling security agreement, mortgage or deed of trust, as the Bank in its
discretion may determine; (b) release or substitute any one or more of the
endorser or any other guarantors of the indebtedness; and (c) apply payments
received by the Bank from the Borrower to any indebtedness of the Borrower to
the Bank, in such order as the Bank shall determine in its sole discretion,
whether or not this indebtedness is covered by this Guaranty, and the
undersigned waive(s) any provision of law regarding application of payments
which specifies otherwise. The Bank may without notice assign this Guaranty
in whole or in part. Upon the Bank's request, the undersigned agree(s) to
provide to the Bank copies of the undersigned's financial statements.
The undersigned waives to the extent permitted by applicable law any defense
based upon or arising by reason of (a) any disability or other defense of the
Borrower or any other person; (b) the cessation or limitation from any cause
whatsoever, other than final and irrevocable payment in full, of the
Indebtedness; (c) any lack of authority of any officer, director, partner,
agent or any other person acting or purporting to act on behalf of the
Borrower which is a corporation, partnership, limited liability company or
other type of entity, or any defect in the formation of the Borrower; (d) the
application by the Borrower of the proceeds of any Indebtedness for purposes
other than the purposes represented by the Borrower to the Bank or intended
or understood by the Bank or the undersigned; (e) any act or omission by the
Bank which directly or indirectly results in or aids the discharge of the
Borrower or any Indebtedness by operation of law or otherwise; or (f) any
modification of the Indebtedness, in any form whatsoever including without
limit any modification made after effective termination, and including
without limit, the renewal, extension acceleration or other change in time
for payment of the Indebtedness, or other change in the terms of any
Indebtedness, including without limit increase or decrease of the interest
rate. The undersigned understands that, absent this waiver, Bank's election
of remedies, including but not limited to its decision to proceed to
nonjudicial foreclosure on any real property securing the Indebtedness, could
preclude Bank from obtaining a deficiency judgment against Borrower and the
undersigned pursuant to California Code of Civil Procedure sections 580a,
580b, 580d of 726 and could also destroy any subrogation rights which the
undersigned has against Borrower. The undersigned further understands that
absent this waiver, California law, including without limitation, California
Code of Civil Procedure sections 580a, 580b, 580d or 726, could afford the
undersigned one or more affirmative defenses to any action maintained by Bank
against the undersigned on this Guaranty.
The undersigned waives any and all rights and provisions of California Code
of Civil Procedure section 580a, 580b, 580d and 726, including, but not
limited to any provision thereof that: (i) may limit the time period for Bank
to commence a lawsuit against Borrower or the undersigned to collect any
indebtedness owing by Borrower or the undersigned to Bank; (ii) may entitle
Borrower or the undersigned to a judicial or nonjudicial determination of any
deficiency owed by Borrower or the undersigned to Bank, or to otherwise limit
Bank's right to collect a deficiency based on the fair market value of such
real property security; (iii) may limit Bank's right to collect a deficiency
judgment after a sale of any real property securing the Indebtedness; and
(iv) may require Bank to take only one action to collect the indebtedness or
that may otherwise limit the remedies available to Bank to collect the
indebtedness.
The undersigned waives all rights and defenses arising out of an election of
remedies by Bank even though that election of remedies, such as a nonjudicial
foreclosure with respect to security for a guaranteed obligation, has
destroyed the undersigned's rights of subrogation and reimbursement against
Borrower by the operation of Section 580d of the Code of Civil Procedure or
otherwise.
The undersigned acknowledges and agrees that this is knowing and informed
waiver of the undersigned's rights as discussed above and that Bank is
relying on this waiver in extending credit to Borrower.
The undersigned acknowledge(s) that the Bank has the right to sell, assign,
transfer, negotiate, or grant participation in all or any part of the
indebtedness and any related obligations, including without limit this
Guaranty. In connection with that right, the Bank may disclose any documents
and information which the Bank now or later acquires relating to the
undersigned and this Guaranty, whether furnished by the Borrower, the
undersigned or otherwise to any assignee or participant who agrees to hold
such information confidential in the same manner as the Bank. The undersigned
further agree(s) that the Bank may disclose these documents and information
to the Borrower. The undersigned agree(s) that the Bank may provide
information relating to this Guaranty or to the undersigned to the Bank's
parent, affiliates, subsidiaries and service providers.
The total obligation under this Guaranty shall be UNLIMITED unless
specifically limited in the Additional Provisions of this Guaranty, and this
obligation (whether unlimited or limited to the extent indicated in the
Additional Provisions) shall include, IN ADDITION TO any limited amount of
principal guaranteed, any and all interest on all indebtedness and any and
all costs and expenses of any kind, including without limit reasonable
attorneys' fees and costs, incurred by the Bank at any time(s) for any reason
in enforcing any of the duties and obligations of the undersigned under this
Guaranty or otherwise incurred by the Bank in any way connected with this
Guaranty, the indebtedness or any other guaranty of the indebtedness
(including without limit reasonable attorneys' fees and other expenses
incurred in any suit involving the conduct of the Bank, the Borrower or the
undersigned). All of these costs and expenses shall be payable immediately by
the undersigned when incurred by the Bank, without demand, and until paid
shall bear interest at the highest per annum rate applicable to any of the
indebtedness, but not in excess of the maximum rate permitted by law. Any
reference in this Guaranty to attorneys' fees shall be deemed a reference to
fees, charges, costs and expenses of both in-house and outside counsel and
paralegals, whether or not a suit or action is instituted, and to court costs
if a suit or action is instituted, and whether attorneys' fees or court costs
are incurred at the trial court level, on appeal, in a bankruptcy,
administrative or probate proceeding or otherwise. Any reference in the
Additional Provisions or elsewhere (a) to this Guaranty being secured by
certain collateral shall NOT be deemed to limit the total obligation of the
undersigned under this Guaranty or (b) to this Guaranty being limited in any
respect shall NOT be deemed to limit the total obligation of the undersigned
under any prior or subsequent guaranty given by the undersigned to the Bank.
The undersigned unconditionally and irrevocably waive(s) each and every
defense and setoff of any nature which, under principles of guaranty or
otherwise, would operate to impair or diminish in any way the obligation of
the undersigned under this Guaranty, and acknowledge(s) that each such waiver
is by this reference incorporated into each security agreement, collateral
assignment, pledge and/or other document from the undersigned now or later
securing this Guaranty and/or the indebtedness, and acknowledge(s) that as of
the date of this Guaranty no such defense or setoff exists. The undersigned
acknowledge(s) that the effectiveness of this Guaranty is subject to no
conditions of any kind.
This Guaranty shall remain effective with respect to successive transactions
which shall either continue the indebtedness, increase or decrease it, or
from time to time create new indebtedness after all or any prior indebtedness
has been satisfied, until this Guaranty is terminated in the manner and to
the extent provided above.
The undersigned warrant(s) and agree(s) that each of the waivers set forth
above are made with the undersigned's full knowledge of their significance
and consequences, and that if any of these waivers are determined to be
contrary to any applicable law or public policy, these waivers shall be
effective only to the extent permitted by law.
This Guaranty constitutes the entire agreement of the undersigned and the
Bank with respect to the subject matter of this Guaranty. No waiver, consent,
modification or change of the terms of this Guaranty shall bind any of the
undersigned or the Bank unless in writing and signed by the waiving party or
an authorized officer of the waiving party, and then this waiver, consent,
modification or change shall be effective only in the specific instance and
for the specific purpose given. This Guaranty shall inure to the benefit of
the Bank and its successors and assigns. This Guaranty shall be binding on
the undersigned and the undersigned's heirs, legal representatives,
successors and assigns including, without limit, any debtor in possession or
trustee in bankruptcy for any of the undersigned. The undersigned has (have)
knowingly and voluntarily entered into this Guaranty in good faith for the
purpose of inducing the Bank to extend credit or make other financial
accommodations to the Borrower, and the undersigned acknowledge(s) that the
terms of this Guaranty are reasonable. If any provision of this Guaranty is
unenforceable in whole or in part for any reason, the remaining provisions
shall continue to be effective THIS GUARANTY SHALL BE GOVERNED BY AND
CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF MICHIGAN.
Additional Provisions (If any): None.
THE UNDERSIGNED AND BANK ACKNOWLEDGE THAT THE RIGHT TO TRIAL BY JURY IS A
CONSTITUTIONAL ONE, BUT THAT IT MAY BE WAIVED, EACH PARTY, AFTER CONSULTING
(OR HAVING HAD THE OPPORTUNITY TO CONSULT) WITH COUNSEL OF THEIR CHOICE,
KNOWINGLY AND VOLUNTARILY, AND FOR THEIR MUTUAL BENEFIT WAIVES ANY RIGHT TO
TRIAL BY JURY IN THE EVENT OF LITIGATION REGARDING THE PERFORMANCE OR
ENFORCEMENT OF, OR IN ANY WAY RELATED TO, THIS GUARANTY OR THE INDEBTEDNESS.
IN WITNESS WHEREOF, the undersigned has (have) signed this Guaranty on
September 25, 2001.
GUARANTOR(S) SMTEK, INC.
Witness (as to all signatures):
/s/ Mitchell J. Freedman By: /s/ Kirk A. Waldron
Signature of Kirk A. Waldron
Its: Treasurer
JOLT TECHNOLOGY, INC.
By: /s/ Kirk A. Waldron
Signature of Kirk A. Waldron
Its: Treasurer
TECHNETICS, INC.
By: /s/ Kirk A. Waldron
Signature of Kirk A. Waldron
Its: Treasurer
GUARANTOR'S ADDRESS
2151 Anchor Court
Thousand Oaks, California 91320
EX-23
7
consent.txt
AUDITOR'S CONSENT
Exhibit 23
CONSENT OF INDEPENDENT AUDITORS
The Board of Directors
SMTEK International, Inc.:
We consent to the incorporation by reference in the Registration Statements
on Form S-3 (No. 333-02969 and 333-31349) and the Registration Statements on
Form S-8 (Nos. 33-74400, 333-08689, 333-72139, 333-44612, 333-49954 and 333-
49956) of SMTEK International, Inc. of our report dated August 10, 2001,
except as to the second paragraph of Note 5 which is as of September 24,
2001, relating to the consolidated balance sheets of SMTEK International,
Inc. and subsidiaries as of June 30, 2001 and 2000 and the related
consolidated statements of operations, cash flows, and stockholders' equity
and comprehensive income (loss) for each of the years in the three-year
period ended June 30, 2001, which report appears in the SMTEK International,
Inc. 2001 Annual Report on Form 10-K.
/s/ KPMG LLP
Los Angeles, California
September 24, 2001